TSMC Annual Report 2006 | Quarterlytics

Plain-text annual report

i T a w a n S e m i c o n d u c t o r M a n u f a c t u r i n g C o m p a n y , L t d . A n n u a l R e p o r t 2 0 0 6 ( I ) Taiwan Semiconductor Manufacturing Company, Ltd. Morris Chang, Chairman 8, Li-Hsin Rd. 6, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R. O. C. Tel: 886-3-5636688 Fax: 886-3-5637000 http://www.tsmc.com TSE: 2330 NYSE: TSM TSMC Annual Report 2006 (I) (cid:339) Taiwan Stock Exchange Market Observation Post System: http://newmops.tse.com.tw (cid:339) TSMC annual report is available at http://www.tsmc.com/english/e_investor/e02_annual/e02_annual.htm Printed on March 12, 2007 TSMC Vision & Core Values TSMC’s 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: (1) be a technology leader, competitive with the leading IDMs (2) be the lowest-cost manufacturer, and (3) be the most reputable, service-oriented and maximum-total-benefits silicon foundry. TSMC Core Values Integrity – Integrity is our most basic and most important core value. We tell the truth. We believe the record of our accomplishments is the best proof of our merit. Hence, we do not brag. We do not make commitments lightly. Once we make a commitment, we devote ourselves completely to meeting that commitment. We compete to our fullest within the law, but we do not slander our competitors and we respect the intellectual property rights of others. With vendors, we maintain an objective, consistent, and impartial attitude. We do not tolerate any form of corrupt behavior or politicking. When selecting new employees, we place emphasis on the candidates’ qualifications and character, not connections or access. Customer Partnership – At TSMC, customers come first. Their success is our success, and we value their ability to compete as we value our own. We strive to build deep and enduring relationships with our customers, who trust and rely on us to be part of their success over the long term. Innovation – Innovation is the wellspring of TSMC’s growth, and is a part of all aspects of our business, from strategic planning, marketing and management, to technology and manufacturing. At TSMC, innovation means more than new ideas, it means putting ideas into practice. Commitment – TSMC is committed to the welfare of customers, suppliers, employees, shareholders, and society. These stakeholders all contribute to TSMC’s success, and TSMC is dedicated to serving their best interests. In return, TSMC hopes all these stakeholders will make a mutual commitment to the Company. TSMC 20 th Anniversary Celebration TSMC was founded on February 21, 1987. In these past 20 years, TSMC has grown to become the world’s largest provider of semiconductor foundry services and a technology leader in the semiconductor industry. TSMC Parent Company TSMC Subsidiaries and Affiliates Awards and Recognition 19871987 1988 1990 1991 1993 1994 1995 1997 1998 1999 2000 2001 2002 2003 2004 2006 TSMC founded TSMC North America TSMC establishes Fab 2 Fab 2 completed TSMC begins mask manufacturing TSMC Europe TSMC establishes TSMC lists shares on Taiwan Stock Fab 3 Fab 3, TSMC’s first eight-inch TSMC lists ADSs on New York Stock Exchange WaferTech WaferTech fab completed and TSMC wins Ministry of Economic Affairs highest honor for industrial Fab 6 Fab 6, located in the European subsidiary Exchange fab, completed and begins begins operations technology development, the South Taiwan Science Park, Fab 12 Fab 12, TSMC’s first full-scale 12-inch fab, completed and Fab 4 Fab 4 merged into Fab 3 TSMC (Shanghai) TSMC establishes fully-owned Fab 14 Fab 14, located in the South TSMC wins Ministry of Economic Affairs’ “Outstanding Shanghai subsidiary Taiwan Science Park, completed Innovation Achievement Award” Fab 1 Fab 1, a six-inch fab, North American subsidiary and begins operations is leased from ITRI operations WaferTech TSMC establishes subsidiary WaferTech LLC in Washington State, USA BusinessWeek ranks TSMC among “Taiwan’s New Asian Giants” as a representative of “Professional Management” Fab 4 Fab 4 completed and begins operations Fab 5 Fab 5 completed and begins operations TSMC Japan Fully-owned subsidiary TSMC Japan established ● 20 Years of Technology Innovation When TSMC was first established, our technology lagged the international semiconductor industry. SSMC TSMC, Philips Semiconductor, and EDBI found SSMC, a joint venture fab in Singapore Ministry of Economic Affairs Bureau of Standards, Metrology and Inspection awards TSMC the seventh “National Gold Medal for Invention” Asian Business readers’ poll selects TSMC as company with “Most Growth Potential”, With hard work and innovation, TSMC began to catch up with the global semiconductor leaders at “Most Long-term Profit Potential”, the 0.13 micron generation, and has joined the front rank of the industry. “Best Employer”, “Best Taiwan Company”, and other honors “Outstanding Achievement Award” completed and begins operations begins operations TSMC wins IEEE Fab 7 TSMC completes merger of TI-Acer and renames its manufacturing facility Fab 7 SSMC SSMC’s first fab is completed and begins operations “Corporate Innovation Award” Far Eastern Economic Review ranks TSMC as top company in Far Eastern Economic Review Taiwan for the fifth consecutive and begins operations TSMC (Shanghai) Shanghai fab completed and Commonwealth Magazine poll selects TSMC as “Most Admired Company in Taiwan” for 10th selects TSMC as number one in year in its “Review 200: Asia’s begins operations consecutive year Taiwan in its ranking of “Asia’s Leading Companies” FinanceAsia selects TSMC as Benchmark Companies” TSMC wins Ministry of Economic TSMC tops Asian Wall Street Fab 8 TSMC completes merger of Worldwide Semiconductor and Taiwan’s best-managed company of 2001 renames its manufacturing TSMC enters the Forbes facility Fab 8 Global 500 BusinessWeek ranks TSMC number 5 in its “Global Top 100 Technology Companies” for the year 2000 BusinessWeek ranks TSMC number 2 in its “Global Top 200 Emerging Market Companies” for the year 2000 TSMC wins the first “Industrial Elite Award” Affairs’ “Gold Medal for Contribution to Invention and Creation” Journal ranking of “Top 10 Most Respected Companies in Taiwan” TSMC wins IR Magazine Grand Prix for “Best Overall Investor Relations-large cap”, “Best Annual Report and Other Corporate Literature”, “Best Investor Relations Officer”, “Best Corporate Governance”, “Best Web Site”, and “Best Investor Relations by a CEO or Chairman” for second consecutive year 20,202 Employees Worldwide as of the End of 2006 ● Revenue Growth TSMC ‘s revenues have grown steadily in the past 20 years, reaching a record high NT$317.41billion in 2006. 317.4 255.9 264.6 Unit: NT$ billion 300 250 200 150 100 50 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 F.C. Tseng Vice Chairman 01 Morris Chang Chairman Rick Tsai President and CEO Letter to Shareholders Dear Shareholders, As TSMC enters its 20th year as a public company, we take great pride in continuing our focus on growing shareholder value while maintaining market leadership in the dedicated semiconductor foundry segment that we created in 1987. During 2006, TSMC registered double-digit growth in full-year revenues and earnings from a year earlier. Nevertheless, an inventory correction that began in the third quarter in 2006 persisted through the ﬁ rst quarter of 2007. But, we expect demand to improve steadily through the remainder of the year. Financial Results Revenue for 2006 totaled NT$317.41 billion, an increase of 19.1% compared with NT$266.57 billion in 2005. Net income increased 35.7% to NT$127.01 billion in 2006 compared with NT$93.58 billion in 2005. design complexity and utilize the same manufacturing data independent of the design tools that they select. Therefore, we will be able to assist our customers to improve efﬁ ciencies, shorten the design cycle, and accelerate time-to-volume and time-to-market. ● Early in 2006, TSMC’s immersion lithography program produced nearly defect-free test wafers with acceptable parameters for volume manufacturing, using our proprietary techniques in 65-nanometer process. Ongoing efforts to further develop this technology to commercialize it are underway. A Vision for Continued Growth The foundry segment, driven by TSMC’s successes, is of vital importance to the ongoing viability and growth of the semiconductor industry. Today, foundry segment revenues are approximately 10% of total semiconductor revenue, while the revenue generated by foundry customers accounts for Diluted earnings per share in 2006 increased 35.5% to NT$4.92 compared nearly 25% of overall semiconductor revenues. with NT$3.63 the previous year. In US dollars, TSMC in 2006 generated revenue of US$9.76 billion, an increase of 17.7%, and net income of While there is every reason to anticipate that foundries will increase their US$3.91 billion, an increase of 34.2%. Among other highlights in 2006, TSMC achieved: ● Total average billing utilization of 102% ● Average gross proﬁ t margin of 49.1% ● Average operating proﬁ t margin of 40.1% During the year, TSMC provided 7.06 million eight-inch equivalent wafer capacities, representing about 7% of worldwide IC wafer supply, and it shipped more than 7.2 million eight-inch equivalent wafers, representing about 8% of global IC wafer shipment. Major Accomplishments During 2006, TSMC achieved several noteworthy accomplishments: ● 49% of wafer sales were generated from advanced process technologies (i.e., 0.13-micron and below), and 65-nanometer process moved into volume production. ● TSMC’s continual emphasis on cost improvement and manufacturing efﬁ ciencies generated more than US$3.8 billion free cash ﬂ ow (for the ninth consecutive year) supporting its strong commitment to cash dividend. ● TSMC unveiled the industry’s ﬁ rst 65-nm Design-for-Manufacturing (DFM) Ecosystem. Using TSMC’s DFM platform, our customers can reduce the 02 importance in the semiconductor supply chain, it is equally clear that growth of the overall IC market has slowed since the beginning of the 21st Century. In order to sustain growth, we intend to expand into new CMOS logic IC product markets by providing an increasingly broad portfolio of CMOS logic and derivative technologies to address memory, analog, high performance logic or image sensor applications. Concurrently, we will continue our efforts in strengthening our ability to create a much deeper and broader relationship with each of our customers. This integrated relationship with customers will require a much greater information ﬂ ow between the design and foundry teams, and optimization of both design and process technology to meet product requirements. TSMC’s robust DFM platform and efﬁ cient manufacturing capabilities will bring win-win beneﬁ t to this collaborative partnership and ensure the continual success of the foundry business model. Major Events Corporate Governance, Social Responsibility and Innovation: TSMC is a model for corporate governance in Taiwan. For example, in 2002, we were the ﬁ rst Taiwan company to establish an audit committee. Again, in 2006 we were the ﬁ rst Taiwan publicly traded company to see its shareholders eliminate the Supervisor position (effective January 1, 2007) thereby consolidating the Supervisor responsibilities into the audit committee. Today, we have four independent directors. Also, as you can see in our Annual Report, TSMC proudly received a number of awards in 2006 for its excellence in corporate governance and social responsibility. For example, TSMC won the Globalviews Magazine's 2006 Corporate Social Responsibility Award in the Large Cap category for the second consecutive year. And, during 2006, TSMC was also recognized for our efforts in innovation when TSMC received the Outstanding Corporate Innovation Award from the Ministry of Economic Affairs (MOEA) of the Republic of China. Change in Employee Proﬁ t Sharing: In light of new government regulations effective in 2008, TSMC, with the support from its Board of Directors, decided to take an early leadership position on proﬁ t sharing. In November 2006 TSMC was the ﬁ rst Taiwan company to announce a change in its proﬁ t sharing mechanism in order to better balance the interests of TSMC’s employees and its shareholders. Outlook While the semiconductor industry grew between 8% and 9% in 2006 the outlook for 2007 is for the industry to grow more moderately. Although TSMC outpaced the industry in 2006, we anticipate a slower growth environment in the short term. Nevertheless, with our continued leadership in the foundry segment we are conﬁ dent that we will experience over the mid-to-long term strong growth and return on investment to shareholders. Morris Chang Chairman Rick Tsai President and CEO 03 Company Profile As the world’s largest dedicated semiconductor foundry, TSMC serves a diverse array of customers with products ranging across the spectrum of personal computer, consumer electronics, communications, and automotive applications. 