TSMC
Annual Report 2005

Plain-text annual report

2 LETTER TO SHAREHOLDERS Dear Shareholders, TSMC continued to grow in 2005, a year that began at the low end of capacity utilization but ended with another record for revenue and earnings. Since the worst downturn in semiconductor history in 2001, TSMC has steadily improved its performance year over year. Through cyclical upturns and downturns, TSMC has drawn on its industry-leading technology, manu- facturing excellence, and strong customer partnerships to deliver consistent profitability and growth. Financial Results Revenue for 2005 totaled NT$264.6 billion, an increase of 3.4% compared with NT$255.9 billion in 2004. Net income was NT$93.58 billion, an increase of 1.4% compared with NT$92.32 billion in 2004. Earnings per share were NT$3.79, an increase of 1.5% compared with fully diluted earn- ings per share of NT$3.73 the previous year. In US dollars, revenue for 2005 was US$8.23 billion, an increase of 7.5%, while net income grew to US$2.91 billion, an increase of 5.4%. Among other highlights in 2005, TSMC achieved: ● Total average capacity utilization of 92% ● Average gross profit margin of 43.6% ● Average operating profit margin of 35.2% During the year, TSMC provided 5.96 million 8-inch equivalent wafer capaci- ty, representing approximately 7.4% of global IC wafer supply. Cycle Management Since our founding in 1987 through this year, TSMC has steadily expanded our business and improved our ability to manage cycles and deliver profit and positive cash flows. With the single exception of 1997, we have achieved positive free cash flow every year since our Initial Public Offering in 1994, while trough utilization rates have improved with stronger gross mar- gins since the industry's record downturn in 2001. TSMC has painstakingly built internal long-range planning processes that strategically expand capacity and allow the company to respond appropri- ately to cyclical demand trends. In this way, the Company can optimize ramp-up times at each new generation of chip process technologies, while also increasing our reliability as a manufacturing partner, building sustain- able market share and maximizing profitability. As a result of expanded capacity and quality improvement, TSMC's share of the pure-play semicon- ductor foundry segment expanded from 47% in 2000 to approximately 50% in 2005, while simultaneously delivering substantially higher operating profit than the rest of the sector competitors combined. Core Strengths to Satisfy Customers A solid foundation of technological innovation and the development and deployment of proprietary process technologies for the most advanced inte- grated devices drives TSMC's success. For example, since entering volume production, our proprietary 0.13-micron process technology has consistently captured substantial market share among all other major foundries. Through our innovative NexsysSM process technology, the Company is well situated to capture a leading share position at the 90-nanometer and 65-nanometer nodes. TSMC's manufacturing excellence is further enhanced by a company-wide focus on operating efficiency. Together, these strengths have allowed TSMC to leverage technology and capacity more effectively than other players in the dedicated semiconductor foundry segment. The Company has consis- tently achieved the foundry segment's highest utilization rates and won high customer satisfaction throughout the cycle. Customer partnership, TSMC's third core strength, is central to building cus- tomer loyalty and sustainable, profitable market share. "Virtual Fab," the Company's unique customer-first business model, includes cutting-edge front-end and back-end services that help customers take full advantage of TSMC's technology and manufacturing capabilities. As a true partnership, each brings core strengths to a relationship that reflects the most efficient use of invested capital, with TSMC providing the proprietary process tech- nologies and the most efficient production facilities that enable IC develop- ers to continually reduce their time to market, time to volume and maximize their long-term profitability. A New Stage of Continuity As the Company continuously seeks to improve its strength and quality, we are entering a new stage in TSMC's maturity as a public company. Dr. Morris Chang, who founded TSMC in 1987, turned over the role of Chief Executive Officer on July 1, 2005 to Dr. Rick Tsai, who has served the Company since 1989, most recently as President and Chief Operating Officer. Dr. Chang will continue to dedicate his full time and efforts to the Company as Chairman of the Board of Directors. At the same time, the Board of Directors has elect- ed Dr. F. C. Tseng as Vice Chairman. In his new capacity, Dr. Tseng will assist Dr. Chang and remain as Chairman of TSMC (Shanghai), and the TSMC Education and Culture Foundation. Rick Tsai President and CEO Morris Chang Chairman F. C. Tseng Vice Chairman 3 With continuity in mind, all TSMC employees remain dedicated to bringing innovative thinking and strategic planning to bear on whatever changes the market presents in the decades to come. Core strengths - technology leader- ship, manufacturing excellence, and customer partnership - ensure TSMC's place as a pioneer in developing new ways of serving customers and share- holders better. Innovation TSMC enjoyed another year of leadership in innovation, providing the mar- ket with advanced process technology that represents a significant step-up in performance. The focal point of technology innovation in 2005 was the unveiling and suc- cessful prototyping of the new 65nm NexsysSM Technology for SoC Design, the company's third-generation semiconductor process employing both cop- per interconnects and low-k dielectrics. The new process technology allows customers to build logic devices with double the density of 90nm node and leads the industry with a 50% gain in speed over the 90nm General Purpose process and a 20% reduction in standby power. The Company continues to invest in enlarging its position as the foundry segment's technology leader. In 2005, TSMC spent approximately US$417 million, more than 5% of revenues, on Research and Development. It will dedicate a similar percentage of revenue to R&D in 2006. shareholders at a price of US$8.60 per ADS. Each TSMC ADS represents five common shares of TSMC. After the offering, TSMC's outstanding ADSs rep- resented approximately 17.5% of the total share capital. Awards In 2005, TSMC continued to receive recognition and awards from around the world as a corporate role model. Among the numerous media surveys conducted in 2005, Institutional Investors, FinanceAsia and Asiamoney have chosen TSMC as the Best Managed Company, with the Best Corporate Governance, Best Investor Relations, and Best CFO. IR Magazine has awarded TSMC six out of seven possible performance awards - ranging from Grand Prix for Best Overall Investor Relations in the region of Hong Kong and Taiwan, to Best Corporate Governance, Best Annual Report and Other Corporate Literature, and Best Web Site; and from Best Investor Relations by a CEO or Chairman, to Best IR Officer. Globalviews elected TSMC to receive the Award for Social Responsibility, while CommonWealth Magazine voted us the Most Admired Company for the ninth consecutive time. TSMC also received the Outstanding Nano-Tech Award from the Ministry of Economic Affairs (MOEA) of the Republic of China with a unanimous vote of recogni- tion from The Award Steering Committee of the Industrial Development Bureau of MOEA. Corporate Developments In August, the Company successfully completed a secondary offering of approximately 163 million American Depositary Shares (ADSs) by Koninklijke Philips Electronics N.V., the Executive Yuan's Development Fund, and other Outlook With the inventory adjustment that began in mid 2004 and carried through the first half of 2005, the IC industry was able to register another growth year in 2005 at 8%, according to IC Insights' latest estimates. The outlook for 2006 is for the industry to grow another 8%, representing the fifth consecu- tive year of expansion of the IC industry, as forecast by IC Insights. Although the foundry segment grew at a lower rate than the industry in 2005, affected by the need to digest excess inventory in the early part of the year, it is expected to resume its momentum and outpace the IC industry in 2006. With our leadership in technology, manufacturing excellence, and customer partnership, as well as our focus on strategic planning and financial disci- pline, we are confident that TSMC should be able to compete well and con- tinue to deliver growth and profitability to maximize shareholder value in the future. Morris Chang, Chairman Rick Tsai, President and CEO 4 A BRIEF INTRODUCTION TO TSMC 1. Company Profile TSMC is the world's largest dedicated semiconductor foundry, offering industry-leading fabrication process technologies, the largest manufacturing capacity among the dedicated foundries, extensive library and IP portfolios, and other advanced foundry services. TSMC currently operates two 12-inch wafer fabs, five 8-inch wafer fabs and one 6-inch wafer fab. The Company also has substantial capacity commit- ments at two wholly owned subsidiaries, WaferTech in the U.S. and TSMC (Shanghai) Company, Ltd. in China, as well as at a joint-venture fab, Systems on Silicon Manufacturing Co. ("SSMC"), in Singapore. TSMC was incorporated on February 21, 1987. TSMC's common shares are listed on the Taiwan Stock Exchange. About 17.5% of our common shares are also listed on the New York Stock Exchange (NYSE) in the form of American Depositary Receipts under the symbol TSM. As a responsible corporate citizen, the Company is committed to public serv- ice and to maintaining strong relationships with our customers, investors, employees, and the communities where TSMC does business. Sound corporate governance is rooted in a strong Board of Directors com- prised of experienced business leaders and distinguished scholars. The Board reinforces the Company's commitment to financial integrity and manage- ment soundness. There are three independent Board members among a total of nine directors. The Audit Committee, which reports to the Board, was established in 2002. It oversees the integrity of TSMC's financial and audit systems. The Audit Committee is comprised solely of independent members of the Board. The Compensation Committee was established in June 2003 and is comprised of three voting members, who are independent Board members, as well as two non-voting members. It reviews and makes recommendations on issues related to employee and executive compensa- tion. 1.1 Core Values Integrity - a central value of the Company. TSMC's commitment to integrity can be best illustrated by our strong corporate governance standards and by the requirement that all TSMC employees act with honesty and uprightness, as set forth in the Company's ethics policy and standard operating proce- dures. Customer Partnership - an essential component of the Company's competitive strength. TSMC's dedication to customer partnership helps to optimize the competitiveness of our customers and to maximize returns for our share- holders. Innovation - the wellspring of the Company's growth. TSMC encourages cre- ativity among our employees and provides the stimulating work environment necessary for their development. The spirit of innovation is applied to every aspect of the Company's business, from strategic planning, marketing and management, to technology and manufacturing. Commitment - the driving force that makes things happen. TSMC asks of its entire staff their personal commitment to their job and to the Company. In turn, the Company is committed to uphold the welfare of its employees, its customers and its shareholders. 1.2 Statement of Company Vision Our vision is to be the most advanced and largest technology and foundry services provider to fabless companies and IDMs, and in partnership with them, to forge a powerful competitive force in the semiconductor industry. To realize our vision, we must have a trinity of strengths: ● a technology leader, competitive with the leading IDM ● the lowest-cost manufacturer ● the most reputable, service-oriented and maximum-total-benefits silicon foundry 1.3 Corporate Recognition With innovative technologies and a commitment to corporate governance, TSMC has been recognized with many awards of excellence. Awards honor- ing TSMC in 2005 included: ● Most Admired Company in Taiwan (CommonWealth Magazine, October 2005 - for the ninth consecutive year) 5 ● Best Managed Companies in Taiwan Large Cap (Asiamoney, January advanced process node. The Company also continued to generate many 2006) times the 0.13-micron revenue of our nearest foundry competitor. ● Best Managed Company, Best Corporate Governance, Most Committed to Strong Dividend Policy (2nd place), and Best Investor Relations in the In line with its unwavering focus on customer partnership, TSMC offers inno- Taiwan region (FinanceAsia, 2005) vative service as well as advanced technologies. In 2005, TSMC introduced ● Grand Prix for Best Overall Investor Relations - Large Cap, Best Annual the foundry industry's first comprehensive Design For Manufacturing (DFM) Report and Other Corporate Literature, Best Investor Relations Officer - toolkits, which improve product yield, increase device performance and Large Cap, Best Corporate Governance, Best Web Site, and Best Investor enhance semiconductor companies' return on design investment. These Relations by a CEO or Chairman in Hong Kong and Taiwan (IR Magazine, process-based toolkits, "Yield Plus" and "Yield Pro", allow designers to build November 2005) on their best efforts, thereby generating greater returns to the bottom line. ● Best Asia Investor Relations in Technology (Semiconductor) Sector - Buy- By providing these two DFM tool kits, TSMC extends its foundry leadership. Side View, Best Asia CFO in Technology (Semiconductor) Sector Sell-Side TSMC also enhanced its advanced process design reference flows to provide View, Best Asia Investor Relations in Technology (Semiconductor) Sector - state-of-the-art access to the Company's 65nm process technology. The new Sell-Side View, Best Investor Relations in Taiwan - Buy-Side View Reference Flow 6.0 provides innovative power management features within a (Institutional Investor, November 2005) comprehensive EDA methodology that is supported by TSMC's low-power ● Top 50 Management Teams in Asia excluding Japan (CFO Asia, October libraries, as well as new DFM capabilities for faster yield ramps and increased 2005) return on investment. Reference Flow 6.0 lowers the initial learning-curve for ● First Outstanding Nano-Tech Award (Industrial Development Bureau of designers wishing to create leading-edge products using advanced processes. Ministry of Economic Affairs, ROC, September 2005) ● Corporate Social Responsibility Award (Globalviews Magazine, May 2005) TSMC continued to advance the semiconductor roadmap in 2005. Examples ● Prize for Innovation in Human Resource Development (Council of Labor of technologies the Company developed or rolled out this year include: Affairs, September 2005) ● Extension of advanced technologies to 45nm ● Chairman, Dr. Morris Chang, received Nikkei Asia Prize for Regional Growth ● Extension of SiGe BiCMOS processes to 0.18µm (Nikkei News, May 2005) ● Development of immersion lithography for 65nm geometries and below ● Chairman, Dr. Morris Chang, received Award for Outstanding Achievement ● Extension of mixed-signal and radio frequency (MS/RF) technologies to among the Industrial Elites (Industrial Development Bureau of Ministry of 90nm Economic Affairs, ROC, November 2005) ● Extension of high density embedded memory processes to 65nm 2. Market Overview 2.1 TSMC Achievements ● Proving of logic processes with nonvolatile memory at 0.13µm ● Extension of high voltage processes to 0.18µm ● Development of 80-volt, 1.0µm high voltage technology In 2005, TSMC maintained its leading position in the dedicated foundry seg- 2.2 Market Analysis ment of the semiconductor industry, with an estimated market share of Global semiconductor revenues increased about 6.8% in 2005 to US$227.5 49%. billion. Fabless company revenues grew about 10% to US$37 billion, com- prising 16.3% of total semiconductor revenues in 2005, up from 15.8% in A key factor in TSMC's strong position is our lead in advanced process tech- 2004. Dedicated semiconductor foundry revenues grew about 2% in 2005 nologies: in 2005, 45% of TSMC's wafer revenue came from manufacturing to US$16.4 billion. The value of dedicated foundry output at the semicon- processes with geometries of 0.13-micron and below. Working closely with ductor market level is roughly two and a half times the foundry revenues our customers, TSMC took the lead in volume production of many products and accounted for about 18% of semiconductor revenues in 2005. designed with our 90-nanometer technology. By the fourth quarter of 2005, more than 17% of TSMC's wafer revenue came from 90-nanometer process- es or below, placing TSMC at the top of the foundry segment at this TSMC estimates that the largest geographic market for dedicated foundry forecast that by 2010, 30% of global semiconductor revenue will come from services is North America, which accounted for 62% of overall dedicated dedicated foundries, as compared to 18% in 2005. foundry revenue in 2005. The second largest geographic market is Asia Pacific (excluding Japan), which accounted for 22% of total dedicated Accordingly, TSMC plans to continue capacity expansion in the year 2006, foundry revenue in 2005. Europe accounted for 11%, and Japan contributed with capital investment of approximately US$2.6 billion to US$2.8 billion. In 5%. addition to continued ramping up and expansion of Fab 12, TSMC's first 12- inch production fab, the Company is also expanding capacity at Fab 14, 2.3 Semiconductor Industry Growth Forecast another 12-inch fab in Taiwan, and at TSMC (Shanghai), an 8-inch fab in Analysts' consensus forecast for semiconductor growth in 2006 is close to China. 8%. The semiconductor market is forecasted to continue growing in 2007 with the consensus forecast close to 10%. The threat of excess capacity due to demand fluctuation and wafer price pressure from competition, however, may return in the next few years. To 2.4 Foundry Market Outlook: Opportunities and Threats capitalize on opportunities, at the same time to win competition and to TSMC believes foundry services will play an increasingly important role as the reduce excess capacity risk, TSMC will continue focusing on creating values 6 semiconductor industry becomes more reliant on outsourced manufacturing to better serve customers' requirements. from IDM and growth of fabless semiconductor companies. Industry analysts 3. Organization 3.1 Organization Chart Shareholders' Meeting Board of Directors Chairman President & CEO Supervisors TSMC Shanghai Research & Development Information Technology Exploratory Research Human Resources Quality & Reliability Corporate Planning Worldwide Sales & Service Corporate Development Materials Management & Risk Management Operations I Operations II Finance & Spokesperson Legal Internal Audit Brand Management Corporate Pricing Customer Service Asia / Pacific Business TSMC Europe TSMC Japan TSMC North America 7 3.2 Roles and Responsibilities of Major Corporate Functions Research & Development ● Advanced technology research and development, mask operations, and design services Information Technology ● Company-wide information infrastructure, e-Business strategy, and infor- mation systems development and operation Exploratory Research ● Exploratory technology development Human Resources ● Human resources management and organizational development Quality & Reliability ● Quality and reliability management Corporate Planning ● Production planning & control, industrial engineering, and operational effi- ciency Worldwide Sales & Service ● Brand Management - corporate brand management ● Corporate Pricing - pricing management ● Customer Service - customer loyalty and solutions management ● Regional Operations - business development and account services for the North American, European, Japanese, and Asian regions Corporate Development ● Corporate strategy and business development ● Technology and services marketing 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 manu- facturing technology integration Finance & Spokesperson ● Finance and accounting services, including investor relations, public rela- tions, treasury, tax, asset management, strategic investment, financial and accounting management ● Corporate spokesperson Legal ● Corporate legal affairs, contracts, patent and other intellectual property management Internal Audit ● Internal audit and process compliance TSMC Shanghai ● Business strategy and development, manufacturing operations, and account services in China 3.3 Directors and Supervisors Information Regarding Directors and Supervisors Title / Name Chairman Morris Chang Koninklijke Philips Electronics N.V. Representatives: (Note 1,3) 8 Director J. C. Lobbezoo Vice Chairman F. C. Tseng Director Stan Shih Development Fund, Executive Yuan Representatives: (Note 3) Director Chintay Shih Director Sir Peter Leahy Bonfield Director Lester Carl Thurow Director Rick Tsai Koninklijke Philips Electronics N.V. Representatives: (Note 1, 3) Supervisor Michel Besseau (Note 2) Date Elected Term Expires Date First Elected 06/03/2003 06/02/2006 12/10/1986 Shareholding when Elected Current Shareholding Spouse and Minor Shareholding Shares 91,669,112 % 0.49 Shares 112,677,772 % 0.46 Shares 117,308 % 0.00 06/03/2003 06/02/2006 12/10/1986 2,554,450,279 13.72 4,066,046,793 16.44 - - 06/03/2003 06/02/2006 05/13/1997 30,356,889 0.16 39,120,891 0.16 127,068 0.00 06/03/2003 06/02/2006 04/14/2000 2,225,077 0.01 1,415,785 0.01 15,415 0.00 06/03/2003 06/02/2006 12/10/1986 1,793,522,406 9.63 1,581,649,966 6.40 - - 06/03/2003 06/02/2006 05/07/2002 0 0.00 0 0.00 0 0.00 06/03/2003 06/02/2006 05/07/2002 0 0.00 0 0.00 06/03/2003 06/02/2006 06/03/2003 19,491,738 0.10 25,576,795 0.10 06/03/2003 06/02/2006 12/10/1986 2,554,450,279 13.72 4,066,046,793 16.44 0 0 - 0.00 0.00 - TSMC Shareholding by Nominee Arrangement (Shares) Education and Selected Past Positions Selected Current Positions As of 02/28/2006 Managers Are Spouse or Within Second-degree Relative of Consanguinity to Each Other Title Name Relation Ph.D., Electrical Engineering, Stanford University, USA Chairman, Industrial Technology Research Institute President & COO, General Instrument Corporation CEO, TSMC Supervisor, Industrial Technology Research Institute M.A., Business Economics, Erasmus University, Rotterdam, the Netherlands CFO, Philips Semiconductors B.V. Executive Vice President, Philips International B.V. Chairman, Systems on Silicon Manufacturing Company Pte Ltd., Singapore Director, FEI Company, Oregon, USA 0 0 0 Ph.D., Electrical Engineering, National Cheng-Kung University, Taiwan President, Vanguard International Semiconductor Corp. President, TSMC Deputy CEO, TSMC 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 University, Hong Kong Honorary EE Ph.D., MSEE, BSEE, National Chiao Tung University, Taiwan Co-Founder, Chairman Emeritus of the Acer Group 0 0 0 0 0 Ph.D., Electrical Engineering, Princeton University, USA President, Industrial Technology Research Institute Engineering, Loughborough University of Technology, UK CEO and Chairman of the Executive Committee, British Telecommunications Plc Ph.D., Economics, Harvard University, USA Dean, Sloan School of Management, M.I.T., USA Ph.D., Material Science, Cornell University, USA Executive Vice President, Worldwide Marketing and Sales, TSMC President, Vanguard International Semiconductor Corp. Chairman, TSMC (Shanghai) Company Ltd. Chairman, Global Unichip Corp. Director, Prosperity Venture Capital Corp. Director, digimax, Inc. Director, Allegro Manufacturing Pte Ltd. Group Chairman, iD SoftCapital Director, ABW (Acer, BenQ, Wistron) Family Professor and Dean, College of Technology Management, National Tsing Hua University Managing Director and Special Advisor, Industrial Technology Research Institute Director, Industrial Technology Investment Corporation Senior Non-Executive Director, AstraZeneca Group Plc, London Director, L.M. Ericsson, Sweden Director, Mentor Graphics Corporation Inc., Oregon, USA Vice President, the British Quality Foundation Member of the Citigroup International Advisory Board Member of the Sony Corporation Advisory Board Director, Sony Corporation, Japan Non-Executive Director, Corporate Board of the Department for Constitutional Affairs Non-Executive Member of Actis LLP Supervisory Board Non-Executive Director HMG, Department for Constitutional Affairs Jerome and Dorothy Lemelson Professor of Management and Economics, Sloan School of Management, M.I.T., USA Director, Analog Devices Inc. President & CEO, TSMC Director of TSMC subsidiary companies Master, Business Administration, Bowling Green State University, USA Master, Business Administration, Audencia, France CFO, Systems on Silicon Manufacturing Company Pte Ltd. Regional controller, Product Division of Philips Semiconductors in Asia Pacific - - - - - - - - - - - - - - - - - - - - - - - - 9 - - - - - - - - - - - - (Continued) Title / Name Date Elected Term Expires Date First Elected Shareholding when Elected Current Shareholding Spouse and Minor Shareholding 06/03/2003 06/02/2006 12/10/1986 1,793,522,406 Shares % 9.63 Shares 1,581,649,966 % 6.40 Shares - % - Development Fund, Executive Yuan Representatives: (Note 3) James C. Ho Supervisor Michael E. Porter 06/03/2003 06/02/2006 05/08/2002 0 0.00 0 0.00 0 0.00 Note 1: Effective January 2006, Mr. Mario Alberto Rivas, representative of Koninklijke Philips Electronics N.V., resigned as a director of TSMC. 10 Note 2: Mr. Michel Besseau replaced Mr. Robbert Brakel on June 1, 2005. Note 3: Information on Directors and Supervisors that are Representatives of Juridical Person Shareholders Directors / Supervisors that are Representatives of Juridical Person Shareholders Juridical Person Shareholders Top Ten Shareholders of Juridical Person Shareholders, or Shareholders Owning More than 10% of Juridical Person Shareholders Director: J. C. Lobbezoo Supervisor: Michel Besseau Director: Chintay Shih Supervisor: James C. Ho Koninklijke Philips Electronics N.V. Top Ten Shareholders: Not Available Shareholders Owned More than 10% Shares : None Development Fund, Executive Yuan Not Applicable TSMC Shareholding by Nominee Arrangement (Shares) 0 Education and Selected Past Positions Selected Current Positions 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 0 BSE, Aerospace and Mechanical Engineering, Princeton University Ph.D., Business Economics, Harvard University, USA Bishop William Lawrence University Professor, Harvard University Director, Parametric Technology Corporation Director, Thermo-Electron Corporation Managers Are Spouse or Within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - 11 Remuneration Paid to Directors and Supervisors Transportation Allowance (NT$ thousands) Compensation (NT$ thousands) Compensation from Profit Distribution (NT$ thousands) TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC Cash (NT$ thousands) TSMC Stock Shares Market Price Per Share (NT$) Market Value (NT$ thousands) 1,440 1,440 24,017 24,017 257,410 257,410 0 0 0 0 Title / Name Chairman Morris Chang Koninklijke Philips Electronics N.V. Representatives: Director J. C. Lobbezoo Mario Alberto Rivas (Note 1) Supervisor Michel Besseau (Note 2) 12 Vice Chairman F. C. Tseng Director Stan Shih Development Fund, Executive Yuan Representatives: Director Chintay Shih Supervisor James C. Ho Director Sir Peter Leahy Bonfield Director Lester Carl Thurow Director, President & CEO Rick Tsai Supervisor Michael E. Porter Note 1: Effective January 2006, Mr. Mario Alberto Rivas, representative of Koninkljke Philips Electronics N.V. resigned as a director of TSMC. Note 2: Mr. Michael Besseau replaced Mr. Robbert Brakel on June 1, 2005. Note 3: Total remuneration paid to TSMC's directors and supervisors in 2004 was NT$545,103 thousands (0.59% of 2004 net income). TSMC's consolidated subsidiaries did not pay any compensation to TSMC's directors and supervisors in 2004 and 2005. Note 4: Other compensation related to the use of company cars. Remuneration Paid to Directors and Supervisors Number of Directors and Supervisors 2005 TSMC Consolidated Subsidiaries of TSMC 1 0 0 11 0 12 1 0 0 11 0 12 Under NT$ 2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$50,000,000 Over NT$50,000,000 Total According to the Company's Articles of Incorporation, starting from fiscal year 2005, when allocating net profits for each fiscal year, the Company, after setting aside regulatorily-reguired legal reserves, shall set aside not more than 0.3 percent of the balance as bonus to directors and supervisors. Bonuses to directors and supervisors are always paid in cash. Directors who also serve as executive officers of the Company are not entitled to receive compensation for duties as directors and supervisors. Employee Profit Sharing Consolidated Subsidiaries of TSMC Stock Cash (NT$ thousands) Shares Market Price Per Share (NT$) Market Value (NT$ thousands) Total Compensation (NT$ thousands)(Note 3) Total Compensation Paid to Directors & Supervisors as % of 2005 Net Income (Note 3) Number of Employee Stock Options Granted in 2005 Other Compensation (NT$ thousands) TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC (Note 4) Consolidated Subsidiaries of TSMC 0 0 0 0 282,867 282,867 0.30 0.30 0 0 2,481 2,481 13 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 Name Over five years of experience in business, finance, legal or areas required by the Company Neither an employee of the Company nor a director, supervisor or employee of affiliated companies Neither a natural person shareholder directly or indirectly owning more than 1% of the Company's outstanding shares nor one of the Company's top ten natural person share- holders Neither a spouse nor first- or second-degree relative to any person specified in columns 3 and 4 14 Chairman Morris Chang Director Peter Leahy Bonfield Director Lester Carl Thurow Director Stan Shih Director J. C. Lobbezoo Director Chintay Shih Director F. C. Tseng Director Rick Tsai Supervisor Michel Besseau Supervisor James C. Ho Supervisor Michael E. Porter (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) indicates meeting conditions specified above. Board of Directors Composition Responsibilities TSMC's Board of Directors consists of nine distinguished members. Their out- The Board's primary duty is to oversee the overall business and corporate standing careers and breadth of experience encompass high technology, affairs of TSMC. Day-to-day operations, preparation of financial statements, finance, business, and management. Three of the nine members are inde- fund raising, and investments remain the legal responsibility of the Company's pendent directors: Sir Peter L. Bonfield, former CEO of British Telecommuni- management, and the activities of the Board do not supersede or alter those cations, Professor Lester C. Thurow of M.I.T., and Mr. Stan Shih, former responsibilities. Chairman of Acer Group. A complete list of TSMC's directors, their qualifica- tions and experience can be found on pages 8-11. In conjunction with the Company's management, the Board also monitors regulatory activities, such as amendments to Taiwan's laws, amendments to SEC rules and regulations in the U.S., and changes to the New York Stock Exchange and Taiwan Stock Exchange listing requirements. Criteria Not a director, supervisor, or employee of a juridical person shareholder directly or indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's top five juridical person shareholders. Neither a director, supervisor, manager or sharehold- er holding more than 5% of the outstanding shares of certain companies nor institutions that have finan- cial or business relationship with the Company In the past year, the director/supervisor or his/her spouse did not provide finance, commerce, legal con- sultation and services to the company as an expert, nor was an owner, partner, director, supervisor or manager of any sole proprietorship, partnership, com- pany or institution that provided such services. Neither a juridical person nor its representative as defined in Article 27 of Company Law (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) 15 (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) 3.4 Management Team Information Regarding Management Team Title / Name President & Chief Executive Officer Rick Tsai Senior Vice President Research & Development Shang-Yi Chiang Senior Vice President Worldwide Sales & Service Kenneth Kin Senior Vice President & Chief Information Officer Information Technology/Materials Management & Risk Management Stephen T. Tso 16 Shareholding Spouse & Minor TSMC Shareholding by Nominee Arrangement (Shares) Date Effective 08/07/2001 11/07/2000 Shareholding 25,576,795 7,671,306 % 0.10 0.03 08/07/2001 3,259,860 0.01 11/02/2004 12,036,380 0.05 Shareholding 0 0 0 0 % 0.00 0.00 0.00 0.00 Senior Vice President Operations I C. C. Wei Senior Vice President Operations II Mark Liu Vice President Operations I M. C. Tzeng Vice President & General Counsel Richard Thurston Vice President Customer Partnership Development Chiam Wu Vice President, Chief Financial Officer & Spokesperson Lora Ho Vice President Human Resources P. H. Chang Vice President Operations II Wei-Jen Lo Vice President Corporate Development Jason C. S. Chen Senior Director Internal Audit Jan Kees van Vliet Senior Director Corporate Planning L. C. Tu 03/03/1998 5,388,079 0.02 1,251 0.00 05/11/1999 9,897,792 0.04 0 0.00 08/07/2001 5,336,601 0.02 389,848 0.00 02/08/2002 2,244,211 0.01 05/07/2002 1,927,464 0.01 0 0 0.00 0.00 09/08/2003 3,692,392 0.01 184,480 0.00 02/17/2004 1,832,910 0.01 08/10/2004 502,552 0.00 0 0 0.00 0.00 03/31/2005 361,000 0.00 3,983 0.00 10/15/2003 804,639 0.00 0 0.00 01/01/2002 7,914,827 0.03 1,197,906 0.00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Education & Selected Past Positions Selected Current Positions (see page 9) (see page 9) Ph.D., Electrical Engineering, Stanford University, USA Vice President, Research and Development, TSMC Department Manager, Device Research and Applications, Hewlett-Packard Company Ph.D., Nuclear Engineering and Applied Physics, Columbia University, USA Vice President, Worldwide Sales & Services, IBM Microelectronics Division Ph.D., Materials Science & Engineering, University of California, Berkeley, USA President, WaferTech, LLC Senior Vice President, Operations, TSMC Director of International Sematech Director of TSMC subsidiary companies Director of WaferTech, LLC Ph.D., Electrical Engineering, Yale University, USA Vice President, South Site Operation, TSMC Senior Vice President, Chartered Semiconductor Manufacturing Ltd. Director of TSMC (Shanghai) Company Ltd. Director of VisEra Technologies Company, Ltd. Ph.D., Electrical Engineering and Computer Science, University of California, Berkeley, USA Vice President, South Site Operation, TSMC President, Worldwide Semiconductor Manufacturing Corp. Director of System on Silicon Manufacturing Company Pte Ltd. As of 02/28/2006 Managers are Spouse or Within Second-degree Relative of Consanguinity to Each Other Title Name Relation 17 Master, Applied Chemistry, Chung Yuan University, Taiwan Senior Director, Fab 2 Operation, TSMC Department Manager M. J. Tzeng Siblings 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 Director of TSMC subsidiary companies Director of System on Silicon Manufacturing Company Pte Ltd. Director and/or Supervisor TSMC subsidiary companies Supervisor of Global Unichip Corporation Supervisor of VisEra Technologies Company, Ltd. M.S., Materials Science and Engineering, Oregon State University, USA Group Vice President, Applied Materials, Inc. Vice Chairman, Applied Materials Taiwan, Ltd. Master, Finance, National Taiwan University, Taiwan Senior Director, Accounting, 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., Business Administration, University of Missouri-Columbia, USA Vice President and Co-Director of Worldwide Sales and Marketing Group, 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 Compensation Paid to President and Vice Presidents Title Name Salary (NT$ thousands) Bonus (NT$ thousands) TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC Cash (NT$ thousands) Shares Stock Market Price Per Share (NT$) Market Value (NT$ thousands) TSMC President & Chief Executive Officer Senior Vice President Research & Development Senior Vice President Worldwide Sales & Service 18 Senior Vice President & Chief Information Officer Information Technology/Materials Management & Risk Management Senior Vice President Operations I Senior Vice President Operations II Vice President Operations I Vice President & General Counsel Rick Tsai Shang-Yi Chiang Kenneth Kin Stephen T. Tso C. C. Wei Mark Liu M. C. Tzeng 47,372 47,372 11,453 11,453 176,117 17,588,305 62.15 1,093,113 Richard Thurston Vice President Customer Partnership Development Chiam Wu Vice President Chief Financial Officer & Spokesperson Vice President Human Resources Vice President Operations II Lora Ho P. H. Chang Wei-Jen Lo Vice President Corporate Development Jason C. S. Chen (Note 2) Note 1: Total compensation paid to TSMC's president and vice presidents in 2004 was NT$902,924 thousands (0.98% of 2004 net income). TSMC's consolidated subsidiaries did not pay any compensation to TSMC's president and vice presidents in 2004 and 2005. Note 2: Mr. Jason C. S. Chen joined TSMC on March 31, 2005. Note 3: Other compensation related to the use of company cars. Compensation Paid to Individual President and Vice Presidents Under NT$2,000,000 From NT$2,000,000 to NT$5,000,000 From NT$5,000,000 to NT$10,000,000 From NT$10,000,000 to NT$50,000,000 Over NT$50,000,000 Total Number of President and Vice Presidents 2005 TSMC Consolidated Subsidiaries of TSMC 0 0 0 1 12 13 0 0 0 1 12 13 Employee Profit Sharing Total Compensation (NT$ thousands) (Note 1) Total Compensation to President and VPs as % of 2005 Net Income (Note 1) ESOP Shares Granted in 2005 Other Compensation (NT$ thousands) Consolidated Subsidiaries of TSMC Cash (NT$ thousands) Shares Stock Market Price Per Share (NT$) Market Value (NT$ thousands) TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC (Note 3) Consolidated Subsidiaries of TSMC 176,117 17,588,305 62.15 1,093,113 1,328,055 1,328,055 1.42 1.42 0 0 3,622 3,622 19 Employee Profit Sharing Granted to Management Team Title President & Chief Executive Officer Senior Vice President Research & Development Senior Vice President Worldwide Sales & Service Senior Vice President & Chief Information Officer Information Technology /Materials Management & Risk Management 20 Senior Vice President Operations I Senior Vice President Operations II Vice President Operations I Vice President & General Counsel Profit Sharing Stock Number of Shares Market Price Per Share (NT$) Market Value (NT$ thousands) Profit Sharing Cash (NT$ thousands) Total Profit Sharing Value (NT$ thousands) Total Profit Sharing Value to Management Team as % of 2005 Net Income Name Rick Tsai Shang-Yi Chiang Kenneth Kin Stephen T. Tso C. C. Wei Mark Liu M. C. Tzeng Richard Thurston 18,612,751 62.15 1,156,782 186,375 1,343,158 1.44 Vice President Customer Partnership Development Chiam Wu Vice President Chief Financial Officer & Spokesperson Vice President Human Resources Vice President Operations II Vice President Corporate Development Senior Director Internal Audit Lora Ho P. H. Chang Wei-Jen Lo Jason C. S. Chen (Note) Jan Kees van Vliet Senior Director Corporate Planning Organization L. C. Tu Note: Mr. Jason C.S, Chen joined TSMC on March 31, 2005. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More: Unit: Share Title / Name Chairman Morris Chang Director & Supervisor Koninklijke Philips Electronics N.V. Representatives: J. C. Lobbezoo Michel Besseau Vice Chairman 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 & CEO Rick Tsai Supervisor Michael E. Porter Senior Vice President Shang-Yi Chiang Senior Vice President Kenneth Kin Senior Vice President & CIO Stephen T. Tso Senior Vice President C. C. Wei Senior Vice President Mark Liu 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 Vice President Jason C. S. Chen Senior Director Jan Kees van Vliet Senior Director L. C. Tu 2005 01/01/2006~ 02/28/2006 Net Change in Shareholding Net Change in Shares Pledged (Note 1) Net Change in Shareholding Net Change in Shares Pledged (Note 1) (10,115,380) 1,489,049,475 (820,276) 67,414 (135,033,204) 0 0 1,109,522 0 0 0 0 0 0 0 0 0 0 (5,647,085) (1,590,000) 378,604 32,891 431,377 600,161 553,080 682,117 654,555 761,905 729,561 222,552 370,000 (Note 2) 96,624 550,801 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (200,000) 0 0 0 0 (270,000) 0 0 (100,000) 0 (162,000) (130,000) (9,000) (10,000) (9,000) 0 0 (20,000) (9,000) 0 (71,000) 21 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 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 shares pledged from 03/31/2005 to 12/31/2005. 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. 22 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. 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 Note 1: Share interest held by Koninklijke Philips Electronics N.V. Note 2: Include 26.9% 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. Ownership by TSMC (1) Shares 987,968,244 300,000 382,264 437,890,988 Not Applicable (Note 3) Not Applicable (Note 3) Not Applicable (Note 3) 11,000,000 40,146,953 6,000 Not Applicable (Note 3) Not Applicable (Note 3) 200 16,782,937 10,500,000 8,391,608 4,000,000 5,000,000 Not Applicable (Note 3) Not Applicable (Note 3) % 100.0 100.0 32.0 27.2 100.0 99.5 98.0 100.0 45.7 100.0 35.7 35.7 100.0 10.1 7.0 10.5 1.9 1.5 12.1 1.0 Direct/Indirect Ownership by Directors, Supervisors, and Management (2) Shares 0 0 630,261 433,590,490 0 0 0 0 2,210,627 0 0 0 0 Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Applicable (Note 3) Not Applicable (Note 3) % 0 0 50.5 (Note 1) 26.9 (Note 2) 0 0 0 0 2.5 0 0 0 0 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 1,012,525 871,481,478 Not Applicable (Note 3) Not Applicable (Note 3) Not Applicable (Note 3) 11,000,000 42,357,580 6,000 Not Applicable (Note 3) Not Applicable (Note 3) 200 16,782,937 10,500,000 8,391,608 4,000,000 5,000,000 Not Applicable (Note 3) Not Applicable (Note 3) 23 As of 12/31/2005 % 100.0 100.0 82.5 54.1 100.0 99.5 98.0 100.0 48.2 100.0 35.7 35.7 100.0 10.1 7.0 10.5 1.9 1.5 12.1 1.0 4 Capital and Shares 4.1 History of Capitalization 24 Unit: Share/NT$ Month / Year 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 07/2004 09/2004 03/2005 06/2005 07/2005 09/2005 12/2005 Price 1,000 1,000 1,000 - 1,000 - 10 10 - - - - - - - - - 220 - 10 - - 10 - - - - - - - - Par Value 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 10 10 Authorized Paid-in Shares 5,510,000 5,510,000 5,510,000 5,510,000 5,510,000 551,000,000 551,000,000 551,000,000 780,000,000 780,000,000 3,000,000,000 3,000,000,000 8,500,000,000 8,500,000,000 9,100,000,000 9,100,000,000 17,800,000,000 17,800,000,000 17,800,000,000 17,800,000,000 24,600,000,000 24,600,000,000 24,600,000,000 24,600,000,000 24,600,000,000 24,600,000,000 24,600,000,000 24,600,000,000 27,050,000,000 27,050,000,000 27,050,000,000 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 7,800,000,000 7,800,000,000 30,000,000,000 30,000,000,000 85,000,000,000 85,000,000,000 91,000,000,000 91,000,000,000 178,000,000,000 178,000,000,000 178,000,000,000 178,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 270,500,000,000 270,500,000,000 270,500,000,000 Shares 1,377,500 2,204,000 3,306,000 3,360,797 3,911,797 391,179,700 473,829,700 551,000,000 608,304,000 780,000,000 1,439,000,000 2,654,200,000 4,081,300,000 6,047,175,967 7,548,483,035 7,670,881,717 9,990,849,423 10,105,849,423 11,689,364,587 12,989,364,587 18,132,553,051 19,922,886,745 18,622,886,745 20,266,618,984 23,376,597,005 23,251,877,005 23,252,048,432 23,252,863,457 24,724,087,405 24,726,128,803 24,727,347,637 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 6,083,040,000 7,800,000,000 14,390,000,000 26,542,000,000 40,813,000,000 60,471,759,670 75,484,830,350 76,708,817,170 99,908,494,230 101,058,494,230 116,893,645,870 129,893,645,870 181,325,530,510 199,228,867,450 186,228,867,450 202,666,189,840 233,765,970,050 232,518,770,050 232,520,484,320 232,528,634,570 247,240,874,050 247,261,288,030 247,273,476,370 Sources of Capital Founding Cash Offering Cash Offering Capitalization of Profits Cash Offering Par Value Change from NT$1000 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 Capitalization of Profits Exercise of Employee Stock Options Exercise of Employee Stock Options 25 Remark Capital Increase by Assets other than Cash Date of Approval & Approval Document No. As of 02/28/2006 None None None None None - None None None None None None None None None None None None None None None None None None None None None None None None None - - - - - - - 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 05/23/2005 Jin Guan Cheng 1 Tzu No. 0940120519 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 4.2 Capital and Shares Unit: Share Type of Stock Common Stock Shelf Registration: None 4.3 Status of Shareholders Common Share Authorized Capital Issued Shares Unissued Shares Total As of 02/28/2006 Listed Non-Listed Total 24,732,558,216 0 24,732,558,216 2,317,441,784 27,050,000,000 Type of Shareholders Government Agencies Financial Institutions Other Juridical Persons Foreign Institutions & Natural Persons Domestic Natural Persons 26 Number of Shareholders Shareholding Holding Percentage (%) 6 139 936 1,757 476,212 2,024,633,377 1,054,990,249 2,919,020,196 14,258,498,130 4,467,447,562 24,724,589,514 8.19 4.27 11.80 57.67 18.07 100.00 As of 06/19/2005 (last record date) Total 479,050 4.4 Distribution Profile of Shareholder Ownership Common Share Shareholder Ownership (Unit: Share) Number of Shareholders 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 Preferred Share: Not Applicable 138,876 208,760 61,418 24,493 11,254 12,611 5,414 3,373 6,194 2,994 1,543 531 259 176 1,154 479,050 Ownership 46,867,535 495,985,832 425,920,039 300,290,494 195,918,546 305,831,991 187,058,132 150,281,335 425,545,460 410,004,707 426,749,677 258,091,091 179,669,494 156,751,646 20,759,623,535 24,724,589,514 As of 06/19/2005 (last record date) Ownership (%) 0.19 2.01 1.72 1.21 0.79 1.24 0.76 0.61 1.72 1.66 1.73 1.04 0.73 0.63 83.96 100.00 4.5 Major Shareholders Common Share Rank Shareholders 1 2 3 4 5 6 7 8 9 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 10 GMO Emerging Markets Fund. 4.6 Other Share Information Net Worth, Earnings, Dividends and Market Price Per Common Share Unit: NTD, except for weighted average shares and return on investment ratios 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 Adjusted Earnings Per Share (Note 2) Dividends Per Share Cash Dividends Stock Dividends Dividends from Retained Earnings Dividends from Capital Surplus Accumulated Undistributed Dividend Return on Investment Price / Earnings Ratio (Note 3) Price / Dividend Ratio (Note 4) Cash Dividend Yield (Note 5) Note 1: Pending shareholders' approval Note 2: Retroactively adjusted for dividends and employee bonus Note 3: Price / Earnings Ratio = Average Market Price / Adjusted Earnings Per Share Note 4: Price / Dividend Ratio = Average Market Price / Cash Dividends Per Share Note 5: Cash Dividend Yield = Cash Dividends Per Share / Average Market Price Total Shares Owned Ownership (%) As of 06/19/2005 (last record date) 3,508,832,129 2,705,839,885 1,927,811,908 1,802,512,466 600,797,968 475,686,406 359,764,741 303,908,784 222,103,089 183,629,804 14.19 10.94 7.80 7.29 2.43 1.92 1.46 1.23 0.90 0.74 27 2004 2005 01/01/2006~02/28/2006 53.67 (Note 2) 36.52 (Note 2) 43.95 (Note 2) 17.16 15.02 23,255,086 3.97 3.73 2.00 0.50 - - 11.78 21.98 4% 64.30 (Note 2) 41.69 (Note 2) 51.99 (Note 2) 18.02 (Note1) 24,693,112 3.79 (Note1) 2.50 0.15 0.15 - (Note1) (Note1) (Note1) 68.40 60.00 63.21 - - - - - - - - - - - - 4.7 Dividend Policy According to the Company's Articles of Incorporation, when allocating net Except under certain conditions specified in its Articles of Incorporation, profits for each fiscal year, the Company, after setting aside regulatorily- TSMC does not pay dividends when there is no profit for a particular fiscal required legal reserves, shall set aside not more than 0.3% of the balance as year. Profits may be distributed by way of cash dividend, stock dividend, or a bonus to directors and supervisors, and not less than 1% as bonus to combination of cash and stock. The preferred method of distributing profits employees of the Company. is by way of cash dividend. Under TSMC's Articles of Incorporation, stock div- idend shall not exceed 50% of the total distribution in any given fiscal year. 2004 profit distribution set aside as Directors & Supervisors Compensation, and Employee Profit Sharing: 4.8 Distribution of Profit The Board adopted a proposal for 2005 profit distribution at its meeting on Feb. 14, 2006. The proposed profit distribution will be effected upon the approval of shareholders at the Annual Shareholder Meeting in May 2006. Proposal to Distribute 2005 Profits 28 Unit: NT$ Bonus to Directors & Supervisors Cash Dividends to Common Shareholders (NT$2.50 per share) Stock Dividends to Common Shareholders (NT$0.15 per share at par value, i.e., 15 shares for each 1,000 shares owned) (Note 1, 3) Employees' Profit Sharing in Cash Employees' Profit Sharing in Stock (Note 2) Note 1: Equivalent to underlying number of shares: 370,950,370 Note 2: Equivalent to underlying number of shares: 343,212,868 Note 3: In addition, it is proposed to capitalize a portion of capital surplus in the amount of NT$3,709,503,700. Each com- mon share holder will be entitled to receive 15 shares from such capitalization of capital surplus, and, together with the 15 shares of stock dividend as mentioned above, 30 shares in total for each 1,000 shares owned. Directors & Supervisors Compensation (Cash) Employee Profit Sharing in Cash Employee Profit Sharing in Stock 257,409,650 61,825,061,618 Board Resolution (02/22/2005) Amount (NT$) Amount (NT$) 231,466,144 231,466,144 3,086,215,246 3,086,215,246 Actual Result Underlying Number of Shares - - 3,086,215,260 3,086,215,260 308,621,526 Dilution (%) - - 1.25 - 3,709,503,700 Total 6,403,896,650 6,403,896,650 - 3,432,128,678 3,432,128,680 The EPS of 2004 and 2005 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) 2004 EPS 2005 EPS NT$3.97 NT$3.70 NT$3.79 NT$3.50 4.9 Impact to 2006 Business Performance, EPS and ROE Resulting from Stock Dividend Distribution: Not Applicable 4.10 Buyback of Treasury Stock: None 5. Issuance of Corporate Bonds 5.1 Corporate Bonds Issuance Issuing Date Denomination Offering Price Total Amount Coupon Rate Tenure Guarantor Trustee Underwriter Legal Counsel Auditor Repayment Outstanding Redemption or Early Repayment Clause Covenants Credit Rating Domestic Unsecured Bond (IV) 12/04/2000 - 12/15/2000 NT$ 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 None The International Commercial Bank of China Not Applicable As of 02/28/2006 29 Domestic Unsecured Bond (V) 01/10/2002 - 01/24/2002 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 TC Bank Not Applicable Eluvzy International Law Office Yan-an International Law Office TN Soong & Co Bullet NT$4,500,000,000 None TN Soong & Co Bullet NT$15,000,000,000 None Customary Covenants Customary Covenants twAA (Taiwan Ratings Corporation, 11/08/2000) twAA (Taiwan Ratings Corporation,12/03/2001) Other Rights of Bondholders Conversion Right None Amount of Converted or Exchanged Common Shares, ADRs or Other Securities as of 02/28/2006 Not Applicable Dilution Effect and Other Adverse Effects on Existing Shareholders Custodian None None None Not Applicable None None 5.2 Convertible Bond: None 5.3 Exchangeable Bond: None 5.4 Bond with Warrants: None 6. Preferred Shares 6.1 Preferred Share: None 6.2 Preferred Share with Warrant: None 7. Issuance of American Depositary Shares Issuing Date 10/08/1997 11/20/1998 Issuance & Listing Total Amount (US$) 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 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$) 24.78 15.26 Units Issued 24,000,000 12,094,000 17.75 2,000,000 24.516 12,094,000 28.964 5,486,000 57.79 6,560,000 56.16 4,000,000 Underlying Securities 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 Common Shares Represented 120,000,000 60,470,000 10,000,000 60,470,000 27,430,000 32,800,000 20,000,000 30 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 Depositary Bank Custodian Bank Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch ADSs Outstanding (Note1) 24,000,000 46,222,650 48,222,650 71,407,859 76,893,859 83,453,859 87,453,859 Apportionment of expenses for the issuance and maintenance Terms and Conditions in the Deposit Agreement and Custody Agreement 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 (Note 2) Closing Price per ADS (US$) 2005 01/01/2006 - 02/28/2006 High Low Average High Low Average 10.09 7.14 8.47 10.93 9.73 10.27 Note 1: TSMC has in aggregate issued 573,544,500 ADSs since 1997, which, if taking into consideration of stock dividend distributed over the period, would amount to 865,347,403 ADSs. As of February 28, 2006, total number of outstanding ADSs was 864,193,749 after 1,153,654 ADSs were redeemed. Stock dividend distributed in 1998, 1999, 2000, 2001, 2002, 2003, 2004 and 2005 was 45%, 23%, 28%, 40% , 10%, 8%, 14.08668% and 4.99971% 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. 