04 1. An Introduction to TSMC 2. Business Activities TSMC is the world’s largest dedicated semiconductor foundry. Founded on 2.1 Business Scope February 21, 1987 and headquartered in Hsinchu, Taiwan, TSMC pioneered the dedicated semiconductor foundry business model of focusing on manufacturing customers’ product designs. The company does not design, manufacture, or market semiconductor products under its own brand name, ensuring that TSMC does not compete directly with its customers. The core business of TSMC is silicon foundry, or the manufacturing of semiconductor devices according to customer orders and design. To support our core manufacturing business, TSMC also provides design services, mask design and manufacturing services, semiconductor packaging and testing services, and a portfolio of licensable intellectual property. TSMC’s diverse global customer base ensures that TSMC-manufactured microchips are used in a broad variety of applications, including automotive, consumer electronics, personal computers, and telecommunications. TSMC PIONEERED the Dedicated Semiconductor Foundry Business Model Capacity of TSMC-managed manufacturing facilities, including subsidiaries and joint ventures, totaled 7.06 million eight-inch equivalent wafers in 2006. In Taiwan, TSMC operates two advanced 12-inch wafer fabs, four eight-inch wafer fabs, and one six-inch wafer fab. TSMC also manages two eight-inch fabs at wholly owned subsidiaries: WaferTech in the United States Total and TSMC (Shanghai) Company, Ltd. in China. In addition, TSMC obtains eight-inch wafer capacity from other companies in which TSMC has an equity 2.2 Customer Applications TSMC manufactures chips for a broad customer base covering a wide range of applications. Applications using TSMC-manufactured microchips include mobile phones, computers and peripherals, wireline telecommunications networks, automotive and industrial equipment, as well as consumer electronics such as DVD players, digital televisions, game consoles, digital music players, and digital still cameras. 2.3 Shipments and Sales Amount in 2006 and 2005 Unit: Shipments (8-inch equivalent wafers) / Amount (NT$ thousands) Wafer Package Other 2006 200 Shipments Amount Shipments Amount Domestic 1,087,883 30,516,433 991,870 26,895,512 Export Domestic Export Domestic Export 5,670,064 242,605,517 4,356,434 204,286,181 104 8,399 137 10,808 438,599 20,856,989 273,546 14,366,355 13,968 41,045 2,888,520 17,005,777 14,601 40,128 2,103,030 16,926,478 Domestic 1,101,955 33,413,352 1,006,608 29,009,350 Export 6,149,708 280,468,283 4,670,108 235,579,014 interest in. 2.4 Production in 2006 and 2005 Unit: Capacity / Output (8-inch equivalent wafers) / Amount (NT$ thousands) TSMC provides customer service through account management and engineering service offices in the United States, Europe, Japan, China, South Korea, and India. The company employed more than 20,000 people worldwide as of the end of 2006. Year 2006 2005 Wafers Capacity 7,061,856 5,954,600 Output 7,154,333 5,451,384 Amount 147,668,232 138,182,812 TSMC is the first foundry to provide 65nm production capability. In addition to general-purpose logic process technology, TSMC supports the wide- ranging needs of its customers with embedded non-volatile memory, embedded DRAM, mixed signal/RF, high voltage, CMOS image sensor, color filter, and silicon germanium technologies. In 2006, TSMC received the Outstanding Corporate Innovation Award from the Ministry of Economic Affairs (MOEA) of the Republic of China. The company is listed on the Taiwan Stock Exchange (TSE) under the ticker number 2330 and its American Depositary Shares trade on the New York Stock Exchange (NYSE) under the symbol of TSM. 0 3. Organization 3.1 Organization Chart As of 02/28/2007 Shareholders' Meeting Board of Directors Chairman Vice Chairman President & CEO Research & Information Development Technology Design & Technology Platform Human Quality & Corporate Resources Reliability Planning Worldwide Sales & Service Materials Corporate Management Operations Operations Finance & Development & Risk Organization I Organization II Spokesperson Legal TSMC (Shanghai) Internal Audit Management TSMC North America TSMC Japan TSMC Europe Asia/Paciﬁ c Business Note: The Audit Committee took over the duties of Supervisors starting from January 1, 2007, and the Supervisors were terminated as of December 31, 2006. 06 3.2 Major Corporate Function Research & Development Legal ● Advanced technology research and development, and exploratory ● Corporate legal affairs, contracts and patents, and other intellectual research development Information Technology property management TSMC (Shanghai) ● Information infrastructure, e-business strategy, and information ● Business strategy and development, manufacturing operations, and systems development and operation account services in China Design & Technology Platform ● Design services and technology platform development Internal Audit ● Internal audit and process compliance Human Resources ● Human Resources management and organizational development Quality & Reliability ● Quality and reliability management Corporate Planning ● Production planning and control, industrial engineering, and operational efﬁ ciency Worldwide Sales & Service ● Brand Management – corporate brand management ● Corporate Pricing – product 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 ● Technology and services marketing ● Corporate strategy and business development Materials Management & Risk Management ● Purchasing, warehousing, import and export, logistics support, industrial safety, and environmental protection Operations Organization I ● Manufacturing Operations (Fabs 2, 3, 5, 6, and 8), product engineering, back-end operations, and mainstream technology capacity management Operations Organization II ● Manufacturing Operations (Fabs 12 and 14), new fab planning, manufacturing technology integration, manufacturing and engineering of advanced products, advanced technology operations development, and mask manufacturing Finance & Spokesperson ● Finance and accounting services including investor relations, public relations, treasury, tax, asset management, strategic investment, and ﬁ nancial and accounting management ● Corporate spokesperson 07 4. Management Team 08 09 4.1 Information Regarding Management Team Title / Name President & Chief Executive Ofﬁ cer Rick Tsai Senior Vice President Worldwide Sales & Service Kenneth Kin Senior Vice President & Chief Information Ofﬁ cer Information Technology & Materials Management/ Risk Management Stephen T. Tso Senior Vice President Operations Organization I C.C. Wei Senior Vice President Operations Organization II Mark Liu Vice President Operations Organization I M.C. Tzeng Vice President & General Counsel Richard Thurston Vice President Chief Financial Ofﬁ cer & Spokesperson Lora Ho Date Effective (Note) Shareholding Spouse & Minor Shareholding % Shareholding 07/01/2005 27,813,033 0.11% 07/04/2001 4,115,712 0.02% 12/31/2004 12,679,960 0.05% - - - % - - - 12/01/2005 6,575,457 0.03% 258 0.00% 12/01/2005 10,878,953 0.04% - - 01/01/2002 6,166,082 0.02% 133,149 0.00% 01/02/2002 2,733,369 0.01% - - 09/08/2003 4,549,431 0.02% 190,011 0.00% Vice President Human Resources P.H. Chang Vice President Corporate Development Jason C.S. Chen Vice President Design & Technology Platform Fu-Chieh Hsu Vice President Research & Development Wei-Jen Lo Vice President Research & Development Jack Sun Senior Director Corporate Planning L.C. Tu Senior Director Internal Audit Jan Kees van Vliet 02/17/2004 2,612,397 0.01% - - 03/31/2005 930,991 0.00% 4,102 0.00% 03/31/2006 175,000 0.00% 06/05/2006 1,050,576 0.00% 06/23/2006 4,613,385 0.02% - - - - - - 06/25/2002 8,210,400 0.03% 1,233,831 0.00% 10/15/2003 1,033,562 0.00% - - TSMC Shareholding by Nominee Arrangement (Shares) - - - - - - - - - - - - - - - Note: The date effective means the ofﬁ cal date for that position. 10 Education & Selected Past Positions Selected Current Positions Ph.D., Material Science, Cornell University, USA Executive Vice President, Worldwide Marketing and Sales, TSMC COO, TSMC President, Vanguard International Semiconductor Corp. Director, TSMC subsidiary companies 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 Ph.D., Electrical Engineering, Yale University, USA Vice President, South Site Operation, TSMC Senior Vice President, Chartered Semiconductor Manufacturing Ltd. Ph.D., Electrical Engineering & Computer Science, University of California, Berkeley, USA Vice President, South Site Operation, TSMC President, Worldwide Semiconductor Manufacturing Corp. Director, TSMC subsidiary companies Director, TSMC subsidiary companies Director, TSMC afﬁ liated companies Director, TSMC afﬁ liated companies As of 02/28/2007 Managers Who are Spouses or within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - - - - - - - Master, Applied Chemistry, Chungyuan 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 Master, Finance, National Taiwan University, Taiwan Senior Director, Accounting, TSMC Vice President, TI-Acer Semiconductor Manufacturing Corp. Director, TSMC subsidiary companies Director, TSMC afﬁ liated companies Director and/or Supervisor, TSMC subsidiary companies Director and/or Supervisor, TSMC afﬁ liated companies Ph.D., Materials Science & Engineering, Purdue University, USA Senior Director, Materials Management, TSMC Vice President, Worldwide Semiconductor Manufacturing Corp. M.S., Business Administration, University of Missouri-Columbia, USA Vice President & Co-Director of Worldwide Sales & Marketing Group, Intel Ph.D.,M.S., Electrical Engineering and Computer Sciences, University of California, Berkeley, USA Chairman and CEO, Monolithic System Technology Inc. Chairman and President, Myson Technology Inc. Ph.D., Solid State Physics & Surface Chemistry, University of California, Berkeley, USA Director, Advanced Technology Development & CTM Plant Manager, Intel Ph.D., Electrical Engineering, University of Illinois, USA Senior Director, Logic Technology Division, TSMC Master, Business Administration, Tulane University, USA Senior Director, Fab 5 Operation, TSMC M.S., Management, Delft/Erasmus University, the Netherlands Senior Director, Pricing & Business Process, TSMC Chief Financial Ofﬁ cer & member of the Board of Management, Philips Taiwan - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11 4.2 Compensation Paid to President and Vice Presidents Salary (NT$ thousands) Bonus & Perquisite (NT$ thousands) (Note 2) Employee Profit Sharing (Note 1) Total Compensation to President & VPs as % of 2006 Net Income (Note 1) Cumulative ESOP Exercisable Shares TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Cash Amount (NT$ thousands) Consolidated Subsidiaries of TSMC Stock Market Value Cash Amount Stock Market Value (NT$ thousands) (NT$ thousands) (NT$ thousands) TSMC Consolidated Subsidiaries of TSMC TSMC (K shares) Consolidated Subsidiaries of TSMC Compensation or Fees Received from Investments Other than Subsidiary Title Name President & Chief Executive Officer Senior Vice President Worldwide Sales & Service Rick Tsai Kenneth Kin Senior Vice President & Chief Information Officer Stephen T. Tso Information Technology & Materials Management/ Risk Management Senior Vice President Operations Organization I Senior Vice President Operations Organization II Vice President Operations Organization I Vice President & General Counsel Vice President, Chief Financial Officer & Spokesperson Vice President Human Resources Vice President Corporate Development Vice President Design & Technology Platform Vice President Research & Development Vice President Research & Development C.C. Wei Mark Liu M.C. Tzeng Richard Thurston 49,224 49,224 17,529 17,529 222,500 1,501,875 222,500 1,501,875 1.41% 1.41% 2,828 2,828 None Lora Ho P.H. Chang Jason C.S. Chen Fu-Chieh Hsu (Note 3) Wei-Jen Lo Jack Sun (Note 4) Note 1: Total compensation paid to TSMC's President and Vice Presidents in 2005 was NT$1,328,055 thousand (1.42% of 2005 net income). Employee profit sharing distribution in 2007 with respect to 2006 earnings is preliminary at the time of printing this report, and it has not been approved by shareholders yet. Please visit TSMC's website for an update. Note 2: Includes allowances for company cars. Compensation paid to the drivers totaled NT$6,998 thousand. Note 3: Mr. Fu-Chieh Hsu joined TSMC on March 31, 2006. Note 4: Mr. Jack Sun was promoted on June 23, 2006. Compensation Paid to Individual President and Vice Presidents (Note) 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$15,000,000 From NT$15,000,000 to NT$30,000,000 From NT$30,000,000 to NT$50,000,000 From NT$50,000,000 to NT$100,000,000 Over NT$100,000,000 Total President and Vice Presidents Year 2006 TSMC Consolidated Subsidiaries of TSMC 0 0 0 0 0 0 5 8 13 0 0 0 0 0 0 5 8 13 Note: Employee profit sharing distribution in 2007 with respect to 2006 earnings is preliminary at the time of printing this report, and it has not been approved by shareholders yet. Please visit TSMC's website for an update. 12 Employee Proﬁ t Sharing (Note 1) Total Compensation to President & VPs as % of 2006 Net Income (Note 1) Cumulative ESOP Exercisable Shares Consolidated Subsidiaries of TSMC Stock Market Value (NT$ thousands) Cash Amount (NT$ thousands) Stock Market Value (NT$ thousands) TSMC Consolidated Subsidiaries of TSMC TSMC (K shares) Consolidated Subsidiaries of TSMC Compensation or Fees Received from Investments Other than Subsidiary 1,501,875 222,500 1,501,875 1.41% 1.41% 2,828 2,828 None 13 4.3 Employee Profit Sharing Granted to Management Team (Note 1) Profit Sharing Stock Market Value (NT$ thousands) Profit Sharing Cash Amount (NT$ thousands) Total Profit Sharing Value (NT$ thousands) Total Profit Sharing Value to Management Team as % of 2006 Net Income 1,587,999 235,259 1,823,258 1.44% Title President & Chief Executive Officer Senior Vice President Worldwide Sales & Service Name Rick Tsai Kenneth Kin Senior Vice President & Chief Information Officer Stephen T. Tso Information Technology & Materials Management/ Risk Management Senior Vice President Operations Organization I Senior Vice President Operations Organization II Vice President Operations Organization I Vice President & General Counsel Vice President, Chief Financial Officer & Spokesperson Vice President Human Resources Vice President Corporate Development Vice President Design & Technology Platform Vice President Research & Development Vice President Research & Development Senior Director Corporate Planning Senior Director Internal Audit C.C. Wei Mark Liu M.C. Tzeng Richard Thurston Lora Ho P.H. Chang Jason C.S. Chen Fu-Chieh Hsu (Note 2) Wei-Jen Lo Jack Sun (Note 3) L.C. Tu Jan Kees van Vliet Note 1: Employee profit sharing distribution in 2007 with respect to 2006 earnings is preliminary at the time of printing this report, and it has not been approved by shareholders yet. Please visit TSMC's website for an update. Note 2: Mr. Fu-Chieh Hsu joined TSMC on March 31, 2006. Note 3: Mr. Jack Sun was promoted on June 23, 2006. 14 4.4 Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management, and Shareholders with 10% Shareholding or More (Note 1) Unit: Share Title / Name Chairman Morris Chang Director Koninklijke Philips Electronics N.V. Representative: J.C. Lobbezoo (Note 3) Vice Chairman F.C. Tseng Independent Director Stan Shih Director National Development Fund, Executive Yuan Representative: Chintay Shih Independent Director Sir Peter Leahy Bonﬁ eld Independent Director Lester Carl Thurow Director & President & CEO Rick Tsai Independent Director Carleton (Carly) S. Fiorina 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, CFO & Spokesperson Lora Ho Vice President P.H. Chang Vice President Jason C.S. Chen Vice President Fu-Chieh Hsu (Note 4) Vice President Wei-Jen Lo Vice President Jack Sun (Note 4) Senior Director L.C. Tu Senior Director Jan Kees van Vliet 2006 01/01/2007~02/28/2007 Net Change in Shareholding Net Change in Shares Pledged Net Change in Shareholding Net Change in Shares Pledged (Note 2) (Note 2) 3,379,247 121,942,231 (866,244) 42,459 47,434,261 - - 2,216,238 - 806,852 714,580 1,079,378 1,021,161 847,481 554,158 857,039 779,487 600,991 175,000 588,024 813,495 270,573 228,923 - - - - - - - - - - - - - 1,200,000 - - - - - - - - - - - (250,000) - - - - (250,000) - (51,000) (71,000) (54,000) (170,000) (27,000) (75,000) - - (40,000) - (60,000) - (46,000) - - - - - - - - - - - - - - - - - - - - - - - - Note 1: The tenure of Mr. Michel Besseau, our former Supervisor (representative of Koninklijke Philips Electronics N.V.), expired on May 16, 2006; and the tenure of Mr. James C. Ho (representative of National Development Fund, Executive Yuan) and Mr. Michael E. Porter, our former Supervisors, expired on December 31, 2006. Note 2: This refers to the creation of security interest over TSMC shares in favor of creditors, usually in connection with a shareholder's own ﬁ nancing activities. Note 3: Koninklijke Philips Electronics N.V. resigned from TSMC's Board on March 9, 2007. Note 4: Net change in shareholding or shares pledged from 05/16/2006 to 12/31/2006. 15 Ownership by TSMC (1) Direct/Indirect Ownership by Directors, Supervisor & Management (2) Total Ownership (1) + (2) As of 12/31/2006 Shares % Shares % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0 0 0 0 0 0 0 0 0 0 0 437,918,380 26.5% (Note 1) 0 0 0 0 0% 0% 0% 0% Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Shares % 987,968,244 300,000 1,284 11,000,000 200 6,000 80,000 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Not Applicable (Note 2) 35.7% (Note 4) Not Applicable (Note 2) 35.7% (Note 5) Not Applicable (Note 2) 100.0% 463,350 880,180,184 41,263,171 Not Applicable (Note 2) Not Applicable (Note 2) Not Applicable (Note 2) 16,782,937 10,500,000 38.8% 53.3% 37.9% 99.5% 98.0% 98.0% 9.9% 7.0% 2,632,867 10.5% 4,000,000 1.9% Not Applicable (Note 2) 12.1% Not Applicable (Note 2) 1.1% 4.5 Stock Trade with Related Party: None. 4.6 Stock Pledge with Related Party: None. 5. Long-term Investments Ownership Long-term Investment Equity Method: TSMC International Investment, Ltd. 987,968,244 100.0% TSMC Partners, Ltd. TSMC Global, Ltd. TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited 300,000 1,284 11,000,000 200 6,000 80,000 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Chi Cherng Investment Co., Ltd. Hsin Ruey Investment Co., Ltd. Not Applicable (Note 2) 35.7% (Note 4) Not Applicable (Note 2) 35.7% (Note 5) TSMC (Shanghai) Company Limited Not Applicable (Note 2) 100.0% Systems on Silicon Manufacturing Co. Pte Ltd. Vanguard International Semiconductor Corp. Global UniChip Corp. Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Cost Method: Non-Publicly Traded United Industrial Gases Co. Ltd. Shin-Etsu Handotai Taiwan Company Ltd. 463,350 442,261,804 41,263,171 Not Applicable (Note 2) Not Applicable (Note 2) Not Applicable (Note 2) 16,782,937 10,500,000 38.8% 26.8% 37.9% 99.5% 98.0% 98.0% 9.9% 7.0% Hontung Venture Capital Co., Ltd. 2,632,867 10.5% Not Available (Note 3) W.K. Technology Fund IV 4,000,000 1.9% Not Available (Note 3) Funds: Horizon Ventures Fund Not Applicable (Note 2) 12.1% Not Applicable (Note 2) Crimson Asia Capital Not Applicable (Note 2) 1.1% Not Applicable (Note 2) Note 1: 26.5% represents the shareholding owned by National Development Fund, Executive Yuan Note 2: Not applicable. These ﬁ rms do not issue shares. TSMC's investment is measured as a percentage of ownership. Note 3: Not available. Not all information is available to TSMC as of the report date. Note 4: TSMC directly owns 35.7% and indirectly owns 64.3% in Chi Cherng Investment Co. Ltd., through Hsin Ruey Investment Co., Ltd. Note 5: TSMC directly owns 35.7% and indirectly owns 64.3% in Hsin Ruey Investment Co., Ltd., through Chi Cherng Investment Co. Ltd. 16 6. Employees 6.1 Human Capital TSMC encourages all of its employees to constantly expand their professional knowledge, project a positive work attitude, demonstrate afﬁ rmative values, exhibit ethical conduct, and make a ﬁ rm and genuine commitment to succeed as a member of the TSMC team. Believing that an inspiring work environment promotes innovation. TSMC strives to provide its employees with productive workplace conditions, rewarding professional challenges, and substantial career development support. In 2006, TSMC was designated “Most Admired Company in Taiwan” by Commonwealth Magazine for a tenth consecutive year and ranked by a Cheers Magazine poll as the most desired workplace for new graduates. 6.2 Recruitment Attracting and retaining the right talent is one of the key objectives of TSMC’s human resources strategies. TSMC believes in equal opportunity employment and values the diversity in our staff’s contributions toward our corporate culture and our spirit of innovation. Recruitment is conducted via open selection and is based on the candidate’s ability to fulﬁ ll the needs of each position, regardless of race, gender, age, religion, nationality, or political afﬁ liation. In order to seek out talented people around the world who share the company’s values, TSMC employs innovative methods involving campus programs, summer internships, and employment seminars or fairs. 6.3 People Development Continuous learning is the cornerstone of TSMC’s employee development policy. TSMC provides employees with a wide range of technical, professional and TSMC’s workforce numbered 20,202 people at the end of 2006, reﬂ ecting management training programs. Each employee has an individual development an increase of 2.9 percent from the end of 2005. In 2006, TSMC recruited plan, customized to their development needs. Employee development is 152 managers, 1,210 professionals and 1,044 technicians during the year. further supported and enforced by a comprehensive and integrated network By the end of February 2007, TSMC’s total workforce stood at 20,181. of resources including on-the-job training, coaching, mentoring, job rotation, At the end of 2006, TSMC employed a total of 2,243 managers and 7,550 professionals. Of the managers, 10.9 percent were female. Non-Taiwanese nationals comprised 3.1 percent of TSMC’s workforce at the managerial and professional level. By the end of February 2007, there were 2,255 managers and 7,594 professionals. Among TSMC’s staff, 2.7 percent hold Ph.D. degrees, 29.7 percent hold Masters degrees, 19.1 percent hold Bachelors degrees, 21.5 percent hold other higher education degrees, and 27 percent hold a high school diploma. The following tables summarize TSMC’s workforce structure: TSMC Workforce Structure by Education Degree Ph.D. Master Bachelor Other Higher Education High School Total 12/31/2005 12/31/2006 02/28/2007 475 5,464 3,601 4,510 5,592 553 6,002 3,856 4,331 5,460 568 6,064 3,835 4,294 5,420 19,642 20,202 20,181 TSMC Workforce Structure by Job Title Managers Professionals Assistant Engineer/Clerical Technician Total 12/31/2005 12/31/2006 02/28/2007 2,012 7,145 684 9,801 19,642 2,243 7,550 620 9,789 20,202 2,255 7,594 616 9,716 20,181 on-site courses, e-learning, and external learning opportunities. TSMC not only engages external experts to be trainers, but also educates and arranges for hundreds of internal trainers to offer training courses. 6.4 Employee Satisfaction TSMC is committed to fostering a dynamic and fun work environment. In line with this commitment, a number of programs have been launched to enhance employee motivation, promote employee welfare, and facilitate communication between the company and its employees. These programs include: ● Multifaceted Employee Welfare: TSMC offers a number of employee welfare programs and beneﬁ ts such as ﬂ exible work hours, paid holidays and variety of employee activities such as TSMC Sports Day, Family Day, the Engineer Festival, and various social clubs. TSMC Workforce Structure by Gender, Age, and Years Served ● Employee Recognition: TSMC recognizes employee contributions in different 12/31/2005 12/31/2006 02/28/2007 areas through a number of programs. In addition to TSMC’s internal Male Female Gender Average Age Average Years of Service 45.7% 54.3% 31.0 5.1 46.5% 53.5% 31.7 5.6 46.7% 53.3% 31.87 5.76 Employee Role Model Awards, Innovation & Customer Partnership Award, employees are also encouraged to apply for certain external awards. In 2006, TSMC employees won the Top 10 National Outstanding Manager Award, the Outstanding Young Engineer Award, and the Ministry of Economic Affairs’ Team and Individual Awards for Industrial and Technology Development. 17 6.6 Compensation TSMC’s compensation program includes cash compensation and proﬁ t sharing. Cash compensation includes the monthly salary, and a quarterly variable incentive bonus. Employees are entitled to no less than one percent of our net income after a deduction based on losses of previous years and contributions to legal and special reserves. The purpose of this proﬁ t-sharing bonus is to reward employees’ contributions appropriately, to encourage employees to work consistently to ensure the success of TSMC, and to link employees’ interests with those of TSMC’s shareholders. 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. The company’s earlier practice was to determine the amount of the proﬁ t-sharing bonus based on operating results and industry practice in the Republic of China. Individual awards are based on each employee’s job responsibility, contribution, and performance. In addition to providing employees of TSMC’s overseas subsidiaries with a locally competitive base salary, the company grants short-term and long- term bonuses as a part of total compensation. The performance bonus is a short-term incentive and is granted in line with local regulations, market practices, and the overall operating performance of each subsidiary. The long-term incentive bonus is awarded based on TSMC ﬁ nancial performance and is vested over the course of several years in order to encourage long- term employee commitment and development within the company. 