06/07/2000 - 06/15/2000 NYSE 05/14/2001 - 06/11/2001 06/12/2001 11/27/2001 02/07/2002 - 02/08/2002 11/21/2002 - 12/19/2002 07/14/2003 - 07/21/2003 11/14/2003 NYSE NYSE NYSE NYSE NYSE NYSE NYSE 2005/8/10 - 09/08/2005 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 1,402,036,500 35.75 20.63 20.63 16.03 16.75 8.73 10.40 10.77 8.6 32,667,800 11,682,000 14,428,000 20,000,000 59,800,000 18,348,000 87,357,200 100,000,000 163,027,500 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 TSMC Common Shares from Selling Shareholders 163,339,000 58,410,000 72,140,000 100,000,000 299,000,000 91,740,000 436,786,000 500,000,000 815,137,500 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 Same as those of Common Share Holders 31 Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - New York Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch Citibank, N.A. - Taipei Branch 144,608,739 156,290,739 170,718,739 259,006,235 318,806,235 369,019,413 485,898,166 585,898,166 864,210,597 (Note 3) (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 See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details 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 Option Duration Source of Option Shares Vesting Schedule 32 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 First Grant 06/25/2002 08/22/2002 18,909,700 0.10154% 10 years Second Grant 06/25/2002 11/08/2002 1,085,000 0.00583% 10 years Third Grant 06/25/2002 03/07/2003 6,489,514 0.03485% 10 years 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% 3,935,300 153,616,575 16,056,479 53.0 38.0 0.06493% 148,883 5,687,207 1,206,346 51.0 36.7 0.00488% 441,533 14,228,866 6,727,000 41.6 29.9 0.02720% 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 Chairman President & Chief Executive Officer Senior Vice President Senior Vice President Senior Vice President Senior Vice President Name 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) Number of Options Granted (Note 2) % of Shares Exercisable to Outstanding Common Shares 3,346,972 0.01353% Vice President & General Counsel Richard Thurston (Note 1) 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 and 2005. 9. Status of Mergers and Acquisitions No mergers or acquisitions were consummated in 2005. 10. Corporate Governance During 2005, TSMC received a number of awards in recognition of our cor- porate governance practices, including the Best Corporate Governance award from IR Magazine for the Hong Kong and Taiwan regions and the Best Corporate Governance award from FinanceAsia for the Taiwan region. We hold ourselves to world-class standards of integrity and fairness, and we benchmark our transparency and disclosures against some of the best com- Maintaining the highest standards of corporate governance has been inte- panies in the world. gral to TSMC's core values since its founding. TSMC advocates and acts upon the principles of operational transparency and respect for shareholder rights. 10.1 Audit Committee We believe that the basis for successful corporate governance is a sound and The Audit Committee assists the Board in carrying out its financial oversight effective Board of Directors. In line with this principle, TSMC's Board of responsibilities, which include reviewing the Company's financial reports, the Directors established an Audit Committee in 2002 and a Compensation Company's auditing and accounting policies and procedures, and the Committee in 2003. Company's internal control systems. Fourth Grant 06/25/2002 06/06/2003 23,090,550 0.12399% 10 years Fifth Grant 10/29/2003 12/03/2003 842,900 0.00416% 10 years Sixth Grant 10/29/2003 02/19/2004 15,720 0.00008% 10 years Seventh Grant 10/29/2003 05/11/2004 11,167,817 0.05510% 10 years Eighth Grant 10/29/2003 08/11/2004 135,300 0.00058% 10 years Ninth Grant 01/06/2005 05/17/2005 10,742,350 0.04620% 10 years New Common Share 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% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2,392,699 100,732,637 21,665,759 58.5 42.1 0.08761% 5,279 287,706 653,761 66.5 54.5 0.00264% 0 0 14,994 63.5 52.0 0.00006% 0 0 10,962,622 57.5 47.0 0.04433% 0 0 131,922 43.8 41.3 0.00053% 0 0 10,339,564 54.3 51.2 0.04181% As of 12/31/2005 33 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 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$) As of 12/31/2005 % of Shares Unexercised to Outstanding Common Shares 0 0 0 0% 3,346,972 29.9 100,074,463 0.01353% TSMC's Audit Committee is empowered by its Charter to conduct any study 10.2 Compensation Committee or investigation it deems appropriate to fulfill its responsibilities. It has direct The Compensation Committee assists the Board in discharging its responsi- access to TSMC's internal auditors, the Company's independent external bilities related to the compensation and benefit policies, plans and programs auditors, and all employees of the Company. The Committee is authorized to of TSMC, and in the evaluation and compensation of TSMC's executives. retain and oversee special legal, accounting or other consultants as it deems appropriate to fulfill its mandate. As of March 2006, the Compensation Committee was comprised of five members: three independent directors serving as voting members of the As of March 2006, the Audit Committee consisted of three members and a Committee, and two non-voting directors. The Compensation Committee consulting financial expert. The three Audit Committee members are all convened four regular meetings in 2005. independent directors. The Committee meets at least four times a year. The Audit Committee convened four regular meetings and two special meetings in 2005. 10.3 Taiwan Corporate Governance Implementation as Required by SFB Item Implementation Status Reason for Non-Implementation 1.Shareholding Structure & Shareholders' Rights (1) The way of handling shareholder suggestions or disputes (2) The Company's possession of major shareholder's list and the list of ultimate owners of these major shareholders TSMC has designated relevant departments, such as Investor Relations, Public Relations, Legal, etc., to handle shareholder's suggestions or disputes. 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 external auditors. 3. Composition and Responsibilities of Supervisors 34 (1) Independent Supervisor(s) (2) Communication channel with employees or shareholders Prof. Michael E. Porter is an independent supervisor of TSMC. The employees and managers of relevant departments regularly report and present Company information to the Independent Supervisor; all Supervisors have access to Company employees or managers for information they need. None None None 4. Communication channel with stakeholders TSMC designates relevant departments to communicate with stakeholders on a case by case basis. None 5. Information Disclosure None (1) Establishment of corporate website to disclose information regarding the Company's financials, business and corporate governance status) (2) Other information disclosure channels (e.g. English website, appointing responsible people to handle information collection and disclosure, appointing spokesperson, webcasting investors conference) TSMC discloses information through its website www.tsmc.com. Since TSMC is a foreign private issuer with American Depository Receipts listed on the New York Stock Exchange ("NYSE"), TSMC is subject to various NYSE regulations, one of which requires TSMC to disclose the significant ways in which its corporate governance practices differ from those fol- lowed by US domestic companies under NYSE listing standards. You may find such disclosure infor- mation at the following web address: http://www.tsmc.com/download/english/e03_governance/NYSE_Section_303A.pdf TSMC has designated relevant departments (e.g. Investor Relations, Public Relations, Legal, etc.) to handle the collection and disclosure of information as required by relevant laws and regulations of Taiwan and other jurisdictions. TSMC has designated spokespersons as required by relevant regulations. TSMC webcasts live investor conferences. 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 32-33 of this Annual Report for the details. None 7. If the Company has established corporate governance policies based on TSE Corporate Governance Best Practice Principles, please describe discrepancy between the policies and their implementation. For the status of TSMC's corporate governance, please refer to "Corporate Governance" section on page 32-34 of this Annual Report. 8. Other important information to facilitate better understanding of the Company's corporate governance practices (e.g. directors' and supervisors' training records, directors' and supervisors' attendance of the board of director's meetings, the implementation of risk management policies and risk evaluation measures, the implementation of consumers/customers protection policies, the implementation of directors recusing themselves in case of conflicts of interests situations, pur- chasing insurance for directors and supervisors, and social responsibilities.): (1) From time to time, TSMC provides to directors and supervisors information concerning regulatory requirements and developments as related to director' and supervisors' activities. TSMC management also regularly present Company's business and other information to directors and supervisors. (2) The Board convened four regular meetings and one special meeting in 2005. Meeting attendance was as follows: Name of Directors / Supervisors Directors: Morris Chang Peter L. Bonfield Lester C. Thurow Stan Shih Jan Lobbezoo Mario Alberto Rivas Chintay Shih F. C. Tseng Rick Tsai Supervisors: Michael E. Porter (Note) Robbert Brakel Michel Besseau (appointed in June 1, 2005 to replace Robbert Brakel) James C. Ho Number of Meetings of Board of Directors Attended in 2005 5 5 3 5 5 5 5 5 5 0 (Note) 2 2 4 (3) TSMC conducts risk management and risk evaluation pursuant to the internal policies established in accordance with relevant laws and regulations. (4) TSMC's directors recuse themselves from voting on matters in which their interests would 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 make various societal contributions. Please refer to "Social Responsibility Information" section on page 35 of this Annual Report for the details. 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. 11. Social Responsibility Information 11.2 Other Social Issues Health and Safety Performance 11.1 TSMC Education and Culture Foundation TSMC is committed to achieving the highest standards of wellness and safe- The TSMC Education and Culture Foundation was established to facilitate ty for all employees. In the area of wellness, TSMC offers comprehensive the Company's dedication to becoming Taiwan's leading corporate citizen. wellness care and employee assistance programs at all of our operating sites. We have been an active sponsor of various educational, cultural and com- Employees have access to on-site clinics, 24-hour nursing service, annual munity activities in Taiwan for seven years. Through sponsorship of and physical exams, women's health services, cancer screening, on-site fitness engagement in these public activities, the Foundation aims not only to make facilities and programs, weight management services, and various health a contribution to society, but also to share with the public the business awareness programs. Employees also have access to stress management pro- philosophies that led to the Company's success. grams, counseling services, and other employee assistance programs. Commitment to Education Policies and Procedures Relating to Environmental, Safety and Health Regulations TSMC is committed to supporting education and cultivating future leaders. TSMC believes its environmental, safety and health (ESH) practices should We work closely with leading universities on a wide-ranging program of not only meet the relevant local legal requirements, but also benchmark rec- scholarships, chair professor positions, academic activities and lecture series. ognized international practices. The Company's goals are to prevent pollu- In 2005, the Foundation donated NT$120 million to the prestigious National tion, efficiently use all resources, prevent incidents, improve employees' safe- Taiwan University to build a new research center for the chemistry depart- ty and health, protect property, and establish a work environment that pro- ment. The research center will be dedicated to cutting-edge chemistry and motes the well-being of our employees and of the communities in which we 35 materials science research and to basic science education. operate. In 2005, TSMC continued its efforts on projects involving Environmental Accounting, Product Life Cycle Assessment, Green TSMC is also committed to promote research and innovation through dona- Procurement, Greenhouse Gas Inventory, Contractor Management, tions to leading international educational institutions. In 2005, we complet- Employees' Health and Avian Influenza Prevention Promotion. ed a three-year US$1,000,000 sponsorship to Stanford University's Nanocharacterization Laboratory. In addition, TSMC donated US$500,000 to TSMC actively incorporates risk management concepts in the design and MIT Sloan School of business for the project of a new building complex. construction of new buildings, the evaluation of ESH requirements for new Sponsorship of Art Events and Aesthetic Education processes and for new chemicals in process development. In order to mini- mize potential operational losses, the Company regularly evaluates and In 2005, the Foundation sponsored various performances and art events, enhances electrical and seismic protection during installation of tools and ranging from concerts and drama to fine art exhibitions. Our sponsorship equipment, thus reducing the risk of interruption of operations. culminated with the TSMC Concert by the Berliner Philharmoniker, its first performance in Taiwan. The event generated significant publicity and was Equal Opportunity Employment enjoyed by well over 30,000 people, including those who attended the out- TSMC believes in equal opportunity employment and values the diversity our door broadcast. The Foundation also made special arrangements to enable staff contributes toward our corporate culture and our spirit of innovation. over 300 schoolchildren from the Hsinchu area to sit in on the orchestra's Recruitment is conducted via open selection and is based on the candidate's rehearsal, introducing them to classical music at an early age. ability to fulfill the needs of each position, regardless of race, gender, age, religion, nationality, or political affiliation. Contribution to Local Communities The Foundation has long been an avid supporter of fine arts. In 2005, we Supplier Selection Process and Criteria Regarding Social and Environmental Issues considerably expanded the scope of the third annual "TSMC Art Festival". The In 2005, TSMC continued to execute a green procurement procedure for venue for the events was extended from Hsinchu to Tainan. The concert for requesting raw material suppliers to officially declare that the raw materials the opening night of the 2005 program was organized as a charity event and they will supply to TSMC do not contain any prohibited substances, so as to a total of NT$1.38 million was raised for the education of underprivileged ensure that the products made by us fully comply with customers' require- aboriginal children of the typhoon victims in Hsinchu County. TSMC also ments and the legal requirements of the European Union's RoHS (Restriction donated a new Steinway piano to Hsinchu City Concert Hall. During the two- of Hazardous Substances). month Art Festival, the Foundation arranged a total of 29 different activities, including concerts, traditional operas, lectures, and family-oriented activities. Social and Environmental Impacts of TSMC's Outsourced Operations and Contractors The Festival attracted over 10,000 people from the local communities. TSMC has promoted a "Responsible Care Program" to assist contractors to Dedication to the Employee Volunteer Program enhance their companies' Environmental, Safety and Health (ESH) manage- ment systems. TSMC collects input from contractors and communicates our The TSMC Education and Culture Foundation has encouraged over 200 expectations on ESH performance to our contractors annually. employees and family members to join the volunteer program to make con- tributions to society through personal participation. For three consecutive Social and Environmental Impacts of TSMC's Suppliers years, members of the group have served as volunteer weekend curators at TSMC has conducted a "Product Life Cycle Assessment" (Product LCA) for all the National Museum of Natural Science, Taichung. The TSMC volunteer 6-inch and 8-inch processes, as well as one 12-inch wafer process. The group has served more than 200,000 visitors to date and has been recog- Product LCA evaluated the environmental impact of these processes, collect- nized as an "Outstanding Volunteer Team" by the National Museum. In addi- ing and analyzing data from the entire chip manufacturing chain, from raw tion, the Foundation established a "TSMC Book Reading Volunteer Program," materials suppliers to finished products, including statistics for such items as now in its second consecutive year, where over 50 employees and their fami- energy, raw materials consumption, and generation of pollutants. The ly members read stories to elementary school children in remote Hsinchu Product LCA study established an eco-profile and environmental loading val- townships. This program hopes to open a window of knowledge for these ues for chip manufacturing. These can be provided to TSMC's customers resource-deprived children through the power of reading. upon request. 36 OPERATIONAL HIGHLIGHTS 1. Business Activities 1.1 Business Scope TSMC excels in all aspects of its business. This excellence includes semicon- ductor process technology research and development, wafer manufacturing, logistics management, capacity utilization, customer service, as well as a 1.3 Net Sales over the Last Two Years Unit: Shipments (8-inch equivalent wafers) / Amount (NT$ thousands) Wafer Package Other Total Domestic Export Domestic Export Domestic Export Domestic Export 2005 2004 Shipments Amount Shipments Amount 991,870 26,895,512 1,012,161 33,226,052 4,356,434 204,286,181 3,781,577 192,108,136 137 10,808 110 12,135 273,546 14,366,355 213,568 12,749,599 14,601 40,128 2,103,030 16,926,478 13,497 39,298 1,891,630 16,004,875 1,006,608 29,009,350 1,025,768 35,129,817 4,670,108 235,579,014 4,034,443 220,862,610 wide range of support services including design services, mask manufactur- 1.4 Production over the Last Two Years ing, wafer probing, in-house bumping and testing. The essence of our Unit:Capacity / Output (8-inch equivalent wafers) / Amount (NT$ thousands) foundry business is the success of our customers. TSMC continually strives to provide the overall best value to its customers. 1.2 Customer Applications Over the past 19 years, more than 500 customers worldwide have relied on TSMC to manufacture chips used across the entire spectrum of electronic Year 2005 2004 Wafers Capacity 5,954,600 4,787,523 Output 5,451,384 4,799,657 Amount 138,182,812 127,840,620 applications. A far from exhaustive list of applications includes computers 2. Customers and peripherals, information appliances, wired and wireless communications systems, automotive and industrial equipment, as well as consumer electron- We count among our customers many of the world's leading semiconductor ics such as DVDs, digital TVs, game consoles, and digital still cameras (DSCs). companies, ranging from fabless semiconductor companies such as Altera The rapid evolution of end products drives our customers to utilize TSMC's innovative technologies and services, while at the same time spurring TSMC's own technology development. As always, success depends on leading rather than following industry trends. Corporation, ATI Technologies Inc., Broadcom Corporation, Marvell Semiconductor Inc., nVIDIA Corporation, Qualcomm Inc., and VIA Technologies Inc., to integrated device manufacturing companies such as Analog Devices, Inc., Freescale Semiconductor Inc., and Philips, to systems companies. Revenue from ATI Technologies Inc. amounted to over 10% of our revenue in 2005. In comparison, no single customer accounted for more than 10% of our revenue in 2004. 37 2.1 Customer Service 2.2 Customer Satisfaction TSMC is committed to providing the best services to our customers and TSMC conducts regular surveys and reviews to ensure that customers' needs believes that customer service is critical to enhancing customer loyalty. In and wants are being adequately addressed. Continual improvement plans turn, customer loyalty leads to higher levels of customer retention and to supplemented by customer feedback are an integral part of this business expansion of business relationships. TSMC's goal is to maintain its position as process. the most advanced and largest provider of semiconductor manufacturing technology and foundry services. TSMC believes that achieving this goal will 2.3 Market Expansion/Penetration help retain existing customers, attract new customers, and strengthen exist- TSMC continues to diversify its customer base while supporting the growth ing partnership relationships. of our existing customers. TSMC engaged more than 50 new customers in 2005. TSMC's customers also gained market share, notably in a number of To facilitate customer interaction and information access on a real-time end applications in computers, wired communications, wireless communica- basis, TSMC has established a wide range of web-based services covering tions and consumer electronics. applications in design, engineering, and logistic collaborations. They are col- lectively branded as eFoundry sm. 3. Raw Material Supply Major Materials Major Suppliers Market Status Procurement Strategy These five suppliers provide over 85% of the world's wafer supply on a com- bined basis. TSMC's suppliers of silicon wafers are required to pass stringent quality certifi- cation procedures. Each supplier has multiple manufacturing sites in order to meet customer demands, including plants in the North America, Asia, and Europe. TSMC procures wafers from multiple sources to ensure adequate supplies for volume manufacturing and to appropriately manage supply risk. Raw Wafers F.K.S. MEMC S.E.H. Siltronic SUMCO Chemicals BASF These two companies are the major suppliers for bulk chemical. Tai-Young High Tech (TYS) TSMC maintains competitive price and service agreements with its wafer sup- pliers, and when necessary enters into strategic and collaborative agreements with key suppliers. TSMC regularly reviews the quality, delivery, cost and service performance of its wafer suppliers. The results of these reviews are incorporated in TSMC's subse- quent purchasing decisions. A periodic audit of each wafer supplier's quality assurance systems ensures that TSMC can maintain the highest quality for its own products. Both suppliers have relocated many of their operations closer to TSMC's major manufacturing facilities, therefore improving the procurement logistics signifi- cantly. The suppliers' products are reviewed regularly to ensure that TSMC's specifica- tions are met and product quality is satisfactory. (Continued) Major Materials Major Suppliers Market Status Procurement Strategy Photoresist AZ These four companies are the major suppliers for photoresist. Gases Shin-Etsu Chemical Sumitomo T.O.K. Air Liquide Air Products BOC Taiyo Toyo Sanso These four companies are the major suppliers for specialty gas. The products of these four suppliers are interchangeable. TSMC works closely with its suppliers to ensure that they have adequate pro- duction lead-time to supply the required products to TSMC. TSMC conducts periodic audits of the suppliers' quality assurance systems to ensure that they meet TSMC's standards. Majority of the four suppliers are located in different geographic locations therefore minimizing the supply risk to TSMC. TSMC has long-term contracts with these suppliers to ensure supply stability and service quality. In addition, the availability of other domestic suppliers also enables TSMC to secure better purchase terms for the gases. TSMC conducts periodic audits of the suppliers' quality assurance systems to ensure that they meet TSMC's standards. 4. Employees 38 4.1 Human Capital TSMC strives to create an environment that provides employees with favor- Attracting and retaining the right talent is one of the key objectives of able workplace conditions, personal challenges, and career development TSMC's human resources strategy. TSMC's workforce totaled 19,642 at the support. TSMC believes a positive work environment promotes innovation. end of 2005, representing an increase of 5.6% versus the end of 2004. TSMC also encourages the development of professional know-how, a posi- TSMC recruited 92 managers, 1,250 professionals and 1,771 technicians tive attitude, affirmative values, honest and ethical behavior and a genuine during the year. By the end of February 2006, TSMC's total workforce commitment on the part of employees to succeed as a member of the TSMC reached 19,810. team. Between January 1, 2005 and February 28, 2006, there were no labor disputes that resulted in financial losses to the Company. At the end of 2005, the Company employed a total of 2,012 managers and 7,145 professionals. Of the 2,012 managers, 12.3% were female. Non- 4.2 People Development Taiwanese nationals made up 3.0% of TSMC's workforce at the managerial Continuous learning is the cornerstone of TSMC's employee development and professional levels. By the end of February 2006, there were 2,042 man- strategy. TSMC provides employees with a wide range of technical, profes- agers and 7,336 professionals. sional and management training programs, and promotes "On-the-Job Training" (OJT) initiatives for new employees. The Performance Management Among TSMC's staff, 2.4% hold PhD's degrees, 27.8% hold Master's and Development (PMD) system and the Individual Development Plan (IDP) degrees, 18.3% hold university Bachelor's degrees, 23.0% hold other college program are effective platforms to enhance organizational learning in the degrees, and 28.4% have high school diplomas. area of employees' personal development as well as serving the Company's business needs. In 2005, TSMC's achievement in people development was The following tables summarize TSMC's workforce structure. once again recognized by the Council of Labor Affairs, ROC, which awarded the Company the Prize for Innovation in Human Resource Development. TSMC Workforce Structure by Job Title Manager Professional Assistant Engineer/ Clerical Technician Total 12/31/2004 12/31/2005 02/28/2006 1,853 6,671 754 9,319 18,597 2,012 7,145 684 9,801 19,642 2,042 7,336 678 9,754 19,810 TSMC Workforce Structure by Gender, Age and Years Served 4.3 Employee Satisfaction TSMC is committed to fostering a dynamic and fun work environment. In line with this commitment, a number of ongoing programs have been launched to enhance employee motivation, promote employee welfare, and facilitate communication between the Company and its employees. These programs include: ● Employee Welfare: TSMC offers employees a number of welfare-enhancing programs and benefits, such as flexible work hours, paid holidays, and activities, including TSMC Sports Day, Family Day, the Engineer Festival, and TSMC Social Club activities. Gender Male Female Average Age Average Years of Service 12/31/2004 12/31/2005 02/28/2006 45.4% 54.6% 30.3 4.6 45.7% 54.3% 31.0 5.1 46.2% 53.8% 31.1 5.1 ● Talent Development: TSMC has designed and implemented a number of people development initiatives. These initiatives include Manager Training Roadmap (including New Manager Program, Experienced Management Program, and Senior Manager Program), Talent Management Program, Engineer Training Roadmap, and Personal Effectiveness Training. ● Recognition Culture: Various programs are in place to recognize employees' 5. Innovation contributions in different functions. In addition to TSMC's own internal Employee Role Model awards, employees are encouraged to participate in 5.1 R&D Organization and Investment certain external award competitions, such as the Outstanding Young TSMC increased its R&D investment and expanded its world-class R&D Engineer award, the Top 10 National Outstanding Manager award and the organization in 2005 to provide best-in-class semiconductor technology and Labor Model award. design solutions to our customers. R&D expenditure reached NT$13.4 bil- ● Open Communications: The Company conducts regular communication lion, while R&D staff grew by 21.3% during the same period. TSMC also meetings with employees. TSMC publishes a Manager Communications Kit strengthened the capabilities and expanded the capacity of our 300mm R&D and a bimonthly Silicon Garden Magazine as engagement media for pilot line for advanced process development in 2005. This expansion served employees and their families. Employees can also submit their suggestions to accommodate our growing R&D development activities which support the to the Company via various channels, such as the Employee Suggestion Box business growth of TSMC's customers. and Employee Voice Collection Network. TSMC conducts an annual Employee Satisfaction Survey to measure the ory, and interconnect technologies. We also expanded our external R&D involvement and engagement of employees at various levels. As an indicator partnership and alliance activities with tool and materials vendors, IMEC, 39 of employee satisfaction, TSMC received several prestigious awards in 2005. and the ASIC/SoC technology alliance of Freescale, Philips, and TSMC was ranked No. 1 among the Top 10 Taiwan Companies Most STMicroelectronics. In 2005, TSMC and Freescale jointly developed cutting- Concerned for Employee Welfare by Business Today Magazine. In addition, edge 90nm SOI technology, and established the infrastructure of SOI design. TSMC received an award for Corporate Social Responsibility from TSMC and Freescale also continued to cooperate on 65nm SOI technology In 2005, TSMC continued to accelerate the development of transistor, mem- Globalviews Magazine. 4.4 Compensation development. In addition, TSMC strengthened its collaborative research effort with key partners for design-process co-optimization, which enables the best technology and design solutions for product success in the complex The Company's compensation program consists of cash compensation and and challenging nanometer era. Since 2001, TSMC has been funding nano- profit sharing. Cash compensation includes monthly salary, a quarterly vari- technology researches at major universities worldwide to enable and pro- able incentive bonus and an annual variable incentive bonus. The profit shar- mote innovation and the advancement of technology. ing program consists of cash and stocks. The Company appropriates a cer- tain percentage of earnings available to common stockholders for distribu- tion to employees under the profit sharing program. The purpose of this dis- tribution is threefold: to reward employees' contributions appropriately; to encourage employees to work consistently to ensure the success of the Company; and to link employees' interests with those of TSMC's sharehold- ers. The amount and form of the distribution are determined by the Board of Directors based on the Compensation Committee's recommendation and are subject to shareholders' approval at the Annual General Meeting. Individual awards are based on each employee's job responsibility, contribution and 5.2 R&D Accomplishments in 2005 performance. Demonstrating our commitment to innovation, TSMC was granted 437 US patents and 331 ROC patents in 2005. TSMC has a rich and strong patent In addition to providing employees of overseas subsidiaries with a locally portfolio, as well as a significant base of other intellectual property thanks to competitive base salary, the Company grants short-term and long-term a growing number of key patent disclosures and patents granted in recent bonuses as part of total compensation. The performance bonus is a short- years. Our intellectual property is one key to maintaining our technology term incentive and is granted in line with local regulations, market practices leadership and technology independence, including generating royalty rev- and the overall operating performance of each subsidiary. The long-term enue, and providing advantage during technology joint development and incentive bonus is paid based on overall TSMC financial performance and is cross-licensing. vested over the course of several years in order to encourage long-term employee commitment and growth within the Company. 4.5 Retirement Policy TSMC has pioneered the development of immersion lithography and worked closely with tool partners to set up the infrastructure that enables the readi- ness of prototyping and production of immersion tools. Immersion technol- TSMC retirement policy is in accordance with the provisions in Labor ogy should extend the resolution capability of conventional 193nm imaging Standards Law and Labor Pension Act. tools down to the 32nm technology node, without having to rely on expen- sive and high-risk 157nm alternatives. In 2005, TSMC demonstrated the manufacturing feasibility of 193nm immersion lithography using state-of- the-art 65nm process, continuing our record of breakthroughs in immersion technology. TSMC continued to advance our platform technologies and large-diameter Flash / Embedded Flash Technology wafer manufacturing technologies. In 2005, TSMC continued to ramp up TSMC is developing embedded Flash memory technologies for the automo- the production of our 12-inch 90nm CMOS logic process, featuring tive industry. Excellent endurance and high-temperature data retention were advanced Cu/low-k interconnects, and achieved a record-breaking defect demonstrated on an 8Mb IP. TSMC is also working with key customers on density reduction rate. TSMC also developed the baseline process of a 65nm 0.13µm embedded Flash technology intended for wireless communication CMOS logic platform featuring a gate length in the range of 35-45nm, and products. Early reliability results are encouraging. The 90nm embedded Flash provided prototyping services to a number of early 65nm customers. In addi- technology is under development. TSMC is also developing programmable tion, TSMC started the development of 45nm CMOS logic platform and connectors intended for high voltage electronics. entered the path-finding stage of 32nm technology development. Mask Technology TSMC continued to invest in long-term and high-payoff exploratory research Mask technology is an integral part of advanced lithography. TSMC has pro- activities such as strained-Si, ultra low-k dielectric, high-k gate dielectric, prietary resolution-enhancement techniques that are closely optimized with metal gate, nano device, SOI technology, MRAM, and advanced RFIC tech- our in-house mask-making technology, including optical proximity correc- nologies. In 2005, we demonstrated 5nm nanowire devices, functional 1Mb tion, phase-shift, and other resolution-assist mask features. In 2005, we 40 MRAM devices, and innovative strained-Si techniques on both bulk silicon established fast Lithography Process Check technology, which is a critical ele- and SOI substrates. This exploratory work paves the way for semiconductor ment of Design for Manufacturing. TSMC mask facilities feature state-of-the- technology advancement, while at the same time strengthening TSMC's art E-beam mask writers, etchers, and inspection and repair tools for both intellectual property position. R&D and production use. TSMC's strength in mask technology R&D and pro- duction provides significant benefits to our customers in terms of technical 5.3 Spectrum of New Technologies excellence, quality, fast cycle times, and one-stop service. In 2005, the In addition to the highlights noted above, TSMC continues to introduce a Company successfully developed high-quality, cost-effective 65nm mask- rich mix of new technologies: making technology for production, X-metal mask technology, as well as mask technology for the 45nm generation. The Company also developed Mixed-Signal / Radio Frequency Technology metrology using e-beam, scatterometry, and electrical techniques to support TSMC developed key elements of mixed signal/radio frequency (MS/RF) appli- wafer lithography and mask making. cations at the 90nm and 65nm device scale. These elements include a 2.0fF/µm2 high-density MIM (metal-insulator-metal) capacitor, a high-gain Design Services MOS for analog applications, and a K-MOM (kaleidoscopic metal-over-metal) TSMC in June 2005 announced Reference Flow 6.0, which addresses several featuring a much improved mismatch compared with traditional MOMs. key issues for chip designs based on advanced process technology. With it, TSMC continued to set foundry industry standards in providing solutions for Silicon Germanium BiCMOS Technology advanced design methodologies. Having launched the industry's first multi- TSMC developed and entered into mass production a 0.18µm SiGe BiCMOS ple-Vt library, TSMC added, during 2005, more advanced features such as technology. This technology enables high performance power amplifier back-bias and design-for-manufacturing (DFM) compliance layouts in order applications and provides an integrated solution that is more cost effective to address today's top design challenges, including power management and compared to GaAs technology. DFM. Two new process-based DFM toolkits, Yield Plus and Yield Pro, allow designers to build on their best efforts, to generate even greater returns to 0.13µm CMOS Image Sensor Technology the bottom line. Based on a wealth of accumulated process data, the new Following the successful volume production of our 0.18µm 3T CMOS image DFM Toolkits drive TSMC process-specific capabilities into electronic design sensors, TSMC developed and qualified a high performance 0.13µm 4T automation (EDA) tools from key suppliers, and include a number of unique CMOS image sensor process. This new process aims at small pixel-size, high- TSMC-provided services. resolution (>3 Megapixel) and high-performance pixel arrays for high-end imaging applications. This new process is fully compatible with TSMC's 0.13µm CMOS logic and embedded memory processes, enabling System- On-Chip (SoC) platforms for consumer and industrial applications in mobile phones, DSCs, security sensors and other image sensor markets. Embedded High Density Memory Technology TSMC saw strong demand for embedded high-density memory from cus- tomers who need a SoC solution for handheld devices, games, DSCs, HDDs and communication applications. In 2005, TSMC's 90nm 1T-MIM featuring a 0.21µm2 MIM capacitor with high-k dielectric demonstrated high yield in a 32Mb memory array and has been qualified. Its cell size is only one-fifth of the most aggressive 6T-SRAM at the 90nm technology node. Volume pro- duction will commence in the first half of 2006. 5.4 R&D Plans for 2006 6. Efficiency Moving forward, TSMC intends to focus on qualification and production of the Nexsyssm 65nm logic/mixed signal technology platforms as well as devel- Yield Management opment of a 45nm logic platform. In addition, intense effort will also be Fast yield ramp for new products is a crucial element to TSMC's success. The devoted to qualify the 65nm node with superior transistor performance fea- Company has developed a comprehensive technology transfer methodology turing a strong strained Si process, in both bulk and SOI. extending from R&D to production in order to shorten the new technology learning curve. In 2005, the Company delivered a significant breakthrough Other development projects include but are not limited to: 65nm mixed sig- on 90nm ramp-up by shortening 40% yield learning curve in comparison nal/RF for communication applications; 0.13µm embedded Flash IP develop- with that of last generation 0.13um. ment; 0.11µm 4T CMOS image sensor technology; 0.18µm high-voltage process modules; as well as low-power, low-cost, customized SiGe RF Delivery Management BiCMOS technologies. TSMC also has a proven record of providing customers with consistent on- time delivery. To become even more responsive to customers' need for flexi- We plan to maintain our long-term technology lead over competitors in the bility in delivery, TSMC has re-engineered its demand fulfillment system and foundry industry through a strong exploratory technology research program. has developed a state-of-the-art manufacturing scheduling system that will 41 The exploratory research team plans to focus on 32nm, 22nm nodes and further enhance the accuracy of deliveries. beyond. Exploratory work should continue on new transistors and process technologies such as 3D structures, MRAM, strained-layer CMOS and novel Cycle Time Management SoC features. Study of the fundamental physics of nanometer CMOS transis- One key to our customer's business success is TSMC's ability to deliver prod- tors was initiated to improve the understanding and to guide the design of ucts with short demand fulfillment cycle times. To achieve this for our cus- the transistors at advanced nodes. The findings of this study will be evaluat- tomers, TSMC has developed a sophisticated manufacturing scheduling and ed and applied to 32nm and 22nm nodes. One of TSMC's goals is to extend dispatching system, as well as employing effective lean manufacturing Moore's law through innovative in-house work, as well as by collaborating approaches. with industry leaders and academia to push the envelope in finding cost- effective technology and manufacturing solutions. Flexible Manufacturing Management TSMC plans to continue working closely with international consortia and dictability of demand forecast. TSMC's ability to meet unanticipated cus- photolithography equipment suppliers to ensure the timely development of tomer demand surges is due, in large part, to our cluster Fab capability as 193nm high NA scanner technology, liquid immersion lithography, and mas- well as extensive know-how in performance matching for both tools and Flexible manufacturing is a crucial element that addresses the current unpre- sively parallel E-Beam direct write and EUV scanner technologies. These tech- Fabs. nologies will support process development at the 45nm node and beyond. TSMC will also continue to collaborate with mask inspection equipment sup- Knowledge Management pliers to develop aerial image inspection techniques. This should help to TSMC has built the industry's leading, state-of-the-art knowledge manage- ensure that we can maintain our leadership position in mask quality and ment system, as well as the Best Known Method (BKM) system. TSMC main- cycle time, and continue to meet aggressive R&D, prototyping and produc- tains a vast repository system for key knowledge. This database also features tion requirements. a sophisticated expert system that embeds the captured knowledge into TSMC will continue to invest heavily to expand its R&D capabilities. With a highly competent and dedicated R&D team and unwavering commitment to Inventory Management TSMC's engineering system. innovation, we are confident of our ability to deliver the best and most cost- TSMC made continual improvements in materials and inventory manage- effective SoC technologies for our customers and to support our business ment in 2005. Demand and supply information from the Materials growth. Management division and other related departments was integrated using a system of weekly updates and reports. The system is intended to improve the Company's responsiveness to wafer demand forecasts. The speed and accu- racy of TSMC's response has been improved through real-time demand infor- mation sharing. This ensures that the Company can continue to appropriate- ly respond to ever-changing industry conditions. 7. Quality Waste Disposal and Land Contamination Recycling is the first priority for TSMC in treating waste. Industrial waste that TSMC is committed to providing customers with the best quality wafers for cannot be reused or recycled is either incinerated or sent to designated land- their products. Our Quality and Reliability (Q&R) services champion the part- fills. TSMC's waste solvents and sludge (CaF 2) were reused by cement plants nership between customers and the entire TSMC organization to achieve as complementary fuel and raw material. Waste sulfuric acid, copper sulfate "quality-on-demand". The goal of quality-on-demand is to fulfill customers' and phosphoric acid were recycled for downgraded industrial use. needs regarding time to market and market competition, over a broad range Furthermore, based on the monitoring results of soil and groundwater, all of products. In 2005, TSMC consistently delivered excellent wafer yields and TSMC's fab sites are free from contamination, according to the standards set defect density rates despite a dynamic increase in demand from customers. by the Soil and Groundwater Pollution Remediation Act of the EPA. In the design stage, Q&R technical services assist customers to design-in Environmental Performance their product reliability requirements. Q&R also works with R&D on process Since 2001, the Dow Jones Sustainability Index (DJSI) has listed TSMC in development in order to assure reliability performance, not only for a variety annual recognition of its exceptional achievements in corporate sustainability of circuit devices, but also for different types of IC packages. Systems have every year. 42 been deployed by Q&R to ensure robust quality in managing production dynamics as the Company meets customers' business requirements. To sus- TSMC has also made significant efforts with its ESH improvement programs. tain production quality and minimize risks to customers when deviations Two national awards were received in 2005: the National Award for occur, manufacturing quality monitoring and event management span all Outstanding Achievements in Industrial Waste Disposal and Resources critical stages, from raw material supply, mask making, and real-time in- Reduction and Recycling from the EPA, and the Water Conservation process monitoring, to wafer sort and assembly and customer field quality Outstanding Performance Awards from the Water Resources Agency. performance. Leading-edge, fast-turn-around failure analysis techniques are also used in every instance, from process development to customer produc- Environmental Compliance Record tion issues. There were no environmental penalties or fines in 2005. TSMC Q&R is also responsible for leading the company towards the ultimate 9. Important Contracts goal of zero defect production, using continuous improvement programs. Periodic customer feedback indicates that products shipped from TSMC have consistently met or exceeded their field quality requirements in the market- Technology Cooperation Agreement Term of Agreement: 1997 - 2008 place. Also, in 2005, TSMC's conformance to the ISO/TS 16949 requirements Contracting Party: Koninklijke Philips Electronics N.V. (Philips) for the fourth consecutive year confirms that TSMC meets the automotive Summary: TSMC is obliged to pay to Philips fixed amounts of industry's stringent quality requirements. 8. Environmental Protection PFC Emissions and Air Quality Control license fees for third party patent cross licenses obtained through Philips. TSMC and Philips have agreed to cross license the patents owned by each party. TSMC endorsed a Memorandum of Understanding (MOU) between the Manufacturing Agreement Taiwan Semiconductor Industrial Association (TSIA) and the ROC- Term of Agreement: 02/16/1996 - 12/31/2005, automatically renewed for Environmental Protection Administration (EPA), whereby TSMC is committed to reducing perfluorinated compound (PFC) emissions to 10% below the one year terms, unless terminated with a six-month prior written notice by TSMC average of 1997 and 1999 by 2010. To achieve this reduction target, TSMC Contracting Party: WaferTech, LLC (WaferTech) has begun evaluating and implementing project steps, including process Summary: TSMC has the right to purchase the entire installed optimization, chemical replacement and abatement. Moreover, TSMC tightly controls the emission of volatile organic compounds, acid gases, and alkali capacity of WaferTech during the production period. gases in compliance with regulations. Shareholders Agreement Water Consumption and Conservation provided in the agreement To improve our water recovery rate and reduce water consumption, TSMC Contracting Parties: Koninklijke Philips Electronics N.V. (Philips) and EDB has focused on developing reclamation technologies. In 2005, TSMC suc- Investments Pte Ltd. (EDBI) cessfully launched the copper CMP wastewater reclamation system to reduce Summary: TSMC, Philips and EDBI agreed to form a joint venture Term of Agreement: Effective as of 03/30/1999 and may be terminated as water consumption. Energy Consumption and Conservation TSMC continuously seeks to conserve energy in order to reduce the emission of carbon dioxide. Major energy conservation accomplishments include adopting inverters in air conditioning, exhaust, and process water systems, which helps control power output to save energy. "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 commit- ted to purchasing a certain percentage of SSMC's capacity. Technology Cooperation Agreement Amended and Restated Joint Technology Cooperation Agreement Term of Agreement: 03/30/1999 - 03/29/2009 Term of Agreement: 07/16/2001 - 12/31/2005 Contracting Party: Systems on Silicon Manufacturing Company Pte Ltd. Contracting Parties: STMicroelectronics N.V., Philips Semiconductors (SSMC) International B.V., Freescale Semiconductor, Inc. Summary: TSMC agreed to transfer certain of its process technolo- Summary: The parties entered into a joint technology cooperation gies to SSMC, and SSMC agreed to pay TSMC a certain arrangement for the development of certain high-per- percentage of the net selling prices of SSMC products. formance and advanced semiconductor technologies. Patent License Agreement Term of Agreement: 10/26/2001 - 12/31/2006 Contracting Party: A multinational company Technology Development and License Agreement Term of Agreement: 12/04/2003 - 12/03/2007 Contracting Party: Freescale Semiconductor, Inc. Summary: The parties entered into cross license arrangements for Summary: The parties agreed jointly to develop certain advanced certain semiconductor patents. TSMC pays license fees SOI process technologies and to cross license related to the said company. intellectual property rights. 43 Foundry Related Agreements Term of Agreement: 1995 - 2006 Settlement Agreement Term of Agreement: 01/30/2005 - 12/31/2010 Contracting Parties: Several multinational companies Contracting Party: Semiconductor Manufacturing International Corp. Summary: TSMC guarantees a pre-determined capacity for a set (SMIC) and certain of its subsidiaries number of years to customers. In return, customers Summary: The parties settled their patent infringement and trade deposit a certain amount of money with TSMC. secret misappropriation disputes, wherein SMIC agreed to pay TSMC US$175 million over six years. Manufacturing Agreement Term of Agreement: 04/01/2004 - 03/31/2006, automatically renewable for Patent License Agreement successive one year terms until both parties decide oth- Term of Agreement: 2005 - End of patent terms erwise by mutual consent in writing Contracting Party: Industrial Technology Research Institute (ITRI) Contracting Party: Vanguard International Semiconductor Corporation Summary: The parties entered into an exclusive license arrange- (VIS) ment for certain semiconductor related patents, where- Summary: VIS reserves its certain capacity to manufacture certain in TSMC pays license fees to ITRI for such license rights. TSMC products at terms as agreed by the parties. TSMC agreed to transfer certain technology to VIS and to receive compensation from VIS in the form of royalty payments. Patent License Agreement Term of Agreement: 11/01/2002 - 10/31/2012 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Patent License Agreement Term of Agreement: 07/01/2002 - 6/30/2009 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Patent License Agreement Term of Agreement: 01/01/2001 - 12/31/2011 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. 44 FINANCING PLANS AND IMPLEMENTATION Corporate Bond 1. Financing Plans Source of Fund Issuance Issue Date Tenor Coupon Rate Outstanding Corporate Bond 01/10/2002 - 01/24/2002 Tranche A: 5 years Tranche B: 7 years Tranche C: 10 years Tranche A: 2.60% p.a. Tranche B: 2.75% p.a. Tranche C: 3.00% p.a. Tranche A: NT$ 2.5 billion Tranche B: NT$ 8.0 billion 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$77.63 billion. Expansion Plan Fund Used From 2002 To 2005 (NT$ thousands) Future Fund Use (NT$ thousands) 55,650,060 21,979,940 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 and Benefits Project commenced in 2002 and monthly capacity was approximately 20,000 12-inch wafers at the end of 2005. FINANCIAL STATUS, OPERATING RESULTS, AND RISK MANAGEMENT 1. Financial Position Unit: NT$ thousands Item 2005 2004 Difference Current Assets 197,562,416 173,667,311 23,895,105 Fixed Assets Other Assets Total Assets 214,145,633 227,976,400 (13,830,767) 15,172,165 12,616,636 2,555,529 507,539,815 487,553,210 19,986,605 Current Liabilities 32,184,415 60,638,852 (28,454,437) Long-term Liabilities 29,725,051 27,949,059 1,775,992 Total Liabilities Capital Stock Capital Surplus 61,909,466 88,587,911 (26,678,445) 247,300,246 232,519,637 14,780,609 57,117,886 56,537,259 580,627 Retained Earnings 142,771,034 113,730,016 29,041,018 Total Shareholders' Equity 445,630,349 398,965,299 46,665,050 % 14 -6 20 4 -47 6 -30 6 1 26 12 1.1 Analysis of Deviation over 20% ● The increase in other assets was mainly due to an increase of deferred tax assets for new equipment tax credits. ● The decrease in current liabilities was primarily due to a decrease in equip- ment payables and a repayment of corporate bonds. ● The increase in retained earnings was due to the operating results in 2005, partially offset by 2004 earnings distribution. 1.2 Major Impact on Financial Position There was no significant impact on financial position. 1.3 Future Plan on Financial Position: Not Applicable 2. Operating Results Unit: NT$ thousands Item Gross Sales 2005 2004 Difference 270,315,064 260,726,896 9,588,168 Sales Returns and Allowances (5,726,700) (4,734,469) (992,231) Net Sales Cost of Sales Gross Profit 264,588,364 255,992,427 8,595,937 149,344,315 145,831,843 3,512,472 115,244,049 110,160,584 5,083,465 Operating Expenses 22,230,225 23,337,806 (1,107,581) Operating Income 93,013,824 86,822,778 6,191,046 Non-operating Income and Gains 5,072,009 6,785,048 (1,713,039) Non-operating Expenses and 4,266,410 1,829,242 2,437,168 Losses Income before Tax 93,819,423 91,778,584 2,040,839 Income Tax Benefits (Expenses) (244,388) 537,531 (781,919) Income after Tax 93,575,035 92,316,115 1,258,920 45 % 4 21 3 2 5 -5 7 -25 133 2 -145 1 2.1 Analysis of Deviation over 20% ● Increase in sales returns and allowances: The sales returns and allowances increased as a result of increase in sales and anticipated sales returns and allowances. ● Decrease in non-operating income and gains: The decrease was primarily due to a reduction in investment income, partially offset by a higher inter- est income as a result of increased investment in bonds. ● Increase in non-operating expenses and losses: The increase was mainly due to higher interest expenses and an increase in investment loss. ● Increase in income tax expenses: The increase was primarily due to a higher taxable income. 2.2 Reasons for changing the Company's major business; explain the vari- ance 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". 3. Cash Flow Unit: NT$ thousands Cash Balance 12/31/2004 Net Cash Provided by Operating Activities in 2005 Net Cash used in Investing and Financing Activities in 2005 Cash Balance 12/31/2005 Remedy for Cash Shortfall Investment Plan Financing Plan 65,531,818 150,479,795 (130,628,030) 85,383,583 - - 3.1 Analysis of Cash Flow ● NT$150.5 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization. ● NT$73 billion net cash used in investing activities: Primarily for capital expenditures. ● NT$57.6 billion net cash used in financial activities: Mostly for the payout of cash dividends and repayment of corporate bonds. 3.2 Remedy for Cash Shortfall As a result of positive cash flows and ample cash on-hand, remedial actions are not required. 3.3 Cash Flow Projection for Next Year: Not applicable 46 4. Financial Impacts of Major Capital Expenditures 4.1 Major Capital Expenditure and Sources of Funding Unit: NT$ thousands Plan Production Facilities and Equipment R&D Equipment Actual or Planned Source of Capital Actual or Planned Completion Date Total Amount as of 12/31/2005 Status of Actual or Projected Use of Capital 2003 2004 2005 2006 (Note) Cash flow generated from opera- tions and Issuance of bonds Completed Cash flow generated from opera- tions and Issuance of bonds Completed 171,408,446 31,467,451 71,078,377 68,862,618 8,732,890 2,892,584 2,000,055 3,840,251 (Note) (Note) Note: 2006 capital expenditures will be in the range of US$2.6 billion to US$2.8 billion for TSMC and its subsidiaries, including production facilities and equipment, R&D equipment and other assets. 4.2 Expected Future Benefits 6.2 Management of Financial Operations With the above-mentioned capital expenditures, it is estimated that TSMC Existing internal policies and procedures with respect to high-risk/high-leveraged annual production capacity will increase by approximately 1 million 8-inch investment; lending, endorsements and guarantees for other parties; and finan- equivalent wafers in 2006. In addition, 2007 and 2008 production capacity cial derivatives transactions, and measures to be taken in response to the poten- will also increase. tial risks. TSMC did not make high-risk or high-leveraged financial investments during Other benefits, including technology advancements, efficiency and quality 2005 and up to the date of this report. To control various types of financial improvements, and environmental protections, please refer to "Operational transactions, the Company has established internal policies and procedures Highlights". based on sound financial and business practices, all in compliance with the relevant rules and regulations issued by the Taiwan Securities and Futures 5. Investments Exceeding 5% of Company's Paid-in Capital in Commission. TSMC policies and procedures include "Policies and Procedures 2005: None 6. Risk Management 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 6.1 Environmental, Safety and Health (ESH) Risk, Emergencies and Natural and not for any trading or speculative purpose. Disasters TSMC is committed to maintaining a comprehensive risk management system Covenants dedicated to the conservation of natural resources, safety of people, and pro- TSMC Development, Inc. and TSMC North America, TSMC's wholly owned tection of property. In order to effectively handle emergencies and natural dis- subsidiaries, have separately entered into loan facility agreements. As of asters at each facility, management has developed comprehensive plans and December 31, 2005, TSMC provided guarantees of up to US$100 million in procedures that focus on loss prevention, emergency response, crisis manage- aggregate in connection with those agreements. As of the date of this ment, and business recovery. TSMC has adopted international standards for Annual Report, only US$60 million related to TSMC Development, Inc. ESH management. All TSMC Fabs (Fab 2, 3, 5, 6, 7, 8, 12 and 14) have been remained outstanding. Customary Borrower and/or Guarantor covenants ISO 14001 certified (Environment Management System) and OHSAS 18001 exist in those agreements. certified (Occupational Health and Safety Management System). 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 business. In order to limit its exposure to interest rate risks, TSMC finances its funding needs through issuance of long-term, fixed-rate debt. On the asset side, the primary objective of our investments in fixed income securities is to preserve principal Other than the matters described above, we were not involved in any other in highly liquid markets. In order to maintain our liquidity profile, majority of material litigation in 2005 and are not currently involved in any material liti- fixed income securities are at the short end of the yield curve. gation. Foreign Exchange Volatility 6.7 Potential Benefits and Risks Associated with Mergers and Acquisitions Over half of our capital expenditures and manufacturing costs are denomi- In 2005, and as of the date of this Annual Report, TSMC did not consum- nated in currencies other than NT dollars, primarily U.S. dollars, Japanese mate any merger and acquisition activities. yen and Euros. A larger portion of our sales is denominated in U.S. dollars and currencies other than NT dollars. Therefore, any significant fluctuation 6.8 Potential Benefits and Risks Associated with Capacity Expansion to our disadvantage in such exchange rate may have an adverse effect on To meet customer demand, TSMC increased its annual production capacity our financial condition. TSMC hedged its foreign exchange exposure result- by approximately 1.2 million 8-inch equivalent wafers in 2005. The average ing from its assets and liabilities mainly through currency forward contracts. utilization rates for each of the four quarters of 2005 were 78%, 85%, 96%, Inflation and 104%, respectively. As of the date of this Annual Report, the benefits brought about by such capacity expansion have been in line with TSMC's Inflation in Taiwan was approximately 2.2% in 2005. It did not have a signif- expectations. icant impact on our operations and profits. 47 6.4 Political and Regulatory Environment TSMC procures raw materials from multiple sources whenever possible to TSMC's management team closely monitors political and regulatory develop- ensure adequate supplies for volume production and to mitigate purchase ments that could have a material impact on TSMC's business and operations. concentration risk. However, we procure some of our raw materials from Political and regulatory developments did not have a material effect on sole-source suppliers. TSMC continues to look for ways to multi-source those TSMC during 2005. raw materials. 6.9 Potential Risks Associated with Purchase or Sales Concentration Since TSMC is also an NYSE-listed company, TSMC is required to comply with In 2004 and 2005, our ten largest customers have accounted for 49% and the provisions of the Sarbanes-Oxley Act and other regulations applicable to 52%, respectively, of our net sales. In particular, our largest customer in non-US companies. TSMC has taken measures to monitor its compliance 2005 accounted for approximately 11% of our net sales in 2005. The fact with applicable regulatory requirements, and will continue to update itself that a relatively limited number of customers constitute a significant portion on regulatory developments and implement changes in policies and proce- of our revenue may remain as a business characteristic inherent to our exten- dures as necessary with a view to maintain compliance. sive presence in the dedicated foundry segment of the semiconductor mar- 6.5 Contingent Plans for Events That May Have a Significant Adverse Impact ket. on the Company's Business and Image 6.10 Potential Impact and Risks Associated with Sales of Significant TSMC pays special attention to emergency preparedness for disasters such as Numbers of Shares by TSMC's Directors, Supervisors and Major typhoons, earthquakes, and environmental contamination. We have estab- Shareholders Who Own 10 Percent or More of TSMC's Total lished contingency plans, which include the establishment of emergency task Outstanding Shares forces when necessary, the preparation of a thorough analysis of the emer- One or more of our existing shareholders may, from time to time, dispose of gency, its impact, alternatives, and solutions for each possible scenario, and significant numbers of common shares or ADSs. In October 2003, one of appropriate precautionary and/or recovery measures. Each task force's our two largest shareholders, Philips, announced its intention to gradually responsibility would be to ensure TSMC's ability to conduct business while and orderly reduce its equity interest in us and reiterated this intention in minimizing personal injuries, business disruption, and financial impact under May 2005. In August and September 2005, Philips sold an additional the circumstances. For the year 2005 and up to the date of this Annual 113,521,000 ADSs. Moreover, our other major shareholder, the Report, there are no reportable material events that have necessitated the Development Fund, has sold ADSs in several transactions since 1997, includ- activation of such contingency plans. 6.6 Legal Proceedings ing 44,172,500 ADSs in August and September 2005. Both Philips and the Development Fund agreed not to sell any more TSMC shares either in Taiwan or on international markets until at least the end of 2006. As is the case with many companies in the semiconductor industry, we have received from time to time communications from third parties asserting that 6.11 Potential Impact and Risks Associated with Replacement of our technologies, manufacturing processes, the design of the integrated cir- Management cuits made by us or the use by our customers of semiconductors made by us On May 10, 2005, the TSMC Board of Directors approved the appointment may infringe upon patents or other intellectual property rights of others. In of Dr. Rick Tsai as TSMC's Chief Executive Officer, effective as of July 1, 2005. some instances, these disputes have resulted in litigation by or against us Dr. Morris Chang and Dr. F. C. Tseng continue to serve as Chairman and Vice and certain settlement payments by us in some cases. Irrespective of the Chairman of the Board respectively. validity of these claims, we could incur significant costs in the defense there- of or could suffer adverse effects on our operations. 6.12 Other Material Risks To protect its intellectual capital, trade secrets and other assets, TSMC may has not become aware of any other risk event with a material impact on the initiate, as appropriate, litigation against third parties. In December 2003, financial status of the Company. During 2005 and up to the date of this Annual Report, TSMC's management we commenced legal action in several forums against SMIC and certain of its subsidiaries for several causes of action including but not limited to patent infringement and trade secret misappropriation. These actions were settled out of court on January 30, 2005. As part of the settlement agreement, SMIC will pay TSMC US$175 million over six years to resolve TSMC's patent infringement and trade secret claims. 48 SPECIAL NOTES 1. Affiliates Information 1.1 TSMC Affiliated Companies Chart Taiwan Semiconductor Manufacturing Company, Ltd. As of 12/31/2005 TSMC North America Shareholding: 100% TSMC Japan K.K. Shareholding: 100% TSMC International Investment Ltd. Shareholding: 100% TSMC Europe B.V. Shareholding: 100% TSMC Partners, Ltd. Shareholding: 100% TSMC (Shanghai) Company Ltd. Shareholding: 100% Chi Cherng Investment Co., Ltd. Shareholding: TSMC: 35.71% Hsin Ruey: 64.29% Hsin Ruey Investment Co., Ltd. Shareholding: TSMC: 35.71% Chi Cherng: 64.29% Emerging Alliance Fund, L.P. Shareholding: 99.5% VentureTech Alliance Fund II, L.P. Shareholding: 98% Global Unichip Corp. Shareholding: 45.68% TSMC Technology, Inc. Shareholding: 100% TSMC Development, Inc. Shareholding: 100% InveStar Semiconductor Development Fund, Inc. Shareholding: 97.09% InveStar Semiconductor Development Fund, Inc. (II) LDC. Shareholding: 97.09% WaferTech, LLC. Shareholding: 99.996% Global Unichip Corp.-NA Shareholding: 100% Global Unichip Corp.-JP Shareholding: 100% 1.2 TSMC Affiliated Companies Unit: NT(US, EUR, JPY) $ thousands Company TSMC North America TSMC Europe B.V. TSMC Japan K.K. Date of Incorporation Address Paid-in Capital Business Activities Jan. 18, 1988 San Jose, California, USA US$ 11,000 Sales and marketing of integrated circuits and semiconductor devices Mar. 04, 1994 Amsterdam, The Netherlands EUR 90.76 Marketing activities Sep. 10, 1997 Yokohama, Japan JPY 300,000 Marketing activities 49 As of 12/31/2005 TSMC (Shanghai) Company Limited Aug. 04, 2003 Shanghai, China US$ 371,000 Manufacturing and marketing of integrated circuits and semiconductor devices TSMC International Investment Ltd. Apr. 09, 1996 Tortola, British Virgin Islands US$ 987,968 Investing in companies involved in the design, manufacturing, and other related business in the semiconductor industry TSMC Technology, Inc. Feb. 20, 1996 Delaware, USA US$ 0.001 Engineering support activities InveStar Semiconductor Development Fund, Inc. Sep. 10, 1996 Cayman Islands US$ 19,060 Investing in new start-up technology companies InveStar Semiconductor Development Fund, Inc.(II) LDC. Aug. 25, 2000 Cayman Islands US$ 52,839 Investing in new start-up technology companies TSMC Development, Inc. Feb. 16, 1996 Delaware, USA US$ 0.001 Investment activities WaferTech, LLC Jun. 03, 1996 Washington, USA US$ 715,403 Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices TSMC Partners, Ltd. Mar. 26, 1998 Tortola, British Virgin Islands US$ 300 Investment activities Emerging Alliance Fund, L.P. Jan. 10, 2001 Cayman Islands US$ 45,601 Investing in new start-up technology companies Hsin Ruey Investment Co., Ltd. Jul. 13, 1998 Taipei, Taiwan NT$ 840,000 Investment activities Chi Cherng Investment Co., Ltd. Jul. 15, 1998 Taipei, Taiwan NT$ 840,000 Investment activities Global Unichip Corporation Jan. 22, 1998 Hsin-Chu, Taiwan NT$ 878,791 Developing, manufacturing, testing and marketing integrated circuits VentureTech Alliance Fund II, L.P. Feb. 27, 2004 Cayman Islands US$ 20,000 Investing in new start-up technology companies Global Unichip Corporation-JP Jun. 16, 2005 Yokohama, Japan JPY 100,000 Marketing activities Global Unichip Corporation-NA Feb. 02, 2004 San Jose, California, USA US$ 100 Providing consulting services for the North America region 1.3 Business Scope of TSMC and its Affiliated Companies 1.4 Common Shareholders of TSMC and Its Subsidiaries or Its Affiliates with TSMC and its affiliates work together to provide dedicated foundry services Actual or Deemed Control: None to our customers around the world. In addition, several of TSMC's affiliate companies are focused on investing in companies involved in design, manu- facture, and other related business in the semiconductor industry. In general, TSMC and its affiliates provide cross support in technology, capacity, market- ing 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. 1.5 Rosters of Directors, Supervisors, and Presidents of TSMC's Affiliated Companies Unit : NT$, except shareholding Company TSMC North America TSMC Europe B.V. TSMC Japan K.K. 50 TSMC (Shanghai) Company Limited TSMC International Investment Ltd. TSMC Technology, Inc. Title Director Director President Director Director Director President Chairman Director Director Director Supervisor President Chairman Director Director Supervisor President Director Director President Chairman Director President Name Kenneth Kin Rick Cassidy Rick Cassidy Wendell Huang Kenneth Kin Kees den Otter Kees den Otter Rick Tsai Kenneth Kin Makoto Onodera Hisao Baba Lora Ho Hisao Baba F. C. Tseng C. C. Wei Y. C. Chao Lora Ho Y. C. Chao Lora Ho Dick Thurston Lora Ho Lora Ho Dick Thurston Lora Ho InveStar Semiconductor Development Fund, Inc. Director Wendell Huang InveStar Semiconductor Development Fund, Inc.(II) LDC. Director Wendell Huang TSMC Development, Inc. WaferTech, LLC TSMC Partners, Ltd. VentureTech Alliance Fund II, L.P. Emerging Alliance Fund, L.P. Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. Chairman Director President Chairman Director President Director Director President None None Director Director Lora Ho Dick Thurston Lora Ho Rick Tsai Steve Tso Kuo-Chin Hsu Lora Ho Dick Thurston Lora Ho None None Wendell Huang (Representative of Chi Cherng Investment Co., Ltd.) James Chen (Representative of Hsin Ruey Investment Co., Ltd.) Shareholding Amount - - - (TSMC holds 11,000,000 shares) - - - - (TSMC holds 200 shares) - - - - - - (TSMC holds 6,000 shares) - - - - - (TSMC's investment US$371,000,000) - - - (TSMC holds 987,968,244 shares) - - - (TSMC International Investment Ltd. holds 1,000 shares) - (TSMC International Investment Ltd. holds 18,504,854shares) - (TSMC International Investment Ltd. holds 51,300,000 shares) - - - (TSMC International Investment Ltd. holds 1,000 shares) - - - (TSMC Development, Inc. holds 293,636,833 Preferred Shares) - - - (TSMC holds 300,000 shares) (TSMC's investment US$ 19,650,000) (TSMC's investment US$ 45,600,503) (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$299,999,880) As of 12/31/2005 % - - - (100) - - - - (100) - - - - - - (100) - - - - - (100) - - - (100) - - - (100) - ( 97.09) - ( 97.09) - - - (100) - - - (99.996) - - - (100) (98) (99.50) (64.29) (35.71) (64.29) (35.71) (Continued) Company Title Name Amount Global Unichip Corporation Global Unichip Corporation-NA Global Unichip Corporation-JP Chairman Vice Chairman Director Director Director Director Director Director Supervisor Supervisor Supervisor President Director Director Supervisor President Director Director Director Supervisor President F. C. Tseng (Representative of TSMC) K. C. Shih C. C. Lu (Representative of Chin Yu Investment Ltd.) Ping Yang (Representative of TSMC) Jim Lai (Representative of TSMC) C. T. Hsing W. C. Liu S. C. Li Lora Ho (Representative of TSMC) C. H. Kao Yu Lin Jim Lai S. H. Cheng Jim Lai K. C. Shih Jim Lai Jim Lai Chung-Lin Tsai S. H. Cheng K. C. Shih Chung-Lin Tsai Shareholding (TSMC holds 40,146,953 shares) 3,159,878 shares (Chin Yu holds 1,295,896 shares) - - 0 0 0 - 0 0 0 - - - - (GUC holds 100,000 shares) - - - - - (GUC holds 1,000,000 shares) % (45.68) 3.60 (1.47) - - 0 0 0 - 0 0 0 - - - - (100) - - - - - (100) 51 1.6 Operational Highlights for TSMC Affiliated Companies (Note) Unit: NT$ thousands, except EPS($) Company Capital Stock Assets Liabilities Net Worth Net Sales Income from Operation Net Income (net of tax) Basic EPS (net of tax) As of 12/31/2005 Remark TSMC North America TSMC Europe B.V. TSMC Japan K.K. 361,350 25,146,587 23,160,659 1,985,928 154,555,174 273,253 564,201 3,554 84,210 56,491 115,309 33,404 20,360 23,087 94,949 221,103 241,876 25,484 10,639 295 2,572 TSMC (Shanghai) Company Limited 12,497,434 18,432,089 8,993,233 9,438,856 1,381,413 (2,418,311) (2,242,213) TSMC International Investment Ltd. 32,454,757 34,643,111 10,730,299 23,912,812 (416,752) (416,752) (549,454) TSMC Technology, Inc. 0.033 1,866,398 1,680,892 626,121 756,398 18,062 185,506 738,336 75,164 157,190 (3,131) 137,513 3,321 110,251 InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc.(II) LDC. 52 TSMC Development, Inc. WaferTech, LLC TSMC Partners, Ltd. 1,735,761 1,133,002 1,176 1,131,826 47,422 1,630 (35,887) (0.66) 0.033 12,667,822 1,156,187 11,511,635 169,666 169,666 1,612,513 1,612,513.00 715,403 12,856,520 889,909 11,966,611 11,009,893 1,676,805 1,698,742 9,855 12,974,684 8,883,518 4,091,166 0 2,548 2,788 854,808 1,503,394 1,502,769 69,258 0 81,023 81,004 438,001 1,018,419 1,591,223 0 810 3,270 655,591 2,162 4,715 4,222 2,349 27,766 69,258 (32,232) 77,085 77,024 64,172 (20,531) (694) 1,322 46,656 (77,208) 77,257 77,196 106,748 (19,044) (675) 1,193 51.29 1,475.00 428.67 N/A (0.56) 3,321.00 5.62 N/A 155.52 N/A N/A N/A 1.22 N/A (0.67) 11.93 * * * * * Emerging Alliance Fund, L.P. 1,497,993 854,808 Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. Global Unichip Corporation VentureTech Alliance Fund II, L.P. Global Unichip Corporation-JP Global Unichip Corporation-NA * Based on U.S. GAAP. 840,000 840,000 878,791 657,000 2,807 3,285 1,505,942 1,505,557 1,456,420 655,591 2,972 7,984 NOTE: Foreign exchange rates for balance sheet amounts are as follows: $1 USD = $32.850 NT $1 EUR = $ 39.050 NT $1 JPY = $ 0.2807 NT $1 RMB = $ 4.070 NT Foreign exchange rates for income statement amounts are as follows: $1 USD = $32.157 NT $1 EUR = $ 40.18 NT $1 JPY = $ 0.2936 NT $1 RMB = $ 3.925 NT 2. Information Regarding the Company's Independent Auditor Fees Paid to the Company's Independent Auditor in 2005 Non-audit fees paid to the Company's independent audit firm and its affili- ates did not exceed 25% of the audit fees paid in 2005. The 2005 audit fees paid to the Company's independent auditor were not reduced by more than 15% compared to that in 2004. The Company did not replace its independent auditor during 2004, 2005 and as of February 28, 2006. The Company's Chairman, CEO, CFO and managers in charge of its finance and accounting operations have not held any positions within the Company's inde- pendent audit firm or its affiliates during 2005. 3. Internal Control System Execution Status 3.1 Statement of Internal Control System Date: February 14, 2006 Statement of Internal Control System Based on the findings of a self-assessment, Taiwan Semiconductor 5. Based on the findings of the evaluation mentioned in the preceding Manufacturing Company Limited (TSMC) states the following with regard paragraph, TSMC believes that, during the year 2005, its internal control to its internal control system during the period from January 1, 2005 to system (including its supervision and management of subsidiaries), as December 31, 2005: well as its internal controls to monitor the achievement of its objectives concerning operational effectiveness and efficiency, reliability of financial 1. TSMC is fully aware that establishing, operating, and maintaining an reporting, and compliance with applicable laws and regulations, were internal control system are the responsibility of its Board of Directors effective in design and operation, and reasonably assured the achieve- 53 and management. TSMC has established such a system aimed at provid- ment of the above-stated objectives. ing reasonable assurance regarding the achievement of objectives in the following categories: (1) effectiveness and efficiency of operations 6. This Statement will be an integral part of TSMC's Annual Report for the (including profitability, performance, and safeguarding of assets), (2) year 2005 and Prospectus, and will be made public. Any falsehood, con- reliability of financial reporting, and (3) compliance with applicable laws cealment, or other illegality in the content made public will entail legal and regulations. liability under Articles 20, 32, 171, and 174 of the Securities and 2. An internal control system has inherent limitations. No matter how per- Exchange Law. fectly designed, an effective internal control system can provide only rea- 7. This Statement has been passed by the Board of Directors in their meet- sonable assurance of accomplishing the three objectives mentioned ing held on February 14, 2006, with zero of the eight attending direc- above. Moreover, the effectiveness of an internal control system may be tors expressing dissenting opinions, and the remainder all affirming the subject to changes of environment or circumstances. Nevertheless, the content of this Statement. 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 (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 assess- ment, (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 inter- nal control system according to the aforesaid criteria. 3.2 The Securities and Futures Bureau May Request Companies to Commission Independent Auditor to Audit the Said Internal Control System. Disclosure of the Audit Report(s) is Mandatory: None Taiwan Semiconductor Manufacturing Company Limited Morris Chang, Chairman Rick Tsai, President and CEO 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 During 2005 or the Period from January 1, 2006 to March 12, 2006: None 5. Private Placement Securities: None 6. Status of TSMC Common Shares/ADRs Acquired, Disposed of and Held by Subsidiaries (In thousands of NTD except for number of shares) Paid-in Capital Source of Funding Percentage Owned by TSMC Transaction Date Acquisition (Note 2) Disposal Number of Shares Amount Number of Shares Amount 54 Name of Subsidiary (Note 1) Chi Cherng Investment Co., Ltd. Hsin Ruey Investment Co., Ltd. TSMC North America 840,000 840,000 US$ 11,000 Retained earnings Retained earnings Retained earnings 36% 36% 100% Year 2005 Year 2006 (Note 1) Year 2005 Year 2006 (Note 1) Year 2005 Year 2006 (Note 1) 783,472 0 784,941 0 673,420 0 0 0 0 0 0 0 Investment Income (Loss) 0 0 0 0 Balance (Note 1) Number of Shares 16,453,816 16,453,816 Amount 458,564 458,564 16,484,658 16,484,658 459,511 459,511 0 0 0 0 0 0 0 0 14,824,571 0 899,489 0 222,378 0 0 0 0 0 Balance of Pledged Shares Balance of Guarantee Provided by TSMC Balance of Financing Provided by TSMC 0 0 0 0 0 0 0 0 0 0 US$ 40,000 0 0 0 0 0 0 0 Note 1: As of 02/28/2006 Note 2: Stock dividend distributed in 2005 7. Major Decisions of Shareholder Meetings and Board 8. Regulatory Authorities' Legal Penalties to the Company, Meetings Review of Shareholder Meeting and the Company's Resulting Punishment on Its Employees: None TSMC's 2005 regular Shareholder Meeting was held at the Auditorium of the 9. Any Events in 2005 that had Significant Impacts on Activity Center of the Hsinchu Science Park on May 10, 2005. At the meet- ing, shareholders present in person or by proxy approved the following reso- lutions: (1) Acceptance of the 2004 business report and financial statements; (2) Distribution of 2004 profits; (3) Revisions to the Articles of Incorporation. 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 Review of Board Meetings During the 2005 calendar year, and the period from January 1 to March 12, 2006, the Board held five regular meetings and one special meeting. Major resolutions passed at these meetings are summarized below: (1) The 2004 business report and financial statements; (2) Distribution of 2004 profits; (3) Convening the 2005 Annual Shareholder Meeting; (4) 2005 R&D projects and sustaining capital appropriation; (5) The appointment of Mr. Jason Chen as Vice President; (6) The appointment of Dr. Rick Tsai as Chief Executive Officer; (7) Election of Dr. F. C. Tseng as Vice Chairman of the Board of Directors; (8) TSMC's sponsoring of the issuance of ADRs by Koninklijke Philips Electronics N.V., the Development Fund of the Executive Yuan, and certain other shareholders; (9) The 2005 semi-annual financial statement; (10) The investment to establish a new venture capital fund; (11) The pro- motion of Dr. C. C. Wei as Senior Vice President; (12) The promotion Dr. Mark Liu as Senior Vice President; (13) The appointment of Ms. Jessica Chou as Controller; (14) The 2005 business report and financial statements; (15) Distribution of 2005 profits and capitalization of capital surplus; (16) Convening the 2006 Annual Shareholder Meeting; and (17) 2006 R&D proj- ects and sustaining capital appropriation, etc. 1. Condensed Balance Sheet 2. Condensed Statement of Income Financial analysis from 2001-2005 Financial analysis from 2001-2005 Unit: NT$ thousands Unit: NT$ thousands (Except EPS:NT$) Item Current assets 2001 2002 2003 2004 2005 63,652,726 94,747,405 158,526,272 173,667,311 197,562,416 Item Net sales 2001 2002 2003 2004 2005 125,888,003 160,961,329 201,904,341 255,992,427 264,588,364 Long-term investments 32,869,391 34,978,495 37,965,353 73,292,863 80,659,601 Gross profit 36,381,051 51,967,145 72,891,637 110,160,584 115,244,049 55 Fixed assets Other assets Current liabilities Before distribution After distribution 215,499,242 217,192,263 188,286,752 227,976,400 214,145,633 Income from operations 17,342,286 34,176,306 52,647,577 86,822,778 93,013,824 23,713,325 23,097,348 11,638,485 12,616,636 15,172,165 Non-operating Income and Gains 2,891,557 1,762,893 2,665,799 6,785,048 5,072,009 25,210,619 31,160,103 30,537,984 60,638,852 32,184,415 Interest revenue 1,365,919 1,008,147 819,377 1,687,681 2,769,978 25,799,467 31,673,588 43,691,881 110,460,630 * Interest expense 1,951,830 2,119,935 1,576,343 1,278,072 2,429,568 Non-operating Expenses and Losses 9,575,128 8,826,744 4,285,101 1,829,242 4,266,410 Long-term liabilities 24,000,000 39,281,665 33,300,829 23,752,940 22,111,575 Income from operations of continued seg- ments-before tax 10,658,715 27,112,455 51,028,275 91,778,584 93,819,423 Other liabilities Capital stock Capital surplus Retained earnings Before distribution After distribution 9,333,990 3,720,536 3,363,740 4,196,119 7,613,476 181,325,531 199,228,867 202,666,189 232,519,637 247,300,246 57,128,433 57,004,789 56,855,885 56,537,259 57,117,886 37,507,410 40,792,197 71,100,090 113,730,016 142,771,034 19,015,226 23,841,390 26,846,412 49,195,999 Income from operations of continued seg- ments-after tax Net income Earnings per share Adjusted earnings per share Unrealized loss on long-term investment - (194,283) (35) - 14,483,174 21,610,291 47,258,700 92,316,115 93,575,035 14,483,174 21,610,291 47,258,700 92,316,115 93,575,035 0.83* 0.58** 1.14* 0.87** 2.33* 1.90** 3.97* 3.73** 3.79* - - * - Capitalized interest 207,297 165,857 138,668 262,109 *Based on weighted average shares outstanding in each year Cumulative transaction adjustments 1,228,701 945,129 225,408 (2,226,427) (640,742) **Retroactive adjustment for capitalization of unappropriated earnings and bonus to employees Total Assets Total Liabilities Before distribution After distribution Total Equity Before distribution After distribution 335,734,684 370,015,511 396,416,862 487,553,210 507,539,815 58,544,609 74,162,304 67,202,553 88,587,911 61,909,466 59,133,457 74,675,789 80,356,450 138,409,689 * 277,190,075 295,853,207 329,214,309 398,965,299 445,630,349 276,601,227 295,339,722 316,060,412 349,143,521 * *Subject to change after shareholders' meeting resolution 3. Financial Analysis 3.1 Financial Analysis 2001-2005 (Unconsolidated) Capital Structure Analysis Debt ratio (%) Liquidity Analysis Long-term fund to fixed assets ratio (%) Current ratio (%) Quick ratio (%) Times interest earned (times) Operating Performance Analysis 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) Profitability Analysis Return on total assets (%) Return on equity (%) Operating income to paid in capital ratio (%) Pre-tax income to paid in capital ratio (%) Net Margin (%) Earnings per share (NT$) (Note1) Cash flow Cash flow ratio (%) Leverage Cash flow adequacy ratio (%) Cash flow reinvestment ratio (%) Operating leverage Financial leverage 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 11.50 0.58 284.27 105.73 16.00 6.14 1.13 2002 20.04 154.30 304.07 264.11 12.79 9.09 40.15 11.57 31.55 20.72 0.74 0.44 6.63 7.54 17.15 13.61 13.43 0.87 302.59 122.72 17.88 3.88 1.07 2003 16.95 192.53 519.11 478.38 30.67 9.19 39.74 12.14 30.06 14.41 1.07 0.51 12.67 15.12 25.98 25.18 23.41 1.90 355.85 145.42 17.71 3.21 1.03 2004 18.17 185.42 286.40 261.92 57.67 9.35 39.04 11.63 31.39 14.39 1.12 0.53 21.16 25.36 37.34 39.47 36.06 3.73 236.94 149.94 18.12 2.46 1.02 56 2005 12.2 218.42 613.84 560.93 39.62 8.08 45.18 9.82 37.19 14.24 1.24 0.52 19.23 22.16 37.61 37.94 35.37 3.79 467.55 150.84 12.48 2.30 1.03 Analysis of Deviation over 20% - 2005 vs. 2004: 1. The debt ratio decreased by 33% as a result of a decrease in current liabilities. The reduction in current liabilities was mainly due to decrease in payables to equipment vendors and the repayment of corporate bonds. 3. The times interest earned decreased by 31% mainly due to an increase in interest expenses related to cross currency swap contracts. 4. The cash flow ratio increased by 97% mainly due to a decrease in current liabilities. 5. The cash flow reinvestment ratio decreased by 31%, mainly due to acquisition of new equipment and an increase of working capital and cash dividend. 2. The current ratio and the quick ratio both increased by 114%, primarily due to an increase in cash and cash equivalents and a decrease in current liabili- ties. Note1: Retroactively adjusted for capitalization of unappropriated earnings and bonuses to employees. Note2: Certain accounts of prior years have been reclassified to conform to current year classifications. *Glossary: 1. Capital Structure Analysis (1) Debt ratio (2) Long-term fund to fixed assets ratio = Total Liabilities / Total Assets = (Shareholders' Equity + Long-term Liabilities)/ Net Fixed Assets (2) Days sales outstanding (3) Average inventory turnover (4) Average inventory turnover days (5) Average payment turnover (6) Fixed assets turnover (7) Total assets turnover = 365 / Average Collection Turnover = Cost of Sales / Average Inventory = 365 / Average Inventory Turnover rate = Cost of Sales / Average Trade Payables = Net Sales / Net Fixed Assets = Net Sales / Total Assets 4. Profitability Analysis 2. Liquidity Analysis (1) Current ratio (2) Quick ratio = Current Assets / Current Liabilities = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities (2) Return on equity (3) Operating income to paid-in capital = Net Income / Average Shareholders' Equity = Operating Income / Paid-in Capital Average Total Assets (1) Return on total assets = (Net Income + Interest Expenses* (1 - Effective tax rate ) ) / (3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses ratio 3. Operating Performance Analysis (1) Average collection turnover = Net Sales / Average Trade Receivables (4) Pre-tax income to paid-in capital ratio (5) Net margin = Income Before Tax / Paid-in Capital = Net Income / Net Sales (6) Earnings per share = (Net Income - Preferred Stock Dividend) / Weighted Average Number of Shares Outstanding 5. Cash flow (1) Cash flow ratio (2) Cash flow adequacy ratio = Net Cash Provided by Operating Activities / Current Liabilities = Five-year sum of cash from operations / Five-year sum of capital expenditures, inventory additions, and cash dividend (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) / 6. Leverage (1) Operating leverage (2) Financial leverage (Gross Fixed Assets + Investments + Other Assets + Working Capital) = (Net Sales - Variable Cost) / Income from Operations = Income from Operations / (Income from Operations - Interest Expenses) 3.2 Financial Analysis 2001-2005 (Consolidated) Capital Structure Analysis Debt ratio(%) Liquidity Analysis Long-term fund to fixed assets ratio (%) Current ratio (%) Quick ratio (%) Times interest earned (times) Operating Performance Analysis Average collection turnover (times) 57 Days sales outstanding Average inventory turnover (times) Average inventory turnover days Average payment turnover (times) Fixed assets turnover (times) Total assets turnover (times) Profitability Analysis Return on total assets (%) Return on equity (%) Operating income to paid-in capital ratio (%) Pre-tax income to paid-in capital ratio (%) Net Margin (%) Earnings per share (NT$) (Note1) Cash flow Cash flow ratio (%) Leverage Cash flow adequacy ratio (%) Cash flow reinvestment ratio (%) Operating leverage Financial leverage 2001 24.34 128.82 212.43 174.78 3.82 5.60 65.17 8.16 44.75 13.60 0.50 0.34 4.54 5.39 7.05 5.95 11.54 0.58 227.48 88.10 15.86 8.18 1.33 2002 24.22 140.48 257.43 223.68 10.54 9.64 37.86 10.46 34.89 23.50 0.66 0.42 6.33 7.53 15.86 13.66 13.30 0.87 247.31 106.37 17.81 4.15 1.09 2003 19.17 175.65 547.46 502.20 26.14 9.44 38.65 10.98 33.24 15.43 0.96 0.50 12.30 15.12 25.31 25.25 23.28 1.90 381.44 132.59 17.97 3.23 1.04 2004 20.10 166.58 288.57 261.62 53.92 9.56 38.18 10.21 35.74 14.75 0.99 0.51 20.68 25.35 38.05 39.55 35.90 3.73 239.60 146.18 18.54 2.38 1.02 2005 14.10 194.69 604.33 549.58 36.40 8.08 45.20 8.91 40.94 14.37 1.09 0.51 18.89 22.15 36.78 38.12 35.13 3.79 447.05 154.48 12.62 2.31 1.03 Ananlysis of Deviation over 20% - 2005 vs. 2004: 1. The debt ratio decreased by 30% as a result of a decrease in current liabilities. The reduction in current liabilities was mainly due to a decrease in payables to equipment vendors and the repayment of corporate bonds. 2. The current ratio and the quick ratio both increased by around 109%, primarily due to an increase in cash and cash equivalents and a decrease in current liabilities. 3. The times interest earned decreased by 32%, mainly due to an increase in interest expenses related to cross currency swap contracts. 4. The cash flow ratio increased by 87% as a result of a decrease in current liabilities. 