6.7 Retirement Policy TSMC’s retirement policy is in accordance with the provisions in the Labor Standards Law and Labor Pension Act of the Republic of China. TSMC is Committed to Fostering a DYNAMIC AND FUN Work Environment ● Open Communications: TSMC conducts regular communication activities with employees, including regular communication meetings at different levels, Executive & Manager Communications Kits, and the bimonthly Silicon Garden Magazine to engage employees and their families. We respect our employees’ views; they can offer suggestions to the Company through channels such as the Employee Suggestion Box, Employee Voice Collection Network, the “Fab Caring Circle” for work environment related issues, and the Corporate Ombudsman system and Board of Directors’ audit committee for feedback regarding signiﬁ cant management issues or ﬁ nance related concerns. In addition, TSMC conducts an annual Employee Satisfaction Survey to understand and measure the involvement and engagement of employees at various levels. 6.5 Retention TSMC believes talent is its most important resource and retention of talent is the common goal and responsibility of managers at all levels. TSMC has implemented retention programs such as a “Buddy System” that helps new employees learn and become integrated into their teams by pairing them up with a more experienced partner. The Human Resources department also maintains a call center to help its employees with work and life issues. TSMC encourages all management to offer employees opportunities to cultivate professional knowledge and career opportunities, as well as help them maintain a healthy work/life balance. Between January 1, 2006 and February 28, 2007, there were no labor disputes that resulted in loss to TSMC. 18 7. TSMC Worldwide TSMC Europe B.V. TSMC (Shanghai) Company Limited TSMC Liaison Office in India SSMC TSMC Japan Limited WaferTech TSMC Korea Limited TSMC North America TSMC Headquarters & Fab 12 Fab 2, Fab 3 Fab 5, Fab 6 Fab 8, Fab 14 19 TSMC’s Trinity of Strengths TSMC’s value proposition comes from its trinity of strengths: technology leadership, manufacturing excellence, and customer partnership. These three strengths are the pillars that support the success of TSMC and all its customers. 20 21 Technology Leadership The 65nm embedded DRAM process is built on up to 10 metal layers using copper low-k interconnect and nickel silicide transistor interconnect. It features a cell size less than a quarter of its SRAM counterpart, and macro 1. R&D Organization and Investment densities ranging from 4Mbits to 256Mbits. TSMC increased its research and development investment and expanded its world-class R&D organization in 2006 to provide best-in-class semiconductor technologies and design solutions to our customers. R&D expenditure reached NT$14.6 billion, while R&D staff grew by 13.5 percent during the same period. We plan to continue to invest signiﬁ cant amounts on research and development in 2007, with the goal of maintaining a leading position in the development of advanced process technologies. TSMC also strengthened the capabilities and expanded the capacity of our 300mm R&D pilot line for advanced process development in 2006 to accommodate our growing R&D development activities. 65nm Technology Qualiﬁ ed and Production-ready in 2006: First in Foundry TSMC continued to accelerate the development of transistor, memory, and interconnect technologies. During 2006, the R&D organization was reorganized into exploratory research and platform development organizations to better support TSMC’s technology development. We also expanded our external R&D partnership and alliance activities with tool and materials vendors. For example, TSMC is a core member of IMEC, a world-class CMOS R&D consortium in Europe. In addition, TSMC and Freescale completed joint development of cutting edge 65 nanometer SOI technology. TSMC also 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 and challenging nanometer era. Since 2001, TSMC has been funding nanotechnology research at major universities worldwide to promote innovation and the advancement of technology. 2. R&D Accomplishments in 2006 2.1 R&D Highlights Sixty-ﬁ ve Nanometer Technology Immersion Lithography TSMC’s immersion lithography program used proprietary techniques to produce nearly defect-free test wafers well within acceptable parameters for volume manufacturing. On initial tests, TSMC’s techniques produced less than seven immersion-induced defects on many 12-inch wafers, a defect density of 0.014/cm2. Some wafers have yielded defects as low as three per wafer, or 0.006/cm2. This compares to several hundred thousand defects produced by a prototype immersion scanner without these proprietary techniques and is signiﬁ cantly better than published champion data in double digits. TSMC is now focusing on throughput improvement for high-volume manufacturing and cooperating with equipment manufacturers to develop production-ready immersion lithography equipment. TSMC’s immersion lithography technology is targeted at our 45 nanometer manufacturing process. Forty-ﬁ ve Nanometer Technology TSMC’s 45 nanometer technology development made a strong start in 2006. Our test vehicles achieved defect densities of less than 10 per wafer TSMC was the ﬁ rst foundry to qualify production-ready 65 nanometer by the end of the year, reaching this important milestone two quarters technology in 2006, beginning with low-power process technology. We earlier compared with our 65 nanometer technology development timeline. continued to expand our 65 nanometer portfolio, successfully completing technology qualiﬁ cation and customer product pilot runs for various Our 45 nanometer technology development also highlights the intimate technology families including general purpose and triple gate oxide processes. collaboration between manufacturing and design at this advanced technology node. Having made substantial progress in technology TSMC’s 65 nanometer technology is the company’s third-generation development, we were able to offer our ﬁ rst 45 nanometer low-power design semiconductor process employing both copper interconnects and low-k veriﬁ cation shuttle in 2006. This shuttle was the foundry industry’s ﬁ rst 45 dielectrics. It is a nine-layer metal process with core voltages of 1.0 or 1.2 nanometer design veriﬁ cation shuttle and also the earliest shuttle compared volts, and I/O voltages of 1.8, 2.5 or 3.3 volts. The new technology offering with TSMC’s past technology generations. TSMC expects to begin risk supports a standard cell gate density twice that of production of 45 nanometer technology in the second half of 2007. R&D Expenditures (Amount: NT$ thousands) 14,601,385 13,395,801 2,302,035 TSMC’s 90 nanometer process. Sixty-ﬁ ve Nanometer Embedded DRAM TSMC developed the foundry sector’s ﬁ rst functional 65 nanometer embedded DRAM customer product in 2006. TSMC’s 65 nanometer embedded DRAM features improved retention time and a low thermal budget module that can be added to the company’s standard CMOS process. It is compatible with all 65 nanometer logic libraries making it an efﬁ cient process for IP reuse. The process also offers special power saving features for low power applications including sleep mode, partial power cut-off and on- 2005 2006 01/01/2007~ 02/28/2007 chip temperature compensation. 22 2.2 Spectrum of Technologies In addition to the highlights above, TSMC continued to introduce a rich mix of new technologies. For example: Mixed Signal/Radio Frequency Technology TSMC developed and qualiﬁ ed mixed signal/radio frequency (MS/RF) technologies at both 90 nanometer and 65 nanometer generations. The technologies feature a 2.0Ff/µm2 high-density Metal-Insulator-Metal (MIM) capacitor, a 3.3 micron Ultra Thick Metal (UTM) for high quality inductor, and a patented Kaleidoscopic Metal-Over-Metal (K-MOM) capacitor with a greatly improved mismatch compared with traditional MOMs. Mask Technology Mask technology is an integral part of advanced lithography. TSMC has developed proprietary resolution-enhancement techniques that are closely optimized with our in-house mask-making technology, including optical proximity correction, phase-shifting, and subresolution-assist mask features. In 2006, we popularized fast Lithography Process Check technology, which is a critical element of Design For Manufacturing. TSMC mask facilities feature state-of-the-art E-beam mask writers, etchers, inspection and repair tools for both R&D and production use. TSMC’s strength in mask technology R&D and production provides signiﬁ cant beneﬁ ts to our customers in terms of technical excellence, quality, fast cycle time, and one-stop service. In 2006, the Company successfully developed high-quality, cost-effective 55 nanometer mask making technology for production, X-metal mask technology, as well as mask technology for the 45 nanometer generation. The Company also developed metrology using e-beam, scatterometry, and electrical techniques to support wafer lithography and mask making. Silicon Germanium BiCMOS Technology 3. Intellectual Property TSMC developed a high-voltage version of 0.18 micron Silicon Germanium (SiGe) BiCMOS technology to serve the needs of power ampliﬁ er product A strong portfolio of intellectual property rights strengthens TSMC’s customers. TSMC’s 0.18 micron SiGe technology enables high performance technology leadership. In 2006, TSMC received 470 U.S. patents, 463 Taiwan power ampliﬁ er applications and provides an integrated solution that is patents, 143 PRC patents, and other patents around the world. TSMC has more cost effective compared to GaAs technology. CMOS Image Sensor Technology Following the successful mass production of 0.13 micron 4T CMOS image sensors, TSMC developed a high-performance and low-cost 0.11 micron 4T CMOS image sensor process with AlCu backend. This new process is been ranked by a Ministry of Economic Affairs Special Project on Technology as the number-one Taiwan company in procuring U.S. patents. We have taken initiatives in building the various elements of a model for TSMC’s intellectual capital management. Management and use of our intellectual property rights are driven by strategic considerations and business objectives. aimed at high-end imaging applications with small pixel size of 1.75 micron At TSMC, we have built a process to extract value from our intellectual and high resolutions of greater than three megapixels. It is compatible property rights. Our IP strategy works in conjunction with our R&D, with TSMC’s 0.13 micron CMOS logic and embedded memory processes, marketing, and corporate development strategies. Intellectual property enabling System-on-Chip (SoC) platforms for consumer and industrial rights protect our freedom to operate, enhance our competitive position, applications in mobile phones, digital cameras, security sensors and other and give us leverage to participate in many proﬁ t-generating activities. We have worked continuously to improve the quality of our IP portfolio, reduce cost of maintenance, align business strategies with IP strategies, and extract value from our portfolio. IP is an essential element for our ability to attract customers and partners and the basis of collaboration with them. We expect to continue investing in our IP portfolio and the management system to ensure that we receive maximum value from our intellectual property rights. image sensor markets. 45nm Design Veriﬁ cation Shuttle: First in Foundry Flash/Embedded Flash Technology TSMC demonstrated excellent intrinsic reliability data for automotive applications using ﬂ ash/embedded ﬂ ash technology at the 0.18 micron technology node. Our test vehicles achieved very low failure rates for both cycling test and data retention after a bake at 250 degree Celsius. In addition, a programmable fuse IP has been veriﬁ ed on silicon for 0.18 micron high voltage technology. We developed and veriﬁ ed IP with read functionality at 3.3 volt and 1.5 volt Vcc for 0.13 micron embedded ﬂ ash technology, which meets endurance speciﬁ cations. TSMC also worked out a very competitive split-gate Flash device for 90 nanometer embedded ﬂ ash. With this new cell architecture, TSMC can continue the scaling trend of split-gate ﬂ ash at the 90 nanometer node, improving density by four times compared with the 0.18 micron technology node. A test vehicle has been taped out to verify the new ﬂ ash device. 