5. The cash flow reinvestment ratio decreased by 32%, mainly due to acquisition of new equipment and an increase of working capital and cash dividend. Note1: Retroactively adjusted for capitalization of unappropriated earnings and bonuses to employees. Note2: Certain accounts of prior years have been reclassified to conform to current year classifications. *Glossary: 1. Capital Structure Analysis (1) Debt ratio (2) Long-term fund to fixed assets ratio = Total Liabilities / Total Assets = (Shareholders' Equity + Long-term Liabilities) / Net Fixed Assets (2) Days sales outstanding (3) Average inventory turnover (4) Average inventory turnover days (5) Average payment turnover (6) Fixed assets turnover (7) Total assets turnover = 365 / Average Collection Turnover = Cost of Sales / Average Inventory = 365 / Average Inventory Turnover = Cost of Sales / Average Trade Payables = Net Sales / Net Fixed Assets = Net Sales / Total Assets 2. Liquidity Analysis (1) Current ratio (2) Quick ratio = Current Assets / Current Liabilities = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities (2) Return on equity (3) Operating income to paid-in capital = Net Income / Average Shareholders' Equity = Operating Income / Paid-in Capital Average Total Assets (3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses ratio 3. Operating Performance Analysis (1) Average collection turnover = Net Sales / Average Trade Receivables (4) Pre-tax income to paid-in capital ratio (5) Net margin = Income Before Tax / Paid-in Capital = Net Income / Net Sales (6) Earnings per share = ( Net Income - Preferred Stock Dividend ) / Weighted Average Number of Shares Outstanding 5. Cash flow (1) Cash flow ratio (2) Cash flow adequacy ratio = Net Cash Provided by Operating Activities / Current Liabilities = Five-year sum of cash from operations / Five-year sum of 6. Leverage (1) Operating leverage (2) Financial leverage capital expenditures, inventory additions, and cash dividend = ( Cash Provided by Operating Activities - Cash Dividends ) / ( Gross Fixed Assets + Investments + Other Assets + Working Capital ) = ( Net Sales - Variable Cost ) / Income from Operations = Income from Operations / ( Income from Operations - Interest Expenses ) 4. Profitability Analysis (3) Cash flow reinvestment ratio (1) Return on total assets = ( Net Income + Interest Expenses * (1 - Effective tax rate ) ) / 4. Condensed Interim Balance Sheet by Quarter ASSETS Current assets Long-term investments Property, plant and equipment, net Other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current liabilities Long-term liabilities Other liabilities TOTAL LIABILITIES SHAREHOLDERS' EQUITY Capital stock Capital surplus Retained earnings Cumulative translation adjustments Treasury stock (at cost) Total SHAREHOLDERS' EQUITY March 31, 2005 June 30, 2005 September 30, 2005 December 31, 2005 Amount % Amount % Amount % Amount % Unit: NT$ thousands 159,744,397 76,877,217 229,853,709 14,198,489 480,673,812 37,890,858 23,133,832 4,295,642 65,320,332 232,528,635 56,574,377 130,548,413 (2,725,918) (1,572,027) 415,353,480 33 16 48 3 100 8 5 1 14 48 12 27 (1) - 86 181,826,873 76,434,570 225,063,110 16,107,612 499,432,165 86,724,194 22,871,269 5,636,775 115,232,238 247,261,288 56,720,875 84,383,333 (2,612,996) (1,552,573) 384,199,927 37 15 45 3 100 17 5 1 23 50 11 17 (1) - 77 165,054,055 78,958,452 218,909,371 20,184,119 483,105,997 42,904,092 22,138,446 6,952,327 71,994,865 247,273,476 56,777,040 108,870,899 (260,171) (1,550,112) 411,111,132 34 16 45 5 100 9 5 1 15 51 12 22 - - 85 197,562,416 80,659,601 214,145,633 15,172,165 507,539,815 32,184,415 22,111,575 7,613,476 61,909,466 247,300,246 57,117,886 142,771,034 (640,742) (918,075) 445,630,349 58 39 16 42 3 100 6 4 2 12 49 11 28 - - 88 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 480,673,812 100 499,432,165 100 483,105,997 100 507,539,815 100 5. Condensed Interim Statement of Income by Quarter GROSS SALES SALES RETURNS AND ALLOWANCES NET SALES COST OF SALES GROSS PROFIT OPERATING EXPENSES INCOME FROM OPERATIONS 59 NON-OPERATING INCOME AND GAINS Interest Settlement income Technical service income Gain on disposal of property, plant and equipment Others Total Non-Operating Income and Gains NON-OPERATING EXPENSES AND LOSSES Interest Equity in losses (gains) of equity method investees, net Unrealized valuation loss (gain) on short-term investments Loss on sales of investments, net Loss (gain) on disposal of property, plant, equipment and idle assets Foreign exchange loss (gain), net Others Total Non-Operating Expenses and Losses INCOME BEFORE INCOME TAX INCOME TAX BENEFITS (EXPENSES) NET INCOME EARNINGS PER SHARE AFTER TAX Q1, 2005 Amount 56,413,097 759,880 55,653,217 34,004,376 21,648,841 5,572,265 16,076,576 780,062 569,276 77,111 60,707 68,272 1,555,428 583,273 198,178 257,718 64,473 37,922 200,614 24,485 1,366,663 16,265,341 553,056 16,818,397 0.68 % 100 61 39 10 29 1 1 - - - 2 1 - 1 - - - - 2 29 1 30 Q2, 2005 Amount 60,405,961 1,889,744 58,516,217 35,311,022 23,205,195 5,421,837 17,783,358 845,663 142,048 109,851 46,688 152,961 1,297,211 804,086 587,840 (216,251) 47,335 15,677 (2,930) 112,429 1,348,186 17,732,383 636,554 18,368,937 0.74 % 100 60 40 9 30 2 - - - - 2 1 1 - - - - - 2 30 1 31 Q3, 2005 Amount 70,460,608 1,202,993 69,257,615 38,732,259 30,525,356 5,595,480 24,929,876 820,660 - 136,014 41,619 27,543 1,025,836 860,791 491,169 222,601 22,632 6,966 (80,383) 11,470 1,535,246 24,420,466 67,100 24,487,566 0.99 % 100 56 44 8 36 1 - - - - 1 1 1 - - - - - 2 35 - 35 Q4, 2005 Amount 83,035,398 1,874,083 81,161,315 41,296,658 39,864,657 5,640,643 34,224,014 323,593 238,722 168,291 345,360 117,568 1,193,534 181,418 (225,142) 73,092 15,058 (573) (82,922) 55,384 16,315 35,401,233 (1,501,098) 33,900,135 1.37 % 100 51 49 7 42 1 - - 1 - 2 - - - - - - - - 44 (2) 42 Unit: NT$ thousands (Except EPS:NT$) 2005 Amount 270,315,064 5,726,700 264,588,364 149,344,315 115,244,049 22,230,225 93,013,824 2,769,978 950,046 491,267 494,374 366,344 5,072,009 2,429,568 1,052,045 337,160 149,498 59,992 34,379 203,768 4,266,410 93,819,423 (244,388) 93,575,035 3.79 % 100 56 44 8 35 1 1 - - - 2 1 1 - - - - - 2 35 - 35 6. Auditors' Opinions from 2001 to 2005 Year 2001 2002 2003 2004 2005 CPA Shu-Chieh Huang, Yung-Do Way Shu-Chieh Huang, Yung-Do Way Yu-Feng Huang, Yung-Do Way Hung-Wen Huang, Ming-Cheng Chang Hung-Wen Huang, Ming-Cheng Chang Audit Opinion An Unqualified Opinion A Modified Unqualified Opinion A Modified Unqualified Opinion An 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 7. Supervisors' Report 8. Financial Difficulties The Board of Directors has prepared and submitted to the Supervisors the Company's 2005 Business The Company should disclose the financial impact to the Company if the Company and its affiliated Report, Financial Statements, and proposal for allocation of profits. The CPA firm of Deloitte & Touche companies have any financial or cash flow difficulties from January 1, 2005 through February 28, was retained to audit TSMC's Financial Statements. The auditors have submitted to the Board a report 2006: None relating to the Financial Statements. The Business Report, Financial Statements, and profit allocation proposal 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. 60 Taiwan Semiconductor Manufacturing Company Limited Supervisor Michel Besseau Supervisor James C. Ho Supervisor Michael E. Porter March 8, 2006 9. Financial Statements for the Years Ended December 31, 2005 and 2004 and Independent Auditors' Report Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdiction. The standards, procedures and prac- tices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors' report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any dif- ference in the interpretation of the two versions, the Chinese-language auditors' report and financial statements shall prevail. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Limited We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2005 and 2004, and the related statements of income, changes in shareholders' equity and cash flows for the years then ended. These financial statements 61 are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants, and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examin- ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by man- agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in con- formity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China. We have also audited the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the years ended December 31, 2005 and 2004, and have expressed an unqualified opinion on such financial statements. January 12, 2006 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED BALANCE SHEETS DECEMBER 31, 2005 AND 2004 (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 and 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 22) 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 22) 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 Property, plant and equipment, net GOODWILL (Note 2) OTHER ASSETS Deferred charges, net (Notes 2, 8 and 21) Deferred income tax assets (Notes 2 and 12) Refundable deposits 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. $ 2005 Amount 85,383,583 47,055,347 21,050,604 20,591,818 (976,344) (4,269,969) 1,797,714 2,403,929 16,257,955 7,013,000 1,254,779 197,562,416 51,076,803 807,490 18,548,308 10,227,000 80,659,601 90,769,622 459,850,773 7,850,035 558,470,430 (359,191,829) 14,867,032 214,145,633 1,567,756 6,681,144 6,759,955 83,642 72,879 6,789 13,604,409 $ 2004 Amount 65,531,818 52,979,095 16,136,039 15,326,881 (980,461) (3,327,914) 1,667,383 2,080,640 14,171,945 8,849,000 1,232,885 173,667,311 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 % 17 9 4 4 - (1) 1 1 3 1 - 39 10 - 4 2 16 18 91 1 110 (71) 3 42 - 1 2 - - - 3 % 14 11 3 3 - (1) - 1 3 2 - 36 10 - 3 2 15 17 80 1 98 (61) 10 47 - 2 - - - - 2 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Payables to related parties (Notes 18 and 21) Income tax payable (Notes 2 and 12) Accrued expenses and other current liabilities (Notes 2, 10, 21 and 22) Payables to contractors and equipment suppliers 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 21) Other payables to related parties (Notes 18 and 21) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 11) Guarantee deposits (Note 21) Deferred credits (Notes 2 and 18) Total other liabilities Total liabilities 2005 2004 Amount % Amount % 8,052,106 3,242,197 3,815,888 8,214,994 8,859,230 - 32,184,415 19,500,000 1,511,100 1,100,475 22,111,575 3,461,392 2,892,945 1,259,139 7,613,476 1 1 1 1 2 - 6 4 - - 4 1 1 - 2 62 $ 6,488,617 3,198,490 379,903 8,917,533 31,154,309 10,500,000 1 1 - 2 6 2 60,638,852 12 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 61,909,466 12 88,587,911 18 SHAREHOLDERS' EQUITY (Notes 2, 14, 15 and 16) Capital stock - $10 par value Authorized: 27,050,000 thousand shares in 2005 and 24,600,000 thousand shares in 2004 Issued: 24,730,025 thousand shares in 2005 and 23,251,964 thousand shares in 2004 Capital surplus Retained earnings Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings Others Cumulative translation adjustments Treasury stock (at cost) - 32,938 thousand shares in 2005 and 45,521 thousand shares in 2004 Total shareholders' equity 247,300,246 57,117,886 34,348,208 2,226,427 106,196,399 (640,742) (918,075) 49 11 7 - 21 - - 232,519,637 56,537,259 25,528,007 - 88,202,009 (2,226,427) (1,595,186) 48 11 5 - 18 - - 445,630,349 88 398,965,299 82 $ 507,539,815 100 $ 487,553,210 100 TOTAL $ 507,539,815 100 $ 487,553,210 100 EARNINGS PER SHARE (NT$, Note 17) Basic earnings per share Diluted earnings per share 2005 2004 Before Income Tax After Income Tax Before Income Tax After Income Tax $ $ 3.80 3.80 $ $ 3.79 3.79 $ $ 3.71 3.71 $ $ 3.73 3.73 The pro forma net income and earnings per share (after income tax) are shown as follows, and are based on the assumption that the parent company stock held by its subsidiaries is treated as an investment instead of as treasury stock (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. 2005 2004 $ $ $ 93,881,698 3.80 3.79 $ $ $ 92,340,760 3.73 3.73 (Concluded) TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) GROSS SALES (Notes 2 and 18) $ 270,315,064 $ 260,726,896 63 SALES RETURNS AND ALLOWANCES (Note 2) 5,726,700 4,734,469 NET SALES 264,588,364 100 255,992,427 100 2005 2004 Amount % Amount % COST OF SALES (Notes 13 and 18) GROSS PROFIT OPERATING EXPENSES (Notes 13 and 18) Research and development General and administrative Sales and marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Interest (Notes 2 and 22) Settlement income (Note 20) Gain on disposal of property, plant and equipment (Notes 2 and 18) Technical service income (Notes 18 and 21) Equity in earnings of equity method investees, net (Notes 2 and 6) Gain on sales of investments, net (Note 2) Others (Note 18) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES Interest (Notes 2, 7, 9 and 22) Equity in losses of equity method investees, net (Notes 2 and 6) Unrealized valuation loss on short-term investments (Notes 2 and 4) Loss on sales of investments, net (Note 2) Loss on disposal of property, plant, equipment and idle assets (Note 2) Foreign exchange loss, net (Notes 2 and 22) Others (Note 2) Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX BENEFITS (EXPENSES) (Notes 2 and 12) 149,344,315 115,244,049 13,395,801 7,485,011 1,349,413 22,230,225 56 44 5 3 1 9 145,831,843 110,160,584 12,516,434 9,367,010 1,454,362 23,337,806 57 43 5 3 1 9 93,013,824 35 86,822,778 34 2,769,978 950,046 494,374 491,267 - - 366,344 5,072,009 2,429,568 1,052,045 337,160 149,498 59,992 34,379 203,768 4,266,410 1 1 - - - - - 2 1 1 - - - - - 2 1,687,681 - 164,147 423,804 4,040,319 90,319 378,778 6,785,048 1,278,072 - 75,212 - 107,722 323,080 45,156 1,829,242 93,819,423 (244,388) 35 - 91,778,584 537,531 1 - - - 2 - - 3 1 - - - - - - 1 36 - 36 (Continued) NET INCOME $ 93,575,035 35 $ 92,316,115 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) BALANCE, JANUARY 1, 2004 20,266,619 $ 202,666,189 $ 56,855,885 $ 20,802,137 $ 68,945 $ 50,229,008 $ 71,100,090 $ (35) $ 225,408 $ (1,633,228) $ 329,214,309 64 Capital Stock Shares (in Thousands) Amount Capital Surplus Retained Earnings Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Unrealized Loss on Long-term Investments Total Cumulative Translation Adjustments Treasury Stock Total Shareholders' Equity Appropriations of prior year's earnings Legal capital reserve Reversal of special capital reserve Employees' profit sharing - in cash Employees' profit sharing - in stock Cash dividends to preferred shareholders Cash dividends to common shareholders - NT$0.60 per share Stock dividends to common shareholders - NT$1.41 per share Bonus to directors and supervisors Net income in 2004 Adjustment arising from changes of percentage of ownership in investees Reversal of unrealized loss on long-term investment of investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from the Company Treasury stock transactions - sales of the Company's stock held by subsidiaries Treasury stock repurchased by the Company Retirement of treasury stock - - - 272,651 - - 2,837,327 - - - - - 87 - - - - 2,726,514 - - 28,373,267 - - - - - 867 - - - (124,720) - - (1,247,200) - - - - - - - - - 34,059 - - 2,757 22,781 1,864 - (380,087) 4,725,870 - - - - - - - - - - - - - - - - BALANCE, DECEMBER 31, 2004 23,251,964 232,519,637 56,537,259 25,528,007 Appropriations of prior year's earnings Legal capital reserve Special capital reserve Employees' profit sharing - in cash Employees' profit sharing - in stock Cash dividends to common shareholders - NT$2.00 per share Stock dividends to common shareholders - NT$0.50 per share Bonus to directors and supervisors Net income in 2005 Adjustment arising from changes of percentage of ownership in investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from the Company Treasury stock transactions - sales of the Company's stock held by subsidiaries - - - 308,622 - 1,162,602 - - - - 6,837 - - - - - 3,086,215 - 11,626,024 - - - - 68,370 - - - - - - - - - 71,405 - 202,559 84,285 - 222,378 8,820,201 - - - - - - - - - - - - - (68,945) - - - - - - - - - - - - - - - - 2,226,427 - - - - - - - - - - - (4,725,870) 68,945 (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) 92,316,115 - - - - - - - (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) 92,316,115 - - - - - - - (5,432,511) - - (5,432,511) 88,202,009 113,730,016 (8,820,201) (2,226,427) (3,086,215) (3,086,215) (46,504,097) (11,626,024) (231,466) 93,575,035 - - (3,086,215) (3,086,215) (46,504,097) (11,626,024) (231,466) 93,575,035 - - - - - - - - - - - - - - - - - - - - 35 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (2,451,835) - - - - - - - - - - - - - - - - - - - 38,042 (7,059,798) 7,059,798 - - (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) - (2,226,427) (1,595,186) 398,965,299 - - - - - - - - - 1,585,685 - - - - - - - - - - - - - - - - (3,086,215) - (46,504,097) - (231,466) 93,575,035 71,405 1,585,685 270,929 84,285 - 677,111 899,489 BALANCE, DECEMBER 31, 2005 24,730,025 $ 247,300,246 $ 57,117,886 $ 34,348,208 $ 2,226,427 $ 106,196,399 $ 142,771,034 $ - $ (640,742) $ (918,075) $ 445,630,349 The accompanying notes are an integral part of the financial statements. TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars) 2005 2004 2005 2004 65 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 Equity in losses (earnings) of equity method investees, net Gain on sales of long-term investments, net Amortization of premium/discount from long-term bond investments, net Gain on disposal of property, plant and equipment and idle assets, net Loss on idle assets Donation of idle assets Provision for pension cost Dividends received from equity method investees Changes in operating assets and liabilities: Decrease (increase) in: Receivables from related parties Notes and 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: Accounts payable Payables to related parties Income tax payable Accrued expenses and other liabilities Deferred credits $ 93,575,035 $ 92,316,115 67,991,423 (3,278,952) 1,052,045 (3,502) 120,872 (434,382) 131,849 7,207 360,196 668,464 (4,914,565) (5,264,937) (4,117) 942,055 (1,243,126) (98,854) (2,086,010) (21,280) 1,563,489 (1,224,371) 3,435,985 (890,473) 95,744 63,072,140 (1,101,407) (4,040,319) (2,216) 28,673 (56,425) - - 500,945 - (1,301,979) (1,409,074) (35,561) 1,201,889 (27,938) (1,329,634) (3,264,787) 751,383 404,741 (1,771,144) 252,800 (507,984) - Net cash provided by operating activities 150,479,795 143,680,218 CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid for common stock Repayment of long-term bonds payable Cash bonus paid to employees Increase (decrease) in guarantee deposits Proceeds from exercise of stock options Bonus to directors and supervisors Repurchase of treasury stock Cash dividends paid for preferred stock Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for Interest (excluding the amount capitalized of NT$262,109 thousand in 2004, Note 7) Income tax Cash paid for acquisition of property, plant and equipment Total acquisitions Decrease (increase) of payables to contractors and equipment suppliers 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 CASH FLOWS FROM INVESTING ACTIVITIES Decrease (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 and idle assets Increase in deferred charges Decrease in refundable deposits 5,923,748 (43,822,489) and other current liabilities) Reclassification of short-term investments to long-term investments The accompanying notes are an integral part of the financial statements. (17,037,788) (73,659,014) 10,474,035 2,087,236 (847,721) 1,771 (30,290,982) (76,171,356) 7,822 1,713,934 (2,404,130) 91,966 Net cash used in investing activities (73,057,733) (150,875,235) (Continued) $ $ $ $ $ $ $ $ $ (46,504,097) (10,500,000) (3,086,215) 2,480,552 270,929 (231,466) - - (57,570,297) 19,851,765 65,531,818 85,383,583 2,269,666 87,351 $51,363,935 22,295,079 73,659,014 - 693,956 869,072 - $ $ $ $ $ $ $ $ $ (12,159,971) (5,000,000) (681,628) (351,096) 3,624 (127,805) (7,059,798) (184,493) (25,561,167) (32,756,184) 98,288,002 65,531,818 1,304,621 309,522 $100,207,781 (24,036,425) 76,171,356 10,500,000 469,494 1,505,345 3,402,413 (Concluded) TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED months from the date of purchase are classified as cash equivalents. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 1. GENERAL Taiwan Semiconductor Manufacturing Company Limited (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affili- ates (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. Short-term Investments Short-term investments primarily consist of agency bonds, corporate bonds, asset-backed securities, bond funds, government bonds and others. Short-term investments are recorded at historical cost and are carried at the lower of cost or market value as of the balance sheet date. An allowance for decline in value is provided and is charged to cur- rent income when the aggregate carrying amount of the investments exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the aggregate market value. 66 The costs of funds and listed stocks sold are accounted for using the weighted-average method; whereas the costs of other securities sold 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 prices of the listed stocks for the last month of the year. The market value of other short-term investments is determined using the average of bid and ask prices as of the balance sheet date. As of December 31, 2005 and 2004, the Company had 19,460 and 18,562 employees, respectively. Cash dividends are recorded as investment income in the current year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are presented in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. Significant accounting policies are summarized as follows: Use of Estimates The preparation of financial statements in conformity with the aforementioned guidelines and princi- ples requires management to make reasonable assumptions and estimates of matters that are inher- ently uncertain. The actual results may differ from management's estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations 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 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 the allowance for doubtful receivables by exam- ining the aging analysis of outstanding account receivables and current trends in the credit quality of its customers as well as its internal credit policies. Revenue Recognition and Allowance for Sales Returns and Others The Company recognizes revenue when evidence of an arrangement exists, shipment is made, price is fixed or determinable, and collectibility is reasonably assured. Revenues from the design and manu- facturing of photo masks, which are used as manufacturing tools in the fabrication process, are rec- ognized when the photo masks are qualified by customers. The Company records a provision for esti- mated future returns and other allowances in the period the related revenue is recorded. Provisions for estimated sales returns and other allowances are generally made based on historical experience, management's judgment, and any known factors that would significantly affect the allowance. Sales are determined using the fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which 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 to be received. Inventories Government bonds under repurchase agreements and notes acquired with maturities less than three Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the balance sheet date. Market value rep- market method, the Company also recognizes a corresponding unrealized loss in proportion to its resents replacement cost for raw materials, supplies and spare parts and net realizable value for fin- ownership percentage in the investee and records the amount as a component of shareholders' equity. ished goods and work in process. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Year-end inventories are When an indication of impairment is identified in an investment, the carrying amount of the invest- evaluated for estimated excess quantities and obsolescence based on a demand forecast within a spe- ment is reduced to reflect other-than-temporary decline, with the related impairment loss charged to cific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving current income. items are recognized and included in the allowance for losses. Long-term Investments Gains or losses on sales from the Company to investees accounted for using the equity method are deferred in proportion to the Company's ownership percentages in the investees until realized Investments in companies wherein the Company exercises significant influence on the operating and through transactions with third parties. The entire amount of the gains or losses on sales to investees 67 financial policy decisions are accounted for using the equity method of accounting. The Company's over which the Company has control is deferred until such gains or losses are realized through subse- share of the net income or net loss of investee is recognized in the "equity in earnings/losses of equity quent sales of the related products to third parties. Gains or losses on sales from investees to the method investees, net" account. When equity investments are made, the difference, if any, between Company are deferred in proportion to the Company's ownership percentages in the investees until the cost of the investment and the Company's share of investee's net equity is amortized using the realized through transactions with third parties. Gains or losses on sales between investees accounted straight-line method over five years and is also recorded in the "equity in earnings/losses of equity for using the equity method are deferred in proportion to the Company's weighted-average owner- method investees, net" account. ship percentages in the investees which record such gains or losses until realized through transactions When the Company subscribes for additional investee shares at a percentage different from its exist- with third parties. ing ownership percentage of equity interest, the resulting carrying amount of the investment in the If an investee's functional currency is a foreign currency, translation adjustments will result from the investee differs from the amount of the Company's share of the investee's net equity. The Company process of translating the investee's financial statements into the reporting currency of the Company. records such difference as an adjustment to long-term investments with the corresponding amount Such adjustments are accumulated and reported as a separate component of shareholders' equity. charged or credited to capital surplus. Investments in companies wherein the Company does not exercise significant influence are recorded Property, plant and equipment and assets leased to others are stated at cost less accumulated depreci- at historical cost. Cash dividends are recognized as investment income in the year received but are ation. When an indication of impairment is identified, any excess of the carrying amount of an asset accounted for as reductions to the carrying amount of the investments if the dividends are received in over its recoverable amount is recognized as a loss. If the recoverable amount increases in a future the year of acquisition. Stock dividends are recorded as an increase in the number of shares held and period, the amount previously recognized as impairment would be reversed and recognized as a gain. do not affect investment income or the carrying amount of the investment. However, the adjusted amount may not exceed the carrying amount that would have been deter- mined, net of depreciation, as if no impairment loss had been recognized. Idle assets are stated at the Investments in mutual funds are stated at the lower of aggregate cost or net asset value. An lower of net realizable value or book value. Significant additions, renewals and betterments incurred allowance is recognized when the net asset value of the funds is lower than their cost, with the corre- during the construction period are capitalized. Maintenance and repairs are expensed in the year sponding amount recorded as a reduction to shareholders' equity. A reversal of the allowance will incurred. Interest expense incurred during the purchase and construction period is also capitalized. Property, Plant and Equipment, Assets Leased to Others and Idle Assets 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. buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years. Depreciation is computed using the straight-line method over the following estimated service lives: Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized Upon sale or disposal of property, plant and equipment, the related cost and accumulated deprecia- over the duration period using the interest method, and recorded as an adjustment to interest income. tion are removed from the corresponding accounts, with any gain or loss credited or charged to non- operating gains or losses in the year of sale or disposal. When investments in public-traded securities are reclassified from short-term investments to long- term investments or from long-term investments to short-term investments, the Company recognizes Goodwill a loss to the extent, if any, that the market value of such investments is lower than the carrying Goodwill represents the excess of the consideration paid for acquisition over the fair market value of amount and the market value at the time of reclassification becomes the new basis. identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line If an investee recognizes an unrealized loss on its long-term investments using the lower-of-cost-or- likely than not reduce the fair value of goodwill below its carrying amount, an impairment loss is method over the estimated life of 10 years. If an event occurs or circumstances change that more charged to current income. Subsequent recovery in the fair value of the goodwill may not be record- treasury stock, the treasury stock account is reduced and the common stock as well as the capital sur- ed such as to reverse the impairment loss previously recorded. plus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury Deferred Charges stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. The Deferred charges consist of technology license fees, software and system design costs and other Company's stock held by its subsidiaries is also treated as treasury stock and reclassified from long- charges. The amounts are amortized as follows: Technology license fees - the shorter of the estimated term investments to treasury stock. The gains resulted from the disposal of the treasury stock held by life of the technology or the term of the technology transfer contract; software and system design costs the subsidiaries and cash dividends received by the subsidiaries from the Company are recorded under and other charges - 3 years. When an indication of impairment is identified, any excess of the carrying capital surplus - treasury stock transactions. amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a future period, the amount previously recognized as impairment would be reversed and Foreign-currency Transactions recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect 68 have been determined, net of amortization, as if no impairment loss had been recognized. when the transactions occur. Exchange gains or losses derived from foreign currency transactions or Pension Costs monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of the year, assets and liabilities denominated in foreign currencies are revalued at the prevail- For employees under defined contribution pension plans, pension costs are recorded based on the ing exchange rates with the resulting gains or losses recognized in current income. actual contributions made to employees' individual pension accounts. For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations. Derivative Financial Instruments Income Tax The Company enters into foreign currency forward contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts are recorded in New Taiwan dol- The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets lars at the current rate of exchange at the contract date. The differences in the New Taiwan dollar and liabilities are recognized for the tax effects of temporary differences and unused tax credits. amounts translated using the current rates and the amounts translated using the contracted forward Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred rates are amortized over the terms of the forward contracts using the straight-line method. At the income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncur- end of the year, the receivables or payables arising from forward contracts are restated using the pre- rent in accordance with the classification of its related asset or liability. However, if a deferred tax vailing exchange rates with the resulting differences credited or charged to income. In addition, the asset or liability does not relate to an asset or liability in the financial statements, then it is classified receivables and payables related to the forward contracts are netted with the resulting amount pre- as either current or noncurrent based on the expected length of time before it is realized or settled. sented 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. Any tax credits arising from purchases of machinery, equipment and technology, research and devel- opment expenditures, personnel training, and investments in important technology-based enterprises The Company enters into cross currency swap contracts to manage currency exposures on foreign- are recognized using the flow-through method. currency-denominated assets and liabilities. The principal amount is recorded using the current rate at Adjustments of prior years' tax liabilities are added to or deducted from the current year's tax provision. rates and the amounts translated using the contracted rates are amortized over the terms of the con- Income tax on unappropriated earnings of 10% is expensed in the year of shareholder approval which cross-currency swap contracts are restated using the prevailing exchange rate with the resulting dif- is the year subsequent to the year the earnings are generated. ferences credited or charged to income. In addition, the receivables and payables related to the con- tracts using the straight-line method. At the end of the year, the receivables or payables arising from the contract date. The differences in the New Taiwan dollar amounts translated using the current Stock-based Compensation tracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or Employee stock option plans that are amended or have options granted on or after January 1, 2004 the balance sheet date is recorded as an adjustment to the interest income or expense associated must be accounted for by the interpretations issued by the Accounting Research and Development with the hedged items. Any resulting gain or loss upon settlement is credited or charged to income in Foundation. The Company adopted the intrinsic value method and any compensation cost deter- the year of settlement. mined using this method is charged to expense over the employee vesting period. Treasury Stock The contract amounts of foreign currency option contracts entered into for hedging purposes are not recognized as an asset or liability on the contract dates. Any resulting gain or loss upon settlement is When the Company repurchases its outstanding common stock, the cost of the reacquired such stock credited or charged to income in the year of settlement. is recorded as treasury stock and deducted from shareholders' equity. When the Company retires The Company enters into interest rate swap contracts to manage exposures to changes in interest 5. INVENTORIES, NET rates on existing assets or liabilities. The receivable or payable 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. Reclassifications Certain accounts in the financial statements as of and for the year ended December 31, 2004 have been reclassified to conform to the financial statements as of and for the year ended December 31, 2005. 69 3. CASH AND CASH EQUIVALENTS Finished goods Work in process Raw materials Supplies and spare parts Allowance for valuation 6. LONG-TERM INVESTMENTS Government bonds acquired under repurchase agreements Cash and deposits in bank Corporate notes 4. SHORT-TERM INVESTMENTS, NET Agency bonds Corporate bonds Corporate issued asset-backed securities Bond funds Government bonds Corporate notes Money market funds Public-traded stocks Government bonds acquired under repurchase agreements Commercial papers Allowance for valuation Market value 2005 47,963,226 37,007,192 413,165 85,383,583 2005 14,607,694 12,463,688 11,724,149 6,055,578 2,087,418 263,249 260,686 5,257 - - 47,467,719 (412,372) 47,055,347 47,055,347 $ $ $ $ $ 2004 19,215,153 45,838,453 478,212 65,531,818 2004 8,633,889 13,554,598 11,766,877 10,662,758 7,346,858 63,796 673,888 6,528 249,449 95,666 53,054,307 (75,212) 52,979,095 52,979,095 $ $ $ $ $ The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers can- not be below a pre-defined credit rating. As of December 31, 2005, the Company's investment port- folios managed by these fund managers aggregated to an original amount of US$1,200,000 thou- sand. The investment portfolios included securities such as agency bonds, corporate bonds, asset- backed securities, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents. Equity method TSMC International Investment Ltd. (TSMC International) TSMC (Shanghai) Company Limited (TSMC-Shanghai) Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) TSMC Partners, Ltd. (TSMC Partners) TSMC North America (TSMC-North America) Emerging Alliance Fund, L.P. (Emerging Alliance) VentureTech Alliance Fund II, L.P. (VTAF II) Global UniChip Corporation (GUC) TSMC Japan K. K. (TSMC-Japan) Chi Cherng Investment Co., Ltd. (Chi Cherng) Hsin Ruey Investment Co., Ltd. (Hsin Ruey) Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe) VisEra Technologies Company Ltd. (VisEra) Cost method Unquoted stocks Funds Long-term bonds Government bonds Corporate bonds Taiwan Power Company Nan Ya Plastics Corporation China Steel Corporation Formosa Petrochemical Corporation Chinese Petroleum Corporation Far Eastone Telecommunication Co., Ltd. Formosa Plastics Corporation Formosa Chemical & Fiber Corporation Other investments $ 2005 2,768,575 12,407,286 1,700,314 786,772 17,662,947 (1,404,992) $ 2004 3,229,417 10,713,178 808,722 779,368 15,530,685 (1,358,740) $ 16,257,955 $ 14,171,945 2005 2004 Carrying Amount % of Owner-ship Carrying Amount % of Owner-ship 100 100 28 32 100 100 99 98 47 100 36 36 100 25 - - $ 23,912,812 9,438,856 5,419,747 4,215,200 4,091,166 1,790,186 850,534 642,479 442,233 94,949 78,139 77,415 23,087 - 51,076,803 472,500 334,990 807,490 9,922,937 3,263,348 2,150,842 1,010,532 791,963 705,436 300,026 268,855 134,369 18,548,308 10,227,000 100 100 27 32 100 100 99 98 46 100 36 36 100 - - - $ 23,778,997 8,113,511 5,401,982 3,290,888 3,908,356 502,242 823,232 329,968 391,626 102,572 50,570 49,823 25,439 59,116 46,828,322 482,500 290,134 772,634 10,260,481 915,276 407,526 2,978,804 - - - 405,485 202,595 15,170,167 10,521,740 $ 80,659,601 $ 73,292,863 For the years ended December 31, 2005 and 2004, net equity in losses and earnings recognized from 7. PROPERTY, PLANT AND EQUIPMENT the equity method investees was NT$1,052,045 thousand and NT$4,040,319 thousand, respectively. The carrying amounts of investments accounted for under the equity method and the related equity Accumulated depreciation at December 31, 2005 and 2004 consisted of the following: in losses or earnings of equity method investees were determined based on the audited financial statements of the investees as of and for the same periods as the Company. In November 2005, the Company transferred all of its shares in VisEra to VisEra Holding Company, an investee of TSMC Partners accounted for using the equity method, due to an investment structuring. Buildings Machinery and equipment Office equipment Other investments consisted of the following structured time-deposits: 2005 42,902,526 310,626,317 5,662,986 359,191,829 $ $ 2004 35,546,918 259,782,721 4,676,562 300,006,201 $ $ December 31, 2005 Step-up callable deposits Foreign banks Callable range accrual deposits Foreign banks December 31, 2004 Step-up callable deposits Domestic banks Foreign banks Callable range accrual deposits Foreign banks $ $ $ Principal Amount Interest Receivable Range of Interest Rates Maturity Date There was no capitalized interest for the year ended December 31, 2005. Interest expense for the year ended December 31, 2004 was NT$1,614,847 thousand (before deducting the amount capital- ized of NT$262,109 thousand); the rate used for calculating the capitalized interest was 2.80%. 70 3,000,000 $ 8,145 1.40%-1.50% Jun. 2007-Oct. 2007 8. DEFERRED CHARGES, NET 7,227,000 9,951 (see below) Sep. 2009-Jan. 2010 Deferred charges, net at December 31, 2005 and 2004 consisted of the following: 10,227,000 $ 18,096 2,000,000 2,138,340 $ 6,383,400 7,681 14,054 30,751 2.05%-2.20% 1.44%-4.75% Jul. 2007-Aug. 2007 Jun. 2007-Aug. 2007 (see below) Sep. 2009-Dec.2009 Technology license fees Software and system design costs Other 2005 4,985,806 1,623,276 72,062 6,681,144 $ $ 2004 6,534,899 2,160,636 149,609 8,845,144 $ $ $ 10,521,740 $ 52,486 9. BONDS PAYABLE 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 plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the con- tracts prior to the maturity date. As of December 31, 2005 and 2004, deposits that resided in banks located in Hong Kong amounted to NT$2,628,000 thousand and NT$2,553,360 thousand, respectively; those that resided in banks located in Singapore amounted to NT$657,000 thousand and NT$638,340 thousand, respectively. Bonds payable at December 31, 2005 and 2004 consisted of the following: 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, 2.60%, 2.75% and 3.00% interest payable annually, respectively Current portion 2005 2004 $ 4,500,000 $ 15,000,000 15,000,000 19,500,000 - 15,000,000 30,000,000 (10,500,000) $ 19,500,000 $ 19,500,000 As of December 31, 2005, future principal repayments for the Company's bonds were as follows: Pension information on the defined benefit plan is summarized as follows: Year of Repayment 2007 2009 2010 and thereafter 10. OTHER LONG-TERM PAYABLES 71 Amount 7,000,000 8,000,000 4,500,000 19,500,000 $ $ a. Components of net periodic pension cost for the year Service costs Interest costs Projected return on plan assets Amortization Net periodic pension costs 2005 468,044 163,294 (49,627) 8,300 590,011 $ $ 2004 632,594 128,315 (41,925) 8,300 727,284 $ $ Most of the payables resulted from license arrangements related to semiconductor-related patents. Future payments for other long-term payables as of December 31, 2005 were as follows: b. Reconciliation of the funded status of the plan and accrued pension cost at December 31, 2005 Year of Payment 2006 2007 2008 2009 2010 2011 and thereafter Current portion (under accrued expenses and other current liabilities) 11. PENSION PLAN $ Amount 869,072 459,900 262,800 262,800 262,800 262,800 2,380,172 (869,072) $ 1,511,100 and 2004 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 benefits The Labor Pension Act (the "Act") became effective on July 1, 2005 and the pension mechanism under the Act is deemed a defined contribution plan. 'The employees who were subject to the Labor Standards Law prior to July 1, 2005 were allowed to choose to be subject to the pension mechanism c. Actuarial assumptions under the Act or continue to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law prior to July 1, 2005 and still work for the same company after July 1, 2005 and have chosen to be subject to the pension mechanism under the Act, their seniority as of July 1, 2005 shall be maintained. The Act prescribes that the rate of contribution by an employer to employees' pension accounts per month shall not be less than 6% of each employee's monthly salary. Pursuant to the Act, the Company has made monthly contribu- tions to employees' pension accounts starting from July 1, 2005, and recognized pension costs of NT$261,096 thousand for the second half of 2005. The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee's length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pen- sion 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. Discount rated used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Fund for the year e. Payments from the Fund for the year 2005 2004 $ $ $ $ $ 62,302 3,356,213 3,418,515 2,546,186 5,964,701 (1,681,365) 4,283,336 (124,491) (697,453) 3,461,392 67,752 2005 2.75% 3.00% 2.75% 2005 223,654 2005 8,419 $ $ $ $ $ 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% 2004 226,339 2004 1,446 12. INCOME TAX The imputation credit allocated to the shareholders is based on its balance as of the date of dividend distribution. The expected creditable ratio may change when the actual allocation of the imputation a. A reconciliation of income tax expense based on "income before income tax" at statutory rate and credits is made. current income tax expense before tax credits was as follows: 2005 2004 e. All earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2005, investment tax credits consisted of the following: Income tax expense based on "income before income tax" at statutory rate (25%) Tax-exempt income Temporary and permanent differences Current income tax expense before tax credits b. Income tax expense (benefit) consisted of the following: Current income tax expense before tax credits Additional tax at 10% on unappropriated earnings Income tax credits Other income tax adjustments Net change in deferred income tax assets Investment tax credits Temporary differences Adjustment in valuation allowance $ $ $ 23,454,856 (12,243,435) 860,918 12,072,339 2005 12,072,339 1,489,709 (10,110,561) 71,853 2,018,813 (1,768,265) (3,529,500) $ $ $ 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 Law Item Statute for Upgrading Industries Purchase of machinery and equipment Statute for Upgrading Industries Research and development expenditures Income tax expense (benefit) $ 244,388 $ (537,531) Statute for Upgrading Industries Personnel training c. Net deferred income tax assets consisted of the following: Current deferred income tax assets Investment tax credits Non-current deferred income tax assets, net Investment tax credits Temporary differences Valuation allowances d. Integrated income tax information: 2005 2004 $ $ 7,013,000 16,852,771 (682,270) (9,410,546) 6,759,955 $ $ 8,849,000 17,035,584 (2,450,535) (12,940,046) 1,645,003 Statute for Upgrading Industries Investments in important technology-based enterprises g. The profits generated from the following expansion and construction projects are exempt from income tax: 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 2002 to 2005 2003 to 2006 2004 to 2007 The balance of the imputation credit account as of December 31, 2005 and 2004 was NT$20,087 thousand and zero, respectively. h. The tax authorities have examined income tax returns of the Company through 2001. The expected and actual creditable ratios for distribution of earnings of 2005 and 2004 were 0.02% and 0.11%, respectively. Total Creditable Amounts Remaining Creditable Amounts Expiry Year $ $ $ $ $ $ $ 134,467 4,886,421 4,138,857 11,001,460 4,160,396 24,321,601 3,127,586 1,789,437 1,382,993 1,605,567 1,597,296 9,502,879 29,448 20,381 26,780 37,207 113,816 38,036 $ $ $ $ $ $ $ - - 4,054,072 11,001,460 4,160,396 19,215,928 - - 1,382,993 1,605,567 1,597,296 4,585,856 - - 26,780 37,207 63,987 - 72 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2005 13. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSES The Company's Articles of Incorporation as revised on May 10, 2005 provide that, when allocating Labor cost Salary Labor and health insurance Pension Meal Welfare benefit Other 73 Year Ended December 31, 2005 Year Ended December 31, 2004 Classified as Cost of Sales Classified as Operating Expenses Total Classified as Cost of Sales Classified as Operating Expenses Total $ 9,160,576 625,744 576,776 429,307 167,218 159,724 $ 3,682,390 297,483 274,280 141,259 95,208 44,783 $ 12,842,966 923,227 851,056 570,566 262,426 204,507 $ 8,546,255 571,853 471,646 391,834 150,754 141,909 $ 4,068,927 309,585 255,482 150,297 90,611 207,909 $ 12,615,182 881,438 727,128 542,131 241,365 349,818 $ 11,119,345 $ 4,535,403 $ 15,654,748 $ 10,274,251 $ 5,082,811 $ 15,357,062 Depreciation Amortization $ 61,576,001 $ 1,763,527 $ 3,031,796 $ 1,603,496 $ 64,607,797 $ 3,367,023 $ 56,001,719 $ 2,496,827 $ 2,429,967 $ 2,137,893 $ 58,431,686 $ 4,634,720 14. SHAREHOLDERS' EQUITY The Company has issued a total of 864,194 thousand ADSs which are traded on the NYSE as of December 31, 2005. The number of common shares represented by the ADSs is 4,320,969 thousand (one ADS represents five common shares). Capital surplus can only be used to offset a deficit under the Company Law. However, the capital sur- plus generated from donations and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are restricted to a certain percent- age of the paid-in capital of the Company. As of December 31, 2005 and 2004, the capital surplus consisted of the following: From merger Additional paid-in capital From convertible bonds From treasury stock transactions From long-term investments Donations $ 2005 24,003,546 23,254,234 9,360,424 306,868 192,759 55 $ 2004 24,003,546 23,051,675 9,360,424 205 121,354 55 the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly: a. Legal capital reserve at 10% of the net profits left over, until the accumulated legal capital reserve has equaled the Company's paid-in capital; b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; c. Bonus to directors and supervisors and bonus to employees of the Company equal to not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as execu- tive officers of the Company are not entitled to receive the bonus to directors and supervisors. The Company may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; d. Any balance left over shall be allocated according to the resolution of the shareholders' meeting. The Company's Articles of Incorporation also stipulate that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made prefer- ably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; pro- vided, however, the ratio for stock dividend shall not exceed 50% of total distribution. Any appropriations of the net profits are recorded in the financial statement in the year of sharehold- er approval. The appropriation for legal capital reserve shall be made until the reserve equals the Company's paid- in capital. The reserve can be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Company's paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Company's paid-in capital, up to 50% of the reserve may be transferred to capital. A special capital reserve equivalent to the net debit balance of the other components of shareholder's equity (for example, unrealized loss on long-term investments and cumulative translation adjust- ments, but excluding treasury stock), shall be made from unappropriated earnings pursuant to exist- ing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropri- $ 57,117,886 $ 56,537,259 ated may be reversed to the extent that the net debit balance reverses. The appropriations of earnings for 2004 and 2003 had been approved in the shareholders' meetings options of all the plans are valid for ten years and exercisable at certain percentages subsequent to held on May 10, 2005 and May 11, 2004, respectively. The appropriations and dividends per share the second anniversary of the grant date. Under the terms of the plans, the options are granted at an were as follows: exercise price equal to the closing price of the Company's common shares listed on the TSE on the Appropriation of Earnings Dividends Per Share (NT$) For Fiscal Year 2004 For Fiscal Year 2003 For Fiscal Year 2004 For Fiscal Year 2003 grant date. Options that had never been granted or had been granted and subsequently cancelled under the 2003 Plan and the 2002 Plan were expired as of December 31, 2005. Information about outstanding stock options for the years ended December 31, 2005 and 2004 was $ $ - 2.00 0.50 0.35 0.60 1.41 as follows: Number of Options (in Thousands) Weighted-average Exercise Price (NT$) 74 Legal capital reserve Special capital reserve Employees' profit sharing - in cash Employees' profit sharing - in stock Cash dividends to preferred shareholders Cash dividends to common shareholders Stock dividends to common shareholders Bonus to directors and supervisors $ 8,820,201 2,226,427 3,086,215 3,086,215 - 46,504,097 11,626,024 231,466 $ 4,725,870 (68,945) 681,628 2,726,514 184,493 12,159,971 28,373,267 127,805 $ 75,580,645 $ 48,910,603 The amounts of the above appropriations of earnings for 2004 and 2003 are consistent with the res- olutions of the meetings of the Board of Directors held on February 22, 2005 and February 17, 2004, respectively. However, the Company Law prescribes that TSMC, as a holder of treasury stock, shall not participate in the appropriation of earnings. Therefore, the actual cash dividend per share and stock dividend per share are slightly more than those in the aforementioned resolutions. If the above bonus Year ended December 31, 2004 to employees, directors and supervisors had been paid entirely in cash and charged against earnings for 2004 and 2003, the after income tax basic earnings per share for the years ended December 31, 2004 and 2003 would have decreased from NT$3.97 to NT$3.70 and NT$2.33 to NT$2.15, respec- tively. The shares distributed as a bonus to employees represented 1.33% and 1.35% of the Company's total outstanding common shares as of December 31, 2004 and 2003, respectively. Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year Year ended December 31, 2005 Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year $ $ 64,367 14,864 (6,837) (4,636) 67,758 49,357 20,400 (87) (5,303) 64,367 40.5 48.4 39.6 44.1 42.1 43.0 47.3 41.8 45.9 44.1 As of January 12, 2006, the board of directors have not resolved the appropriation for earnings of 2005. The numbers of outstanding options and exercise prices have been adjusted to reflect the appropria- tions of dividends in accordance with the plans. The above information about the appropriations of bonus to employees, directors and supervisors is available at Market Observation Post System website. As of December 31, 2005, information about outstanding and exercisable options was as follows: Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resi- dent shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998. 15. STOCK-BASED COMPENSATION PLANS The Company's Employee Stock Option Plans under the 2005 Plan, 2003 Plan and 2002 Plan were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2005 Plan, the 2003 Plan and the 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercisable. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The Range of Exercise Price (NT$) Number of Options (in Thousands) $29.9 - $42.1 47.0 - 54.5 45,787 21,971 67,758 Options Outstanding Weighted-average Remaining Contractual Life (Years) Options Exercisable Weighted-average Exercise Price (NT$) Number of Options (in Thousands) Weighted-average Exercise Price (NT$) $ 7.10 8.82 38.73 49.20 $ 38.59 54.50 27,143 327 27,470 No compensation cost was recognized under the intrinsic value method for the years ended The Company held a special meeting of the Board of Directors and approved a share buyback plan to December 31, 2005 and 2004. Had the Company used the fair value based method (based on the repurchase the Company's common shares listed on the TSE during the period from March 24, 2004 Black-Scholes model) to evaluate the options granted after January 1, 2004, the assumptions and pro to May 23, 2004. The Company repurchased 124,720 thousand common shares for a total cost of forma results of the Company for the years ended December 31, 2005 and 2004 would have been as NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on follows: Assumptions: Expected dividend yield Expected volatility Risk free interest rate Expected life Net income: Net income as reported Pro forma net income 75 Earnings per share (EPS) - after income tax (NT$): Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS 2005 2004 17. EARNINGS PER SHARE August 16, 2004. 1.00%－3.44% 43.77%－46.15% 3.07%－3.85% 5 years 93,575,035 93,458,191 3.79 3.79 3.79 3.78 $ $ 1.00% 43.77%－46.15% 3.07%－3.85% 5 years 92,316,115 92,257,355 3.73 3.73 3.73 3.73 $ $ EPS is computed as follows: Year ended December 31, 2005 Basic EPS Income available to common shareholders Effect of dilutive potential common stock - stock options Diluted EPS Income available to common shareholders (including Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (in Thousands) EPS (NT$) Before Income Tax After Income Tax $ 93,819,423 - $93,575,035 - 24,679,947 13,165 $ 3.80 $ 3.79 The estimated weighted average fair value per unit for the options granted during the years ended December 31, 2005 and 2004 was NT$17.69and NT$19.73, respectively. 16. TREASURY STOCK (COMMON STOCK) Beginning Shares Increase/Stock Dividends Disposal Ending Shares (Shares in Thousands) effect of dilutive potential common stock) $ 93,819,423 $93,575,035 24,693,112 $ 3.80 $ 3.79 Year ended December 31, 2004 Basic EPS Income available to common shareholders Effect of dilutive potential common stock - stock options Diluted EPS Income available to common shareholders (including effect of dilutive potential common stock) $ 91,778,584 - $92,316,115 - 24,717,531 6,484 $ 3.71 $ 3.73 $ 91,778,584 $92,316,115 24,724,015 $ 3.71 $ 3.73 Year ended December 31, 2005 Reclassification of parent company stock held by subsidiaries from long-term investment Year ended December 31, 2004 Reclassification of parent company stock held by subsidiaries from long-term investment Repurchase under share buyback plan 45,521 2,242 14,825 32,938 18. RELATED PARTY TRANSACTIONS The Company engages in business transactions with the following related parties: 40,597 - 5,676 124,720 752 124,720 45,521 - a. Industrial Technology Research Institute (ITRI); the chairman of the Company is one of its directors. 40,597 130,396 125,472 45,521 b. Philips, a major shareholder of the Company. Proceeds from disposal of treasury stock for the years ended December 31, 2005 and 2004 were NT$899,489 thousand and NT$39,906 thousand, respectively. As of December 31, 2005 and 2004, the book value of the treasury stock was NT$918,075 thousand and NT$1,595,186 thousand, respec- tively; the market value was NT$2,047,126 thousand and NT$2,241,009 thousand, respectively. The Company's stocks held by its subsidiaries are treated as treasury stock and the holders are entitled to the rights of shareholders, except that starting from June 24, 2005, pursuant to the revised Company Law, the holders are no longer entitled to the right to vote. c. Subsidiaries TSMC-North America TSMC-Europe TSMC-Japan TSMC-Shanghai d. Investees VIS (accounted for using equity method) SSMC (accounted for using equity method) GUC (with controlling financial interest) e. Indirect subsidiaries WaferTech, LLC (WaferTech) TSMC Technology, Inc. (TSMC Technology) f. Indirect investee VisEra, originally an investee over which the Company has control; starting from November 2005, VisEra became an indirect investee accounted for using the equity method after an investment structuring. Transactions with the aforementioned parties, excluding those disclosed in other notes, are summa- Proceeds from sales of property, plant and equipment VisEra TSMC-Shanghai VIS Non-operating income and gains SSMC (primarily for technical service income, Note 21e) VisEra VIS (primarily for technical service income, Note 21j) TSMC-Shanghai WaferTech rized as follows: For the year Sales TSMC-North America Philips Others Purchases WaferTech SSMC VIS TSMC-Shanghai 2005 2004 Amount % Amount % $ 153,618,916 3,298,770 650,239 $ 157,567,925 $ 11,137,313 5,729,672 4,142,457 1,405,030 $ 22,414,472 57 1 - 58 28 15 10 4 57 $ 142,271,732 5,463,565 466,345 $ 148,201,642 $ 15,203,047 5,869,123 9,169,602 12,752 $ 30,254,524 At end of year Receivables TSMC-North America Philips Others Other receivables TSMC Technology VisEra TSMC-North America SSMC VIS TSMC-Shanghai Others Payables WaferTech Philips VIS SSMC TSMC-Shanghai Others Other long-term payables Philips (Note 21a) Deferred credits TSMC-Shanghai VisEra 55 2 - 57 34 13 21 - 68 1 17 14 31 - - (Continued) Manufacturing expenses - technical assistance fee (Note 21a) Philips $ 581,059 - $ 907,047 Marketing expenses - commission TSMC-Japan TSMC-Europe General and administrative expense - rental expenses GUC Research and development expenses GUC $ 243,646 221,164 $ 464,810 $ 16,744 $ 19,467 18 16 34 - - $ 253,341 202,678 $ 456,019 $ 13,186 $ 11,688 76 2005 Amount $ 534,279 125,381 - $ 659,660 $ 316,243 308,071 210,720 180,234 - 2004 Amount - 2,969,347 33,974 $ $ 3,003,321 $ 364,505 28,917 117,760 - 3,267 % 52 13 - 65 6 6 4 4 - $ 1,015,268 20 $ 514,449 $ 20,407,621 573,565 69,418 97 3 - $ 15,476,920 581,487 77,632 % - 96 1 97 5 1 2 - - 8 96 4 - $ 21,050,604 100 $ 16,136,039 100 $ 972,563 374,202 198,505 149,251 74,457 28,593 143 54 21 11 8 4 2 - $ 2,880 30,279 50,044 63,701 47,599 1,472,880 - - 2 3 4 3 88 - $ 1,797,714 100 $ 1,667,383 100 $ 1,133,217 693,956 563,240 485,873 274,820 91,091 $ 35 21 17 15 9 3 913,107 469,494 1,533,938 207,794 12,591 61,566 29 15 48 6 - 2 $ 3,242,197 100 $ 3,198,490 100 $ 1,100,475 100 $ 2,317,972 100 $ 641,762 186,525 $ 828,287 51 15 66 $ 682,530 - $ 682,530 100 - 100 (Concluded) The terms of sales to related parties were not significantly different from those to third parties. For rather than under certain percentage of the Company's annual net sales. The Company and Philips other related party transactions, prices were determined in accordance with related contractual agreed to cross license the patents owned by each party. The Company also obtained through agreements. Philips a number of cross patent licenses. The Company deferred the gains (classified under the deferred credits) derived from sales of property, b. Under a technical cooperation agreement with ITRI, the Company shall reserve and allocate up to plant and equipment to TSMC-Shanghai and VisEra, and then recognized such gains (classified under 35% of certain of its production capacity for use by the Ministry of Economic Affairs (MOEA) or the non-operating income and gains) over the depreciable lives of the disposed assets. any other party designated by the MOEA. The term of this agreement is for five years beginning 19. SIGNIFICANT LONG-TERM LEASES from January 1, 1987 and is automatically renewed for successive periods of five years unless oth- erwise terminated by either party with one year prior notice. The agreement was automatically renewed in 1992 and 1997 and on January 1, 2002. 77 The Company leases land from the Science-Based Industrial Park Administration. These operating lease agreements expire on various dates from March 2008 to December 2020 and can be renewed c. Under several foundry agreements, the Company shall reserve a portion of its production capacity upon their expiration. As of December 31, 2005, future lease payments were as follows: Year 2006 2007 2008 2009 2010 2011 and thereafter 20. SETTLEMENT INCOME for certain major customers that have guarantee deposits with the Company. As of December 31, 2005, the Company had a total of US$87,660 thousand of guarantee deposits. $ Amount 258,069 248,185 222,450 213,872 166,803 1,103,708 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. The Company's equity interest in SSMC was 32%. The Company and Philips committed to buy specific percentages of the production capacity of SSMC. The Company and Philips are required, in the aggregate, to purchase up to 70% of SSMC's full capacity, but the Company alone is not required to purchase more than 28% of the annual installed capacity. If any party defaults on the commitment and the capacity utilization of SSMC $ 2,213,087 falls below a specific percentage of its total capacity, the defaulting party is required to compen- sate SSMC for all related unavoidable costs. TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation ("SMIC"), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappro- priated TSMC's trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, SMIC shall pay TSMC US$175 million over six years to resolve TSMC's claims. 21. SIGNIFICANT COMMITMENTS AND CONTINGENCIES The significant commitments and contingencies of the Company as of December 31, 2005 were as follows: a. On June 20, 2004, the Company and Philips amended the Technical Cooperation Agreement, which was originally signed on May 12, 1997. The amended Technical Cooperation Agreement is for five years beginning from January 1, 2004. Upon expiration, this amended Technical Cooperation Agreement will be terminated and will not be automatically renewed; however, the patent cross license arrangement between the Company and Philips will survive the expiration of the amended Technical Cooperation Agreement. Under this amended Technical Cooperation Agreement, the Company will pay Philips royalties based on a fixed amount mutually agreed-on, e. The Company provides technical services to SSMC under a Technology Cooperation Agreement (the Agreement) entered into on May 12, 1999. The Company receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions. f. Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automati- cally renewed for successive periods of two years thereafter unless either party gives notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the Termination Agreement, the Company will be relieved of any further obligation to transfer any additional tech- nology. In addition, the Company granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008. g. Beginning in 2001, the Company entered into several licensing arrangements for certain semicon- e. Acquisition of real estate properties at costs of at least NT$100 million or 20% of the paid-in capi- ductor patents. The terms of the contracts vary with payments to be made in the form of royalties. tal: None; 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 f. Disposal of real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: basis over the estimated life of the technology or the term of the contract, whichever is shorter. None; g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in h. In November 2002, the Company entered into an Amended and Restated Joint Technology capital: Please see Table 5 attached; Cooperation Agreement with Philips, Freescale Semiconductor, Inc. and STMicroelectronics to joint- ly develop 90-nm to 65-nm advanced CMOS Logic and e-DRAM technologies. The Company also h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportuni- Please see Table 6 attached; ties. The Company will contribute process technologies and share a portion of the costs associated 78 with this joint development project. This agreement expired on December 31, 2005. i. Names, locations, and related information of investees on which the Company exercises significant i. In December 2003, the Company entered into a Technology Development and License Agreement with Freescale Semiconductor, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. j. Financial instrument transactions: The Company will also license related 90-nm SOI technology from Freescale Semiconductor, Inc. Any intellectual properties arising out of the co-development project shall be jointly owned by the 1) Derivative financial instruments parties. In accordance with the agreement, the Company will pay royalties to Freescale influence: Please see Table 7 attached; Semiconductor, Inc. and will share a portion of the costs associated with the joint development The Company and TSMC-Shanghai entered into derivative financial instrument transactions during project. the years ended December 31, 2005 and 2004 to manage exposures related to foreign exchange rate and interest rate fluctuations. Certain information on these contracts was as follows: j. The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 2004. The Company receives compensation for such a) Outstanding forward exchange contracts as of December 31, 2005 and 2004: 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 manu- i) The Company facture for the Company certain products at prices as agreed by the parties. k. Amounts available under unused letters of credit as of December 31, 2005 were NT$6,480 thou- sand. l. The Company provided guarantees on loans amounting to US$40,000 thousand for TSMC-North America. 22. ADDITIONAL DISCLOSURES Financial Instruments Currency December 31, 2005 Sell December 31, 2004 Sell Sell US$/NT$ US$/NT$ US$/EUR Maturity Jan. 2006 Contract Amount (in Thousands) US$ 60,000 Jan. 2005 to Mar. 2005 Jan. 2005 US$ US$ 733,000 159,081 As of December 31, 2005 and 2004, receivables resulted from forward exchange contracts (classified under current assets) aggregated NT$26,720 thousand, and NT$392,534 thousand, respectively. As Following are the additional disclosures required by the SFB for the Company and its investees: of December 31, 2004, payables resulted from forward exchange contracts (classified under current liabilities) aggregated NT$559 thousand. a. Financing provided: Please see Table 1 attached; b. Endorsement/guarantee provided: Please see Table 2 attached; c. Marketable securities held: Please see Table 3 attached; d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached; ii) As of December 31, 2005, TSMC-Shanghai did not have any outstanding forward exchange con- tract. TSMC-Shanghai did not enter into any derivative financial instrument transaction during the year ended December 31, 2004. b) Cross currency swaps Management believes its exposure related to the potential default by those counter-parties is low. Outstanding cross currency swap contracts as of December 31, 2005 and 2004 were as follows: ii) Market price risk. All derivative financial instruments are intended as hedges for fluctuations in for- Maturity Date Contract Amount (in Thousands) Range of Interest Rate Paid Range of Interest Rate Received eign exchange rates and interest rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Thus, market price risk is believed to be low. December 31, 2005 Jan. 2006 to Mar. 2006 December 31, 2004 Jan. 2005 to Jun. 2005 US$ 2,089,000 4.15%-4.54% 0.02%-2.12% iii) Cash flow risk and the amount and period of future cash needs. US$ 1,420,000 1.28%-2.72% 0.49%-1.17% As of December 31, 2005, the Company's future cash needs for outstanding forward exchange con- tracts and cross currency swap contracts were as follows: 79 As of December 31, 2005 and 2004, receivables resulted from cross currency swap contracts (classi- fied under current assets) were NT$1,119,905 thousand and NT$761,030 thousand, respectively. Term Within one year Inflow (In Thousands) Outflow (In Thousands) NT$ 71,820,892 US$ 2,149,000 c) Option contracts As of December 31, 2005, the Company did not have any outstanding foreign currency option con- corresponding cash inflow for the cash outflow. Therefore, the cash flow risk is low. tract. The Company did not enter into any foreign currency option contract for the year ended December 31, 2004. 2) Fair values of financial instruments were as follows: The Company has sufficient operating capital to meet the above cash needs. In addition, there will be During the years ended December 31, 2005 and 2004, the net exchange gain or loss arising from for- ward exchange contracts, cross currency swap contracts and foreign currency option contracts was recognized in the "foreign exchange gain/loss, net" account and the difference in interest was record- ed in interest income/expense. d) Interest rate swap contracts The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their origi- nal maturities. The rescission loss of NT$28,295 thousand was recognized in the "interest expense" account. There was no outstanding contract as of December 31, 2005. Outstanding contracts as of December 31, 2004 were as follows: Contract Date Period Contract Amount (in Thousands) 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 Assets (liabilities) Forward exchange contracts (sell) Cross currency swap contracts Interest rate swap contracts 2005 2004 Carrying Amount Fair Value Carrying Amount Fair Value $ 47,055,347 34,213,151 $ 47,055,347 39,470,482 $ 52,979,095 20,572,150 $ 52,979,095 23,657,754 19,500,000 19,924,923 30,000,000 30,607,341 $ 26,720 1,119,905 - $ 28,474 789,903 - $ 391,975 761,030 4,361 $ 317,090 760,012 (22,714) Sep. 2003 Oct. 2003 Oct. 2003 Oct. 2003 Oct. 2003 Nov. 2003 e) Transaction risk Sep. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Nov. 2003 to Dec. 2005 NT$ 500,000 500,000 500,000 500,000 500,000 500,000 The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of the aforementioned financial instruments reported in the balance sheet approximate their fair values. The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quoted market prices as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair values. Some of the long-term invest- i) Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive ments do not have quoted market prices; therefore, fair values for those long-term investments are fair values at the balance sheet date. The positive net settlement amount represents the loss to be not shown above. The fair value of other long-term payables is determined using the discounted incurred by the Company if the counter-parties breached the contracts. The banks, which are the value of expected cash flows, which approximates their carrying amount. counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Fair values of financial instruments were determined as follows: c. Major customers representing at least 10% of total net sales a) Fair value of short-term and publicly traded long-term investments is based on quoted market The Company only has one customer that accounts for at least 10% of its total net sales in the year prices. ended December 31, 2005. The net sales to such customer amounted to $29,258,338 thousand and $25,299,856 thousand in the years ended December 31, 2005 and 2004, representing 11% and b) Fair value of bonds payable is based on their quoted market price. 10% of its total net sales, respectively. 80 c) Fair value of derivative financial instruments is the amount receivable from or payable to the count- er-party if the contracts were terminated on the balance sheet date. The fair values of some financial and non-financial instruments were not included in the fair values disclosed above. Accordingly, the sum of the fair values of the financial instruments listed above does not represent the fair value of the Company as a whole. k. Information on investment in Mainland China 1) The name of the investee in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equi- ty in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investment: Please see Table 8 attached. 2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unreal- ized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial statements: Please see Note 18. 23. SEGMENT FINANCIAL INFORMATION a. Industry financial information The Company operates in one industry. Therefore, the disclosure of industry financial information is not applicable to the Company. b. Export sales Area Americas Asia and others Europe 2005 119,838,520 101,698,615 17,937,376 239,474,511 $ $ 2004 113,948,320 91,057,215 19,084,530 224,090,065 $ $ The export sales information is based on amounts billed to customers within the areas. TABLE 1 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND INVESTEES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 81 1 2 Financing Company's Financing Amount Limits (US$ in Thousands) $ 32,454,757 (US$ 987,968) (Note 2) No. Financing Name Counter-party Financial Statement Account Maximum Balance for the Period (US$ in Thousands) Ending Balance (US$ in Thousands) Interest Rate Type of Financing (Note 1) Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt Collateral Item Value Financing Limit for Each Borrowing Company TSMC International TSMC Development Other receivables TSMC Partners TSMC Development Other receivables $ 1,971,000 (US$ 60,000) $ 1,149,750 (US$ 35,000) 1.50% 2,628,000 (US$ 80,000) - 1.50% 2 2 $ - Operating capital $ - - Operating capital - - - $ - N/A - N/A (Note 3) Note 1: The type 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 LIMITED ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement / Guarantee Provider Name Counter-party Limits on Each Counter- party's Endorsement / Guarantee Amounts Nature of Relationship (Note 2) 0 The Company TSMC-North America TSMC Development 2 3 Not exceed 10% of the net worth of the Company, and be also limited to the paid-in capital of the endorsement / guarantee company, unless other- wise approved by Board of Directors. Note 1: 25% of the net worth of the Company as of December 31, 2005. Note 2: The No. 2 represents a subsidiary in which the Company holds directly over 50% of the equity interest. The No. 3 represents an investee in which the Company holds directly and indirectly over 50% of the equity interest. Maximum Balance for the Period (US$ in Thousands) Ending Balance (US$ in Thousands) 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$ 1,314,000 40,000) 1,971,000 60,000) $ (US$ 1,314,000 40,000) $ - - - 0.29% $ 111,407,587 - TABLE 3 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND INVESTEES MARKETABLE SECURITIES HELD DECEMBER 31, 2005 (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 December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note 82 The Company Government bonds United States Treas Nts Kreditanstal Fur Wiederaufbau 2004 Government Bond Series E 2002 Government Bond Series B 2002 Government Bond Series F 2004 Government Bond Series A 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A 2005 Government Bond Series A Bond funds JF Taiwan First Bond Fund ABN AMRO Bond Fund JF Taiwan Bond Fund Dresdner Bond DAM Fund Shinkong Chi Shin Bond Fund NITC Bond Fund ABN AMRO Select Bond Fund Stock Taiwan Mask Corp. TSMC International VIS SSMC TSMC Partners TSMC-North America GUC TSMC-Japan TSMC-Europe United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. Hontung Venture Capital Co., Ltd. Gobaltop Partner I Venture Capital Corp. W.K. Technology Fund IV Capital TSMC-Shanghai Emerging Alliance VTAF II - - - - - - - - - - - - - - - - - Subsidiary Investee accounted for using equity method 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 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 US$ US$ $ - - - - - - - - - 63,131 134,906 62,009 69,303 55,063 3,764 18,235 1,439 987,968 437,891 47,516 6,881 300,472 355,936 149,441 2,349,973 3,898,610 620,000 2,548,977 856,359 1,956,175 908,656 771,617 762,771 600,000 200,000 5,257 23,912,812 5,419,747 Investee accounted for using Long-term investment 382 4,215,200 equity method Subsidiary Subsidiary Investee with controlling financial Long-term investment Long-term investment Long-term investment interest Subsidiary Subsidiary - - - - - Subsidiary Subsidiary Subsidiary 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 300 11,000 40,147 6 - 16,783 10,500 8,392 5,000 4,000 - - - $ 4,091,166 1,790,186 442,233 94,949 23,087 193,584 105,000 83,916 50,000 40,000 9,438,856 850,534 642,479 N/A N/A N/A N/A 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 27 32 100 100 46 100 100 10 7 10 1 2 100 99 98 US$ US$ $ $ 47,233 6,839 300,563 354,832 149,256 2,349,857 3,896,739 618,160 2,544,964 875,416 2,004,862 933,430 792,068 778,482 610,864 203,860 21,280 23,912,812 10,991,064 4,215,200 4,091,166 1,790,186 465,258 94,949 23,087 295,606 186,387 46,801 49,947 43,645 9,438,856 850,534 642,479 (Continued) 83 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Chi Cherng Hsin Ruey Corporate bonds Abbott Labs Abbott Labs Ace Ltd. AIG Sunamerica Global Fing Ix Allstate Life Global Fdg Secd Alltel Corp. American Express Co. American Gen Fin Corp. American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn Ameritech Capital Funding Co. Amgen Inc. Amsouth Bk Birmingham Ala Anz Cap Tr I Associates Corp. North Amer 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. Beneficial Corp. Mtn Bk Entry Berkshire Hathaway Fin Corp. Cargill Inc. Caterpillar Finl Svcs Mtn Chase Manhattan Corp. New Chase Manhattan Corp. New Chubb Corp. Cit Group Hldgs Inc. Citicorp Cogentrix Energy Inc. Colonial Pipeline Co. Corestates Cap Corp. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse Fb USA Inc. Credit Suisse Fincl Products Credit Suisse First Boston Credit Suisse First Boston USA Daimlerchrysler North Amer Daimlerchrysler North Amer Hld Dayton Hudson Corp. Deere John Cap Corp. Dell Computer Corp. Den Danske Bk Aktieselskab Subsidiary Long-term investment Subsidiary 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 78,139 77,415 1,581 2,732 1,046 1,032 2,998 609 3,550 1,768 1,058 3,130 3,800 510 3,005 1,972 1,012 2,700 1,972 1,525 2,715 580 3,329 3,757 2,434 1,498 2,120 5,721 1,628 2,246 2,138 3,203 1,473 2,885 1,625 1,062 2,100 5,210 4,141 1,507 786 2,249 997 749 2,104 5,079 3,054 2,192 36 36 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 536,703 Treasury stock of NT$458,564 thousand is deducted from the carrying value 536,926 Treasury stock of NT$459,511 thousand is deducted from the carrying value 1,526 2,595 1,011 1,001 2,948 598 3,435 1,670 1,011 2,998 3,808 491 2,907 1,967 968 2,582 1,984 1,485 2,729 544 3,337 3,662 2,340 1,472 2,012 5,724 1,546 2,155 2,125 3,068 1,407 2,739 1,536 1,018 2,066 5,020 4,029 1,508 748 2,175 972 751 2,056 5,020 2,874 2,067 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Diageo Plc Dow Chem Co. European Invt Bk European Invt Bk Fifth Third Bk Cincinnati OH First Data Corp. Fleet Boston Corp. Fleet Finl Group Inc. New Fleet Finl Group Inc. New Fpl Group Cap Inc. Fpl Group Cap Inc. Gannett Co Inc. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Re Corp. Genworth Finl Inc. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Goldman Sachs Group LP Greenpoint Finl Corp. Gte Corp. Hancock John Global Fdg II Mtn Hancock John Global Fdg Mtn Hartford Finl Svcs Group Inc. Hartford Finl Svcs Group Inc. Hbos Plc Medium Term Sr Nts Hbos Plc Meduim Term Sr Nts Heller Finl Inc. Hershey Foods Corp. Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Household Intl Inc HSBC Fin Corp Mtn HSBC USA Inc. New Huntington Natl Bk Columbus OH ING Bank ING Sec Life Instl Fdg International Business Machs International Lease Fin Corp. Intl Lease Fin Corp. Mtn Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Jackson Natl Life Global Fdg Jackson Natl Life Global Fdg S JP Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Keycorp Mtn Book Entry Kraft Foods Inc. Kraft Foods Inc. Lehman Brothers Hldgs 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,459 921 3,918 8,315 2,419 3,013 2,850 975 494 1,001 860 2,999 3,989 8,862 3,500 3,412 4,981 3,477 1,637 974 2,134 3,566 1,003 296 1,435 3,201 2,977 2,071 1,627 3,373 3,284 2,993 532 2,878 5,097 1,154 2,954 2,114 2,544 2,249 2,031 3,028 2,471 3,406 1,036 1,999 3,663 4,450 3,500 773 1,037 1,668 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 3,419 863 3,910 8,023 2,414 2,860 2,718 923 474 997 845 2,930 3,894 8,755 3,430 3,419 4,970 3,452 1,530 959 2,041 3,512 970 297 1,371 3,181 2,940 1,984 1,537 3,204 3,081 2,908 512 2,892 5,066 1,091 2,954 2,024 2,485 2,208 2,005 2,943 2,481 3,353 1,006 2,004 3,522 4,409 3,512 749 1,006 1,631 84 (Continued) 85 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lincoln Natl Corp. In Merita Bk Ltd. Ny Brh Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg II Monumental Global Fdg II 2002A Morgan Stanley Morgan Stanley Group Inc. National City Corp. National Westminster Bk Plc Nationwide Bldg Soc Nationwide Bldg Soc Mtn Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry Pnc Fdg Corp. Popular North Amer Inc. Mtn Premark Intl Inc. Pricoa Global Fdg 1 Mtn Protective Life Secd Trs Prudential Ins Co. Amer Prudential Ins Co. Amer Public Svc Elec Gas Co. Regions Finl Corp. New Reinsurance Group Amer Inc. Royal Bk Scotland Group Plc Safeco Corp. Santander US Debt S A Uniperso Sara Lee Corp. Sbc Communications Inc. Sbc Communications Inc. Scotland Intl Fin B V 144a Slm Corp. Slm Corp. Medium Term Nts Sp Powerassests Ltd. Global St Paul Cos Inc. Mtn Bk Ent Suntrust Bks Inc. Swedbank Sparbanken Svenge Ab Tiaa Global Mkts Inc. Tribune Co. Med Trm Nts Unitedhealth Group Inc. US Bk Natl Assn Cincinnati Oh Virginia Elec + Pwr Co. Vodafone Group Plc New Wal Mart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 499 1,163 519 538 3,486 1,992 4,900 1,907 1,534 1,045 2,144 4,507 3,426 1,433 3,457 3,000 1,463 3,818 1,080 3,042 2,954 3,500 2,920 2,648 2,774 3,225 2,397 2,091 1,563 765 4,998 1,596 1,776 3,681 1,533 500 2,950 991 2,661 1,062 1,084 519 2,943 3,119 2,669 2,884 2,559 3,670 1,043 4,735 3,182 3,697 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 489 1,105 503 513 3,421 1,983 4,891 1,894 1,476 1,005 2,142 4,432 3,378 1,355 3,463 3,001 1,459 3,678 1,029 2,931 2,789 3,502 2,903 2,523 2,704 3,184 2,378 2,012 1,489 730 4,974 1,527 1,713 3,515 1,446 496 2,922 971 2,593 1,014 1,021 501 2,838 3,015 2,678 2,702 2,505 3,511 1,007 4,539 3,023 3,520 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Westfield Cap Corp. Ltd. Wps Resources Corp. Formosa Petrochemical Corporation Taiwan Power Company Nan Ya Plastics Corporation China Steel Corporation Formosa Petrochemical Corporation Chinese Petroleum Corporation Far Eastone Telecommunications Co. Ltd. Formosa Plastics Corporation Formosa Chemicals & Fiber Corporation Agency bonds Fed Hm Ln Pc Pool 1H2520 Fed Hm Ln Pc Pool 1H2524 Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Federal Home Ln Mtg 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. 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 Gtd Federal Natl Mtg Assn Gtd Fnma Pool 254507 Fnma Pool 254834 Fnma Pool 255883 Fnma Pool 685116 Fnma Pool 687863 Fnma Pool 696485 Fnma Pool 725095 Fnma Pool 730033 Fnma Pool 740934 Fnma Pool 790828 Fnma Pool 793025 Fnma Pool 793932 Fnma Pool 794040 Fnma Pool 795548 Fnma Pool 806642 Fnma Pool 815626 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,999 1,107 311,568 3,263,348 2,150,842 1,010,532 791,963 705,436 300,026 268,855 134,369 3,753 2,861 7,112 1,980 1,753 3,848 887 3,454 3,954 6,096 3,280 4,098 9,905 4,902 3,755 3,696 110 1,930 4,030 4,051 1,668 3,659 445 2,286 1,750 3,771 842 3,570 4,175 1,562 1,793 1,775 3,504 3,306 764 940 623 1,573 3,622 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 2,007 1,074 301,946 3,263,232 2,152,156 1,010,657 791,771 704,878 300,001 270,086 137,529 3,743 2,838 7,123 1,923 1,703 3,834 882 3,406 3,945 5,977 3,185 4,102 9,898 4,843 3,735 3,668 109 1,887 3,992 4,000 1,626 3,655 432 2,240 1,729 3,762 817 3,565 4,167 1,516 1,771 1,753 3,407 3,245 742 912 610 1,544 3,625 86 (Continued) 87 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Fnma Pool 816594 Fnma Pool 825395 Fnma Pool 825398 Fnma Pool 841069 Gnma II Pool 081150 Gnma II Pool 081153 Federal Farm Cr Bks Federal Home Ln Bank 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 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. Mtn Federal Home Loan Bank 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 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,657 3,265 4,949 3,673 813 2,956 3,985 3,962 6,110 2,454 2,990 3,932 4,997 2,962 4,927 3,976 4,136 4,939 7,886 2,233 8,672 4,965 4,808 7,558 8,594 3,024 3,972 7,887 19,846 6,908 6,098 9,134 3,379 1,042 2,532 3,388 9,997 6,980 5,929 4,930 3,475 4,847 4,903 4,921 7,892 4,943 8,971 4,430 17,888 5,928 7,926 9,758 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 2,630 3,229 4,889 3,649 796 2,884 3,936 3,962 6,083 2,483 2,991 3,929 4,966 2,949 4,896 3,951 4,103 4,865 7,977 2,217 8,672 4,926 4,816 7,499 8,524 2,980 3,949 7,759 19,832 6,901 5,895 9,008 3,304 1,001 2,419 3,412 9,778 6,935 5,941 4,883 3,462 4,859 4,893 4,897 7,889 4,936 8,935 4,339 17,753 5,873 7,852 9,772 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Corporate issued asset-backed securities American Home Mtg Invt Tr Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receiva 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 Arm Tr Bear Stearns Coml Mtg Secs Inc California Infrastructure Dev Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Prime Auto Receiv Caterpillar Finl Asset Tr Caterpillar Finl Asset Tr Cendant Rent Car Fdg Aesop LLC Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citicorp Mtg Secs Cnh Equip Tr Comm Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Cwabs Inc. Cwabs Inc. Cwabs Inc. Cwalt Inc. Cwmbs Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Deere John Owner Tr Drive Auto Receivables Tr Fifth Third Auto Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr Ford Cr Auto Owner Tr Granite Mtgs 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 15,787 7,000 2,876 2,866 5,740 411 1,034 2,000 5,000 4,949 680 4,462 4,030 2,986 958 1,947 6,350 864 1,588 2,650 3,000 4,957 3,974 2,999 2,800 4,453 8,219 11,626 3,500 4,999 9,782 1,025 5,000 1,383 1,296 1,480 636 2,005 4,287 1,143 1,255 1,261 4,709 2,501 3,200 3,000 999 2,710 10,908 4,447 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 15,791 6,919 2,888 2,870 5,643 411 1,014 1,977 4,971 4,894 668 4,362 3,990 2,932 958 1,952 6,350 839 1,566 2,612 2,999 4,863 3,941 2,974 2,781 4,390 8,142 11,400 3,476 4,941 9,753 1,017 4,922 1,384 1,282 1,470 636 2,007 4,289 1,133 1,230 1,260 4,658 2,460 3,214 2,976 1,001 2,580 10,789 4,447 88 (Continued) 89 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Gs Auto Ln Tr Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Hertz Vehicle Financing LLC Holmes Fing No 8 Plc Household Automotive Tr Hsbc Automotive Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Impac Cmb Tr Impac Cmb Tr Impac Secd Assets Corp. Lb Ubs Coml Mtg Tr Long Beach Accep Auto Receivab Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mastr Asset Backed Secs Tr Mbna Master Cr Card Tr II Monumentl Global Fdg II National City Auto Receivables Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Onyx Accep Owner Tr Pg+E Energy Recovery Fdg LLC Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Asset Sec Mtg Pass Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Residential Fdg Mtg Secs I Inc. Revolving Home Equity Ln Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Adj Rate Mtg Ln Tr Structured Asset Invt Ln Tr Toyota Auto Receivables 2003 B Triad Auto Receivables Tr TW Hotel Fdg 2005 Lc Txu Elec Delivery Transition Usaa Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs WFS Financial Owner Trust WFS Finl - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,899 1,533 5,999 5,350 5,001 5,872 2,999 6,442 3,250 3,999 638 534 880 4,001 2,526 3,900 206 3,499 8,108 1,000 914 4,928 7,000 4,913 4,749 2,202 3,992 4,973 2,967 3,000 3,780 2,550 4,817 3,234 1,209 1,450 1,070 2,059 746 856 4,970 3,339 8,197 3,103 3,718 38 4,999 4,067 5,299 3,661 4,133 1,311 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 1,913 1,515 5,811 5,350 5,003 5,843 2,993 6,330 3,204 3,926 638 534 880 3,955 2,477 3,837 206 3,503 7,818 1,002 916 4,863 6,918 4,866 4,663 2,207 3,918 4,793 2,855 2,948 3,704 2,496 4,737 3,235 1,209 1,455 1,070 2,012 735 855 4,892 3,287 8,197 3,004 3,682 38 4,955 4,026 5,269 3,632 4,069 1,308 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr WFS Finl 2005 2 Oner Tr Whole Auto Ln Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr Corporate issued notes Canadian Imperial BK Canadian Imperial BK Washington Mutual Money market funds SSGA Cash Mgmt Global Offshore Equity Horizon Venture Fund I, L.P. Crimson Asia Capital Ltd., L.P. TSMC stock TSMC stock Stock TSMC Development TSMC Technology InveStar InveStar II Chi Cherng Hsin Ruey TSMC International TSMC Development WaferTech stock InveStar Common stock RichTek Technology Corp. Advanced Power Electronics Corp. SiRF Technology Holdings, Inc. Broadtek Electronics Corp. Monolithic Power Systems, Inc. Global Testing Corp. Capella Microsystems (Taiwan), Inc. Signia Technologies, Inc. Advanced Power Electronics Corp. Broadtek Electronics Corp. RichTek Technology Corp. Preferred stock Integrated Memory Logic, Inc. Sensory, Inc. IP Unity, Inc. Sonics, Inc. NanoAmp Solutions, Inc. Memsic, 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 Long-term investment Long-term investment Parent company Short-term investment Parent company Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment - - - - - - - - - - - - - - - 16,454 16,484 1 1 18,505 51,300 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,994 5,399 2,250 1,954 4,000 3,000 5,963 1,999 3,015 3,000 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$ 4,905 5,320 2,229 1,968 3,941 2,927 5,839 1,999 3,015 3,000 US$ 7,936 N/A US$ 7,936 90 $ US$ US$ US$ US$ 280,179 54,811 458,564 459,511 588,685 5,647 21,833 33,451 $ N/A N/A - - 100 100 97 97 280,179 54,811 1,022,605 1,024,521 US$ US$ US$ US$ 588,685 5,647 21,833 33,451 Long-term investment - US$ 368,886 99 US$ 368,886 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 838 525 10 29 1,975 58,044 530 701 674 116 421 1,831 1,404 1,008 2,686 541 2,727 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 71 210 44 9 1,567 4,961 154 201 270 37 36 1,220 125 494 3,530 853 1,500 - 2 - - 7 8 4 3 2 - - 9 6 3 4 2 10 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,168 670 294 12 28,256 9,161 154 201 860 47 1,591 1,220 125 494 3,530 853 1,500 (Continued) Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary - - - - - - - - - - - - - - - - - Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note InveStar II 91 Emerging Alliance Reflectivity, Inc. Common stock Monolithic Power Systems, Inc. GeoVision, Inc. Advanced Analogic Technology, Inc. RichTek Technology Corp. Signia Technologies, Inc. Ralink Technology (Taiwan), Inc. Procoat Technology, Inc. Capella Microsystems (Taiwan), Inc. Auden Technology MFG. Co., Ltd. EoNEX Technologies, Inc. Conwise Technology Corporation, Ltd. Goyatek Technology, Corp. Trendchip Technologies Corp. EON Technology, Corp. eChannelOpen Holding, Inc. eLCOS Microdisplay Technology, Ltd. Epic Communications, Inc. RichTek Technology Corp. GeoVision, Inc. Preferred stock Memsic, Inc. NanoAmp Solutions, Inc. Sonics, Inc. Reflectivity, Inc. Kilopass Technologies, Inc. FangTek, Inc. eLCOS Microdisplay Technology, Ltd. Alchip Technologies Limited Common stock Global Investment Holding, Inc. RichWave Technology Corp. NetLogic Microsystems, Inc. Quake Technologies, Inc. Pixim, Inc. Preferred stock Quake Technologies, Inc. Pixim, Inc. Ikanos Communication, Inc. Quicksilver Technology, Inc. Mosaic Systems, Inc. Zenesis Technologies, Inc. Reflectivity, Inc. Miradia, Inc. Axiom Microdevices, Inc. Optichron, Inc. NuCORE Technology Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Long-term investment 1,064 US$ 741 2 US$ 741 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 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 864 336 484 386 351 1,833 5,123 419 953 55 2,800 2,088 2,000 3,264 358 270 302 198 15 2,289 375 3,082 4,255 3,887 6,806 2,667 2,597 10,800 3,380 113 46 1,924 555 2,193 7,446 1,049 2,481 1,204 4,848 3,040 1,000 714 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$ 2,081 74 1,261 192 101 791 1,940 122 410 3,048 204 545 574 1,175 251 27 37 98 3 1,560 1,500 3,082 2,205 2,000 3,250 3,500 2,950 100,000 1,247 1,388 35 512 415 583 3,125 - 12 699 2,479 1,000 1,000 1,000 1,455 3 1 1 - 1 3 10 2 4 5 9 7 5 8 4 1 1 - - 8 1 5 5 9 28 15 18 6 13 1 - 4 1 - 3 4 6 4 4 4 3 4 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$ 12,370 1,023 6,969 1,458 101 791 1,940 122 410 3,048 204 545 574 1,175 251 27 37 872 50 1,560 1,500 3,082 2,205 2,000 3,250 3,500 2,950 100,000 1,247 3,051 35 512 415 583 3,125 - 12 699 2,479 1,000 1,000 1,000 1,455 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Next IO, Inc. Audience, Inc. Centrality Communications, Inc. Britestream Networks, Inc. (Layer N Networks, Inc.) Teknovus, Inc. Optimal Corporation Mobilygen Corporation Warrants Pixim, Inc. Common stock VisEra Holding Company Common stock Yobon Technologies, Inc. Sentelic, Corp. Preferred stock Powerprecise Solutions, Inc. Tzero Technologies, Inc. Miradia, Inc. Axiom Microdevices, Inc. Next IO, Inc. Ageia Technologies, Inc. Audience, Inc. GemFire Corporation Optichron, Inc. Leadtrend Technology, Inc. Aquantia Corporation Xceive Corporation 5V Technologies,Inc Power Analog Microelectronics Impinj,Inc Warrants Aquantia Corporation Stock Global Unichip Corporation - NA Global Unichip Japan Partners VTAF II GUC - - - - - - - - - - - - - - - - - - - - - - - - - - - December 31, 2005 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note US$ US$ US$ US$ US$ US$ US$ 800 1,654 1,325 2,444 6,977 485 1,415 242 500 250 1,800 1,172 1,327 500 750 - US$ US$ US$ US$ US$ US$ US$ 2 2 3 2 3 6 1 - 500 250 1,800 1,172 1,327 500 750 - 92 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 18,931 US$ 19,862 50 US$ 19,862 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 1,675 600 US$ US$ 1,032 244 1,809 761 216 1,969 531 600 353 900 1,401 714 1,333 2,000 257 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 787 1,022 1,000 500 1,600 776 182 2,000 102 600 869 431 1,150 1,000 1,000 1,500 500 Long-term investment 46 $ - 17 15 US$ US$ 8 2 2 2 - 2 1 1 2 5 5 2 - 7 - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ $ 787 1,022 1,000 500 1,600 776 182 2,000 102 600 869 431 1,150 1,000 1,000 1,500 500 - 4,715 2,153 (Concluded) Subsidiary Subsidiary Long-term investment Long-term investment 100 - 4,715 2,153 100 100 TABLE 4 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED 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 END DECEMBER 31, 2005 (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 93 The Company Bond funds JF Taiwan Bond Fund JF Taiwan First Bond Fund Invesco R.O.C. Bond Fund Dresdner Bond DAM Fund Short-term investment Short-term investment Short-term investment Short-term investment JF Asset Management (Taiwan) Ltd.