23 4. R&D Plans for 2007 Moving forward, TSMC intends to focus on qualiﬁ cation and production of the 45 nanometer logic/mixed signal technology platforms as well as development of a 32 nanometer logic platform. In addition, we will devote intense efforts to qualify the 45 nanometer node with superior transistor performance featuring a strong strained silicon process, in both bulk and silicon-on-insulator. Other development projects include, but are not limited to: 45 nanometer and 65 nanometer embedded DRAM; 65 nanometer mixed signal/RF for communication applications; embedded Flash IP development in 0.13 micron and 90 nanometer technologies; 0.11 micron and 90 nanometer 4T CMOS image sensor technologies. Our re-organization of R&D in 2006 emphasizes our commitment to maintain our long-term technology lead over competitors in the foundry sector through a strong exploratory technology research program. Also, TSMC will continue its exploratory research team plans to focus on the 22 nanometer node and beyond. We plan to continue exploratory work on new transistors and process technologies such as 3D structures, MRAM, strained-layer CMOS, and novel SoC features. The study of the Manufacturing Excellence 1. TSMC’s Manufacturing Capabilities TSMC is the foundry sector’s capacity leader. In 2006, TSMC managed capacity of 7.06 million eight-inch equivalent wafers, an increase of 18.6 percent from 2005. However, capacity is not the only foundation for TSMC’s manufacturing excellence. Our ﬂ exibility in assurance of supply for diverse customer needs, best-in-class cycle time, agility in meeting customers’ capacity needs, ability to quickly ramp up and maintain high yield, accurate delivery, and in-house mask service make manufacturing excellence one of TSMC’s core strengths. Flexible Manufacturing To serve a diverse customer base, TSMC’s fabs have the ﬂ exibility to support numerous customers, products, and technologies. Each individual fab can support over one hundred customers and over one thousand different products. fundamental physics of nanometer CMOS transistors is now a core facet of Best-in-class Cycle Time our efforts both to improve the understanding and to guide the design of the transistors at advanced nodes. The ﬁ ndings of these studies are being applied to ensure our leadership at the 32 nanometer and 22 nanometer nodes. One of TSMC's goals is to extend Moore's law through innovative in-house work, as well as by collaborating with industry leaders and academia to push the envelope in ﬁ nding cost effective technology and manufacturing solutions. Our customers depend on TSMC’s ability to deliver products with short demand fulﬁ llment cycles. TSMC’s production cycle time is the fastest in the foundry sector and is competitive with the leading benchmark manufacturers in the semiconductor industry. TSMC’s advanced 12-inch fabs continued to break cycle time records in 2006, supported by integrated planning systems as well as a high degree of automation. TSMC plans to continue working closely with international consortia and photolithography equipment suppliers to ensure the timely development of 193 nanometer high NA scanner technology, liquid immersion lithography, and massively parallel E-Beam direct write and EUV scanner technologies. TSMC adapts to surges in customer demand with large-capacity 12-inch GigaFabsSM and fab clusters, supporting each other with seamless technology transfer. Customers can usually quickly qualify their products in multiple fabs. TSMC’s technology transfer requires the second fab to match These technologies are now the mainstay of our process development efforts the ﬁ rst fab’s yield and device performance and strive further for higher at the 45 nanometer node and beyond. performance. Manufacturing Agility TSMC also plans to continue to collaborate with mask inspection equipment Fast Yield Ramp Up suppliers to develop aerial image inspection techniques. This should help to ensure that we can maintain our leadership position in mask quality and cycle time, and continue to meet aggressive R&D, prototyping and production requirements. Fast yield ramp up for new products is crucial to the success of TSMC and our customers. We have developed a comprehensive methodology for transferring technologies from R&D to production to shorten the yield learning curve of leading edge technologies. Overall, TSMC plans to continue to invest heavily to expand its R&D capabilities. TSMC’s seamless technology transfer also enables consistent yield when With a highly competent and dedicated R&D team and unwavering commitment to innovation, we are conﬁ dent of our ability to deliver the best and most cost effective SoC technologies for our customers and to customers transfer production to a second fab. In addition, TSMC vigilantly seeks to maintain yield stability with our effective Yield Loss Prevention System and Yield Deviation Analysis System. support our business growth. Accurate Delivery TSMC has a proven record of providing customers with consistent on-time delivery. TSMC has re-engineered its demand fulﬁ llment system and has developed a state-of-the-art manufacturing planning and dispatching system that further enhances the accuracy of deliveries. TSMC’s stringent demands for accuracy require that deliveries be neither too late nor too early, as both could affect a customer’s just-in-time supply chain management. In 2006, we were able to make over 90 percent of our deliveries within one day of the scheduled delivery date. 24 3. Quality TSMC is committed to providing customers with the best quality wafers for their products. Our Quality and Reliability (Q&R) services champion the partnership between customers and the entire TSMC organization to achieve “quality-on-demand”. The goal of quality on demand is to fulﬁ ll customers’ needs regarding time to market and market competition, over a broad range of products. In the design stage, Q&R technical services assist customers to design-in their product reliability requirements. Q&R also works with R&D on process development in order to assure reliability performance, not only for a variety of circuit devices, but also for different types of IC packages. Q&R has deployed systems to ensure robust quality in managing production dynamics as the company meets customers’ business requirements. To sustain production quality and minimize risks to customers when deviations occur, manufacturing quality monitoring and event management span all critical stages, from raw material supply, mask-making, and real-time in- Mask Production Mask technology is an integral part of advanced lithography, and TSMC's process monitoring, to wafer sort and assembly and customer ﬁ eld quality in-house mask shop is one of the world's largest mask making facilities, performance. Advanced failure analysis techniques are also used in every providing our customers with one-stop service for prototyping with short instance, from process development to customer production issues. TSMC Q&R is also responsible for leading the company towards the ultimate goal of zero defect production, using continuous improvement programs. Periodic customer feedback indicates that products shipped from TSMC have consistently met or exceeded their ﬁ eld quality requirements in the marketplace. In 2006, TSMC conformed to ISO/TS 16949 requirements for a ﬁ fth consecutive year, continuing to meet the automotive industry’s stringent quality requirements. cycle time. TSMC's mask shop is process-integrated and synchronized with TSMC's manufacturing facilities through a coupled computer-integrated manufacturing system. All high-end masks are Optical Proximity Correction (OPC) optimized, and undergo routine characterization for quality. We provide the highest mask quality with the shortest mask cycle time in the industry. TSMC’s CyberShuttleSM is the foundry sector's ﬁ rst and most used prototyping program with multiple customers sharing mask costs through multi-project wafers. It has proven cost effective for both product prototyping and IP development. Designers see CyberShuttleSM as the cornerstone of product development methodology for managing design quality and achieving faster time-to-revenue. 2. GigaFabSM TSMC’s 12-inch fabs are a key part of our manufacturing excellence, and will continue to grow more important in the future. TSMC operates two 300mm fabs - Fab 12 and Fab 14. Fab 12 is located in Hsinchu, Taiwan with a capacity of 166,000 12-inch wafers in the fourth quarter of 2006, is the primary site for TSMC’s R&D. Fab 14, located in Tainan, Taiwan, had capacity of 105,000 wafers in the fourth quarter of 2006. These advanced facilities will continue to be the focus of our capacity expansion in the near future. These “GigaFabsSM” are centers of our unceasing effort to improve manufacturing excellence and to continue to deliver breakthroughs. Our gigafabs attain lower operating costs by achieving near 100 percent automation, such as real-time wafer dispatching, a search engine optimizing route for Automated Materials Handling Systems (AMHS), full automation of production wafers and non-product wafers, as well as lean work-in-progress control. 25 4. Raw Materials and Supply Chain Risk Management In 2006, TSMC brought together fab operations, Materials Management, Risk Management and the Quality System Management Division in a project to improve supply chain risk management. TSMC worked together with suppliers throughout 2006 to prepare safety inventory, improve their quality, and share supply chain risk management knowledge. Raw Materials Supply Major Materials Raw Wafers Major Suppliers Market Status Procurement Strategy F.S.T. MEMC S.E.H. Siltronic SUMCO These ﬁ ve suppliers provide over 85% of the world's wafer supply on a combined basis. Each supplier has multiple manufacturing sites in order to meet customer demands, including plants in North America, Asia, and Europe. Chemicals BASF Tai-Young High Tech (TYS) These two companies are the major suppliers for bulk chemical. TSMC's suppliers of silicon wafers are required to pass stringent quality certiﬁ cation procedures. TSMC procures wafers from multiple sources to ensure adequate supplies for volume manufacturing and to appropriately manage supply risk. TSMC maintains competitive price and service agreements with its wafer suppliers, 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 subsequent 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 speciﬁ cations are met and product quality is satisfactory. TSMC works closely with its suppliers to ensure that they have adequate production 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. These four companies are the major suppliers for photoresist. These four companies are the major suppliers for specialty gas. Majority of the four suppliers are located in different geographic locations, minimizing supply risk to TSMC. The products of these four suppliers are interchangeable. 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. AZ Shin-Etsu Chemical Sumitomo T.O.K. Air Liquide Air Products BOC Taiyo Nippon Sanso Photoresist Gases 26 Customer Partnership 1. Semiconductor Market Analysis Global semiconductor revenues increased about 8.9 percent in 2006 to US$247.7 billion. Fabless company revenues grew about 16 percent in 2006 to US$42.3 billion. The value of dedicated foundry output at the semiconductor market level is roughly three times foundry revenues and accounted for about 24 percent of semiconductor revenues in 2006. TSMC maintained its leading position in the dedicated foundry segment of the semiconductor industry with an estimated market share of 50 percent. Market research ﬁ rm IC Insights estimates that the largest geographic market for dedicated foundry services by corporate headquarter location, is North America, which accounted for 63 percent of overall dedicated foundry revenue in 2006. The second largest geographic market is Asia- Paciﬁ c (excluding Japan), which accounted for 21 percent of total dedicated foundry revenue in 2006. Europe made up 10 percent, and Japan contributed six percent. 1.1 Semiconductor Industry Growth Analysis Analysts' consensus forecast for semiconductor market growth in 2007 is a mid-single digit percentage rise. The semiconductor market is forecasted to continue growing in 2008 with a consensus forecast of a low double digit percentage increase. 1.2 Foundry Sector Outlook: Opportunities and Threats TSMC believes foundry services will play an increasingly important role as Integrated Device Manufacturers, or IDMs, become increasingly reliant on outsourced manufacturing, and as fabless semiconductor companies continue to grow. IC insights forecasts that by 2010, 30 percent of global semiconductor revenue will come from dedicated foundries, compared with 24 percent in 2006. Accordingly, TSMC plans to continue capacity expansion in 2007, with capital investment of approximately US$2.6 billion to US$2.8 billion. In addition to increasing capacity in Fab 12 and Fab 14, TSMC’s two 12-inch GigaFabsSM, TSMC is expanding capacity at its eight-inch fab in China, TSMC (Shanghai). TSMC will continue to focus on creating value for customers to capitalize on opportunities and maintain competitiveness. 2. Customers 2.1 Customer Service TSMC is committed to providing the best services to our customers and believes that customer service is critical to enhancing customer loyalty. In turn, customer loyalty leads to higher levels of customer retention and to expansion of business relationships. TSMC’s goal is to maintain its position as the most advanced and largest provider of semiconductor manufacturing technologies and foundry services. TSMC believes that achieving this goal will help retain existing customers, attract new customers, and strengthen customer partnerships. To facilitate customer interaction and information access on a real-time basis, TSMC has established a wide range of web-based services covering applications in design, engineering, and logistic collaborations. They are collectively branded as eFoundrySM. 2.2 Customer Satisfaction TSMC regularly conducts surveys and reviews to ensure that customers’ needs and wants are being adequately understood and then addressed. Continual improvement plans supplemented by customer feedback are an integral part of this business process. 2.3 Market Expansion and Penetration TSMC continues to diversify its customer base while supporting the growth of our existing customers. TSMC engaged more than 50 new customers in 2006. In addition, TSMC has opened ofﬁ ces in Korea and India to support local customers as well as branch ofﬁ ces of global customers. 3. Customer-driven Design and Technology Platform In 2006, TSMC separated its Technology Platform and Design Services operations from R&D into an independent Design and Technology Platform organization. This reorganization tightens the link between TSMC’s R&D capabilities with the needs of our customers and ensures that our technology road map is driven by customer applications. Design is becoming increasingly intertwined with manufacturing as technology advances into deep sub-micron nodes. TSMC is dedicated to serving its customers by lowering the barriers to advanced technology design. In June 2006, TSMC announced its Reference FlowSM 7.0, which features a powerful statistical static timing analyzer, a set of new power management techniques and an array of design for manufacturing enhancements. Reference FlowSM 7.0 further strengthens the Reference FlowSM 6.0 released in 2005, which ﬁ rst opened the doors to 65 nanometer design. TSMC also collaborated with design tool vendors to set up a design for manufacturing ecosystem that ensures our customers can design with the same manufacturing data regardless of the design tools that they select. TSMC’s global customers have diverse product specialties and excellent We believe that providing our customers with a robust DFM environment performance records in various segments of the semiconductor industry. will become a more and more important factor in shortening the design Fabless customers include Altera Corporation, ATI Technologies Inc. (now part of cycle and accelerating time-to-volume and time-to-market with each Advanced Micro Devices, Inc.), Broadcom Corporation, Marvell Semiconductor technology generation. Inc., NVIDIA Corporation, Qualcomm Inc. and VIA Technologies Inc. IDM customers include Analog Devices Inc., Freescale Semiconductor Inc., NXP Semiconductors (formerly Philips Semiconductors), and Texas Instruments Incorporated. Revenue from NVIDIA Corporation accounted for more than 10 percent of our revenue in 2006. In 2005, revenue from ATI Technologies Inc. amounted to over 10 percent of our revenue. 27 Financial Strength TSMC’s trinity of strengths of technology leadership, manufacturing excellence, and customer partnership are built on a foundation of ﬁ nancial strength. In 2006, we generated positive free cash ﬂ ow to both invest in the future with US$2.46 billion in capital spending, and at the same time return value to shareholders with a NT$2.50 cash dividend per share. Financial Status and Operating Results 1. Financial Status Unit: NT$ thousands Item Current Assets Fixed Assets Other Assets Total Assets Current Liabilities Long-term Liabilities Total Liabilities Capital Stock Capital Surplus Retained Earnings Total Shareholders' Equity 2006 193,676,010 228,235,359 14,295,330 573,584,904 42,905,154 22,698,466 65,603,620 258,296,879 54,107,498 197,124,532 507,981,284 2005 197,562,416 214,145,633 15,172,165 507,539,815 32,184,415 29,725,051 61,909,466 247,300,246 57,117,886 142,771,034 445,630,349 Difference (3,886,406) 14,089,726 (876,835) 66,045,089 10,720,739 (7,026,585) 3,694,154 10,996,633 (3,010,388) 54,353,498 62,350,935 % -2% 7% -6% 13% 33% -24% 6% 4% -5% 38% 14% 1.1 Analysis of Deviation over 20% ● The increase in current liabilities was mainly due to reclassiﬁ cation of bonds payable due within one year from noncurrent portion to current and increase of income tax payable. ● Long-term liabilities decreased as a result of the afore-mentioned reclassiﬁ cation to current liabilities. ● The increase in retained earnings was due to the operating results in 2006, partially offset by 2005 earnings distribution. 1.2 Major Impact on Financial Position The above deviations over 20 percent had no major impact on TSMC’s ﬁ nancial position. 1.3 Future Plan on Financial Position: Not applicable. 28 29 2. Operating Results Unit: NT$ thousands Item Gross Sales Sales Returns & Allowances Net Sales Cost of Sales Gross Proﬁ t Operating Expenses Income from Operations Non-operating Income & Gains (Note) Non-operating Expenses & Losses (Note) Income before Income Tax Income Tax Expenses Income before Cumulative Effect of Changes in Accounting Principles Cumulative Effect of Changes in Accounting Principles Income after Income Tax Note: Certain accounts for year 2005 has been reclassiﬁ ed to conform to year 2006 classiﬁ cations. 2.1 Analysis of Deviation over 20% 2006 319,210,148 (5,328,513) 313,881,635 (164,163,235) 149,718,400 (23,418,541) 126,299,859 11,596,727 (3,090,087) 134,806,499 (7,550,582) 127,255,917 (246,186) 127,009,731 2005 270,315,064 (5,726,700) 264,588,364 (149,344,315) 115,244,049 (22,230,225) 93,013,824 7,381,360 (6,575,761) 93,819,423 (244,388) 93,575,035 - 93,575,035 Difference 48,895,084 398,187 49,293,271 (14,818,920) 34,474,351 (1,188,316) 33,286,035 4,215,367 3,485,674 40,987,076 (7,306,194) 33,680,882 (246,186) 33,434,696 % 18% -7% 19% 10% 30% 5% 36% 57% -53% 44% 2,990% 36% - 36% ● Increase in gross proﬁ t: The improved gross proﬁ t was primarily due to higher capacity utilization and continuous cost reduction activities. ● Increase in non-operating income and gains: The increase was primarily due to investment income recognized in 2006, partially offset by foreign exchange income recognized in 2005. ● Decrease in non-operating expenses and losses: The decrease was mainly due to less loss on disposal of ﬁ nancial instruments and investment loss recognized in 2005. ● Increase in income tax expenses: The increase was primarily due to higher taxable income and a lower tax credit rate in 2006. 2.2 Sales Volume Forecast and Related Information Capacity Plan 2005 2006 24(cid:395) 19(cid:395) 2007 17(cid:395) 6.0 million 7.1 million 2005 2006 2007 8.3 million 0(cid:395) (cid:22)(cid:20)(cid:23)(cid:27) (cid:22)(cid:20)(cid:23)(cid:25) 45(cid:395) 49(cid:395) 53(cid:395) 100(cid:395) Annual Growth Rate Capacity: 8-inch equivalent wafer 2007 wafer shipment is expected to be approimately 8 million 8-inch equivalent wafers. For additional details, please refer to “Letter to Shareholders” on page 2. 2.3 Gross Proﬁ t Deviation Analysis Unit: NT$ millions Gross Proﬁ t in 2006 Gross Proﬁ t in 2005 149,718 115,244 Difference 34,474 Price Difference (28,264) Cost Difference Mix & Volume Difference 20,254 42,484 Unfavorable pricing attributions due to signiﬁ cant market competition. Favorable cost variance came from continuous cost reduction activities and lower depreciation as a result of fully- depreciated assets. 1. Revenue from advanced technology (<=0.13µm) increased from 30% in 2005 to 33% in 2006. The product mix improvement and higher utilization resulted in higher gross proﬁ t. 2. Wafer shipment grew 28% in 2006. This quantity difference resulted in higher gross proﬁ t. 30 2.4 Consolidated Financial Analysis ● Net sales of NT$317.41 billion in 2006 increased by 19.1 percent from 2005. It was mainly attributable to an increase in wafer shipment. ● Gross margin increased to 49.1 percent of net sales in 2006 from 44.3 percent of net sales in 2005. The higher margin was primarily driven by higher capacity utilization and continued cost reduction. ● Net income of NT$127.01 billion in 2006 increased by 35.7 percent from 2005. It was mainly due to an increase in wafer shipment and higher gross margin, partially offset by an increase in income tax expense. ● Diluted earnings per share of NT$4.92 in 2006 increased by 35.5 percent from 2005, primarily as the result of an increase in net income. 3. Cash Flow Unit: NT$ thousands Cash Balance 12/31/2005 Net Cash Provided by Operating Activities in 2006 Net Cash Outﬂ ows from Investing & Financing Activities in 2006 Cash Balance 12/31/2006 Remedy for Cash Shortfall Investment Plan Financing Plan 85,383,583 196,080,297 (181,324,171) 100,139,709 - - 3.1 Analysis of Cash Flow ● NT$196 billion net cash provided by operating activities: Mainly from proﬁ table operating results. ● NT$117.3 billion net cash used in investing activities: Primarily for capital expenditures and investments in ﬁ nancial assets . ● NT$64 billion net cash used in ﬁ nancial activities: Mostly for the payout of cash dividends and employees' proﬁ t sharing. 3.2 Remedial Actions for Cash Shortfall: As a result of positive cash ﬂ ows and ample cash on-hand, remedial actions are not required. 3.3 Cash Flow Projection for Next Year: Not applicable. 4. Major Capital Expenditure 4.1 Major Capital Expenditure and Sources of Funding Unit: NT$ thousands Plan Actual or Planned Source of Capital Production Facilities and Equipment Cash ﬂ ow generated from operations R&D Equipment Cash ﬂ ow generated from operations Total Amount as of 12/31/2006 212,216,265 9,501,919 Status of Actual or Projected Use of Capital 2004 71,078,377 2,000,055 2005 68,862,618 3,840,251 2006 2007 (Note) 72,275,270 3,661,613 - (Note) - (Note) Note: 2007 capital expenditures will be in the range of US$2.6 billion to US$2.8 billion for TSMC and its subsidiaries, including production facilities and equipment, R&D equipment and other assets. 4.2 Expected Future Beneﬁ ts With the above-mentioned capital expenditures, it is estimated that TSMC’s annual production capacity will increase by approximately 700 thousand eight- inch equivalent wafers in 2007. In addition, 2008 and 2009 production capacity will also increase. 5. Investments Exceeding 5% of Company's Paid-in Capital in 2006 Unit: NT$ millions Item TSMC Global Ltd. Amount (Note) Policy Reasons for Proﬁ t/Loss Improvement Plan Other Future Investment Projects 42,327 To reduce foreign Fixed income securities Not applicable No exchange hedging costs investment income Note: The annual investment amount exceeding 5% of company's paid-in capital. 31 Capital and Shares 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 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 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 17,800,000,000 178,000,000,000 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 27,050,000,000 178,000,000,000 178,000,000,000 178,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 246,000,000,000 270,500,000,000 270,500,000,000 270,500,000,000 270,500,000,000 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 24,730,024,647 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 99,908,494,230 101,058,494,230 116,893,645,870 129,893,645,870 181,325,530,510 199,228,867,450 186,228,867,450 202,666,189,840 233,765,970,050 232,518,770,050 232,520,484,320 232,528,634,570 247,240,874,050 247,261,288,030 247,273,476,370 247,300,246,470 27,050,000,000 270,500,000,000 24,733,052,975 247,330,529,750 27,050,000,000 270,500,000,000 25,818,166,583 258,181,665,830 27,050,000,000 270,500,000,000 25,823,356,941 258,233,569,410 27,050,000,000 270,500,000,000 25,825,839,775 258,258,397,750 1. Capitalization 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 03/2006 07/2006 07/2006 09/2006 12/2006 32 Sources of Capital Founding Cash Offering Cash Offering Capitalization of Proﬁ ts Cash Offering Par Value Change from NT$1000 to NT$10 Cash Offering Cash Offering: NT$582,171,120 Capitalization of Proﬁ ts: NT$189,531,880 Capitalization of Proﬁ ts Capitalization of Proﬁ ts Capitalization of Proﬁ ts Capitalization of Proﬁ ts Capitalization of Proﬁ ts Capitalization of Proﬁ ts Capitalization of Proﬁ ts Conversion of ECB Capitalization of Proﬁ ts: 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 Proﬁ ts Capitalization of Proﬁ ts Redemption of Preferred Stock Capitalization of Proﬁ ts Capitalization of Proﬁ ts Capital Reduction: Cancellation of Treasury Shares Exercise of Employee Stock Options Exercise of Employee Stock Options Capitalization of Proﬁ ts Exercise of Employee Stock Options Exercise of Employee Stock Options Exercise of Employee Stock Options Exercise of Employee Stock Options Capitalization of Proﬁ ts: NT$7,141,632,380 and Capital Surplus: NT$3,709,503,700 Exercise of Employee Stock Options Exercise of Employee Stock Options Remark Capital Increase by Assets Other than Cash Date of Approval & Approval Document No. As of 02/28/2007 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 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 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 10/29/2003 Tai Tsai Cheng 1 Tzu No. 0920150554 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 10/29/2003 Tai Tsai Cheng 1 Tzu No. 0920150554 05/30/2006 Jin Guan Cheng 1 Tzu No. 0950122027 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 10/29/2003 Tai Tsai Cheng 1 Tzu No. 0920150554 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 10/29/2003 Tai Tsai Cheng 1 Tzu No. 0920150554 33 2. Capital and Shares 2.1 Capital and Shares Unit: Share Type of Stock Common Stock 2.2 Shelf Registration: None. 3. Composition of Shareholders 3.1 Status of Shareholders Common Share Authorized Capital Issued Shares Listed Non-Listed Total Unissued Shares As of 02/28/2007 Total 25,832,119,918 0 25,832,119,918 1,217,880,082 27,050,000,000 Type of Shareholders Government Agencies Financial Institutions Other Juridical Persons Foreign Institutions & Natural Persons Number of Shareholders Shareholding Holding Percentage (%) 8 1,864,707,449 7.22% 81 380,760,499 1.47% 874 1,932 813,403,232 18,506,913,182 4,257,297,975 25,823,082,337 3.15% 71.67% 16.49% 100.00% As of 06/26/2006 (last record date) Domestic Natural Persons 460,241 Total 463,136 Ownership 46,875,977 460,870,677 376,503,342 292,492,645 172,838,649 300,401,223 182,858,884 148,437,421 418,963,013 404,709,152 424,323,205 251,806,500 175,368,009 167,627,779 21,999,005,861 25,823,082,337 As of 06/26/2006 (last record date) Ownership (%) 0.18% 1.78% 1.46% 1.13% 0.67% 1.16% 0.71% 0.58% 1.62% 1.57% 1.64% 0.98% 0.68% 0.65% 85.19% 100.00% 3.2 Distribution Proﬁ le of Shareholder Ownership Common Share Shareholder Ownership (Unit: Share) Number of Shareholders 143,241 196,493 55,056 24,343 10,014 12,543 5,333 3,340 6,117 2,983 1,530 519 255 188 1,181 463,136 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 Shares: Not applicable. 