- JF Asset Management (Taiwan) Ltd. INVESCO Asset Management Taiwan Allianz Dresdner Securities Investment Consulting Co., Ltd. Barits Bond Fund Short-term investment Barits Securities Investment Trust Co., Shinkong Chi-Shin Fund Short-term investment Shinkong Investment Trust Co., Ltd. Ltd. Bonds under repurchase agreement Short-term investment Chung Shing Bills Finance Corp. and several financial institutions Government bonds 2003 Government Bond Series A 2004 Government Bond Series E Short-term investment Short-term investment BNP and several financial institutions Chung Shing Bills Finance Corp. and several financial institutions 2002 Government Bond Series B Long-term investment China Bills Finance Corp. and several financial institutions 2002 Government Bond Series F Long-term investment China Bills Finance Corp. and several financial institutions 2005 Government Bond Series A Long-term investment China Bills Finance Corp. and several financial institutions Kreditanstalt Fur Wiederaufbau United States Treas NTS Short-term investment Short-term investment - - Corporate bonds Taiwan Power Company Formosa Petrochemical Corporation Allstate Finl Global Fdg LLC American Intl Group Inc. Mtnf Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Caterpillar Finl Svcs Mtn Citigroup Inc. Countrywide Fdg Corp. Mtn Countrywide Finl Corp. Credit Suisse Fb USA Inc. Credit Suisse First Boston USA Deere John Cap Corp. European Invt BK General Elec Cap 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 China Bills Finance Corp. China Bills Finance Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) (Note 2) 78,698 84,886 76,705 80,833 $ 1,153,209 1,151,463 1,101,911 900,000 76,640 900,000 151,594 2,100,000 - - - - - - - - - - - - - - - - - - - - - - - - - 249,449 1,207,409 - - - - - US$ 192,357 $ 2,777,798 - US$ 3,171 US$ 3,795 - US$ 3,518 - US$ 3,105 - US$ 3,583 - - US$ 2,645 - - - US$ 3,467 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - 16,689 21,755 76,705 11,530 $ 250,000 300,000 1,121,779 130,000 $ 244,553 295,104 1,101,911 128,383 $ 5,447 4,896 19,868 1,617 62,009 63,131 - 69,303 $ 908,656 856,359 - 771,617 - - - - 300,472 360,608 149,440 2,548,689 US$ 6,881 US$ 494,515 $ - 311,568 - - US$ 3,329 - US$ 3,757 - US$ 5,721 - US$ 3,500 US$ 3,000 US$ 4,141 US$ 3,832 US$ 5,079 US$ 3,918 - 76,640 915,204 900,000 15,204 - - 96,531 1,360,000 1,337,229 22,771 55,063 762,771 - - - - - - - - - - - - - - - - - - - - - - - - - 251,784 249,449 2,335 1,216,500 - 1,207,409 - 9,091 - - - - - - - - - - - US$ 637,301 - US$ 639,356 - US$ (2,055) $ 2,807,500 - US$ 3,086 US$ 3,793 - US$ 3,484 - US$ 3,106 - US$ 3,512 US$ 3,500 US$ 3,000 US$ 2,593 US$ 3,780 - - US$ 3,432 $ 2,777,798 - US$ 3,171 US$ 3,795 - US$ 3,518 - US$ 3,105 - US$ 3,583 US$ 3,500 US$ 3,000 US$ 2,645 US$ 3,832 - - US$ 3,467 $ 29,702 - US$ (85) US$ (2) - US$ (34) - US$ 1 - US$ (71) - - US$ (52) US$ (52) - - US$ (35) - - - - - - - - - - - - - - - - - - - - - - - - - - - 300,472 355,936 149,441 2,548,977 US$ 6,881 US$ 47,516 $ - 311,568 - - US$ 3,329 - US$ 3,757 - US$ 5,721 - - - US$ 4,141 - US$ 5,079 US$ 3,918 - (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) (Note 2) 94 General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Re Corp. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Mtn Hancock John Global Fdg II Mtn Hbos Plc Medium Term Sr Nts Household Fin Corp. Mtn Bk Ent HSBC Fin Corp. Mtn ING Sec Life Ins Ingslf International Business Machs Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Lehman Brothers Hldgs Inc. Merrill Lynch + Co. Inc. Morgan Stanley Group Inc. Morgan Stanley Group Inc. National City Corp. Nationsbank Corp. Nationwide Bldg Soc Mtn Ppg Inds Inc. Pricoa Global Fdg 1 Mtn Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Public Svc Elec Gas Co. Salomon Smith Barney Hldgs Inc. Santander Us Debt S A Uniperso Wachovia Corp. Washington Mut Fin Corp. Taiwan Power Company Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - China Bills Finance Corp. and several financial institutions Nan Ya Plastics Corporation Long-term investment China Bills Finance Corp. and several financial institutions Agency bonds Federal Farm Cr Bks Federal Home Ln Bank Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - US$ 3,886 - - - US$ 3,505 - - US$ 3,542 - US$ 3,012 - - - - US$ 3,705 - US$ 1,050 US$ 3,638 - US$ 3,644 - - - US$ 3,050 US$ 3,507 US$ 3,168 - US$ 3,160 - US$ 3,720 US$ 4,768 $ 915,276 407,526 - - - US$ 4,948 US$ 7,962 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,989 US$ 8,862 US$ - US$ 3,500 US$ 4,981 US$ 3,477 - US$ 3,566 US$ 3,201 - US$ 7,894 - US$ 7,247 US$ 3,028 US$ 3,406 US$ 4,450 - US$ 4,900 US$ 4,507 - US$ 3,426 - US$ 3,000 US$ 3,571 US$ 3,500 - - - US$ 3,225 - US$ 4,998 - - $ 2,967,681 1,883,901 US$ 3,985 US$ 3,962 US$ 6,110 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - US$ 3,823 - - - US$ 3,506 - - US$ 3,488 US$ 2,780 US$ 3,008 US$ 4,994 - - - US$ 3,511 - US$ 1,022 US$ 3,571 - US$ 3,522 - - - US$ 3,052 US$ 3,510 US$ 3,049 - US$ 3,046 - US$ 3,568 US$ 3,591 $ 600,000 US$ - - US$ 3,886 - - - US$ 3,505 - - US$ 3,542 US$ 2,797 US$ 3,012 US$ 4,998 - - - US$ 3,705 - US$ 1,050 US$ 3,638 - US$ 3,644 - - - US$ 3,050 US$ 3,507 US$ 3,168 - US$ 3,160 - US$ 3,720 US$ 3,725 $ 600,000 US$ US$ - - US$ (63) - - - 1 - $ - US$ (54) US$ (17) US$ (4) US$ (4) - - - US$ (194) - US$ (28) US$ (67) - US$ (122) - - - 2 US$ US$ 3 US$ (119) - US$ (114) - US$ (152) US$ (134) $ - 132,000 132,000 - - - - US$ 4,947 US$ 4,954 - - - US$ 4,948 US$ 4,972 - - - US$ (1) US$ (18) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,989 US$ 8,862 US$ - US$ 3,500 US$ 4,981 US$ 3,477 - US$ 3,566 US$ 3,201 - US$ 5,097 - US$ 2,249 US$ 3,028 US$ 3,406 US$ 4,450 - US$ 4,900 US$ 4,507 - US$ 3,426 - US$ 3,000 - US$ 3,500 - - - US$ 3,225 - US$ 4,998 - US$ 1,043 $ 3,263,348 2,150,842 US$ 3,985 US$ 3,962 US$ 6,110 - US$ 2,990 (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) (Note 2) 95 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 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 Loan Bank Federal Home Loan Corp. 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 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 1H2520 Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool 847290 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 13,953 - US$ 13,981 US$ 13,983 US$ 7,042 US$ 7,014 - - - - US$ 7,018 - - - - - - - - - - - US$ 4,933 US$ 4,953 - US$ 6,978 - - - - US$ 4,903 US$ 3,466 US$ 6,903 US$ 5,270 US$ 6,940 US$ 4,981 - - - US$ 6,997 - - - - - - - - - US$ 4,929 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,932 - - - - US$ 4,136 US$ 4,939 US$ 7,886 US$ 8,672 US$ 3,960 US$ 4,965 US$ 4,808 US$ 7,558 US$ 8,594 US$ 3,024 US$ 3,972 US$ 7,887 US$ 19,846 US$ 6,908 US$ 9,134 US$ 3,379 - - US$ 6,925 - US$ 6,980 US$ 5,929 US$ 3,475 US$ 7,989 US$ 9,819 - - - - - US$ 4,921 US$ 7,892 US$ 5,337 - US$ 4,943 US$ 14,952 US$ 4,430 US$ 4,061 US$ 17,888 US$ 5,928 US$ 7,926 US$ 9,758 US$ 5,740 - US$ 3,961 US$ 7,913 US$ 4,173 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 13,888 - US$ 13,906 US$ 13,865 US$ 6,946 US$ 6,883 - - - - US$ 10,863 - - - - - - - - - - - US$ 4,960 US$ 4,938 US$ 6,931 US$ 6,926 - - - US$ 7,928 US$ 9,798 US$ 3,485 US$ 6,943 US$ 5,247 US$ 6,937 US$ 4,953 - - US$ 5,300 US$ 6,956 - US$ 5,964 - US$ 4,041 - - - - - US$ 4,931 - - US$ 4,170 US$ 13,953 - US$ 13,981 US$ 13,983 US$ 7,042 US$ 7,014 - - - - US$ 10,978 - - - - - - - - - - - US$ 4,933 US$ 4,953 US$ 6,925 US$ 6,978 - - - US$ 7,989 US$ 9,819 US$ 3,466 US$ 6,903 US$ 5,270 US$ 6,940 US$ 4,981 - - US$ 5,337 US$ 6,997 - US$ 5,981 - US$ 4,061 - - - - - US$ 4,929 - - US$ 4,173 US$ (65) - US$ (75) US$ (118) US$ (96) US$ (131) - - - - US$ (115) - - - - - - - - - - - 27 US$ US$ (15) US$ 6 US$ (52) - - - US$ (61) US$ (21) 19 US$ US$ 40 US$ (23) US$ (3) US$ (28) - - US$ (37) US$ (41) - US$ (17) - US$ (20) - - - - - 2 - - US$ (3) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,932 - - - - US$ 4,136 US$ 4,939 US$ 7,886 US$ 8,672 - US$ 4,965 US$ 4,808 US$ 7,558 US$ 8,594 US$ 3,024 US$ 3,972 US$ 7,887 US$ 19,846 US$ 6,908 US$ 9,134 US$ 3,379 - - - - US$ 6,980 US$ 5,929 US$ 3,475 - US$ 4,903 - - - - - US$ 4,921 US$ 7,892 - - US$ 4,943 US$ 8,971 US$ 4,430 - US$ 17,888 US$ 5,928 US$ 7,926 US$ 9,758 US$ 5,740 - US$ 3,753 US$ 7,112 - (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) (Note 2) Federal Home Ln Mtg 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 Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Fnma Pool 255883 Fnma Pool 687863 Fnma Pool 696485 Fnma Pool 793025 Fnma Pool 815626 Fnma Pool 825395 Fnma Pool 825398 Fnma Pool 841069 Corporate issued asset - backed securities Aesop Fdg II LLC American Express Cr Account Ma Americredit Automobile Receiv Bear Stearns Coml Mtg Secs Inc. BMW Ven Owner Tr California Infr + Economic Dev California Infras + Economic Capital One Multi Asset Execut Caterpillar Finl Asset Tr Caterpillar Finl Asset Tr Cendant Rent Car Fdg Aesop LLC Citibank Cr Card Issuance Tr Citibank Cr Card Issuance Tr Cwabs Inc. Cwmbs Inc. Cwmbs Inc. Daimlerchrysler Auto Tr Drive Auto Receivables Tr First USA Credit Cr Master Tr Hertz Vehicle Financing LLC Honda Auto Receivables Household Automotive Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Lb Ubs Coml Mtg Tr Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mastr Asset Backed Secs Tr Mbna Cr Card Master Nt Tr Mbna Master Cr Card Tr II Nissan Auto Receivables Own Tr Nissan Auto Receivables Owner Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - US$ 4,955 US$ 3,445 - - US$ 4,978 US$ 4,298 US$ 6,126 - US$ 10,008 - - US$ 4,959 - US$ 1,903 US$ 4,040 - US$ 4,897 - US$ 5,011 - US$ 5,000 - - - - - - - - - US$ 4,999 US$ 4,853 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,958 US$ 3,954 US$ 4,154 US$ 9,955 US$ 5,389 US$ 3,930 US$ 3,918 US$ 4,030 US$ 4,051 US$ 3,892 US$ 3,827 US$ 3,848 US$ 4,345 US$ 3,915 US$ 3,663 US$ 3,417 US$ 5,246 US$ 3,966 - - US$ 5,000 US$ 6,350 - - - US$ 3,974 - US$ 8,219 US$ 11,626 - US$ 9,782 US$ 1,865 - US$ 4,040 - US$ 3,200 - US$ 5,350 - US$ 8,352 US$ 3,250 US$ 3,999 US$ 4,243 US$ 3,900 US$ 3,825 US$ 3,499 US$ 5,018 US$ 8,108 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - US$ 4,958 US$ 3,428 - - US$ 4,874 US$ 4,153 US$ 5,103 - US$ 4,943 - - US$ 4,948 - US$ 3,440 US$ 3,479 US$ 3,842 US$ 4,873 - US$ 5,007 - US$ 4,984 - - - - - - - US$ 5,015 - US$ 4,989 US$ 4,880 US$ - - - - - - - - - - - - - - - - - - US$ 4,955 US$ 3,445 - - US$ 4,907 US$ 4,298 US$ 5,228 - US$ 5,009 - - US$ 4,959 - US$ 3,435 US$ 3,492 US$ 3,823 US$ 4,897 - US$ 5,011 - US$ 5,000 - - - - - - - US$ 5,018 - US$ 4,999 US$ 4,853 US$ - - - - - - - - - - - - - - - - - - US$ 3 US$ (17) - - US$ (33) US$ (145) US$ (125) - US$ (66) - - US$ (11) - US$ 5 US$ (13) US$ (19) US$ (24) - US$ (4) - US$ (16) - - - - - - - US$ (3) - US$ (10) 27 US$ 96 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,848 US$ 3,954 US$ 4,098 US$ 9,905 US$ 4,902 US$ 3,755 US$ 3,696 US$ 4,030 US$ 4,051 US$ 3,659 US$ 3,771 US$ 3,570 US$ 4,175 US$ 3,306 US$ 3,622 US$ 3,265 US$ 4,949 US$ 3,673 - - US$ 5,000 US$ 6,350 - - - US$ 3,974 US$ 4,453 US$ 8,219 US$ 11,626 - US$ 9,782 - - - - US$ 3,200 - US$ 5,350 - US$ 5,872 US$ 3,250 US$ 3,999 US$ 4,001 US$ 3,900 US$ 206 US$ 3,499 - US$ 8,108 - - (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (In Thousands) Amount (US$ in Thousands) (Note 2) 97 Pg+E Energy Recovery Fdg LLC Prime Cr Card Master Tr Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Revolving Home Equity Ln Tr Sequoia Mtg Tr Sequoia Mtg Tr TW Hotel Fdg 2005 LLC Txu Elec Delivery Transition Usaa Auto Owner Tr Usaa Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs Whole Auto Ln 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 Partners VisEra Holding Company Long-term investment - - - - - - - - - - - - - - - - Note1: The proceeds of bond investments matured are excluded. Note2: The ending balance included the amortization of premium or discount on bond investments. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - US$ 7,736 - US$ 4,000 - - - US$ 5,967 - - - - - - - - - - - - - - - US$ 4,749 US$ 4,080 US$ 3,780 US$ 5,589 US$ 5,000 US$ 4,560 US$ 3,500 US$ 8,197 - US$ 3,718 - US$ 4,365 US$ 5,299 US$ 4,014 - - 18,931 US$ 18,931 - - - - - - - - - - - - - - - - US$ - - - - - US$ 4,026 US$ 2,813 - US$ 3,470 - US$ 3,995 - - - US$ 5,973 US$ - - - - - US$ 4,026 US$ 2,810 - US$ 3,491 - US$ 4,000 - - - US$ 5,967 US$ US$ - - - - - - 3 - US$ (21) - US$ (5) - - - 6 US$ - - - - - - - - - - - - - - - US$ 4,749 - US$ 3,780 US$ 4,817 US$ 3,234 - - US$ 8,197 US$ 3,103 US$ 3,718 - US$ 4,067 US$ 5,299 US$ 3,661 - - - - 18,931 US$ 19,862 (Concluded) TABLE 5 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED 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 YEARS ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Transaction Details Abnormal Transaction Notes / Accounts Payable or Receivable Note Purchase / Sale Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance % to Total 98 The Company TSMC-North America Philips GUC SSMC WaferTech SSMC VIS TSMC-Shanghai Subsidiary Major shareholder Investee with controlling financial interest Investee accounted for using equity method Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Sales Sales Sales Sales Purchases Purchases Purchases Purchases $153,618,916 3,298,770 347,456 195,253 11,137,313 5,729,672 4,142,457 1,405,030 GUC TSMC-North America The same Parent Purchases 266,372 57 1 - - 28 15 10 4 23 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 45 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 Net 30 days after invoice date - - - - - - - - - - - - - - - - - - $ 20,407,621 573,565 49,046 - (1,133,217) (485,873) (563,240) (274,820) (66,138) 49 1 - - 10 4 5 2 37 Note: The terms of sales to related parties are not significantly different from those to third parties. For purchase transactions, prices are determined in accordance with the related contractual agreements and no other similar transaction could be compared with. TABLE 6 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Ending Balance Turnover Rate Amount Action Taken Overdue The Company TSMC-North America TSMC Technology Philips VisEra Subsidiary Indirect subsidiaries Major shareholder Indirect investee accounted for using equity $ 20,606,126 972,563 573,565 374,200 43 days Note 64 days Note $ 5,735,388 - 45,909 1,750 Accelerate demand on account receivables Accelerate demand on account receivables Accelerate demand on account receivables Accelerate demand on account receivables SSMC Investee accounted for using equity method 149,251 Note - Accelerate demand on account receivables method Note: The ending balance primarily consisted of other receivables, it is not applicable for the calculation of the turnover rate. Amounts Received in Subsequent Period Allowance for Bad Debts $ $ 7,626,255 - 1,603 5,161 - - - - - - TABLE 7 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2005 December 31, 2005 December 31, 2004 Shares (in Thousands) Percentage of Ownership Carrying Value (Note 1) Net Income (Loss) of the Investee Investment Gain (Loss) (Note 2) Note 99 The Company TSMC International Tortola, British Virgin Islands Providing investment in companies involved in the $ 31,445,780 $ 31,445,780 987,968 100 $ 23,912,812 $ (549,454) $ (549,454) Subsidiary TSMC-Shanghai Shanghai, China 12,180,367 9,187,962 - 100 9,438,856 (2,242,213) (2,242,213) Subsidiary design, manufacture, and other related business in the semiconductor industry Manufacturing and sales of integrated circuits at the order of and pursuant to product design specifica- tions provided by customers Research, design, development, manufacture, pack- aging, testing and sale of memory integrated cir- cuits, LSI, VLSI and related parts VIS SSMC Hsin-Chu, Taiwan 8,119,816 8,119,816 437,891 Singapore Fabrication and supply of integrated circuits 6,408,190 6,408,190 382 TSMC Partners TSMC-North America Tortola, British Virgin Islands San Jose, California, U.S.A. Investment activities Sales and marketing of integrated circuits and semi- Emerging Alliance VTAF II GUC Cayman Islands Cayman Islands Hsin-Chu, Taiwan conductor devices Investing in new start-up technology companies Investing in new start-up technology companies Researching, developing, manufacturing, testing and marketing of integrated circuits TSMC-Japan Chi Cherng Hsin Ruey TSMC-Europe Yokohama, Japan Taipei, Taiwan Taipei, Taiwan Amsterdam, the Netherlands Marketing activities Investment activities Investment activities Marketing activities Note 1: The treasury stock is deducted from the carrying value. Note 2: The gains on disposal of the stocks of the Company held by subsidiaries and cash dividends from the Company are excluded. 10,350 333,718 1,526,074 654,509 409,920 83,760 300,000 300,000 15,749 10,350 333,718 1,447,957 332,412 409,920 83,760 300,000 300,000 15,749 300 11,000 - - 40,147 6 - - - 27 32 100 100 99 98 46 100 36 36 100 5,419,747 2,710,971 617,268 4,215,200 2,503,446 801,103 Investee accounted for using equity method Investee accounted for using equity method 4,091,166 1,790,186 850,534 642,479 442,233 94,949 78,139 77,415 23,087 46,656 564,201 (77,208) (19,044) 106,748 2,572 77,196 77,257 295 46,656 320,274 Subsidiary Subsidiary (76,822) (21,916) 52,390 Subsidiary Subsidiary Investee over which the Company has controlling financial interest 2,572 (3,769) (3,806) 295 Subsidiary Subsidiary Subsidiary Subsidiary TABLE 8 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED INFORMATION OF INVESTMENT IN MAINLAND CHINA DECEMBER 31, 2005 (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 Accumulated Outflow of Investment from Taiwan as of January 1, 2005 (US$ in Thousand) Investment Flows Outflow (US$ in Thousand) Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2005 (US$ in Thousand) Percentage of Ownership in Investment TSMC (Shanghai) Company Limited Manufacturing and sales of integrated circuits at the order of and pur- suant to product design specifica- tions provided by customers $ 12,180,367 (RMB3,070,623) (Note 1) $ 9,187,962 (US$ 276,000) $ 2,992,405 (US$ 95,000) $ - $ 12,180,367 (US$ 371,000) 100% 100 Investment Gain (Loss) (Note 2) Carrying Value as of December 31, 2005 Accumulated Inward Remittance of Earnings as of December 31, 2005 Accumulated Investment in Mainland China as of December 31, 2005 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ (2,242,213) $ 9,438,856 $ - $ (US$ 12,180,367 371,000) $ (US$ 12,180,367 371,000) $ (US$ 12,180,367 371,000) Note 1: Direct investments US$371,000 thousand in TSMC-Shanghai. Note 2: Amount was recognized based on the audited financial statements. 10. Consolidated Financial Statements for the Years Ended December 31, 2005 and 2004 and Independent Auditors' Report REPRESENTATION LETTER The entities included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2005, which were prepared in conform- ity with the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises, are the same as the entities included in the consolidated financial statements prepared in conformity with the revised R.O.C. Statement of 101 Financial Accounting Standards No. 7 "Consolidated Financial Statements" In addition, the informa- tion needed to be disclosed in the combined financial statements is included in the consolidated financial statements. Thus, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries did not prepare a separate set of combined financial statements. Very truly yours, TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED By MORRIS CHANG Chairman January 12, 2006 INDEPENDENT AUDITORS' REPORT Notice to Readers The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Limited The accompanying consolidated financial statements are intended only to present the consolidated 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 We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor standards, procedures and practices to audit such consolidated financial statements are those gener- Manufacturing Company Limited and subsidiaries (the Company) as of December 31, 2005 and ally accepted and applied in the Republic of China. 2004, and the related consolidated statements of income, changes in shareholders' equity and cash 102 flows for the years then ended. These consolidated financial statements are the responsibility of the For the convenience of readers, the auditors' report and the accompanying financial statements have Company's management. Our responsibility is to express an opinion on these consolidated financial been translated into English from the original Chinese version prepared and used in the Republic of statements based on our audits. China. If there is any conflict between the English version and the original Chinese version or any dif- ference in the interpretation of the two versions, the Chinese-language auditors' report and financial We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements statements shall prevail. 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 examin- ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by man- agement, 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 Limited and subsidiaries as of December 31, 2005 and 2004, 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 accounting principles generally accepted in the Republic of China. January 12, 2006 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars, Except Par Value) 103 ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2, 3 and 4) Short-term investments, net (Notes 2 and 4) Notes and accounts receivable Receivables from related parties (Note 20) 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 24) 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 24) 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 Accumulated depreciation Advance payments and construction in progress Property, plant and equipment, net GOODWILL (Note 2) OTHER ASSETS Deferred charges, net (Notes 2, 8 and 23) Deferred income tax assets, net (Notes 2 and 14) Refundable deposits Assets leased to others, net (Note 2) Others (Note 2) Total other assets $ 2005 Amount 96,483,707 47,399,308 43,082,275 693,266 (980,594) (4,317,413) 597,910 2,915,696 17,728,303 7,149,306 1,503,447 212,255,211 10,287,424 3,365,341 18,548,308 10,227,000 42,428,073 851,225 105,832,028 510,922,064 9,670,611 597,669 627,873,597 (398,124,607) 15,074,302 244,823,292 6,010,601 7,006,250 6,788,418 106,802 72,879 18,063 13,992,412 $ 2004 Amount 74,302,351 54,107,951 31,214,423 654,377 (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 78,613 48,832 10,876,324 % 19 9 8 - - (1) - 1 3 2 - 41 2 - 4 2 8 - 21 98 2 - 121 (77) 3 47 1 2 1 - - - 3 % 15 11 7 - - (1) - - 3 2 - 37 2 1 3 2 8 - 19 87 2 - 108 (66) 10 52 1 2 - - - - 2 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term bank loans (Note 9) Accounts payable Payables to related parties (Note 20) Income tax payable (Notes 2 and 14) Accrued expenses and other current liabilities (Notes 2, 12, 23 and 24) Payables to contractors and equipment suppliers Current portion of long-term liabilities (Note 10) $ Total current liabilities LONG-TERM LIABILITIES Bonds payable (Note 11) Long-term bank loans (Note 10) Other long-term payables (Note 12) Other payables to related parties (Notes 20 and 23) Liability under capital lease (Note 2) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 13) Guarantee deposits (Note 23) Deferred credits (Notes 2 and 20) Others Total other liabilities 2005 2004 Amount % Amount % 328,500 9,421,452 1,743,069 4,015,451 10,542,230 9,066,036 5,489 35,122,227 19,500,000 663,140 8,548,887 1,100,475 597,669 30,410,171 3,474,384 2,896,430 1,343,959 23,710 7,738,483 - 2 - 1 2 2 - 7 4 - 2 - - 6 1 - - - 1 $ 383,004 7,264,419 2,217,815 403,955 9,722,413 33,427,702 10,500,000 - 2 1 - 2 6 2 63,919,308 13 19,500,000 1,915,020 7,964,975 2,317,972 566,243 32,264,210 3,101,707 412,881 704,991 9,958 4,229,537 4 - 2 - - 6 1 - - - 1 Total liabilities 73,270,881 14 100,413,055 20 EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF PARENT (Notes 2, 16, 17 and 18) Capital stock - $10 par value Authorized: 27,050,000 thousand shares in 2005 and 24,600,000 thousand shares in 2004 Issued: 24,730,025 thousand shares in 2005 and 23,251,964 thousand shares in 2004 Capital surplus Retained earnings Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings Others Cumulative translation adjustments Treasury stock (at cost) - 32,938 thousand shares in 2005 and 45,521 thousand shares in 2004 Total equity attributable to shareholders of the parent MINORITY INTEREST IN SUBSIDIARIES (Note 2) Total shareholders' equity 247,300,246 57,117,886 34,348,208 2,226,427 106,196,399 (640,742) (918,075) 445,630,349 608,359 446,238,708 48 11 7 - 20 - - 86 - 86 232,519,637 56,537,259 25,528,007 - 88,202,009 (2,226,427) (1,595,186) 398,965,299 75,737 399,041,036 47 11 5 - 18 (1) - 80 - 80 TOTAL $ 519,509,589 100 $ 499,454,091 100 TOTAL $ 519,509,589 100 $ 499,454,091 100 The accompanying notes are an integral part of the consolidated financial statements. 2005 Amount 93,575,035 57,633 93,632,668 2005 % 35 - 35 $ $ 2004 Amount 92,316,115 12,898 92,329,013 2004 % 36 - 36 104 Income Attributable to Shareholders of the Parent Income Attributable to Shareholders of the Parent Before Tax After Tax Before Tax After Tax 3.82 3.82 $ $ 3.79 3.79 $ $ 3.72 3.72 $ $ 3.73 3.73 $ $ $ $ CONSOLIDATED EARNINGS PER SHARE (Note 19) Basic earnings per share Diluted earnings per share The accompanying notes are an integral part of the consolidated financial statements. (Concluded) TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars, Except Consolidated Earnings Per Share) 2005 2004 Amount % Amount % GROSS SALES (Notes 2 and 20) $ 271,801,696 $ 261,947,351 SALES RETURNS AND ALLOWANCES (Note 2) 5,236,626 4,734,733 ATTRIBUTABLE TO: Shareholders of the parent Minority interest NET SALES 266,565,070 100 257,212,618 100 COST OF SALES (Notes 15 and 20) GROSS PROFIT OPERATING EXPENSES (Notes 15 and 20) Research and development General and administrative Sales and marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Interest (Notes 2 and 24) Equity in earnings of equity method investees, net (Notes 2 and 6) Settlement income (Note 22) Technical service income (Notes 20 and 23) Gain on disposal of property, plant and equipment (Note 2) Subsidy income Gain on sales of investments, net (Note 2) Others (Note 20) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES Interest (Notes 2, 7 and 24) Unrealized valuation loss on short-term investments (Note 2) Loss on idle assets (Note 2) Loss on impairment of long-term investments (Note 2) Loss on disposal of property, plant and equipment and idle assets (Note 2) Others Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 14) 148,362,196 118,202,874 14,016,506 9,085,536 4,132,273 27,234,315 90,968,559 3,069,435 1,433,226 964,710 462,624 342,756 321,850 - 472,896 7,067,497 2,662,458 337,160 131,849 128,900 60,109 452,333 3,772,809 56 44 5 3 2 10 34 1 1 - - - - - - 2 1 - - - - - 1 141,393,435 115,819,183 12,516,434 11,454,374 3,366,701 27,337,509 88,481,674 1,783,693 2,094,137 - 423,804 242,785 - 914,541 556,598 6,015,558 1,454,242 75,212 - 350,608 131,148 520,435 2,531,645 94,263,247 (630,579) 35 - 91,965,587 363,426 NET INCOME $ 93,632,668 35 $ 92,329,013 55 45 5 4 1 10 35 1 1 - - - - - - 2 1 - - - - - 1 36 - 36 (Continued) TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) 105 Capital Stock Retained Earnings Shares (in Thousands) Capital Surplus Amount Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Unrealized Loss on Long-term Investments Cumulative Translation Adjustments Total Treasury Stock Total Equity Attributable to Shareholders of the Parent (Notes 2, 16, 17 and 18) Minority Interest in Subsidiaries (Note 2) Total Shareholders' Equity BALANCE, JANUARY 1, 2004 20,266,619 $ 202,666,189 $ 56,855,885 $ 20,802,137 $ 68,945 $ 50,229,008 $ 71,100,090 $ (35) $ 225,408 $ (1,633,228) $ 329,214,309 $ 88,999 $ 329,303,308 Appropriations of prior year's earnings Legal capital reserve Reversal of special capital reserve Employees' profit sharing - in cash Employees' profit sharing - in stock Cash dividends to preferred shareholders Cash dividends to common shareholders - NT$0.60 per share Stock dividends to common shareholders - NT$1.41 per share Bonus to directors and supervisors Net income in 2004 Adjustment arising from changes of percentage of ownership in investees Reversal of unrealized loss on long-term investment of investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from parent company Treasury stock transactions - sales of parent company's stock held by subsidiaries Treasury stock repurchased by the parent company Retirement of treasury stock Decrease in minority interest - - - 272,651 - - 2,837,327 - - - - - 87 - - - - 2,726,514 - - 28,373,267 - - - - - 867 - - - (124,720) - - - (1,247,200) - - - - - - - - - - 4,725,870 - - - - - - - - - (68,945) - - - - - - - (4,725,870) 68,945 (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) 92,316,115 - - (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) 92,316,115 34,059 - - 2,757 22,781 1,864 - (380,087) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (5,432,511) - - - (5,432,511) - 88,202,009 113,730,016 BALANCE, DECEMBER 31, 2004 23,251,964 232,519,637 56,537,259 25,528,007 Appropriations of prior year's earnings Legal capital reserve Special capital reserve Employees' profit sharing - in cash Employees' profit sharing - in stock Cash dividends to common shareholders - NT$2.00 per share Stock dividends to common shareholders - NT$0.50 per share Bonus to directors and supervisors Net income in 2005 Adjustment arising from changes of percentage of ownership in investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from parent company Treasury stock transactions - sales of parent company's stock held by subsidiaries Increase in minority interest - - - 308,622 - 1,162,602 - - - - 6,837 - - - - - - 3,086,215 - 11,626,024 - - - - 68,370 - - - - - - - - - - - 71,405 - 202,559 84,285 222,378 - 8,820,201 - - - - - - - - 2,226,427 - - - - - - (8,820,201) (2,226,427) (3,086,215) (3,086,215) (46,504,097) (11,626,024) (231,466) 93,575,035 - - (3,086,215) (3,086,215) (46,504,097) (11,626,024) (231,466) 93,575,035 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 35 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (2,451,835) - - - - - - - - - - - - - - - - - - - - 38,042 (7,059,798) 7,059,798 - - - (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) - - - - - - - - - - 12,898 - - - - - - - - (26,160) - - (681,628) - (184,493) (12,159,971) - (127,805) 92,329,013 34,059 35 (2,451,835) 3,624 22,781 39,906 (7,059,798) - (26,160) (2,226,427) (1,595,186) 398,965,299 75,737 399,041,036 - - - - - - - - - 1,585,685 - - - - - - - - - - - - - - - - 677,111 - - - (3,086,215) - (46,504,097) - (231,466) 93,575,035 71,405 1,585,685 270,929 84,285 899,489 - - - - - - - - 57,633 - (51,795) - - - 526,784 - - (3,086,215) - (46,504,097) - (231,466) 93,632,668 71,405 1,533,890 270,929 84,285 899,489 526,784 BALANCE, DECEMBER 31, 2005 24,730,025 $ 247,300,246 $ 57,117,886 $ 34,348,208 $ 2,226,427 $ 106,196,399 $142,771,034 $ - $ (640,742) $ (918,075) $ 445,630,349 $ 608,359 $ 446,238,708 The accompanying notes are an integral part of the consolidated financial statements. TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (In Thousands of New Taiwan Dollars) 2005 2004 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to shareholders of the parent Net income attributable to minority interest Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Equity in earnings of equity method investees, net Amortization of premium/discount of long-term bond investments, net Loss on impairment of long-term investments Gain on sales of long-term investments, net Gain on disposal of property, plant and equipment and idle assets, net Loss on idle assets Donation of idle assets Provision for pension cost Dividends received from equity method investees Changes in operating assets and liabilities: Decrease (increase) in: Notes and accounts receivable Receivables from related parties 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: Accounts payable Payables to related parties Income tax payable Accrued expenses and other current liabilities Deferred credits $ 93,575,035 57,633 $ 92,316,115 12,898 75,649,429 (3,353,013) (1,433,226) 120,872 128,900 (15,304) (282,647) 131,849 7,207 360,128 668,464 (11,572,809) (101,915) (3,145) 974,963 (87,979) (469,023) (2,006,165) 183,046 2,088,582 (1,629,217) 3,611,486 292,568 117,335 69,818,457 (1,058,393) (2,094,137) 28,673 350,608 (85,203) (111,637) - - 500,257 - (2,709,261) 266,067 (37,555) 1,206,607 (9,847) (777,100) (3,420,613) (34,493) 825,815 (1,499,968) 266,526 (602,911) - Net cash provided by operating activities 157,013,054 153,150,905 CASH FLOWS FROM INVESTING ACTIVITIES Decrease (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 and idle assets Increase in deferred charges Decrease in refundable deposits Decrease in other assets 6,954,230 (14,675,413) (79,878,724) 10,533,622 480,707 (855,967) 771 741 (43,554,878) (23,054,379) (81,094,557) 165,243 1,812,633 (2,405,673) 93,074 51,604 Net cash used in investing activities (77,440,033) (147,986,933) CASH FLOWS FROM FINANCING ACTIVITIES Repayments on: Short-term bank loans Bonds payable Long-term bank loans Increase (decrease) in guarantee deposits Cash bonus paid to employees Cash dividends paid for preferred stock Cash dividends paid for common stock Bonus to directors and supervisors Repurchase of treasury stock Proceeds from: Exercise of employee stock options Disposal of treasury stock Increase (decrease) in minority interest in subsidiaries Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS EFFECT OF FIRST INCLUSION FOR CONSOLIDATION OF CERTAIN SUBSIDIARIES CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for Interest (excluding the amount capitalized of NT$278,334 thousand in 2004, Note 7) Income tax Cash paid for acquisition of property, plant and equipment Total acquisitions Decrease (increase) in payables to contractors and equipment suppliers Increase in other long-term payables Decrease in liability under capital lease NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term liabilities Current portion of other payables to related parties (classified under payables to related parties) Current portion of other long-term payables (classified 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 (54,504) (10,500,000) (1,337,489) 2,483,549 (3,086,215) - (46,419,812) (231,466) - 270,929 899,489 6,832 (57,968,687) 21,604,334 348,921 228,101 74,302,351 96,483,707 2,435,827 341,671 56,166,205 24,361,666 (649,147) - 79,878,724 5,489 693,956 869,072 245,587 - $ $ $ $ $ $ $ $ $ $ (Continued) The accompanying notes are an integral part of the consolidated financial statements. 106 - (5,000,000) (6,656,152) (351,008) (681,628) (184,493) (12,137,190) (127,805) (7,059,798) 3,624 39,906 (26,160) (32,180,704) (27,016,732) (1,669,813) - 102,988,896 74,302,351 1,470,333 389,189 113,043,552 (26,195,599) (5,913,737) 160,341 81,094,557 10,500,000 469,494 1,505,345 343,950 3,402,413 (Concluded) $ $ $ $ $ $ $ $ $ $ TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES changes in investment structure, the Company no longer had a coutrolling interest over VisEra in November 2005; the consolidated statement of income for the year ended December 31, 2005 included the revenue and expenses of VisEra for the ten months ended October 31, 2005); moreover, pursuant to the newly adopted standard, the Company did not retroactively restate its consolidated financial statements as of and for the year ended December 31, 2004. The consolidated entities were as follows: Name of Investor Name of Investee Percentage of Ownership at December 31, 2005 Remark NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 1. GENERAL 107 Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corpo- ration, was incorporated as a venture among the Government of the R.O.C., acting through the TSMC 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. As of December 31, 2005 and 2004, TSMC and its subsidiaries had 21,950 and 20,444 employees, respectively. 2. SUMMARY OF 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 consolidated financial statements have been trans- lated 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 interpre- tation of the two versions, the Chinese-language consolidated financial statements shall prevail. Significant accounting policies are summarized as follows: Principles of Consolidation The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC's ownership per- centage is less than 50% but has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation. In compliance with the revised R.O.C. Statement of Financial Accounting Standards ("SFAS") No. 7 "Consolidated Financial Statements", the consolidated financial statements included new consolidated entities, including Global Unichip Corporation (GUC), Global Unichip Corp.-North America (GUC-NA), Global Unichip Japan Co., Ltd (GUC-Japan) and VisEra Technology Company, Ltd. (VisEra; due to the TSMC North America (TSMC-NA) TSMC Japan K. K. (TSMC-Japan) Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe) TSMC (Shanghai) Company Limited (TSMC-Shanghai) TSMC Partners, Ltd. (TSMC Partners) TSMC International Investment Ltd. (TSMC International) Chi Cherng Investment Co., Ltd. (Chi Cherng) 100% 100% 100% 100% 100% 100% 36% Hsin Ruey Investment Co., Ltd. 36% (Hsin Ruey) - - - - - - TSMC and Hsin Ruey held in aggregate a 100% ownership of Chi Cherng. As of December 31, 2005, Chi Cherng held 16,454 thousand com- mon shares in TSMC (approximately 0.07% of outstanding common shares). TSMC and Chi Cherng held in aggregate a 100% ownership of Hsin Ruey. As of December 31, 2005, Hsin Ruey held 16,484 thousand com- mon shares in TSMC (approximately 0.07% of outstanding common shares). Emerging Alliance Fund, L.P. (Emerging Alliance) VentureTech Alliance Fund II, L.P. (VTAF II) GUC 99.5% 98% - - 46% Starting from January 1, 2005, GUC became a consolidated entity of TSMC as GUC's president was assigned by TSMC and TSMC has control over the financial, operating and personnel hir- ing decisions of GUC. Please see Note 20 for sig- nificant intercompany transactions between TSMC and GUC during 2004. VisEra - Starting from January 1, 2005, VisEra became a consolidated entity of TSMC as VisEra's president was assigned by TSMC and TSMC no longer had a controlling interest over the financial, operat- ing and personnel hiring decisions of VisEra. However, due to the changes in investment structure, TSMC no longer had a controlling interest over VisEra beginning in November 2005. As a result, its revenue and expenses after October 31, 2005 were excluded from the consolidated statements of income for the year ended December 31, 2005. (Continued) Percentage of Ownership at December 31, 2005 Remark Name of Investor Name of Investee TSMC International TSMC Technology, Inc. (TSMC Technology) TSMC Development, Inc. (TSMC Development) InveStar Semiconductor Development Fund, Inc. (ISDF) InveStar Semiconductor Development Fund, Inc. (II) LDC (ISDF II) TSMC Development WaferTech, LLC (WaferTech) GUC GUC-NA GUC-Japan 100% 100% 100% 97% 97% 99.996% 100% - - - - - Starting from January 1, 2005, GUC-NA became a consolidated entity of TSMC as TSMC has control over GUC. TSMC did not enter into significant transactions with GUC-NA in prior years. Starting from January 1, 2005, GUC-Japan became a consolidated entity of TSMC as TSMC has con- trol over GUC. TSMC did not enter into signifi- cant transactions with GUC-Japan in prior years. (Concluded) 108 The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of December 31, 2005: TSMC 100% 100% 100% 100% 100% 100% 36% 36% 99.5% 46% 98% TSMC-NA TSMC-Japan TSMC International TSMC-Europe TSMC Partners TSMC Shanghai Chi Cherng 64% 64% Hsin Ruey Emerging Alliance GUC VTAF II 100% 100% 97% 97% TSMC Technology TSMC Development ISDF ISDF II 99.996% WaferTech 100% 100% GUC-Japan GUC-NA TSMC-NA is engaged in selling and marketing of integrated circuits and semiconductor devices. method; whereas the costs of other securities sold are accounted for using the specific identification TSMC-Japan and TSMC-Europe are engaged mainly in marketing activities. TSMC-Shanghai is method. engaged in the manufacturing and sales of integrated circuits at the order of and pursuant to prod- uct design specifications provided by customers. TSMC Partners, TSMC Development, Chi Cherng and The market value of funds is determined using the net asset value of the funds at the end of the year, Hsin Ruey are engaged in investing activities. TSMC International is engaged in investment in compa- and the market value of public-traded stocks is determined using the average-closing prices of the nies involved in the design, manufacture, and other related business in the semiconductor industry. listed stocks for the last month of the year. The market value of other short-term investments is deter- TSMC Technology is engaged mainly in engineering support activities. Emerging Alliance, VTAF II, mined using the average of bid and ask prices at the end of the year. ISDF and ISDF II are engaged in investing in new start-up technology companies. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits Cash dividends are recorded as investment income in the current year. and other semiconductor devices. GUC is engaged in the researching, developing, manufacturing, 109 testing and marketing of integrated circuits. GUC-NA and GUC-Japan are engaged in providing prod- Allowance for Doubtful Receivables ucts consulting in North America and Japan. An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivables. The Company determines the amount of the allowance for doubtful receivables by exam- TSMC together with its consolidated entities are hereinafter referred to collectively as the "Company". ining the aging analysis of outstanding account receivables and current trends in the credit quality of Minority interest in subsidiaries aforementioned is presented under minority interest in subsidiaries in the consolidated balance sheets. Revenue Recognition and Allowance for Sales Returns and Others its customers as well as its internal credit policies. Use of Estimates The Company recognizes revenue when evidence of an arrangement exists, shipment is made, price is fixed or determinable, and collectibility is reasonably assured. Revenues from the design and manu- The preparation of consolidated financial statements in conformity with the Guidelines Governing the facturing of photo masks, which are used as manufacturing tools in the fabrication process, are rec- Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in ognized when the photo masks are qualified by customers. The Company records a provision for esti- the R.O.C. that require management to make reasonable assumptions and estimates of matters that mated future returns and other allowances in the period the related revenue is recorded. Provisions are inherently uncertain. The actual results may differ from management's estimates. for estimated sales returns and other allowances are generally made based on historical experience, management's judgment, and any known factors that would significantly affect the allowance. 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 Sales are determined using the fair value taking into account related sales discounts agreed to by the the balance sheet date. Current liabilities are obligations due on demand within one year from the Company and its customers. Sales agreements typically provide that payment is due 30 days from balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and invoice date for a majority of the customers and 30 to 45 days after the end of the month in which liabilities, respectively. Cash Equivalents 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 to be received. Government bonds under repurchase agreements and notes acquired with maturities less than three months from the date of purchase are classified as cash equivalents. Inventories Short-term Investments Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the balance sheet date. Market value rep- Short-term investments primarily consist of agency bonds, corporate bonds, asset-backed securities, resents replacement cost for raw materials, supplies and spare parts, and net realizable value is used bond funds, government bonds and others. for finished goods and work in process. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Year-end inventories Short-term investments are recorded at historical cost and are carried at the lower of cost or market are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a value as of the balance sheet date. An allowance for decline in value is provided and is charged to specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving current income when the aggregate carrying amount of the investments exceeds the aggregate mar- items are recognized and included in the allowance for losses. ket value. A reversal of the allowance is recorded for a subsequent recovery of the aggregate market value. Long-term Investments The costs of funds and public-traded stocks sold are accounted for using the weighted-average financial policy decisions are accounted for using the equity method of accounting. The Company's Investments in companies wherein the Company exercises significant influence on the operating and share of the net income or net loss of an investee is recognized in the "equity in earnings/losses of Gains or losses on sales from the Company to investees accounted for using the equity method and equity method investees, net" account. When equity investments are made, the difference, if any, vice versa are deferred in proportion to the Company's ownership percentages in the investees until between the cost of the investment and the Company's share of the investee's net equity is amortized realized through transactions with third parties. using the straight-line method over five years and is also recorded in the "equity in earnings/losses of equity method investees, net" account. 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. When the Company subscribes for additional investee shares at a percentage different from its exist- Such adjustments are accumulated and reported as a separate component of shareholders' equity. ing ownership percentage of equity interest, the resulting carrying amount of the investment in the investee differs from the amount of the Company's share of the investee's net equity. The Company Property, Plant and Equipment, Assets Leased to Others, Leased Assets and Idle Assets records such difference as an adjustment to long-term investments with the corresponding amount Property, plant and equipment and assets leased to others are stated at cost less accumulated depre- charged or credited to capital surplus. ciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the 110 leased equipment's market value or the present value of the minimum lease payments at the incep- Investments in companies wherein the Company does not exercise significant influence are recorded tion date of the lease, with the corresponding amount recorded as a liability under capital lease. at historical cost. Cash dividends are recognized as investment income in the year received but are When an indication of impairment is identified, any excess of the carrying amount of an asset over its accounted for as reductions to the carrying amount of the investments if the dividends are received in recoverable amount is recognized as a loss. If the recoverable amount increases in a future period, the the year of acquisition. Stock dividends are recorded as an increase in the number of shares held and amount previously recognized as impairment would be reversed and recognized as a gain. However, do not affect investment income or the carrying amount of the investment. An allowance is recog- the adjusted amount may not exceed the carrying amount that would have been determined, net of nized for any decline in the market value of investments in publicly traded stocks with readily ascer- depreciation, as if no impairment loss had been recognized. Idle assets are stated at the lower of net tainable fair market value, with the corresponding amount recorded as an unrealized loss, a compo- realizable value or book value. Significant additions, renewals and betterments incurred during the nent of shareholders' equity. A reversal of the allowance is recorded for a subsequent recovery of the construction period are capitalized. Maintenance and repairs are expensed in the year incurred. market value of such investment. Interest expense incurred during the purchase and construction period is also capitalized. Investments in mutual funds are stated at the lower of aggregate cost or net asset value. An Depreciation is computed using the straight-line method over the following estimated service lives: allowance is recognized when the net asset value of the funds is lower than their cost, with the corre- land improvements - 20 years; buildings - 10 to 50 years; machinery and equipment - 3 to 10 years; sponding amount recorded as a reduction to shareholders' equity. A reversal of the allowance will office equipment - 3 to 15 years; and leased assets - 20 years. 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. tion are removed from the corresponding accounts, with any gain or loss credited or charged to non- Upon sale or disposal of property, plant and equipment, the related cost and accumulated deprecia- operating gains or losses in the year of sale or disposal. 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 the amortization is recorded as an adjust- Goodwill ment to interest income. Goodwill represents the excess of the consideration paid for acquisition over the fair market value of identifiable net assets acquired. Goodwill is amortized using the straight-line method over the esti- When investments in public-traded securities are reclassified from short-term investments to long- mated life of 10 years. If an event occurs or circumstances change that more likely than not reduce term investments or from long-term investments to short-term investments, the Company recognizes the fair value of goodwill below its carrying amount, an impairment loss is charged to current a loss to the extent, if any, that the market value of such investments is lower than the carrying income. No recording of subsequent recovery in the fair value of the goodwill is allowed. amount and the market value at the time of reclassification becomes the new basis. Deferred Charges If an investee recognizes an unrealized loss on its long-term investments using the lower-of-cost-or- Deferred charges consist of technology license fees, software and system design costs and other market method, the Company also recognizes a corresponding unrealized loss in proportion to its charges. The amounts are amortized as follows: Technology license fees - the shorter of the estimated ownership percentage in the investee and records the amount as a component of shareholders' equity. life of the technology or the term of the technology transfer contract; software and system design When an indication of impairment is identified in an investment, the carrying amount of the invest- the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable ment is reduced to reflect such other-than-temporary decline, with the related impairment loss amount increases in a future period, the amount previously recognized as impairment would be charged to current income. reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying costs and other charges 2 to 5 years. When an indication of impairment is identified, any excess of amount that would have been determined, net of amortization, as if no impairment loss had been Foreign-currency Transactions recognized. Pension Costs 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 For employees under defined contribution pension plans, pension costs are recorded based on the the end of the year, assets and liabilities denominated in foreign currencies are revalued at the prevail- actual contributions made to employees' individual pension accounts. For employees under defined ing exchange rates with the resulting gains or losses recognized in current income. benefit pension plans, pension costs are recorded based on actuarial calculations. Derivative Financial Instruments Income Tax The Company enters into foreign currency forward contracts to manage foreign exchange exposures The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets on foreign-currency-denominated assets and liabilities. The contracts are recorded in New Taiwan dol- 111 and liabilities are recognized for the tax effects of temporary differences, net operating loss carryfor- lars at the current rate of exchange at the contract date. The differences in the New Taiwan dollar wards and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more amounts translated using the current rates and the amounts translated using the contracted forward likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is rates are amortized over the terms of the forward contracts using the straight-line method. At the classified as current or noncurrent in accordance with the classification of its related asset or liability. end of the year, the receivables or payables arising from forward contracts are restated using the pre- However, if a deferred tax asset or liability does not relate to an asset or liability in the financial state- vailing exchange rates with the resulting differences credited or charged to income. In addition, the ments, then it is classified as either current or noncurrent based on the expected length of time receivables and payables related to the same forward contracts are netted with the resulting amount before it is realized or settled. 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. Any tax credits arising from purchases of machinery, equipment and technology, research and devel- opment expenditures, personnel training, and investments in important technology-based enterprises The Company enters into cross currency swap contracts to manage currency exposures on foreign- are recognized using the flow-through method. currency-denominated assets and liabilities. The principal amount is recorded using the current rate at the contract date. The differences in the New Taiwan dollar amounts translated using the current Adjustments of prior years' tax liabilities are added to or deducted from the current year's tax provi- rates and the amounts translated using the contracted rates are amortized over the terms of the con- sion. tracts using the straight-line method. At the end of the year, the receivables or payables arising from cross-currency swap contracts are restated using the prevailing exchange rate with the resulting dif- Income taxes on unappropriated earnings (excluding earnings from foreign consolidating subsidiaries) ferences credited or charged to income. In addition, the receivables and payables related to the con- of 10% are expensed in the year of shareholder approval which is the year subsequent to the year the tracts of the same counter party are netted with the resulting amount presented as either an asset or earnings are generated. Stock-based Compensation 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 Employee stock option plans that are amended or have options granted on or after January 1, 2004 the year of settlement. must be accounted for by the interpretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost deter- The contract amounts of foreign currency option contracts entered into for hedging purposes are not mined using this method is charged to expense over the employee vesting period. recognized as an asset or liability on the contract dates. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. Treasury Stock When TSMC repurchases its outstanding common stock, the cost of the reacquired stock is recorded The Company enters into interest rate swap contracts to manage exposures to changes in interest as treasury stock, a reduction to shareholders' equity. When TSMC retires treasury stock, the treasury rates on existing assets or liabilities. The receivable or payable computed pursuant to the contracts on stock account is reduced and the common stock as well as the capital surplus - additional paid-in each settlement date or the balance sheet date is recorded as an adjustment to the interest income or capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum expense associated with the hedged items. of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. TSMC's stock held by its sub- Translation of Foreign-currency Financial Statements sidiaries is treated as treasury stock and reclassified from long-term investments to treasury stock. The R.O.C. SFAS No. 14, "Accounting for Foreign-currency Translation", applies to foreign subsidiaries that gains resulted from the disposal of treasury stock held by the subsidiaries and cash dividends received use the local currency as their functional currency. The financial statements of foreign subsidiaries are by the subsidiaries from TSMC are recorded under capital surplus - treasury stock transactions. translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - current rate at year-end; shareholders' equity - historical rate; income and expenses - average rate during the year. 5. INVENTORIES, NET The resulting translation adjustments are 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, 2004 have been reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2005. 3. CASH AND CASH EQUIVALENTS Cash and deposits in bank Government bonds acquired under repurchase agreements Corporate notes 4. SHORT-TERM INVESTMENTS, NET Agency bonds Corporate bonds Corporate issued asset-backed securities Bond funds Government bonds Public-traded stocks Corporate notes Money market funds Government bonds acquired under repurchase agreements Commercial papers Allowance for valuation Market value 2005 48,107,316 47,963,226 413,165 96,483,707 2005 14,607,694 12,463,688 11,724,149 6,055,578 2,087,418 349,218 263,249 260,686 - - 47,811,680 (412,372) 47,399,308 49,137,413 $ $ $ $ $ 2004 54,608,986 19,215,153 478,212 74,302,351 2004 8,633,889 13,554,598 11,766,877 10,662,758 7,346,858 168,299 63,796 1,640,973 249,449 95,666 54,183,163 (75,212) 54,107,951 54,990,545 $ $ $ $ $ TSMC entered into investment management agreements with three well-known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines Finished goods Work in process Raw materials Supplies and spare parts Allowance for valuation 6. LONG-TERM INVESTMENTS Equity method Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) VisEra Holding Company (VisEra Holding) GUC (Note 2) VisEra Cost method Common stocks Publicly traded stocks Non-publicly traded stocks Preferred stocks Funds Long-term bonds Government bonds Corporate bonds Taiwan Power Company Nan Ya Plastics Corporation China Steel Corporation Formosa Petrochemical Corporation Chinese Petroleum Corporation Far Eastone Telecommunication Co., Ltd. Formosa Plastics Corporation Formosa Chemical & Fiber Corporation and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of December 31, 2005, TSMC's investment portfolios managed Other investments by these fund managers aggregated to an original amount of US$1,200,000 thousand. The invest- ment portfolios included securities such as agency bonds, corporate bonds, asset-backed securities, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents. $ 2005 2,963,989 13,359,209 1,765,369 1,325,582 19,414,149 (1,685,846) $ 2004 3,526,036 11,437,466 993,151 1,176,735 17,133,388 (1,577,451) $ 17,728,303 $ 15,555,937 112 2005 2004 Carrying Amount % of Ownership Carrying Amount % of Ownership 28 32 - 47 25 - - - - $ 5,419,747 4,215,200 652,477 - - 10,287,424 60,177 1,006,203 1,963,971 334,990 3,365,341 9,922,937 3,263,348 2,150,842 1,010,532 791,963 705,436 300,026 268,855 134,369 18,548,308 10,227,000 27 32 50 - - - - - - $ 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 10,260,481 915,276 407,526 2,978,804 202,595 - - 405,485 - 15,170,167 10,521,740 $ 42,428,073 $ 38,101,849 For the years ended December 31, 2005 and 2004, net equity in earnings recognized from the equity 7. PROPERTY, PLANT AND EQUIPMENT method investees was NT$1,433,226 thousand and NT$2,094,137 thousand, respectively. The carry- ing amounts of the investments accounted for under the equity method and the related equity in Accumulated depreciation at December 31, 2005 and 2004 consisted of the following: earnings of equity method investees were determined based on the audited financial statements of the investees as of and for the same periods as the Company. In November 2005, the Company transferred all of its shares in VisEra to VisEra Holding Company, an investee accounted for using the equity method of TSMC Partners, due to the changes in investment structure. Land improvements Buildings Machinery and equipment Office equipment Leased assets 113 Other investments consisted of the following structured time-deposits: $ 2005 206,408 46,560,127 344,431,001 6,862,502 64,569 $ 2004 172,484 38,160,322 287,204,368 5,683,577 33,115 $ 398,124,607 $ 331,253,866 December 31, 2005 Step-up callable deposits Foreign banks Callable range accrual deposits Foreign banks December 31, 2004 Step-up callable deposits Domestic banks Foreign banks Callable range accrual deposits Foreign banks $ $ $ Principal Amount Interest Receivable Range of Interest Rates Maturity Date There was no capitalized interest for the year ended December 31, 2005. Interest expense for the year ended December 31, 2004 was NT$1,732,576 thousand (before deducting the amount capitalized of NT$278,334 thousand); the rates used for calculating the capitalized interest ranged from 1.89% to 3,000,000 $ 8,145 1.40%-1.50% Jun. 2007-Oct. 2007 2.89%. 7,227,000 9,951 (See below) Sep. 2009-Jan. 2010 8. DEFERRED CHARGES, NET 10,227,000 $ 18,096 Deferred charges, net at December 31, 2005 and 2004 consisted of the following: 2,000,000 2,138,340 $ 6,383,400 7,681 14,054 30,751 2.05%-2.20% 1.44%-4.75% Jul. 2007-Aug. 2007 Jun. 2007-Aug. 2007 (See below) Sep. 2009-Dec. 2009 Technology license fees Software and system design costs Other 2005 5,099,227 1,737,384 169,639 7,006,250 $ $ 2004 6,534,899 2,213,636 243,917 8,992,452 $ $ $ 10,521,740 $ 52,486 9. SHORT-TERM BANK LOANS The interest rate of the step-up callable deposits is determined by the Company and the related Short-term bank loans at December 31, 2005 and 2004 consisted of the following: 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 plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the con- tracts prior to the maturity date. As of December 31, 2005 and 2004, deposits that reside in banks located in Hong Kong amounted to NT$2,628,000 thousand and NT$2,553,360 thousand, respectively; those that reside in banks located in Singapore amounted to NT$657,000 thousand and NT$638,340 thousand, respectively. Unsecured loans: US$10,000 thousand and US$12,000 thousand in 2005 and 2004, respectively, repayable by June 2006, annual interest at 4.77% and 2.80% in 2005 and 2004, respectively 2005 2004 $ 328,500 $ 383,004 10. LONG-TERM BANK LOANS 11. BONDS PAYABLE Long-term bank loans at December 31, 2005 and 2004 consisted of the following: Bonds payable at December 31, 2005 and 2004 consisted of the following: Unsecured loan: US$60,000 thousand, repaid before original maturities, annual interest at Domestic unsecured bonds: Issued in December 2000 and repayable in December 2005 and 2007 in 2.475% in 2004 $ - $ 1,915,020 two installments, 5.25% and 5.36% interest payable annually, respectively $ 4,500,000 $ 15,000,000 2005 2004 2005 2004 Secured loan: US$20,000 thousand, repayable by November 2010 in 5 payments, annual interest at 5.01% Science Park Administration (SPA) SOC loan (GUC, Note 2), repayable by July 2008 in 20 payments, interest-free SPA DSP loan (GUC, Note 2), repayable by April 2007 in 20 payments, inter- est-free Current portion 656,914 7,658 4,057 668,629 (5,489) - - - 1,915,020 - Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three installments, 2.60%, 2.75% and 3.00% interest payable annually, respectively Current portion 15,000,000 19,500,000 - 15,000,000 30,000,000 (10,500,000) 114 $ 19,500,000 $ 19,500,000 $ 663,140 $ 1,915,020 As of December 31, 2005, future principal repayments for the Company's bonds were as follows: As of December 31, 2005, assets of TSMC-Shanghai with a carrying amount aggregating NT$5,511,456 thousand (RMB1,354,166 thousand) were provided as collateral for the aforemen- tioned secured loan. Pursuant to the loan agreement, the annual audited financial statements of TSMC-Shanghai must maintain certain financial covenants. As of December 31, 2005, TSMC- Shanghai did not violate those financial covenants. Year of Repayment 2007 2009 2010 and thereafter As of December 31, 2005, future principal repayments for the Company's long-term bank loans were 12. OTHER LONG-TERM PAYABLES Amount 7,000,000 8,000,000 4,500,000 19,500,000 $ $ as follows: Year of Repayment 2006 2007 2008 2009 2010 Amount 5,489 4,137 133,471 262,766 262,766 668,629 $ $ Other long-term payables at December 31, 2005 and 2004 consisted of the following: Payables for acquisition of property, plant and equipment (Note 23k) Payables for royalties Current portion (classified under accrued expenses and other current liabilities) 2005 7,037,787 2,380,172 9,417,959 (869,072) 8,548,887 $ $ 2004 6,030,007 3,440,313 9,470,320 (1,505,345) 7,964,975 $ $ The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents. As of December 31, 2005, future payments for the Company's other long-term payables were as fol- b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 2005 and lows: Year of Payment 2006 2007 2008 2009 2010 2011 and thereafter 115 13. PENSION PLAN $ Amount 869,072 459,900 262,800 262,800 262,800 7,300,587 $ 9,417,959 2004 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 The Labor Pension Act (the "Act") became effective on July 1, 2005 and the pension mechanism under Vested benefit the Act is deemed a defined contribution plan. The employees who were subject to the Labor Standards Law prior to July 1, 2005 were allowed to choose to be subject to the pension mechanism under the Act or continue to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law prior to July 1, 2005 and still work for the same company after July 1, 2005 and have chosen to be subject to the pension mechanism under the Act, their seniority as of July 1, 2005 shall be maintained. The Act prescribes that the rate of contribution by an employer to employees' pension accounts per month shall not be less than 6% of each employee's monthly salary. Furthermore, TSMC-Shanghai is required to make contributions to c. Actuarial assumptions Discount rated used in determining present values Future salary increase rate Expected rate of return on plan assets a state-managed retirement plan at a certain ratio of the monthly basic salary of its local employees. d. Contributions to the Funds for the year Pursuant to the aforementioned Act and regulation, the Company made monthly contributions and recognized pension costs of NT$280,317 thousand and NT$7,503 thousand for the years ended December 31, 2005 and 2004, respectively. TSMC and GUC have defined benefit plans under the Labor Standards Law that provide benefits based on an employee's length of service and average monthly salary prior to retirement. TSMC and GUC contribute an amount equal to 2% of salaries paid each month to their respective pension fund (the Funds). The Funds are administered by pension fund monitoring committees and deposited in the committees' name in the Central Trust of China. e. Payments from the Funds for the year 2005 2004 $ $ $ $ $ 62,302 3,364,333 3,426,635 2,550,307 5,976,942 (1,691,603) 4,285,339 (126,969) (684,429) 3,473,941 67,752 2005 2.75%-3.50% 2.00%-3.00% 2.50%-2.75% 2005 226,181 2005 8,419 $ $ $ $ $ 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% 2004 226,339 2004 1,446 Pension information on the defined benefit plans is summarized as follows: 14. INCOME TAX a. Components of net periodic pension cost for the year Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 2005 470,886 163,854 (49,843) 8,345 593,242 $ $ 2004 632,594 128,315 (41,925) 8,300 727,284 $ $ a. A reconciliation of income tax expense based on income before income tax at the statutory rate and current income tax expense before tax credits is as follows: Income tax expense based on income before income tax at statutory rate Tax-exempt income Temporary and permanent differences Current income tax expense before income tax credits 2005 23,658,498 (12,243,435) 1,123,735 12,538,798 $ $ 2004 23,840,497 (14,712,500) 658,164 9,786,161 $ $ b. Income tax expense (benefit) consisted of the following: e. TSMC's earnings generated prior to December 31, 1997 have been fully appropriated. Current income tax expense before income tax credits Additional tax at 10% on unappropriated earnings Income tax credits Other income tax adjustment Net change in deferred income tax assets Net operating loss carryforwards Investment tax credits Temporary differences Adjustment in valuation allowance $ 2005 12,538,798 1,494,811 (10,133,848) 117,314 690,615 1,965,878 (2,402,406) (3,640,583) $ 2004 9,786,161 823,932 (10,470,862) 555,736 1,652,983 (234,690) (1,131,331) (1,345,355) f. As of December 31, 2005, investment tax credits of TSMC and GUC consisted of the following: Law Item Statute for Upgrading Industries Purchase of machinery and equipment Income tax expense (benefit) $ 630,579 $ (363,426) c. Net deferred income tax assets at December 31, 2005 and 2004 consisted of the following: Statute for Upgrading Industries Research and development expenditures Current deferred income tax assets, net Investment tax credits Temporary differences Net operating loss carryforwards Valuation allowance Non-current deferred income tax assets, net Investment tax credits Net operating loss carryforwards Temporary differences Valuation allowance 2005 7,033,621 454,052 15,825 (354,192) 7,149,306 17,004,324 6,261,469 (5,640,477) (10,836,898) 6,788,418 $ $ $ $ 2004 8,849,000 319,717 - (250,731) 8,917,986 17,035,584 6,735,080 (7,760,152) (14,360,533) 1,649,979 $ $ $ $ Statute for Upgrading Industries Personnel training Statute for Upgrading Industries Investments in important technology-based enterprises As of December 31, 2005, the net operating loss carryforwards pertained to WaferTech, TSMC Development, TSMC Technology and GUC would expire at various dates through 2024. d. Integrated income tax information: g. The profits generated from the following expansion and construction projects of TSMC's manufac- turing plants are exempt from income tax: 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 2002 to 2005 2003 to 2006 2004 to 2007 The balance of the imputation credit account of TSMC as of December 31, 2005 and 2004 was NT$20,087 thousand and zero, respectively. h. The tax authorities have examined income tax returns of TSMC through 2001. The expected and actual creditable ratio of TSMC for distribution of earnings of 2005 and 2004 was 0.02% and 0.11%, respectively. The imputation credit allocated to the shareholders is based on its balance as of the date of dividend distribution. The expected creditable ratio may change when the actual distribution of the imputation credits is made. Total Creditable Amounts Remaining Creditable Amounts Expiry Year $ $ $ $ $ $ $ 134,467 4,886,592 4,138,857 11,001,974 4,160,396 24,322,286 3,145,894 1,809,841 1,421,611 1,647,252 1,667,788 9,692,386 29,448 20,427 26,962 37,250 19 114,106 38,036 $ $ $ $ $ $ $ - 171 4,054,072 11,001,974 4,160,396 19,216,613 - 20,404 1,421,611 1,647,252 1,667,788 4,757,055 - 46 26,962 37,250 19 64,277 116 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 - 2005 15. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSES b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; Labor cost Salary Labor and health insurance Pension Other 117 Year Ended December 31, 2005 Year Ended December 31, 2004 Classified as Cost of Sales Classified as Operating Expenses Total Classified as Cost of Sales Classified as Operating Expenses Total $ 11,031,464 633,790 589,342 770,906 $ 6,703,584 343,937 295,653 551,924 $ 17,735,048 977,727 884,995 1,322,830 $ 10,719,632 572,210 472,329 430,777 $ 5,886,769 320,785 271,186 531,876 $ 16,606,401 892,995 743,515 962,653 $ 13,025,502 $ 7,895,098 $ 20,920,600 $ 12,194,948 $ 7,010,616 $ 19,205,564 Depreciation Amortization $ 68,135,117 $ 1,766,702 $ 3,250,651 $ 2,574,566 $ 71,385,768 $ 4,341,268 $ 61,703,792 $ 2,496,827 $ 2,563,408 $ 3,052,160 $ 64,267,200 $ 5,548,987 16. SHAREHOLDERS' EQUITY TSMC has issued a total of 864,194 thousand ADSs which are traded on the NYSE as of December 31, 2005. The number of common shares represented by the ADSs is 4,320,969 thousand (one ADS represents five common shares). Capital surplus can only be used to offset a deficit under the Company Law. However, the capital sur- plus generated from donations and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are restricted to a certain percent- age of the paid-in capital of TSMC. As of December 31, 2005 and 2004, the capital surplus consisted of the following: From merger Additional paid-in capital From convertible bonds From treasury stock transactions From long-term investments Donations $ 2005 24,003,546 23,254,234 9,360,424 306,868 192,759 55 $ 2004 24,003,546 23,051,675 9,360,424 205 121,354 55 c. Bonus to directors and supervisors and bonus to employees of TSMC equal to not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of TSMC are not entitled to receive the bonus to directors and supervisors. TSMC may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; d. Any balance left over shall be allocated according to the resolution of the shareholders' meeting. TSMC's Articles of Incorporation also stipulate that profits of TSMC may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided however, the ratio for stock dividend shall not exceed 50% of total distribution. Any appropriations of the net profits are recorded in the financial statement in the year of sharehold- er approval. The appropriation for legal capital reserve shall be made until the reserve equals TSMC's paid-in capi- tal. The reserve can be used to offset a deficit, or be distributed as dividends and bonuses for the por- tion in excess of 50% of the paid-in capital, if TSMC has no unappropriated earnings and the reserve balance has exceeded 50% of the paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the paid-in capital, up to 50% of the reserve may be transferred to capital. A special capital reserve equivalent to the net debit balance of the other components of shareholder's equity (for example, unrealized loss on long-term investments and cumulative translation adjust- ments, but excluding treasury stock), shall be made from unappropriated earnings pursuant to exist- ing regulations promulgated by the Securities and Futures Bureau (SFB). Any special capital reserve appropriated may be reversed to the extent that the net debit balance reverses. TSMC's appropriations of earnings for 2004 and 2003 had been approved in the shareholders' meet- ings held on May 10, 2005 and May 11, 2004, respectively. The appropriations and dividend per share were as follows: Appropriation of Earnings Dividends Per Share (NT$) $ 57,117,886 $ 56,537,259 For Fiscal Year 2004 For Fiscal Year 2003 For Fiscal Year 2004 For Fiscal Year 2003 TSMC's Articles of Incorporation as revised on May 10, 2005 provide that, when allocating the net profits for each fiscal year, TSMC shall first offset its losses in previous years and then set aside the fol- lowing items accordingly: a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve has equaled TSMC's total capital; Legal capital reserve Special capital reserve Employees' profit sharing - in cash Employees' profit sharing - in stock Cash dividends to preferred shareholders Cash dividends to common shareholders Stock dividends to common shareholders Bonus to directors and supervisors $ 8,820,201 2,226,427 3,086,215 3,086,215 - 46,504,097 11,626,024 231,466 $ 4,725,870 (68,945) 681,628 2,726,514 184,493 12,159,971 28,373,267 127,805 $ 75,580,645 $ 48,910,603 $ $ - 2.00 0.50 0.35 0.60 1.41 The amounts of the above appropriations of earnings for 2004 and 2003 are consistent with the res- Information about TSMC's outstanding stock options for the years ended December 31, 2005 and olutions of the meetings of the Board of Directors held on February 22, 2005 and February 17, 2004, 2004 was as follows: respectively. However, the Company Law prescribes that 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 resolutions. If the above bonus to employee, directors and supervisors had been paid entirely in cash and charged against earnings for 2004 and 2003, the after tax basic earnings per share for the years ended December 31, 2004 and 2003 would have decreased from NT$3.97 to NT$3.70 and NT$2.33 to NT$2.15, respectively. The shares distributed as a bonus to employees represented 1.33% and 1.35% of TSMC's total out- standing common shares as of December 31, 2004 and 2003, respectively. As of January 12, 2006, the Board of Directors of TSMC has not resolved the appropriation for earn- ings of 2005. The above information about the appropriations of bonus to employees, directors and supervisors is available at Market Observation System website. Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resi- dent shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998. 17. STOCK-BASED COMPENSATION PLANS Year ended December 31, 2005 Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year Year ended December 31, 2004 Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year Number of Options (in Thousands) Weighted-Average Exercise Price (NT$) $ 64,367 14,864 (6,837) (4,636) 67,758 49,357 20,400 (87) (5,303) 64,367 118 40.5 48.4 39.6 44.1 42.1 43.0 47.3 41.8 45.9 44.1 The numbers of outstanding options and exercise prices have been adjusted to reflect the appropria- tions of dividends in accordance with the plans. As of December 31, 2005, information about TSMC's outstanding and exercisable options was as fol- TSMC's Employee Stock Option Plans, consisting of TSMC 2005 Plan, TSMC 2003 Plan and TSMC 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, lows: respectively. The maximum number of options authorized to be granted under the TSMC 2005 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thou- sand, respectively, with each option eligible to subscribe for one common share when exercisable. The options 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 options of all the plans are valid for ten years and exercisable at certain percentages sub- sequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC's common shares listed on the TSE on the grant date. Options that had never been granted or had been granted and subsequently cancelled under the TSMC 2003 Plan and TSMC 2002 Plan were expired as of December 31, 2005. Range of Exercise Price (NT$) Number of Options (in Thousands) $29.9-$42.1 $47.0-$54.5 45,787 21,971 67,758 Options Outstanding Weighted-average Remaining Contractual Life (Years) Options Exercisable Weighted-average Exercise Price (NT$) Number of Options (in Thousands) Weighted-average Exercise Price (NT$) $ 7.10 8.82 38.73 49.20 $ 38.59 54.50 27,143 327 27,470 GUC's Employee Stock Option Plans, consisting of GUC 2003 Plan and GUC 2002 Plan, were approved by its Board of Directors on January 23, 2003 and July 1, 2002, respectively. The maximum number of options authorized to be granted under the GUC 2003 Plan and GUC 2002 Plan was 7,535 and 5,000, respectively, with each option eligible to subscribe for one thousand common shares when exercisable. The options may be granted to qualified employees of GUC. The options of all the plans are valid for six years and exercisable in accordance with the plans subsequent to the sec- ond anniversary of the grant date. As of December 31, 2005, all of the options under the aforemen- tioned plans had been granted or were expired. Moreover, GUC 2004 Plan was approved by the SFB on August 16, 2004 to grant a maximum of No compensation cost was recognized under the intrinsic value method for the years ended 2,500 options, with each option eligible to subscribe for one thousand common shares when exercis- December 31, 2005 and 2004 for TSMC and GUC. Had the Company used the fair value based able. The options may be granted to qualified employees of GUC or any of its subsidiaries. The method (based on the Black-Scholes model) to evaluate the options granted after January 1, 2004, options of GUC 2004 Plan are valid for six years and exercisable in accordance with the plan subse- the assumptions and pro forma results of the Company for the years ended December 31, 2005 and quent to the second anniversary of the grant date. 2004 would have been as follows: Information about GUC's outstanding stock options for the years ended December 31, 2005 and 2004 was as follows: 119 Year ended December 31, 2005 Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year Year ended December 31, 2004 Balance, beginning of year Options granted Balance, end of year Number of Options Weighted-Average Exercise Price (NT$) $ 7,889 2,499 (2,641) (615) 7,132 7,058 831 7,889 10.50 10.96 10.50 10.57 10.66 10.50 10.50 10.50 Assumptions: TSMC GUC Expected dividend yield Expected volatility Risk free interest rate Expected life Expected dividend yield Expected volatility Risk free interest rate Expected life Net income attributable to shareholders of the parent: As reported Pro forma Consolidated earnings per share (EPS) - after income tax (NT$): Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS 2005 2004 1.00%-3.44% 43.77%-46.15% 3.07%-3.85% 5 years - 22.65%-28.02% 2.56% 6 years 93,575,035 93,456,533 3.79 3.79 3.79 3.78 $ $ 1.00% 43.77%-46.15% 3.07%-3.85% 5 years - 38.74%-41.74% 2.56% 6 years 92,316,115 92,257,355 3.73 3.73 3.73 3.73 $ $ As of December 31, 2005, information about GUC's outstanding and exercisable options was as fol- The estimated weighted average fair value per unit of option granted during the years ended lows: Range of Exercise Price (NT$) Number of Options Options Outstanding Weighted-average Remaining Contractual Life (Years) Options Exercisable Weighted-average Exercise Price (NT$) Number of Options Weighted-average Exercise Price (NT$) $10.50-$10.96 7,132 2.58-5.75 $ 10.66 3,890 $ 10.50 December 31, 2005 and 2004 under the TSMC plans was NT$17.69 and NT$19.73, respectively. The estimated weighted average fair value per unit of option (eligible to subscribe for one thousand com- mon shares) granted during the years ended December 31, 2005 and 2004 under the GUC plans was NT$3.32 thousand and NT$3.86 thousand respectively. 18. TREASURY STOCK (COMMON STOCK) Beginning Shares Increase/Stock Dividend Disposal Ending Shares (Shares in Thousands) Year ended December 31, 2005 Reclassification of parent company stock held by subsidiaries from long-term investments 45,521 2,242 14,825 32,938 Year ended December 31, 2004 Reclassification of parent company stock held by subsidiaries from long-term investments Repurchase under share buyback plan 40,597 - 5,676 124,720 752 124,720 45,521 - 40,597 130,396 125,472 45,521 Proceeds from disposal of treasury stock for the years ended December 31, 2005 and 2004 were c. Investees of the TSMC NT$899,489 thousand and NT$39,906 thousand, respectively. As of December 31, 2005 and 2004, VIS (accounted for using equity method) the book value of the treasury stock was NT$918,075 thousand and NT$1,595,186 thousand, respec- SSMC (accounted for using equity method) tively; the market value was NT$2,047,126 thousand and NT$2,241,009 thousand, respectively. GUC (with controlling financial interest and was consolidated with significant transactions eliminat- TSMC's stocks held by its subsidiaries are treated as treasury stock and the holders are entitled to the ed in 2005) rights of shareholders, except that starting from June 24, 2005, pursuant to the revised Company Law, the holders are no longer entitled to the right to vote. d. Indirect investee TSMC held a special meeting of the Board of Directors and approved a share buyback plan to repur- became an indirect investee accounted for using the equity method due to the changes in invest- VisEra, originally an investee over which TSMC had control; starting from November 2005, VisEra chase its common shares listed on the TSE during the period from March 24, 2004 to May 23, 2004. ment structure. TSMC repurchased 124,720 thousand common shares for a total cost of NT$7,059,798 thousand. 120 All the treasury stock repurchased under the buyback plan was retired on August 16, 2004. Transactions with the aforementioned parties, excluding those disclosed in other notes, are summa- 19. CONSOLIDATED EARNINGS PER SHARE Consolidated EPS is computed as follows: Amounts (Numerator) Before Tax After Tax Number of Shares (Denominator) (in Thousands) Consolidated EPS (NT$) Before Tax After Tax $ 94,205,614 - $ 93,575,035 - 24,679,947 13,165 $ 3.82 $ 3.79 $ 94,205,614 $ 93,575,035 24,693,112 $ 3.82 $ 3.79 $ 91,952,689 - $ 92,316,115 - 24,717,531 6,484 $ 3.72 $ 3.73 $ 91,952,689 $ 92,316,115 24,724,015 $ 3.72 $ 3.73 Year ended December 31, 2005 Consolidated basic EPS Income available to shareholders of the parent Effect of dilutive potential common stock - stock options Consolidated diluted EPS Income available to shareholders of the parent (includ- ing the effect of dilutive potential common stock) Year ended December 31, 2004 Consolidated basic EPS Income available to shareholders of the parent Effect of dilutive potential common stock- stock options Consolidated diluted EPS Income available to shareholders of the parent (includ- ing the effect of dilutive potential common stock) 20. RELATED PARTY TRANSACTIONS The Company engages in business transactions with the following related parties: a. Industrial Technology Research Institute (ITRI), the Chairman of TSMC is one of its directors rized as follows: For the year Sales Philips GUC Others Purchase SSMC VIS Manufacturing expenses - technical assistance fee (Note 23a) Philips General and administrative expenses - rental expenses GUC Research and development expenses GUC Proceeds from disposal of property, plant and equipment VisEra VIS Non-operating income and gains SSMC (primarily for technical service income, see Note 23e) VisEra VIS (primarily for technical service income, see Note 23j) 2005 2004 Amount % Amount % $ 3,298,770 - 492,683 $ 3,791,453 $ 5,729,672 4,142,457 $ 9,872,129 $ 581,059 $ $ - - $ 534,279 - $ 534,279 $ 316,243 308,071 210,720 1 - - 1 4 3 7 - - - 60 - 60 4 4 3 $ 5,463,565 371,546 440,736 $ 6,275,847 5,869,123 9,169,602 2 - - 2 4 7 $ 15,038,725 11 $ 907,047 $ 13,186 $ 11,688 $ - 33,974 $ 33,974 $ 364,505 28,917 117,760 1 - - - 2 2 6 - 2 8 (Continued) b. Philips, a major shareholder of TSMC $ 835,034 11 $ 511,182 At end of year Receivables Philips VisEra ITRI GUC 121 Other receivables VisEra SSMC VIS Payables Philips VIS SSMC GUC Other long-term payables Philips Deferred credits VisEra 2005 2004 As of December 31, 2005, future lease payments were as follows: Amount % Amount % Year $ Amount 371,165 361,511 338,995 333,727 267,089 1,129,301 $ 2,801,788 2006 2007 2008 2009 2010 2011 and thereafter 22. SETTLEMENT INCOME $ 573,565 99,401 20,300 - 83 14 3 - $ $581,487 - 16,453 56,437 89 - 2 9 $ 693,266 100 $ 654,377 100 $ 374,202 149,251 74,457 63 25 12 $ 30,278 63,701 47,599 21 45 34 $ 597,910 100 $ 141,578 100 $ 693,956 563,240 485,873 - 40 32 28 - $ 469,494 1,533,938 207,794 6,589 21 69 10 - $ 1,743,069 100 $ 2,217,815 100 TSMC, TSMC-NA and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation ("SMIC"), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappro- priated TSMC's trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, SMIC shall pay TSMC US$175 million over six years to resolve TSMC's claims. 23. SIGNIFICANT COMMITMENTS AND CONTINGENCIES The significant commitments and contingencies of the Company as of December 31, 2005 were as $ 1,100,475 100 $ 2,317,972 100 follows: $ 186,525 14 $ - - originally signed on May 12, 1997. The amended Technical Cooperation Agreement is for five years (Concluded) beginning from January 1, 2004. Upon expiration, this amended Technical Cooperation Agreement a. On June 20, 2004, TSMC and Philips amended the Technical Cooperation Agreement, which was The terms of sales to related parties were not significantly different from those to third parties. For other related party transactions, prices were determined in accordance with related contractual agreements. The Company deferred the gains (classified under deferred credits) derived from sales of property, plant and equipment to VisEra, and then recognized such gains (classified under non-operating income and gains) over the depreciable lives of the disposed assets. 21. SIGNIFICANT LONG-TERM LEASES TSMC and GUC lease parcels of land from the SPA. These operating leases expire on various dates from March 2008 to December 2021 and can be renewed upon expiration. will be terminated and will not be automatically renewed; however, the patent cross license arrangement between TSMC and Philips will survive the expiration of the amended Technical Cooperation Agreement. Under this amended Technical Cooperation Agreement, TSMC will pay Philips royalties based on a fixed amount mutually agreed-on, rather than under certain percentage of TSMC's annual net sales. TSMC and Philips agreed to cross license the patents owned by each party. TSMC also obtained through Philips a number of cross patent 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. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise termi- nated by either party with one year prior notice. The agreement was automatically renewed in 1992 and 1997 and on January 1, 2002. TSMC-NA leases its office premises and certain equipment under non-cancelable operating leases. TSMC-Japan has also entered into lease agreements for its office premises. These operating leases expire between 2010 and 2011 and can be renewed upon expiration. c. Under several foundry agreements, TSMC shall reserve a portion of its production capacity for cer- tain major customers that have guarantee deposits with TSMC. As of December 31, 2005, TSMC had a total of US$87,660 thousand of guarantee deposits. d. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March j. TSMC provides a technology transfer to VIS under a Manufacturing License and Technology Transfer 30, 1999, the parties formed a joint venture company, SSMC, for the purpose of constructing an Agreement entered into on April 1, 2004. TSMC receives compensation for such technology trans- integrated circuit foundry in Singapore. TSMC's equity interest in SSMC was 32%. TSMC and Philips fer in the form of royalty payments from VIS computed at specific percentages of net selling price of committed to buy specific percentages of the production capacity of SSMC. TSMC and Philips are certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for TSMC cer- required, in the aggregate, to purchase up to 70% of SSMC's full capacity, but TSMC alone is not tain products at prices as agreed by the parties. required to purchase more than 28% of the annual installed capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its total k. TSMC-Shanghai entered into an agreement with a certain foreign company. In accordance with the capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. agreement, TSMC-Shanghai is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC-Shanghai is e. TSMC provides technical services to SSMC under a Technology Cooperation Agreement (the obligated to compensate counterparty. Agreement) entered into on May 12, 1999. TSMC receives compensation for such services comput- 122 ed at a specific percentage of net selling price of all products sold by SSMC. The Agreement shall l. Amounts available under unused letters of credit as of December 31, 2005 were NT$6,480 thou- remain in force for ten years and may be automatically renewed for successive periods of five years sand. each unless pre-terminated by either party under certain conditions. 24. ADDITIONAL DISCLOSURES 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 Following are the additional disclosures required by the SFB for the Company and its investees: 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 ter- a. Financing provided: Please see Table 1 attached; mination 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, b. Endorsement/guarantee provided: Please see Table 2 attached; TSMC will be relieved of any further obligation to transfer any additional technology. In addition, TSMC granted National an option to request the transfer of certain technologies under the same c. Marketable securities held: Please see Table 3 attached; 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 of the paid-in capital: Please see Table 4 attached; patents. The terms of the contracts vary with payments to be made in the form of royalties. TSMC has recorded the related amounts as a liability with the corresponding amounts recorded as e. Acquisition of real estate properties at costs of at least NT$100 million or 20% of the paid-in capi- d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% deferred charges which are amortized and charged to cost of sales on a straight-line basis over the tal: None; estimated life of the technology or the term of the contract, whichever is shorter. f. Disposal of real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: h. In November 2002, TSMC entered into an Amended and Restated Joint Technology Cooperation None; Agreement with Philips, Freescale Semiconductor, Inc. and STMicroelectronics to jointly develop 90-nm to 65-nm advanced CMOS Logic and e-DRAM technologies. TSMC also agreed to align g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. TSMC will con- capital: Please see Table 5 attached; tribute process technologies and share a portion of the costs associated with this joint develop- ment project. This agreement expired on December 31, 2005. h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached; i. In December 2003, TSMC entered into a Technology Development and License Agreement with Freescale Semiconductor, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. TSMC i. Names, locations, and related information of investees on which the Company exercises significant will also license related 90-nm SOI technology from Freescale Semiconductor, Inc. Any intellectual influence: Please see Table 7 attached; properties arising out of the co-development project shall be jointly owned by the parties. In accor- dance with the agreement, TSMC will pay royalties to Freescale Semiconductor, Inc. and will share a j. Financial instrument transactions: portion of the costs associated with the joint development project. 1) Derivative financial instruments The Company entered into derivative financial instrument transactions in the years ended December d) Interest rate swap contracts 31, 2005 and 2004 to manage exposures related to foreign exchange rate and interest rate fluctua- tions. Certain information on these contracts was as follows: The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their origi- nal maturities. The rescission loss of NT$28,295 thousand was recognized in the "interest expense" a) Outstanding forward exchange contracts as of December 31, 2005 and 2004: account. There was no outstanding contract as of December 31, 2005. Financial Instruments Currency December 31, 2005 Sell December 31, 2004 Sell Sell 123 US$/NT$ US$/NT$ US$/EUR Maturity Jan. 2006 Contract Amount (in Thousands) Outstanding contracts as of December 31, 2004 were as follows: US$ 60,000 Contract Date Period Notional Amount (in Thousands) Jan. 2005 to Mar. 2005 Jan. 2005 US$ US$ 733,000 159,081 Sep. 2003 Oct. 2003 Oct. 2003 Oct. 2003 Oct. 2003 Nov. 2003 Sep. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Oct. 2003 to Dec. 2005 Nov. 2003 to Dec. 2005 NT$ 500,000 500,000 500,000 500,000 500,000 500,000 As of December 31, 2005 and 2004, receivables resulted from forward exchange contracts (classified under current assets) aggregated NT$26,720 thousand and NT$392,534 thousand, respectively. As of December 31, 2004, payables resulted from forward exchange contracts (classified under current lia- e) Transaction risk bilities) aggregated NT$559 thousand. b) Cross currency swap contracts i) Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss to be incurred by the Company if the counter-parties breached the contracts. The banks, which are the Outstanding cross currency swap contracts as of December 31, 2005 and 2004 were as follows: counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Maturity Date Contract Amount (in Thousands) Range of Interest Rate Paid Range of Interest Rate Received Management believes its exposure related to the potential default by those counter-parties is low. December 31, 2005 Jan. 2006 to Mar. 2006 December 31, 2004 January 2005 to June 2005 US$ 2,089,000 4.15%－4.54% 0.02%－2.12% US$ 1,420,000 1.28%－2.72% 0.49%－1.17% ii) Market price risk. All derivative financial instruments are intended as hedges for fluctuations in for- eign exchange rates and interest rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Thus, market price risk is believed to be low. As of December 31, 2005 and 2004, receivables resulted from cross currency swap contracts (classi- fied under current assets) were NT$1,119,905 thousand and NT$761,030 thousand, respectively. As of December 31, 2005, the Company's future cash needs for outstanding forward exchange con- iii) Cash flow risk and the amount and period of future cash needs. c) Option contracts As of December 31, 2005, the Company did not have any outstanding foreign currency option con- tract. The Company did not enter into any foreign currency option contract in the year ended December 31, 2004. During the years ended December 31, 2005 and 2004, the net exchange gain or loss arising from for- ward exchange contracts, cross currency swap contracts and foreign currency option contracts was recognized in the "foreign exchange gain/loss, net" account and the difference in interest was record- ed in interest income/expense. tracts and cross currency swap contracts were as follows: Term Within one year Inflow (In Thousands) Outflow (In Thousands) NT$ 71,820,892 US$ 2,149,000 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: k. Information on investment in Mainland China 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 Assets (liabilities) Forward exchange contracts (sell) Cross currency swap contracts Interest rate swap contracts 2005 2004 Carrying Amount Fair Value Carrying Amount 1) The name of the investee company in Mainland China, main businesses and products, its issued Fair Value capital, method of investment, information on inflow or outflow of capital, percentage of owner- ship, equity in the net earnings or loss, ending balance, earnings distributed by the investee, and the limitation on investment: Please see Table 8 attached. $ 47,399,308 34,273,328 $ 49,137,413 39,678,791 $ 54,107,951 31,165,721 $ 54,990,545 34,265,072 2) Significant direct or indirect transactions with the investee company, their prices and terms of pay- ment, unrealized gain or loss, and other related information which is helpful to understand the 19,500,000 19,924,923 30,000,000 30,607,341 impact of investment in Mainland China on financial statements: Please see Table 9 attached. l. Intercompany relationships and significant intercompany transactions: Please see Table 9 attached. 