34 4. Major Shareholders 4.1 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. National Development Fund, Executive Yuan The Growth Fund of America, Inc. JP Morgan Chase Bank N.A. Taipei Branch in Custody for Europaciﬁ c Growth Fund JP Morgan Chase Bank N.A. Taipei Branch in Custody for the New Perspective Fund, Inc. Government of Singapore Investment Corp. PFE. Ltd. Bureau of Labor Insurance JP Morgan Chase Bank N.A. Taipei Branch in Custody for ABU DHABI Investment 10 GMO Emerging Markets Fund Total Shares Owned Ownership (%) As of 06/26/2006 (last record date) 4,448,702,206 4,187,989,024 1,629,084,227 581,716,927 457,126,622 323,587,686 294,462,412 235,615,859 180,488,171 178,542,448 17.23% 16.22% 6.31% 2.25% 1.77% 1.25% 1.14% 0.91% 0.70% 0.69% 4.2 Information on Our 10 Largest Shareholders Who are Related Parties to Each Other: None of TSMC’s 10 largest shareholders are related parties to each other. 5. Share Information TSMC’s earnings per share grew 35.5 percent in 2006 to NT$4.92 per share. The following table details TSMC’s net worth, earnings, dividends and market price per common share in 2006, as well as other data regarding return on investment. Net Worth, Earnings, Dividends, and Market Price Per Common Share 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) Diluted Earnings Per Share Adjusted Diluted 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 stock dividends and stock bonuses to employees Note 3: Price / Earnings Ratio = Average Market Price / Adjusted Diluted 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 2005 2006 01/01/2007 ~ 02/28/2007 59.34 (Note 2) 37.68 (Note 2) 47.54 (Note 2) 18.02 15.37 24,693,112 3.79 3.63 2.50 0.15 0.15 - 13.10 19.02 5% 64.80 (Note 2) 52.30 (Note 2) 59.14 (Note 2) 19.67 (Note 1) 25,813,183 4.92 (Note 1) 3.00 0.02 0.03 - (Note 1) (Note 1) (Note 1) 71.70 64.00 68.32 - - - - - - - - - - - - 35 6. Dividend Policy 2005 Proﬁ t Distribution Set Aside as Directors and Supervisors Compensation, and Employee Proﬁ t Sharing TSMC’s Proﬁ ts may be distributed by way of cash dividend and/or stock dividend. The preferred method of distributing proﬁ ts is by way of cash dividend. Under TSMC’s articles of incorporation, stock dividend shall not exceed 50 percent of the total dividend distribution in any given ﬁ scal year. Except under certain conditions speciﬁ ed in its Articles of Incorporation, TSMC does not pay dividends when there is no proﬁ t for a particular ﬁ scal year. 7. Distribution of Proﬁ t The Board adopted a proposal for 2006 proﬁ t distribution at its meeting on February 6, 2007. The proposed proﬁ t distribution will be effected upon the approval of shareholders at the Annual Shareholder Meeting in May 7, 2007. Board Resolution (02/14/2006) Amount (NT$) Amount (NT$) 257,409,650 257,409,650 3,432,128,678 3,432,128,678 Actual Result Underlying Number of Shares - - Dilution (%) - - 3,432,128,680 3,432,128,680 343,212,868 1.33％ Directors & Supervisors Compensation (Cash) Employee Proﬁ t Sharing in Cash Employee Proﬁ t Sharing in Stock Total 7,121,667,008 7,121,667,008 - - Proposal to Distribute 2006 Proﬁ ts Unit: NT$ Bonus to Directors & Supervisors Cash Dividends to Common Shareholders (NT$3.0 Per Share) Stock Dividends to Common Shareholders (NT$0.02 Per Share at Par Value, i.e., 2 Shares for Each 1,000 Shares Owned) (Note 1, 3) Employees' Proﬁ t Sharing in Cash Employees' Proﬁ t Sharing in Stock (Note 2) Note 1: Equivalent to underlying number of shares: 51,659,376 Note 2: Equivalent to underlying number of shares: 457,279,801 285,799,875 77,489,063,538 2005 and 2006 Diluted EPS under Different Accounting Treatments for "Director and Supervisors' Compensation" and "Employee Proﬁ t Sharing" Unit: NT$ 516,593,760 Accounting Treatments 2005 Diluted EPS 2006 Diluted EPS 4,572,797,994 4,572,798,010 Treatment as Proﬁ t Distribution Treatment as Expenses (Employee Proﬁ t Sharing in Stock Expensed at Par Value) 3.79 3.50 4.92 4.56 Note 3: In addition, it is proposed to capitalize a portion of capital surplus in the amount of NT$774,890,640. Each common share holder will be entitled to receive 3 shares from such capitalization of capital surplus, and together with the 2 shares of stock dividend as mentioned above, 5 shares in total for each 1,000 shares owned. 8. Impact to 2007 Business Performance, EPS, and ROE Resulting from Stock Dividend Distribution: Not applicable. According to the Company’s Articles of Incorporation, TSMC shall allocate 9. Buyback of Treasury Stock: None. no more than 0.3 percent of income available for distribution (income after a regulatorily required deduction for prior years’ losses and contributions to legal and special reserves) as a bonus to directors and supervisors, and not less than one percent as a proﬁ t-sharing bonus to employees. 36 10. Issuance of Corporate Bonds 10.1 Corporate Bonds Issuance Issuing Date Denomination Offering Price Total Amount Coupon Rate Tenure Guarantor Trustee Underwriter Legal Counsel Auditor Repayment Outstanding Redemption or Early Repayment Clause Covenants Credit Rating As of 02/28/2007 Domestic Unsecured Bond (IV) 12/04/2000 - 12/15/2000 NT$ 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 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 Ofﬁ ce Yan-an International Law Ofﬁ ce TN Soong & Co Bullet NT$4,500,000,000 None Customary Covenants TN Soong & Co Bullet NT$12,500,000,000 None Customary Covenants twAAA (Taiwan Ratings Corporation, 06/07/2004) twAAA (Taiwan Ratings Corporation, 06/07/2004) Other Rights of Bondholders Conversion Right None Amount of Converted or Exchanged Common Shares, ADRs or Other Securities as of 02/28/2007 Not Applicable Dilution Effect and Other Adverse Effects on Existing Shareholders Custodian None None None Not Applicable None None 10.2 Convertible Bond: Not applicable. 10.3 Exchangeable Bond: Not applicable. 10.4 Shelf Registration: Not applicable. 10.5 Bond with Warrants: Not applicable. 11. Preferred Shares 11.1 Preferred Share: Not applicable. 11.2 Preferred Share with Warrants: Not applicable. 37 12. Issuance of American Depositary Shares Issuing Date 10/08/1997 11/20/1998 01/12/1999 - 01/14/1999 07/15/1999 NYSE NYSE NYSE NYSE Issuance & Listing Total Amount (US$) 08/23/1999 - 09/09/1999 NYSE 02/22/2000 - 03/08/2000 04/17/2000 NYSE 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$) 24.78 15.26 17.75 24.516 Units Issued Underlying Securities 24,000,000 12,094,000 2,000,000 12,094,000 TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders 28.964 5,486,000 57.79 6,560,000 56.16 4,000,000 TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders Common Shares Represented 120,000,000 60,470,000 10,000,000 60,470,000 27,430,000 32,800,000 20,000,000 Rights & Obligations of ADS Holders Trustee Depositary Bank Custodian Bank Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch ADSs Outstanding (Note1) 24,000,000 46,222,650 48,222,650 71,407,859 76,893,859 83,453,859 87,453,859 Apportionment of Expenses for the Issuance & Maintenance Terms & Conditions in the Deposit Agreement & Custody Agreement Closing Price Per ADS (US$) See Deposit Agreement and Custody Agreement for Details 2006 01/01/2007 - 02/28/2007 See Deposit Agreement and Custody Agreement for Details High Low Average High Low Average (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 11.18 7.95 9.48 11.55 10.62 11.06 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 891,254,093 ADSs. As of February 28, 2007, total number of outstanding ADSs was 889,740,439 after 1,513,654 ADSs were redeemed. Stock dividend distributed in 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2006 was 45%, 23%, 28%, 40%, 10%, 8%, 14.08668%, 4.99971% and 2.99903% 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. 38 06/07/2000 - 06/15/2000 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 08/10/2005 - 09/08/2005 NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE 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 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) See Deposit Agreement and Custody Agreement for Details (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 39 13. Status of Employee Stock Option Plan (ESOP) 13.1 Issuance of Employee Stock Options ESOP Granted Approval Date by the Securities & 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 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% 10,522,294 397,345,003 9,739,668 NT$53.0 NT$35.0 0.03771% 604,883 21,996,107 789,706 NT$51.0 NT$33.8 0.00306% 732,553 22,923,929 6,562,343 NT$41.6 NT$27.6 0.02541% Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited 13.2 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 Ofﬁ cer Senior Vice President Senior Vice President Senior Vice President Senior Vice President Name Morris Chang (Note 1) Rick Tsai (Note 1) Kenneth Kin (Note 1) Stephen T. Tso (Note 1) C.C. Wei (Note 1) Mark Liu (Note 1) Number of Options Granted (Note 2) % of Shares Exercisable to Outstanding Common Shares 3,732,224 0.01445％ Vice President & General Counsel Richard Thurston (Note 1) Vice President Jack Sun (Note 1) Note 1: TSMC granted options to certain of its ofﬁ cers (as listed above) as a result of their voluntary selection to exchange part of their proﬁ t sharing for stock options in 2003. This includes a voluntary exchange by Chairman Morris Chang in his capacity as Chief Executive Ofﬁ cer. Note 2: Number of Options Granted includes the additional shares due to stock dividend distributed in 2004, 2005 and 2006. 14. Status of New Share Issuance in Connection with Mergers and Acquisitions TSMC did not issue new shares in connection with mergers or acquisitions in 2006. 15. Financing Plans and Implementation TSMC raised NT$15 billion through a corporate bond issue in January 2002. Plans for use of the proceeds of this corporate bond were completed in the third quarter of 2006 and achieved the expected beneﬁ ts. 40 As of 12/31/2006 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% 6,891,895 282,084,192 17,404,431 NT$58.5 NT$38.8 0.06738% 161,281 8,556,257 498,528 NT$66.5 NT$52.3 0.00193% 0 0 15,012 NT$63.5 NT$49.9 0.00006% 2,516,371 115,097,837 8,017,230 NT$57.5 NT$45.1 0.03104% 44,008 1,747,121 87,486 NT$43.8 NT$39.7 0.00034% 0 0 9,699,414 NT$54.3 NT$49.2 0.03755% Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited Dilution to Shareholders' Equity is Limited Exercised Unexercised Shares Exercised Exercise Price Per Share Value of Shares Exercised (NT$) % of Shares Exercised to Outstanding Common Shares Shares Unexercised Adjusted Grant Price Per Share Value of Shares Unexercised (NT$) As of 12/31/2006 % of Shares Unexercised to Outstanding Common Shares 116,662 29.9 3,488,194 0.00045％ 3,615,562 27.6 99,789,511 0.01400％ 41 Risk Management effect on our ﬁ nancial condition. TSMC hedged its foreign exchange exposure resulting from its assets and liabilities mainly through currency 1. Environmental, Safety and Health (ESH) Risk, Emergencies, and Natural Disasters forward contracts. 3.3 Inﬂ ation TSMC is committed to maintaining a comprehensive risk management system dedicated to the conservation of natural resources, safety of people, and protection of property. In order to effectively handle emergencies and natural disasters at each facility, management has developed comprehensive plans and procedures that focus on loss prevention, emergency response, Inﬂ ation in Taiwan was approximately 0.6 percent in 2006. It did not have a signiﬁ cant impact on our operations and proﬁ ts. 4. Political and Regulatory Environment crisis management, and business recovery. TSMC has adopted international TSMC’s management team closely monitors political and regulatory standards for ESH management. All TSMC fabs (Fab 2, 3, 5, 6, 8, 12, and 14) have been ISO 14001 certiﬁ ed (Environmental Management System) and OHSAS 18001 certiﬁ ed (Occupational Health and Safety Management developments that could have a material impact on TSMC’s business and operations, and sets related risk management procedures. Political and regulatory developments did not have a material impact on TSMC during System). 