124 26,720 1,119,905 - 28,474 789,903 - 391,975 761,030 4,361 317,090 760,012 (22,714) 25. SEGMENT FINANCIAL INFORMATION a. Industry financial information The above financial instruments do not include cash and cash equivalents, receivables, other financial The Company is engaged mainly in the manufacturing, selling, packaging and testing of integrated assets, short-term bank loans, payables, and payable to contractors and equipment suppliers. The circuits. Therefore, the disclosure of industry financial information is not applicable to the Company. carrying amounts of the aforementioned financial instruments reported in the balance sheet approxi- mate their fair values. b. Geographic information: The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quoted market prices, long-term bank loans as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair values. Some of the 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 long-term bank loans with floating interest rates is their carrying amount. The fair value of long-term bank loans with fixed interest rates is the present value of expected cash flows discounted using the interest rate the Company may obtain for similar long-term bank loans. The fair value of other long-term payables is determined using the dis- counted value of expected cash flows, which approximates their carrying amount. Fair values of financial instruments were determined as follows: b) Fair value of bonds payable is based on their quoted market price. c) Fair value of derivative financial instruments is the amount receivable from or payable to the count- er-party if the contracts were terminated on the balance sheet date. The fair values of some financial and non-financial instruments were not included in the fair values disclosed above. Accordingly, the sum of the fair values of the financial instruments listed above does not represent the fair value of the Company as a whole. North America and Others Taiwan Adjustments and Elimination Consolidated 2005 Sales to other than consolidated entities Sales among consolidated entities $ 152,517,793 13,513,219 $ 114,047,277 152,132,512 $ - (165,645,731) $ 266,565,070 - Total sales $ 166,031,012 $ 266,179,789 $(165,645,731) $ 266,565,070 Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax Identifiable assets Long-term investments Total assets 2004 $ 2,858,063 $ 115,722,187 $ (377,376) $ 92,904,411 $ 430,038,385 $ (45,861,280) $ 118,202,874 (27,234,315) 7,067,497 (3,772,809) $ 94,263,247 $ 57,633 $ 477,081,516 42,428,073 $ 519,509,589 Sales to other than consolidated entities Sales among consolidated entities $ 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 (Continued) a) Fair value of short-term and publicly traded long-term investments is based on quoted market Net income attributable to minority interest prices. Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax Net income attributable to minority interest Identifiable assets Long-term investments 125 Total assets c. Export sales North America and Others Taiwan Adjustments and Elimination $ 6,173,780 $ 110,160,584 $ (515,181) $ 89,000,906 $ 416,076,665 $ (43,725,329) Consolidated $ 115,819,183 (27,337,509) 6,015,558 (2,531,645) $ 91,965,587 $ 12,898 $ 461,352,242 38,101,849 $ 499,454,091 (Concluded) The export sales for the years ended December 31, 2005 and 2004 were as follows: Area Asia Europe and others 2005 64,942,647 15,932,575 80,875,222 $ $ 2004 57,321,557 26,067,317 83,388,874 $ $ The export sales information is based on amounts billed to customers within the areas. d. Major customer The Company only had one customer to which the net sales accounts for at least 10% of its total net sales in the year ended December 31, 2005 and 2004. The net sales to such customer amounted to NT$29,258,338 thousand and NT$25,299,856 thousand in the years ended December 31, 2005 and 2004, representing 11% and 10% of its total net sales, respectively. TABLE 1 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Financing Name Counter-party Financial Statement Account Maximum Balance for the Period (US$ in Thousands) Ending Balance (US$ in Thousands) Interest Rate Type of Financing (Note 1) Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt Collateral Item Value Financing Limit for Each Borrowing Company 1 2 TSMC International TSMC Development Other receivables TSMC Partners TSMC Development Other receivables $ 1,971,000 (US$ 60,000) $ 1,149,750 (US$ 35,000) 1.50% 2,628,000 (US$ 80,000) - 1.50% 2 2 $ - Operating capital $ - - Operating capital - - - Note 1: The type 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 LIMITED AND SUBSIDIARIES Financing Company's Financing Amount Limits (US$ in Thousands) $ 32,454,757 (US$ 987,968) (Note 2) 126 $ - N/A - N/A (Note 3) ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement / Guarantee Provider Name Counter-party Limits on Each Counter- party's Endorsement / Guarantee Amounts Nature of Relationship (Note 2) 0 The Company TSMC-North America TSMC Development 2 3 Not exceed 10% of the net worth of the Company, and be also limited to the paid-in capital of the endorsement / guarantee company, unless other- wise approved by Board of Directors. Note 1: 25% of the net worth of the Company as of December 31, 2005. Note 2: The No. 2 represents a subsidiary in which the Company holds directly over 50% of the equity interest. The No. 3 represents an investee in which the Company holds directly and indirectly over 50% of the equity interest. Maximum Balance for the Period (US$ in Thousands) Ending Balance (US$ in Thousands) 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$ 1,314,000 40,000) 1,971,000 60,000) $ (US$ 1,314,000 40,000) $ - - - 0.29% $ 111,407,587 - TABLE 3 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, 2005 (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 December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note 127 The Company Government bonds United States Treas Nts Kreditanstal Fur Wiederaufbau 2004 Government Bond Series E 2002 Government Bond Series B 2002 Government Bond Series F 2004 Government Bond Series A 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A 2005 Government Bond Series A Bond funds JF Taiwan First Bond Fund ABN AMRO Bond Fund JF Taiwan Bond Fund Dresdner Bond DAM Fund Shinkong Chi Shin Bond Fund NITC Bond Fund ABN AMRO Select Bond Fund Stock Taiwan Mask Corp. TSMC International VIS SSMC TSMC Partners TSMC-North America GUC TSMC-Japan TSMC-Europe United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. Hontung Venture Capital Co., Ltd. Gobaltop Partner I Venture Capital Corp. W.K. Technology Fund IV Capital TSMC-Shanghai Emerging Alliance VTAF II - - - - - - - - - - - - - - - - - Subsidiary Investee accounted for using equity method 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 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 US$ US$ $ - - - - - - - - - 63,131 134,906 62,009 69,303 55,063 3,764 18,235 1,439 987,968 437,891 47,516 6,881 300,472 355,936 149,441 2,349,973 3,898,610 620,000 2,548,977 856,359 1,956,175 908,656 771,617 762,771 600,000 200,000 5,257 23,912,812 5,419,747 Investee accounted for using Long-term investment 382 4,215,200 equity method Subsidiary Subsidiary Investee with controlling financial Long-term investment Long-term investment Long-term investment interest Subsidiary Subsidiary - - - - - Subsidiary Subsidiary Subsidiary 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 300 11,000 40,147 6 - 16,783 10,500 8,392 5,000 4,000 - - - 4,091,166 1,790,186 442,233 94,949 23,087 193,584 105,000 83,916 50,000 40,000 9,438,856 850,534 642,479 N/A N/A N/A N/A 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 27 32 100 100 46 100 100 10 7 10 1 2 100 99 98 US$ US$ $ 47,233 6,839 300,563 354,832 149,256 2,349,857 3,896,739 618,160 2,544,964 875,416 2,004,862 933,430 792,068 778,482 610,864 203,860 21,280 23,912,812 10,991,064 4,215,200 4,091,166 1,790,186 465,258 94,949 23,087 295,606 186,387 46,801 49,947 43,645 9,438,856 850,534 642,479 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Chi Cherng Hsin Ruey Corporate bonds Abbott Labs Abbott Labs Ace Ltd. AIG Sunamerica Global Fing Ix Allstate Life Global Fdg Secd Alltel Corp. American Express Co. American Gen Fin Corp. American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn Ameritech Capital Funding Co. Amgen Inc. Amsouth Bk Birmingham Ala Anz Cap Tr I Associates Corp. North Amer 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. Beneficial Corp. Mtn Bk Entry Berkshire Hathaway Fin Corp. Cargill Inc. Caterpillar Finl Svcs Mtn Chase Manhattan Corp. New Chase Manhattan Corp. New Chubb Corp. Cit Group Hldgs Inc. Citicorp Cogentrix Energy Inc. Colonial Pipeline Co. Corestates Cap Corp. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse Fb USA Inc. Credit Suisse Fincl Products Credit Suisse First Boston Credit Suisse First Boston USA Daimlerchrysler North Amer Daimlerchrysler North Amer Hld Dayton Hudson Corp. Deere John Cap Corp. Dell Computer Corp. Den Danske Bk Aktieselskab Subsidiary Long-term investment Subsidiary 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 78,139 36 $ 536,703 Treasury stock of NT$458,564 77,415 1,581 2,732 1,046 1,032 2,998 609 3,550 1,768 1,058 3,130 3,800 510 3,005 1,972 1,012 2,700 1,972 1,525 2,715 580 3,329 3,757 2,434 1,498 2,120 5,721 1,628 2,246 2,138 3,203 1,473 2,885 1,625 1,062 2,100 5,210 4,141 1,507 786 2,249 997 749 2,104 5,079 3,054 2,192 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 36 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ thousand is deducted from the carrying value 536,926 Treasury stock of NT$459,511 thousand is deducted from the carrying value 1,526 2,595 1,011 1,001 2,948 598 3,435 1,670 1,011 2,998 3,808 491 2,907 1,967 968 2,582 1,984 1,485 2,729 544 3,337 3,662 2,340 1,472 2,012 5,724 1,546 2,155 2,125 3,068 1,407 2,739 1,536 1,018 2,066 5,020 4,029 1,508 748 2,175 972 751 2,056 5,020 2,874 2,067 128 (Continued) 129 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Diageo Plc Dow Chem Co. European Invt Bk European Invt Bk Fifth Third Bk Cincinnati OH First Data Corp. Fleet Boston Corp. Fleet Finl Group Inc. New Fleet Finl Group Inc. New Fpl Group Cap Inc. Fpl Group Cap Inc. Gannett Co Inc. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Re Corp. Genworth Finl Inc. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Goldman Sachs Group LP Greenpoint Finl Corp. Gte Corp. Hancock John Global Fdg II Mtn Hancock John Global Fdg Mtn Hartford Finl Svcs Group Inc. Hartford Finl Svcs Group Inc. Hbos Plc Medium Term Sr Nts Hbos Plc Meduim Term Sr Nts Heller Finl Inc. Hershey Foods Corp. Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Household Intl Inc. HSBC Fin Corp Mtn HSBC USA Inc. New Huntington Natl Bk Columbus OH ING Bank ING Sec Life Instl Fdg International Business Machs International Lease Fin Corp. Intl Lease Fin Corp. Mtn Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Jackson Natl Life Global Fdg Jackson Natl Life Global Fdg S JP Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Keycorp Mtn Book Entry Kraft Foods Inc. Kraft Foods Inc. Lehman Brothers Hldgs 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,459 921 3,918 8,315 2,419 3,013 2,850 975 494 1,001 860 2,999 3,989 8,862 3,500 3,412 4,981 3,477 1,637 974 2,134 3,566 1,003 296 1,435 3,201 2,977 2,071 1,627 3,373 3,284 2,993 532 2,878 5,097 1,154 2,954 2,114 2,544 2,249 2,031 3,028 2,471 3,406 1,036 1,999 3,663 4,450 3,500 773 1,037 1,668 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 3,419 863 3,910 8,023 2,414 2,860 2,718 923 474 997 845 2,930 3,894 8,755 3,430 3,419 4,970 3,452 1,530 959 2,041 3,512 970 297 1,371 3,181 2,940 1,984 1,537 3,204 3,081 2,908 512 2,892 5,066 1,091 2,954 2,024 2,485 2,208 2,005 2,943 2,481 3,353 1,006 2,004 3,522 4,409 3,512 749 1,006 1,631 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lincoln Natl Corp. In Merita Bk Ltd. Ny Brh Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg II Monumental Global Fdg II 2002A Morgan Stanley Morgan Stanley Group Inc. National City Corp. National Westminster Bk Plc Nationwide Bldg Soc Nationwide Bldg Soc Mtn Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry Pnc Fdg Corp. Popular North Amer Inc. Mtn Premark Intl Inc. Pricoa Global Fdg 1 Mtn Protective Life Secd Trs Prudential Ins Co. Amer Prudential Ins Co. Amer Public Svc Elec Gas Co. Regions Finl Corp. New Reinsurance Group Amer Inc. Royal Bk Scotland Group Plc Safeco Corp. Santander US Debt S A Uniperso Sara Lee Corp. Sbc Communications Inc. Sbc Communications Inc. Scotland Intl Fin B V 144a Slm Corp. Slm Corp. Medium Term Nts Sp Powerassests Ltd. Global St Paul Cos Inc. Mtn Bk Ent Suntrust Bks Inc. Swedbank Sparbanken Svenge Ab Tiaa Global Mkts Inc. Tribune Co. Med Trm Nts Unitedhealth Group Inc. US Bk Natl Assn Cincinnati Oh Virginia Elec + Pwr Co. Vodafone Group Plc New Wal Mart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 499 1,163 519 538 3,486 1,992 4,900 1,907 1,534 1,045 2,144 4,507 3,426 1,433 3,457 3,000 1,463 3,818 1,080 3,042 2,954 3,500 2,920 2,648 2,774 3,225 2,397 2,091 1,563 765 4,998 1,596 1,776 3,681 1,533 500 2,950 991 2,661 1,062 1,084 519 2,943 3,119 2,669 2,884 2,559 3,670 1,043 4,735 3,182 3,697 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 489 1,105 503 513 3,421 1,983 4,891 1,894 1,476 1,005 2,142 4,432 3,378 1,355 3,463 3,001 1,459 3,678 1,029 2,931 2,789 3,502 2,903 2,523 2,704 3,184 2,378 2,012 1,489 730 4,974 1,527 1,713 3,515 1,446 496 2,922 971 2,593 1,014 1,021 501 2,838 3,015 2,678 2,702 2,505 3,511 1,007 4,539 3,023 3,520 130 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Westfield Cap Corp. Ltd. Wps Resources Corp. Formosa Petrochemical Corporation Taiwan Power Company Nan Ya Plastics Corporation China Steel Corporation Formosa Petrochemical Corporation Chinese Petroleum Corporation Far Eastone Telecommunications Co. Ltd. Formosa Plastics Corporation Formosa Chemicals & Fiber Corporation 131 Agency bonds Fed Hm Ln Pc Pool 1H2520 Fed Hm Ln Pc Pool 1H2524 Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Federal Home Ln Mtg 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. 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 Gtd Federal Natl Mtg Assn Gtd Fnma Pool 254507 Fnma Pool 254834 Fnma Pool 255883 Fnma Pool 685116 Fnma Pool 687863 Fnma Pool 696485 Fnma Pool 725095 Fnma Pool 730033 Fnma Pool 740934 Fnma Pool 790828 Fnma Pool 793025 Fnma Pool 793932 Fnma Pool 794040 Fnma Pool 795548 Fnma Pool 806642 Fnma Pool 815626 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,999 1,107 311,568 3,263,348 2,150,842 1,010,532 791,963 705,436 300,026 268,855 134,369 3,753 2,861 7,112 1,980 1,753 3,848 887 3,454 3,954 6,096 3,280 4,098 9,905 4,902 3,755 3,696 110 1,930 4,030 4,051 1,668 3,659 445 2,286 1,750 3,771 842 3,570 4,175 1,562 1,793 1,775 3,504 3,306 764 940 623 1,573 3,622 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 2,007 1,074 301,946 3,263,232 2,152,156 1,010,657 791,771 704,878 300,001 270,086 137,529 3,743 2,838 7,123 1,923 1,703 3,834 882 3,406 3,945 5,977 3,185 4,102 9,898 4,843 3,735 3,668 109 1,887 3,992 4,000 1,626 3,655 432 2,240 1,729 3,762 817 3,565 4,167 1,516 1,771 1,753 3,407 3,245 742 912 610 1,544 3,625 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Fnma Pool 816594 Fnma Pool 825395 Fnma Pool 825398 Fnma Pool 841069 Gnma II Pool 081150 Gnma II Pool 081153 Federal Farm Cr Bks Federal Home Ln Bank 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 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. Mtn Federal Home Loan Bank 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 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,657 3,265 4,949 3,673 813 2,956 3,985 3,962 6,110 2,454 2,990 3,932 4,997 2,962 4,927 3,976 4,136 4,939 7,886 2,233 8,672 4,965 4,808 7,558 8,594 3,024 3,972 7,887 19,846 6,908 6,098 9,134 3,379 1,042 2,532 3,388 9,997 6,980 5,929 4,930 3,475 4,847 4,903 4,921 7,892 4,943 8,971 4,430 17,888 5,928 7,926 9,758 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 2,630 3,229 4,889 3,649 796 2,884 3,936 3,962 6,083 2,483 2,991 3,929 4,966 2,949 4,896 3,951 4,103 4,865 7,977 2,217 8,672 4,926 4,816 7,499 8,524 2,980 3,949 7,759 19,832 6,901 5,895 9,008 3,304 1,001 2,419 3,412 9,778 6,935 5,941 4,883 3,462 4,859 4,893 4,897 7,889 4,936 8,935 4,339 17,753 5,873 7,852 9,772 132 (Continued) 133 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Corporate issued asset-backed securities American Home Mtg Invt Tr Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receiva 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 Arm Tr Bear Stearns Coml Mtg Secs Inc California Infrastructure Dev Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Prime Auto Receiv Caterpillar Finl Asset Tr Caterpillar Finl Asset Tr Cendant Rent Car Fdg Aesop LLC Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citicorp Mtg Secs Cnh Equip Tr Comm Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Cwabs Inc. Cwabs Inc. Cwabs Inc. Cwalt Inc. Cwmbs Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Deere John Owner Tr Drive Auto Receivables Tr Fifth Third Auto Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr Ford Cr Auto Owner Tr Granite Mtgs 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 15,787 7,000 2,876 2,866 5,740 411 1,034 2,000 5,000 4,949 680 4,462 4,030 2,986 958 1,947 6,350 864 1,588 2,650 3,000 4,957 3,974 2,999 2,800 4,453 8,219 11,626 3,500 4,999 9,782 1,025 5,000 1,383 1,296 1,480 636 2,005 4,287 1,143 1,255 1,261 4,709 2,501 3,200 3,000 999 2,710 10,908 4,447 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 15,791 6,919 2,888 2,870 5,643 411 1,014 1,977 4,971 4,894 668 4,362 3,990 2,932 958 1,952 6,350 839 1,566 2,612 2,999 4,863 3,941 2,974 2,781 4,390 8,142 11,400 3,476 4,941 9,753 1,017 4,922 1,384 1,282 1,470 636 2,007 4,289 1,133 1,230 1,260 4,658 2,460 3,214 2,976 1,001 2,580 10,789 4,447 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Gs Auto Ln Tr Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Hertz Vehicle Financing LLC Holmes Fing No 8 Plc Household Automotive Tr Hsbc Automotive Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Impac Cmb Tr Impac Cmb Tr Impac Secd Assets Corp. Lb Ubs Coml Mtg Tr Long Beach Accep Auto Receivab Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mastr Asset Backed Secs Tr Mbna Master Cr Card Tr II Monumentl Global Fdg II National City Auto Receivables Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Onyx Accep Owner Tr Pg+E Energy Recovery Fdg LLC Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Asset Sec Mtg Pass Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Residential Fdg Mtg Secs I Inc. Revolving Home Equity Ln Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Adj Rate Mtg Ln Tr Structured Asset Invt Ln Tr Toyota Auto Receivables 2003 B Triad Auto Receivables Tr TW Hotel Fdg 2005 Lc Txu Elec Delivery Transition Usaa Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs WFS Financial Owner Trust WFS Finl - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,899 1,533 5,999 5,350 5,001 5,872 2,999 6,442 3,250 3,999 638 534 880 4,001 2,526 3,900 206 3,499 8,108 1,000 914 4,928 7,000 4,913 4,749 2,202 3,992 4,973 2,967 3,000 3,780 2,550 4,817 3,234 1,209 1,450 1,070 2,059 746 856 4,970 3,339 8,197 3,103 3,718 38 4,999 4,067 5,299 3,661 4,133 1,311 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 1,913 1,515 5,811 5,350 5,003 5,843 2,993 6,330 3,204 3,926 638 534 880 3,955 2,477 3,837 206 3,503 7,818 1,002 916 4,863 6,918 4,866 4,663 2,207 3,918 4,793 2,855 2,948 3,704 2,496 4,737 3,235 1,209 1,455 1,070 2,012 735 855 4,892 3,287 8,197 3,004 3,682 38 4,955 4,026 5,269 3,632 4,069 1,308 134 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note 135 Chi Cherng Hsin Ruey TSMC International WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr WFS Finl 2005 2 Oner Tr Whole Auto Ln Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr Corporate issued notes Canadian Imperial BK Canadian Imperial BK Washington Mutual Money market funds SSGA Cash Mgmt Global Offshore Equity Horizon Venture Fund I, L.P. Crimson Asia Capital Ltd., L.P. TSMC stock TSMC stock Stock TSMC Development TSMC Technology InveStar InveStar II TSMC Development WaferTech stock InveStar Common stock RichTek Technology Corp. Advanced Power Electronics Corp. SiRF Technology Holdings, Inc. Broadtek Electronics Corp. Monolithic Power Systems, Inc. Global Testing Corp. Capella Microsystems (Taiwan), Inc. Signia Technologies, Inc. Advanced Power Electronics Corp. Broadtek Electronics Corp. RichTek Technology Corp. Preferred stock Integrated Memory Logic, Inc. Sensory, Inc. IP Unity, Inc. Sonics, Inc. NanoAmp Solutions, Inc. Memsic, 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 Long-term investment Long-term investment Parent company Short-term investment Parent company Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment - - - - - - - - - - - - - 16,454 16,484 1 1 18,505 51,300 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,994 5,399 2,250 1,954 4,000 3,000 5,963 1,999 3,015 3,000 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$ 4,905 5,320 2,229 1,968 3,941 2,927 5,839 1,999 3,015 3,000 US$ 7,936 N/A US$ 7,936 $ US$ US$ US$ US$ 280,179 54,811 458,564 459,511 588,685 5,647 21,833 33,451 $ N/A N/A - - 100 100 97 97 280,179 54,811 1,022,605 1,024,521 US$ US$ US$ US$ 588,685 5,647 21,833 33,451 Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary - - - - - - - - - - - - - - - - - Long-term investment - US$ 368,886 99 US$ 368,886 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 838 525 10 29 1,975 58,044 530 701 674 116 421 1,831 1,404 1,008 2,686 541 2,727 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 71 210 44 9 1,567 4,961 154 201 270 37 36 1,220 125 494 3,530 853 1,500 - 2 - - 7 8 4 3 2 - - 9 6 3 4 2 10 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,168 670 294 12 28,256 9,161 154 201 860 47 1,591 1,220 125 494 3,530 853 1,500 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note InveStar II Emerging Alliance Reflectivity, Inc. Common stock Monolithic Power Systems, Inc. GeoVision, Inc. Advanced Analogic Technology, Inc. RichTek Technology Corp. Signia Technologies, Inc. Ralink Technology (Taiwan), Inc. Procoat Technology, Inc. Capella Microsystems (Taiwan), Inc. Auden Technology MFG. Co., Ltd. EoNEX Technologies, Inc. Conwise Technology Corporation, Ltd. Goyatek Technology, Corp. Trendchip Technologies Corp. EON Technology, Corp. eChannelOpen Holding, Inc. eLCOS Microdisplay Technology, Ltd. Epic Communications, Inc. RichTek Technology Corp. GeoVision, Inc. Preferred stock Memsic, Inc. NanoAmp Solutions, Inc. Sonics, Inc. Reflectivity, Inc. Kilopass Technologies, Inc. FangTek, Inc. eLCOS Microdisplay Technology, Ltd. Alchip Technologies Limited Common stock Global Investment Holding, Inc. RichWave Technology Corp. NetLogic Microsystems, Inc. Quake Technologies, Inc. Pixim, Inc. Preferred stock Quake Technologies, Inc. Pixim, Inc. Ikanos Communication, Inc. Quicksilver Technology, Inc. Mosaic Systems, Inc. Zenesis Technologies, Inc. Reflectivity, Inc. Miradia, Inc. Axiom Microdevices, Inc. Optichron, Inc. NuCORE Technology Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Long-term investment 1,064 US$ 741 2 US$ 741 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 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 864 336 484 386 351 1,833 5,123 419 953 55 2,800 2,088 2,000 3,264 358 270 302 198 15 2,289 375 3,082 4,255 3,887 6,806 2,667 2,597 10,800 3,380 113 46 1,924 555 2,193 7,446 1,049 2,481 1,204 4,848 3,040 1,000 714 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$ 2,081 74 1,261 192 101 791 1,940 122 410 3,048 204 545 574 1,175 251 27 37 98 3 1,560 1,500 3,082 2,205 2,000 3,250 3,500 2,950 100,000 1,247 1,388 35 512 415 583 3,125 - 12 699 2,479 1,000 1,000 1,000 1,455 3 1 1 - 1 3 10 2 4 5 9 7 5 8 4 1 1 - - 8 1 5 5 18 34 15 18 6 13 1 - 4 1 - 3 4 6 4 4 4 3 4 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$ 12,370 1,023 6,969 1,458 101 791 1,940 122 410 3,048 204 545 574 1,175 251 27 37 872 50 1,560 1,500 3,082 2,205 2,000 3,250 3,500 2,950 100,000 1,247 3,051 35 512 415 583 3,125 - 12 699 2,479 1,000 1,000 1,000 1,455 136 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Next IO, Inc. Audience, Inc. Centrality Communications, Inc. Britestream Networks, Inc. (Layer N Networks, Inc.) Teknovus, Inc. Optimal Corporation Mobilygen Corporation Warrants Pixim, Inc. Common stock VisEra Holding Company Common stock Yobon Technologies, Inc. Sentelic, Corp. Preferred stock Powerprecise Solutions, Inc. Tzero Technologies, Inc. Miradia, Inc. Axiom Microdevices, Inc. Next IO, Inc. Ageia Technologies, Inc. Audience, Inc. GemFire Corporation Optichron, Inc. Leadtrend Technology, Inc. Aquantia Corporation Xceive Corporation 5V Technologies,Inc Power Analog Microelectronics Impinj,Inc Warrants Aquantia Corporation Stock Global Unichip Corporation - NA Global Unichip Japan 137 Partners VTAF II GUC - - - - - - - - - - - - - - - - - - - - - - - - - - - December 31, 2005 Shares/Units (in Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note US$ US$ US$ US$ US$ US$ US$ 800 1,654 1,325 2,444 6,977 485 1,415 242 500 250 1,800 1,172 1,327 500 750 - US$ US$ US$ US$ US$ US$ US$ 2 2 3 2 3 6 1 - 500 250 1,800 1,172 1,327 500 750 - 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 18,931 US$ 19,862 50 US$ 19,862 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 1,675 600 US$ US$ 1,032 244 1,809 761 216 1,969 531 600 353 900 1,401 714 1,333 2,000 257 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 787 1,022 1,000 500 1,600 776 182 2,000 102 600 869 431 1,150 1,000 1,000 1,500 500 Long-term investment 46 $ - 17 15 US$ US$ 8 2 2 2 - 2 1 1 2 5 5 2 - 7 - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ $ 787 1,022 1,000 500 1,600 776 182 2,000 102 600 869 431 1,150 1,000 1,000 1,500 500 - 4,715 2,153 (Concluded) Subsidiary Subsidiary Long-term investment Long-term investment 100 - 4,715 2,153 100 100 TABLE 4 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR END DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) (Note 2) 138 The Company Bond funds JF Taiwan Bond Fund JF Taiwan First Bond Fund Invesco R.O.C. Bond Fund Dresdner Bond DAM Fund Short-term investment Short-term investment Short-term investment Short-term investment JF Asset Management (Taiwan) Ltd. JF Asset Management (Taiwan) Ltd. INVESCO Asset Management Taiwan Allianz Dresdner Securities Investment Consulting Co., Ltd. Barits Bond Fund Short-term investment Barits Securities Investment Trust Co., Shinkong Chi-Shin Fund Short-term investment Shinkong Investment Trust Co., Ltd. Ltd. Bonds under repurchase agreement Short-term investment Chung Shing Bills Finance Corp. and several financial institutions Government bonds 2003 Government Bond Series A 2004 Government Bond Series E Short-term investment Short-term investment BNP and several financial institutions Chung Shing Bills Finance Corp. and several financial institutions 2002 Government Bond Series B Long-term investment China Bills Finance Corp. and several financial institutions 2002 Government Bond Series F Long-term investment China Bills Finance Corp. and several financial institutions 2005 Government Bond Series A Long-term investment China Bills Finance Corp. and several financial institutions Kreditanstalt Fur Wiederaufbau United States Treas NTS Short-term investment Short-term investment - - Corporate bonds Taiwan Power Company Formosa Petrochemical Corporation Allstate Finl Global Fdg LLC American Intl Group Inc. Mtnf Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Caterpillar Finl Svcs Mtn Citigroup Inc. Countrywide Fdg Corp. Mtn Countrywide Finl Corp. Credit Suisse Fb USA Inc. Credit Suisse First Boston USA Deere John Cap Corp. European Invt BK General Elec Cap 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 China Bills Finance Corp. China Bills Finance Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 78,698 84,886 76,705 80,833 $ 1,153,209 1,151,463 1,101,911 900,000 76,640 900,000 151,594 2,100,000 - - - - - - - - - - - - - - - - - - - - - - - - - 249,449 1,207,409 - - - - - US$ 192,357 $ 2,777,798 - US$ 3,171 US$ 3,795 - US$ 3,518 - US$ 3,105 - US$ 3,583 - - US$ 2,645 - - - US$ 3,467 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - 16,689 21,755 76,705 11,530 $ 250,000 300,000 1,121,779 130,000 $ 244,553 295,104 1,101,911 128,383 $ 5,447 4,896 19,868 1,617 62,009 63,131 - 69,303 $ 908,656 856,359 - 771,617 - - - - 300,472 360,608 149,440 2,548,689 US$ 6,881 US$ 494,515 $ - 311,568 - - US$ 3,329 - US$ 3,757 - US$ 5,721 - US$ 3,500 US$ 3,000 US$ 4,141 US$ 3,832 US$ 5,079 US$ 3,918 - 76,640 915,204 900,000 15,204 - - 96,531 1,360,000 1,337,229 22,771 55,063 762,771 - - - - - - - - - - - - - - - - - - - - - - - - - 251,784 249,449 2,335 1,216,500 - 1,207,409 - 9,091 - - - - - - - - - - - US$ 637,301 - US$ 639,356 - US$ (2,055) $ 2,807,500 - US$ 3,086 US$ 3,793 - US$ 3,484 - US$ 3,106 - US$ 3,512 US$ 3,500 US$ 3,000 US$ 2,593 US$ 3,780 - - US$ 3,432 $ 2,777,798 - US$ 3,171 US$ 3,795 - US$ 3,518 - US$ 3,105 - US$ 3,583 US$ 3,500 US$ 3,000 US$ 2,645 US$ 3,832 - - US$ 3,467 US$ US$ US$ US$ $ 29,702 - (85) (2) - (34) - 1 - (71) - - (52) (52) - - (35) US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - 300,472 355,936 149,441 2,548,977 US$ 6,881 US$ 47,516 $ - 311,568 - - US$ 3,329 - US$ 3,757 - US$ 5,721 - - - US$ 4,141 - US$ 5,079 US$ 3,918 - (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) (Note 2) 139 General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Re Corp. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Mtn Hancock John Global Fdg II Mtn Hbos Plc Medium Term Sr Nts Household Fin Corp. Mtn Bk Ent HSBC Fin Corp. Mtn ING Sec Life Ins Ingslf International Business Machs Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Lehman Brothers Hldgs Inc. Merrill Lynch + Co. Inc. Morgan Stanley Group Inc. Morgan Stanley Group Inc. National City Corp. Nationsbank Corp. Nationwide Bldg Soc Mtn Ppg Inds Inc. Pricoa Global Fdg 1 Mtn Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Public Svc Elec Gas Co. Salomon Smith Barney Hldgs Inc. Santander Us Debt S A Uniperso Wachovia Corp. Washington Mut Fin Corp. Taiwan Power Company Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - China Bills Finance Corp. and several financial institutions Nan Ya Plastics Corporation Long-term investment China Bills Finance Corp. and several financial institutions Agency bonds Federal Farm Cr Bks Federal Home Ln Bank 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 Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,886 - - - US$ 3,505 - - US$ 3,542 - US$ 3,012 - - - - US$ 3,705 - US$ 1,050 US$ 3,638 - US$ 3,644 - - - US$ 3,050 US$ 3,507 US$ 3,168 - US$ 3,160 - US$ 3,720 US$ 4,768 $ 915,276 407,526 - - - US$ 4,948 US$ 7,962 US$ 13,953 - US$ 13,981 US$ 13,983 US$ 7,042 US$ 7,014 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,989 US$ 8,862 US$ - US$ 3,500 US$ 4,981 US$ 3,477 - US$ 3,566 US$ 3,201 - US$ 7,894 - US$ 7,247 US$ 3,028 US$ 3,406 US$ 4,450 - US$ 4,900 US$ 4,507 - US$ 3,426 - US$ 3,000 US$ 3,571 US$ 3,500 - - - US$ 3,225 - US$ 4,998 - - $ 2,967,681 1,883,901 US$ 3,985 US$ 3,962 US$ 6,110 - - - US$ 3,932 - - - - US$ 4,136 US$ 4,939 US$ 7,886 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,823 - - - US$ 3,506 - - US$ 3,488 US$ 2,780 US$ 3,008 US$ 4,994 - - - US$ 3,511 - US$ 1,022 US$ 3,571 - US$ 3,522 - - - US$ 3,052 US$ 3,510 US$ 3,049 - US$ 3,046 - US$ 3,568 US$ 3,591 $ 600,000 - - US$ 3,886 - - - US$ 3,505 - - US$ 3,542 US$ 2,797 US$ 3,012 US$ 4,998 - - - US$ 3,705 - US$ 1,050 US$ 3,638 - US$ 3,644 - - - US$ 3,050 US$ 3,507 US$ 3,168 - US$ 3,160 - US$ 3,720 US$ 3,725 $ 600,000 US$ US$ - - (63) - - - US$ 1 - $ - (54) US$ (17) US$ (4) US$ (4) US$ - - - (194) - (28) (67) - (122) - - - US$ 2 US$ 3 (119) US$ - (114) - US$ (152) US$ (134) $ - US$ US$ US$ US$ 132,000 132,000 - - - - US$ 4,947 US$ 4,954 US$ 13,888 - US$ 13,906 US$ 13,865 US$ 6,946 US$ 6,883 - - - - - - US$ 4,948 US$ 4,972 US$ 13,953 - US$ 13,981 US$ 13,983 US$ 7,042 US$ 7,014 - - - US$ US$ US$ US$ US$ US$ US$ - - - (1) (18) (65) - (75) (118) (96) (131) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,989 US$ 8,862 US$ - US$ 3,500 US$ 4,981 US$ 3,477 - US$ 3,566 US$ 3,201 - US$ 5,097 - US$ 2,249 US$ 3,028 US$ 3,406 US$ 4,450 - US$ 4,900 US$ 4,507 - US$ 3,426 - US$ 3,000 - US$ 3,500 - - - US$ 3,225 - US$ 4,998 - US$ 1,043 $ 3,263,348 2,150,842 US$ 3,985 US$ 3,962 US$ 6,110 - US$ 2,990 - US$ 3,932 - - - - US$ 4,136 US$ 4,939 US$ 7,886 (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) (Note 2) 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 Loan Bank Federal Home Loan Corp. 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 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 1H2520 Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool 847290 Federal Home Ln Mtg 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 Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$7,018 - US$- - - - - - - - - - US$4,933 US$4,953 - US$6,978 - - - - US$4,903 US$3,466 US$6,903 US$5,270 US$6,940 US$4,981 - - - US$6,997 - - - - - - - - - US$4,929 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 8,672 US$ 3,960 US$ 4,965 US$ 4,808 US$ 7,558 US$ 8,594 US$ 3,024 US$ 3,972 US$ 7,887 US$ 19,846 US$ 6,908 US$ 9,134 US$ 3,379 - - US$ 6,925 - US$ 6,980 US$ 5,929 US$ 3,475 US$ 7,989 US$ 9,819 - - - - - US$ 4,921 US$ 7,892 US$ 5,337 - US$ 4,943 US$ 14,952 US$ 4,430 US$ 4,061 US$ 17,888 US$ 5,928 US$ 7,926 US$ 9,758 US$ 5,740 - US$ 3,961 US$ 7,913 US$ 4,173 US$ 3,958 US$ 3,954 US$ 4,154 US$ 9,955 US$ 5,389 US$ 3,930 US$ 3,918 US$ 4,030 US$ 4,051 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ 10,863 - - - - - - - - - - - US$ 4,960 US$ 4,938 US$ 6,931 US$ 6,926 - - - US$ 7,928 US$ 9,798 US$ 3,485 US$ 6,943 US$ 5,247 US$ 6,937 US$ 4,953 - - US$ 5,300 US$ 6,956 - US$ 5,964 - US$ 4,041 - - - - - US$ 4,931 - - US$ 4,170 - - - - - - - - - - US$ 10,978 - US$ - - - - - - - - - - US$ 4,933 US$ 4,953 US$ 6,925 US$ 6,978 - - - US$ 7,989 US$ 9,819 US$ 3,466 US$ 6,903 US$ 5,270 US$ 6,940 US$ 4,981 - - US$ 5,337 US$ 6,997 - US$ 5,981 - US$ 4,061 - - - - - US$ 4,929 - - US$ 4,173 - - - - - - - - - - US$ (115) - US$ - - - - - - - - - - US$ 27 US$ (15) US$ 6 (52) US$ - - - (61) US$ (21) US$ 19 US$ US$ 40 (23) US$ (3) US$ (28) US$ - - (37) (41) - US$ (17) - (20) - - - - - US$ 2 - - (3) - - - - - - - - - US$ US$ US$ US$ 140 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 8,672 - US$ 4,965 US$ 4,808 US$ 7,558 US$ 8,594 US$ 3,024 US$ 3,972 US$ 7,887 US$ 19,846 US$ 6,908 US$ 9,134 US$ 3,379 - - - - US$ 6,980 US$ 5,929 US$ 3,475 - US$ 4,903 - - - - - US$ 4,921 US$ 7,892 - - US$ 4,943 US$ 8,971 US$ 4,430 - US$ 17,888 US$ 5,928 US$ 7,926 US$ 9,758 US$ 5,740 - US$ 3,753 US$ 7,112 - US$ 3,848 US$ 3,954 US$ 4,098 US$ 9,905 US$ 4,902 US$ 3,755 US$ 3,696 US$ 4,030 US$ 4,051 (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) (Note 2) 141 Federal Natl Mtg Assn Gtd Fnma Pool 255883 Fnma Pool 687863 Fnma Pool 696485 Fnma Pool 793025 Fnma Pool 815626 Fnma Pool 825395 Fnma Pool 825398 Fnma Pool 841069 Corporate issued asset - backed securities Aesop Fdg II LLC American Express Cr Account Ma Americredit Automobile Receiv Bear Stearns Coml Mtg Secs Inc. BMW Ven Owner Tr California Infr + Economic Dev California Infras + Economic Capital One Multi Asset Execut Caterpillar Finl Asset Tr Caterpillar Finl Asset Tr Cendant Rent Car Fdg Aesop LLC Citibank Cr Card Issuance Tr Citibank Cr Card Issuance Tr Cwabs Inc. Cwmbs Inc. Cwmbs Inc. Daimlerchrysler Auto Tr Drive Auto Receivables Tr First USA Credit Cr Master Tr Hertz Vehicle Financing LLC Honda Auto Receivables Household Automotive Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Lb Ubs Coml Mtg Tr Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mastr Asset Backed Secs Tr Mbna Cr Card Master Nt Tr Mbna Master Cr Card Tr II Nissan Auto Receivables Own Tr Nissan Auto Receivables Owner Pg+E Energy Recovery Fdg LLC Prime Cr Card Master Tr Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Revolving Home Equity Ln Tr Sequoia Mtg Tr Sequoia Mtg Tr TW Hotel Fdg 2005 LLC 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,955 US$ 3,445 - - US$ 4,978 US$ 4,298 US$ 6,126 - US$ 10,008 - - US$ 4,959 - US$ 1,903 US$ 4,040 - US$ 4,897 - US$ 5,011 - US$ 5,000 - - - - - - - - - US$ 4,999 US$ 4,853 - - - - - - - - US$ 7,736 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,892 US$ 3,827 US$ 3,848 US$ 4,345 US$ 3,915 US$ 3,663 US$ 3,417 US$ 5,246 US$ 3,966 - - US$ 5,000 US$ 6,350 - - - US$ 3,974 - US$ 8,219 US$ 11,626 - US$ 9,782 US$ 1,865 - US$ 4,040 - US$ 3,200 - US$ 5,350 - US$ 8,352 US$ 3,250 US$ 3,999 US$ 4,243 US$ 3,900 US$ 3,825 US$ 3,499 US$ 5,018 US$ 8,108 - - US$ 4,749 US$ 4,080 US$ 3,780 US$ 5,589 US$ 5,000 US$ 4,560 US$ 3,500 US$ 8,197 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,958 US$ 3,428 - - US$ 4,874 US$ 4,153 US$ 5,103 - US$ 4,943 - - US$ 4,948 - US$ 3,440 US$ 3,479 US$ 3,842 US$ 4,873 - US$ 5,007 - US$ 4,984 - - - - - - - US$ 5,015 - US$ 4,989 US$ 4,880 - - - - - US$ 4,026 US$ 2,813 - US$ 3,470 - - - - - - - - - US$ 4,955 US$ 3,445 - - US$ 4,907 US$ 4,298 US$ 5,228 - US$ 5,009 - - US$ 4,959 - US$ 3,435 US$ 3,492 US$ 3,823 US$ 4,897 - US$ 5,011 - US$ 5,000 - - - - - - - US$ 5,018 - US$ 4,999 US$ 4,853 - - - - - US$ 4,026 US$ 2,810 - US$ 3,491 - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ 3 (17) US$ - - (33) (145) (125) - (66) - - (11) - US$ 5 (13) US$ (19) US$ (24) US$ - (4) - (16) - - - - - - - (3) - US$ (10) US$ 27 - - - - - - US$ 3 - (21) US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,659 US$ 3,771 US$ 3,570 US$ 4,175 US$ 3,306 US$ 3,622 US$ 3,265 US$ 4,949 US$ 3,673 - - US$ 5,000 US$ 6,350 - - - US$ 3,974 US$ 4,453 US$ 8,219 US$ 11,626 - US$ 9,782 - - - - US$ 3,200 - US$ 5,350 - US$ 5,872 US$ 3,250 US$ 3,999 US$ 4,001 US$ 3,900 US$ 206 US$ 3,499 - US$ 8,108 - - US$ 4,749 - US$ 3,780 US$ 4,817 US$ 3,234 - - US$ 8,197 US$ 3,103 (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Shares / Units (in Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) on Disposal (US$ in Thousands) Shares / Units (in Thousands) Beginning Balance Acquisition Disposal (Note 1) Ending Balance Usaa Auto Owner Tr Usaa Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs Whole Auto Ln Tr Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Partners VisEra Holding Company Long-term investment - - - - - - - Note1: The proceeds of bond investments matured are excluded. Note2: The ending balance included the amortization of premium or discount on bond investments. - - - - - - - - - - - - - - - US$ 4,000 US$ - - - US$ 5,967 - - - - - - US$ 3,718 - US$ 4,365 US$ 5,299 US$ 4,014 - - 18,931 US$ 18,931 - - - - - - - - US$ 3,995 - US$ - - US$ 5,973 - US$ 4,000 - US$ - - US$ 5,967 US$ US$ - (5) - - - US$ 6 - - - - - - Amount (US$ in Thousands) (Note 2) US$ 3,718 - US$ 4,067 US$ 5,299 US$ 3,661 - - - - 18,931 US$ 19,862 142 (Concluded) TABLE 5 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED 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 YEARS ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Transaction Details Abnormal Transaction Notes / Accounts Payable or Receivable Note Purchase / Sale Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance % to Total 143 The Company TSMC-North America Philips GUC SSMC WaferTech SSMC VIS TSMC-Shanghai Subsidiary Major shareholder Investee with controlling financial interest Investee accounted for using equity method Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Sales Sales Sales Sales Purchases Purchases Purchases Purchases $153,618,916 3,298,770 347,456 195,253 11,137,313 5,729,672 4,142,457 1,405,030 GUC TSMC-North America The same Parent Purchases 266,372 57 1 - - 28 15 10 4 23 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 45 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 Net 30 days after invoice date - - - - - - - - - - - - - - - - - - $ 20,407,621 573,565 49,046 - (1,133,217) (485,873) (563,240) (274,820) (66,138) 49 1 - - 10 4 5 2 37 Note: The terms of sales to related parties are not significantly different from those to third parties. For purchase transactions, prices are determined in accordance with the related contractual agreements and no other similar transaction could be compared with. TABLE 6 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Ending Balance Turnover Rate Amount Action Taken Overdue The Company TSMC-North America TSMC Technology Philips VisEra Subsidiary Indirect subsidiaries Major shareholder Indirect investee accounted for using equity $ 20,606,126 972,563 573,565 374,200 43 days Note 64 days Note $ 5,735,388 - 45,909 1,750 Accelerate demand on account receivables Accelerate demand on account receivables Accelerate demand on account receivables Accelerate demand on account receivables SSMC Investee accounted for using equity method 149,251 Note - Accelerate demand on account receivables method Note: The ending balance primarily consisted of other receivables, it is not applicable for the calculation of the turnover rate. Amounts Received in Subsequent Period Allowance for Bad Debts $ $ 7,626,255 - 1,603 5,161 - - - - - - TABLE 7 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2005 December 31, 2005 December 31, 2004 Shares (in Thousands) Percentage of Ownership Carrying Value (Note 1) Net Income (Loss) of the Investee Investment Gain (Loss) (Note 2) Note The Company TSMC International Tortola, British Virgin Islands Providing investment in companies involved in the $ 31,445,780 $ 31,445,780 987,968 100 $ 23,912,812 $ (549,454) $(549,454) Subsidiary 144 design, manufacture, and other related business in the semiconductor industry Manufacturing and sales of integrated circuits at the order of and pursuant to product design specifi- cations provided by customers Research, design, development, manufacture, pack- aging, testing and sale of memory integrated cir- cuits, LSI, VLSI and related parts TSMC-Shanghai Shanghai, China 12,180,367 9,187,962 - 100 9,438,856 (2,242,213) (2,242,213) Subsidiary VIS SSMC Hsin-Chu, Taiwan 8,119,816 8,119,816 437,891 Singapore Fabrication and supply of integrated circuits 6,408,190 6,408,190 382 TSMC Partners TSMC-North America Tortola, British Virgin Islands San Jose, California, U.S.A. Investment activities Sales and marketing of integrated circuits and semi- 10,350 333,718 10,350 333,718 conductor devices Emerging Alliance VTAF II GUC Cayman Islands Cayman Islands Hsin-Chu, Taiwan Investing in new start-up technology companies Investing in new start-up technology companies Researching, developing, manufacturing, testing and 1,526,074 654,509 409,920 1,447,957 332,412 409,920 marketing of integrated circuits TSMC-Japan Chi Cherng Hsin Ruey TSMC-Europe Yokohama, Japan Taipei, Taiwan Taipei, Taiwan Amsterdam, the Netherlands Marketing activities Investment activities Investment activities Marketing activities 83,760 300,000 300,000 15,749 83,760 300,000 300,000 15,749 300 11,000 - - 40,147 6 - - - Note 1: The treasury stock is deducted from the carrying value. Note 2: The gains on disposal of the stocks of the Company held by subsidiaries and cash dividends from the Company are excluded. 27 32 100 100 99 98 46 100 36 36 100 5,419,747 2,710,971 617,268 4,215,200 2,503,446 801,103 Investee accounted for using equity method Investee accounted for using equity method 4,091,166 1,790,186 46,656 564,201 46,656 320,274 Subsidiary Subsidiary 850,534 642,479 442,233 94,949 78,139 77,415 23,087 (77,208) (19,044) 106,748 2,572 77,196 77,257 295 (76,822) (21,916) 52,390 Subsidiary Subsidiary Investee over which the Company has controlling financial interest 2,572 (3,769) (3,806) 295 Subsidiary Subsidiary Subsidiary Subsidiary TABLE 8 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES INFORMATION OF INVESTMENT IN MAINLAND CHINA DECEMBER 31, 2005 (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) Method of Investment Accumulated Outflow of Investment from Taiwan as of January 1, 2005 (US$ in Thousand) Investment Flows Outflow (US$ in Thousand) Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2005 (US$ in Thousand) Percentage of Ownership in Investment 145 TSMC (Shanghai) Company Limited Manufacturing and sales of integrated circuits at the order of and pur- suant to product design specifica- tions provided by customers $ 12,180,367 (RMB3,070,623) (Note 1) $ 9,187,962 (US$ 276,000) $ 2,992,405 (US$ 95,000) $ - $ 12,180,367 (US$ 371,000) 100% Equity in the Net Earnings (Loss) (Note 2) Carrying Value as of December 31, 2005 Accumulated Inward Remittance of Earnings as of December 31, 2005 Accumulated Investment in Mainland China as of December 31, 2005 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ (2,242,213) $ 9,438,856 $ - $ (US$ 12,180,367 371,000) $ (US$ 12,180,367 371,000) $ (US$ 12,180,367 371,000) Note 1: Direct investments US$371,000 thousand in TSMC-Shanghai. Note 2: Amount was recognized based on the audited financial statements. TABLE 9 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Company Name Counter Party 0 TSMC TSMC-NA TSMC-Shanghai TSMC-Japan TSMC-Europe GUC TSMC Technology WaferTech 1 2 3 4 5 TSMC-NA VisEra TSMC International TSMC Development TSMC Partners TSMC Technology GUC TSMC Technology TSMC Development TSMC International WaferTech TSMC-NA GUC-NA Nature of Relationship (Note 1) 1 1 1 1 1 1 1 3 3 3 3 3 3 3 3 3 Financial Statements Item Sales Receivables from related parties Other receivables from related parties Payables to related parties Sales Purchases Gain on disposal of property, plant and equipment Technical service income Proceeds from disposal of property, plant and equipment Other receivables from related parties Payables to related parties Deferred credits Sales and marketing expenses - commission Payables to related parties Sales and marketing expenses - commission Payables to related parties Sales Research and development expenses General and administrative expenses - rental expense Receivables from related parties Payables to related parties Other receivables from related parties Payables to related parties Purchases Payables to related parties Sales Interest income Other receivables Deferred technology income Interest income Other receivables Deferred revenue Management service income Purchase Manufacturing expenses Payables to related parties Operating expenses Note 1: No. 1 represents the transactions from parent company to subsidiary. No. 3 represents the transactions between subsidiaries. Note 2: The terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices are determined in accordance with the related contractual agreements. Intercompany Transactions Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets $ 153,618,916 20,407,621 198,505 21,391 5,591 1,405,030 151,591 28,643 125,381 28,593 274,820 641,762 243,646 29,892 221,164 22,963 347,456 19,467 16,744 49,046 6,173 972,563 10,672 11,137,313 1,133,217 661,949 28,352 1,151,238 648,695 25,513 10,081,604 8,883,518 12,625 266,372 348,397 66,138 27,871 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 146 58% 4% - - - 1% - - - - - - - - - - - - - - - - - 4% - - - - - - 2% 2% - - - - - 11. U.S. GAAP Financial Information TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES Please be advised that our 2005 full annual report that includes complete U.S. GAAP reconciled finan- cial statements and footnotes will be available when we file From 20-F with the U.S. SEC. Our From 20-F, or our 2005 full annual report, can be found at the U.S. SEC and on TSMC's website no later than June 30, 2006. U.S. GAAP RECONCILIATIONS OF NET INCOME For the Years Ended December 31, 2005 and 2004 (In Thousand New Taiwan Dollars) TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED AND SUBSIDIARIES 147 U.S. GAAP RECONCILIATIONS OF SHAREHOLDERS' EQUITY December 31, 2005 and 2004 (In Thousand New Taiwan Dollars) Equity attributable to shareholders of the parent based on R.O.C. GAAP $ 445,630,349 $ 398,965,299 2005 2004 Adjustments - Adjustment of unrealized gain on trading securities - U.S. 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 1,682,555 (463,808) (99,733) 21,291 412,372 (10,740,666) 7,223,040 194,184 52,212,732 (11,229,979) (328,248) (7,121,667) (47,654) - (47,550) 31,666,869 813,841 (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 Equity attributable to shareholders of the parent based on U.S. GAAP $ 477,297,218 $ 427,124,810 Net income attributable to shareholders of the parent based on R.O.C. GAAP Adjustments - Adjustment of unrealized gain on trading securities - Reversal of unrealized loss on marketable securities under R.O.C. GAAP - U.S. GAAP adjustments on equity-method investees - Reversal of depreciation on assets impaired under U.S. GAAP - Income tax effect of U.S. GAAP adjustments - Reversal of amortization of goodwill - 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 attributable to shareholders of the parent based on U.S. GAAP Cumulative preferred dividends 2005 2004 $ 93,575,036 $ 92,316,115 868,714 337,160 (161,871) 1,398,736 147,802 1,220,316 (225,271) (7,121,667) (13,795,382) (9,948) (791,425) - (23,846) (18,156,682) 75,418,354 - 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 of the parent $ 75,418,354 $ 76,253,446 

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