2006. 2. Management of Financial Operations 2.1 Internal Policies and Procedures Regarding High-risk/High-leveraged Investment; Lending, Endorsements, and Guarantees for Other Parties; and Financial Derivative Transactions TSMC did not make high-risk or high-leveraged ﬁ nancial investments during 2006 and up to the date of this report. To control various types of ﬁ nancial transactions, the company has established internal policies and procedures based on sound ﬁ nancial and business practices, all in compliance with he relevant rules and regulations issued by the Taiwan Securities and Futures Bureau. TSMC policies and procedures include “Policies and Procedures for Financial Derivative Transactions”, “Procedures for Lending Funds to Other Parties”, “Procedures for Acquisition or Disposal of Assets”, and “Procedures for Endorsement and Guarantee”. The ﬁ nancial transactions of a “derivative” nature that TSMC enters into are strictly for hedging purposes and not for any trading or speculative purpose. 2.2 Covenants As of December 31, 2006, TSMC provided no guarantees for subsidiary’s ﬁ nancing. Since TSMC is also a NYSE-listed company, TSMC is required to comply with the provisions of the relevant U.S. regulations applicable to non-U.S. companies (including the Sarbanes-Oxley Act). TSMC has taken measures to monitor its compliance with applicable regulatory developments, and will continue to update itself on regulatory developments and implement changes in policies and procedures as necessary with a view to maintain compliance. 5. Contingent Plans for Events That May Have a Signiﬁ cant Adverse Impact on the Company’s Business and Image TSMC pays special attention to emergency preparedness for disasters such as typhoons, earthquakes, environmental contamination, large-scale product returns, disruption of IT systems, strikes, and disruptions to the supply of raw materials or water, electricity, gases, and public utilities. We have established contingency plans, which include the establishment of emergency task forces when necessary, the preparation of a thorough analysis of the emergency, its impact, alternatives, and solution for each possible scenario, and appropriate precautionary and/or recovery measures. Each task force is given the responsibility to ensure TSMC’s ability to conduct business while minimizing personal injuries, business disruption, and ﬁ nancial impact under the circumstances. For the year 2006 and up to the date of this Annual Report, there are no reportable material events that have 3. Internal Management of Economic Risk necessitated the activation of such contingency plans. 3.1 Interest Rate Fluctuation 6. Litigation Proceedings 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 ﬁ nances its funding needs through issuance of long-term, ﬁ xed-rate debt. On the asset side, the primary objective of our investments in ﬁ xed income securities is to preserve principal in highly liquid markets. In order to maintain our liquidity proﬁ le, the majority of ﬁ xed income securities are at the short end of the yield curve. 3.2 Foreign Exchange Volatility Over half of our capital expenditures and manufacturing costs are denominated in currencies other than NT dollars, primarily U.S. dollars, Japanese yen, and Euros. A larger portion of our sales is denominated in U.S. dollars and currencies other than NT dollars. Therefore, any signiﬁ cant ﬂ uctuation to our disadvantage in such exchange rates may have an adverse 42 To protect its intellectual property rights, trade secrets and other intellectual assets, TSMC may initiate, as appropriate, litigation against former employees or third parties. As is the case for most companies in the high- technology industry, TSMC receives from time to time notices from third parties alleging that TSMC's technologies, designs, and manufacturing processes may infringe patents or other intellectual property rights. TSMC takes these matters seriously, investigates all such claims, and takes appropriate action as the circumstances require. In August, TSMC, TSMC North America, and WaferTech ﬁ led a complaint with the Superior Court of the State of California in the County of Alameda against Semiconductor Manufacturing International Corporation (SMIC), SMIC (Shanghai), SMIC (Beijing) and SMIC Americas, alleging breach of a settlement agreement reached in 2005 and misappropriation of trade secrets. The suit seeks injunctive relief along with monetary damages. In September 2006, SMIC ﬁ led a cross-complaint against us in the same court 11. Potential Impact and Risks Associated with Sales of Signiﬁ cant Numbers of Shares by TSMC’s Directors, Supervisors, and Major Shareholders Who Own 10% or More of TSMC’s Total Outstanding Shares alleging breach of settlement agreement, implied covenant of good faith The value of TSMC shareholders' investment may be reduced by possible and fair dealing. SMIC also ﬁ led a civil action against us in November 2006 future sales of TSMC shares by the major shareholders. with the Beijing People’s High Court alleging defamation and breach of good faith. The matters are pending in both courts. The speciﬁ c outcome One or more of TSMC's existing shareholders may, from time to time, of the litigation matters cannot be determined at this time. Management dispose of signiﬁ cant numbers of their shares. For example, the National intends to vigorously protect its intellectual property rights to maintain Development Fund, one of TSMC's largest shareholders, has sold TSMC shareholder value. shares in form of ADSs in several transactions since 1997. In May 2005, Philips, another major shareholder of TSMC, reiterated its intention, ﬁ rst Other than the matter(s) provided above, TSMC was not involved in any announced in October 2003, to gradually and orderly reduce its equity other material litigation in 2006. interest in TSMC. 7. Potential Beneﬁ ts and Risks Associated with Mergers and Acquisitions TSMC usually work closely with the major shareholders to accomplish their contemplated disposals of TSMC shares in a way that would minimize the negative impact on the price of TSMC shares and other shareholders. In 2006, and as of the date of this Annual Report, TSMC did not consummate any merger and acquisition activities. 8. Potential Beneﬁ ts and Risks Associated with Capacity Expansion For example, on March 9, 2007, TSMC and Philips jointly announced a multi-phased plan to facilitate an orderly exit by Philips from its current shareholding in TSMC. Speciﬁ cally, the announced plan contemplates that Philips will divest its current TSMC shareholding through one or more block trades on the Taiwan Stock Exchange, a public offering of TSMC common shares in the form of ADS, and through participation in share buy-backs To meet customer demand, TSMC increased its annual production capacity conducted by TSMC in the period beginning in 2007 and ending in 2010. by approximately 1.1 million eight-inch equivalent wafers in 2006. The total average billing utilization rate for 2006 was 102%. As of the date of this Annual Report, the beneﬁ ts brought about by such capacity expansion have been in line with TSMC’s expectations. TSMC has established systems to evaluate and forecast market demand and refers to these forecasts and evaluations when expanding capacity. 9. Potential Risks Associated with Purchase or Sales Concentration TSMC procures raw materials from multiple sources whenever possible to ensure adequate supplies for volume production and to mitigate purchase concentration risk. However, we procure some of our raw materials from sole-source suppliers. TSMC evaluates the risk of supply disruptions from single-source suppliers and assists those suppliers in lowering production and transportation risk. TSMC also continues to look for additional sources for single-sourced materials. In 2005 and 2006, our 10 largest customers have accounted for 52 percent and 53 percent, respectively, of our net sales. In particular, our largest customer in 2006 accounted for 11 percent of our net sales in 2006. The fact that a relatively limited number of customers constitute a signiﬁ cant portion of our revenue may remain a business characteristic inherent to our extensive presence in the dedicated foundry segment of the semiconductor market. 10. Future R&D Plans and Expected R&D Spending For additional details, please refer to “R&D Organization and Investment” on page 22. 12. Potential Impact and Risks Associated with Change in Management or Governance Personnel In 2006, and as of the date of this Annual Report, there were no such risks for TSMC. 13. Other Material Risks During 2006 and as of the date of this Annual Report, TSMC’s management has not become aware of any other risk event with a material impact on the ﬁ nancial status of the company. 43 Important Contracts Technology Cooperation Agreement Technology Cooperation Agreement Term of Agreement: 2004 - 2008 Contracting Party: Term of Agreement: 03/30/1999 - 03/29/2009 Contracting Party: Koninklijke Philips Electronics N.V. (Philips) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) (In September 2006, Philips assigned its rights and obligations under this Summary: agreement to Philips Semiconductors International B.V. which was renamed TSMC agreed to transfer certain of its process technologies to SSMC, and as NXP B.V. Philips is no longer the contracting party of this agreement.) SSMC agreed to pay TSMC a certain percentage of the net selling price of Summary: SSMC products. TSMC is obliged to pay to Philips (now NXP B.V.) ﬁ xed amounts of licensing fees for third party patent cross licenses obtained through Philips (now NXP B.V.). TSMC and Philips (now NXP B.V.) have agreed to cross license the patents owned by each party. Manufacturing Agreement Term of Agreement: 02/16/1996 - 12/31/2005, automatically renewed for one year terms, unless terminated with a six-month prior written notice by TSMC Contracting Party: WaferTech, LLC (WaferTech) Summary: TSMC has the right to purchase the entire installed capacity of WaferTech during the production period. Shareholders Agreement Term of Agreement: Effective as of 03/30/1999 and may be terminated as provided in the agreement Contracting Parties: Koninklijke Philips Electronics N.V. (Philips) and EDB Investments Pte Ltd. (EDBI) (In September 2006, Philips assigned its rights and obligations under this Sale and Purchase Agreement Term of Agreement: Effective on 11/15/2006 Contracting Parties: EDB Investments Pte Ltd. (EDBI), NXP B.V., TSMC Summary: EDBI agreed to sell its all shares in SSMC to TSMC and NXP B.V. on November 15, 2007. Patent License Agreement Term of Agreement: 10/26/2001 - 12/31/2006 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Foundry Related Agreements Term of Agreement: 1995 - 2006 agreement to Philips Semiconductors International B.V. which was renamed Contracting Parties: as NXP B.V. In November 2006, NXP B.V. and TSMC purchased all SSMC Several multinational companies shares EDBI owned; EDBI is no longer contracting party of this agreement.) Summary: Summary: TSMC guarantees a pre-determined capacity for a set number of years to TSMC, Philips and EDBI agreed to form a joint venture "Systems on Silicon customers. In return, customers deposit a certain amount of money with Manufacturing Company Pte Ltd." (SSMC) to build an IC foundry in TSMC. Singapore. Philips (now NXP B.V.) and TSMC are committed to purchasing a certain percentage of SSMC's capacity. 44 Manufacturing Agreement Term of Agreement: The Second Amendment to the Amended and Restated Joint Technology Cooperation Agreement 04/01/2004 - 03/31/2006, automatically renewable for successive one year Term of Agreement: terms until both parties decide otherwise by mutual consent in writing Contracting Party: 07/16/2001 - 12/31/2008 Contracting Parties: Vanguard International Semiconductor Corporation (VIS) STMicroelectronics N.V., Philips Semiconductors International B.V. (now NXP Summary: B.V.), Freescale Semiconductor, Inc. VIS reserves certain capacity to manufacture certain TSMC products at terms Summary: 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. The parties entered into a joint technology cooperation arrangement for the development of certain high-performance and advanced semiconductor technologies. Patent License Agreement Term of Agreement: 11/01/2002 - 10/31/2012 Contracting Party: A multinational company Summary: Technology Development and License Agreement Term of Agreement: 12/04/2003 - 12/03/2007 Contracting Party: Freescale Semiconductor, Inc. The parties entered into cross license arrangements for certain Summary: semiconductor patents. TSMC pays licensing fees to the said company. The parties agreed jointly to develop certain advanced SOI process technologies and to cross license related intellectual property rights. Patent License Agreement Term of Agreement: 07/01/2002 - 06/30/2009 Contracting Party: A multinational company Summary: Settlement Agreement Term of Agreement: 01/30/2005 - 12/31/2010 Contracting Party: Semiconductor Manufacturing International Corp. (SMIC) and certain of its The parties entered into cross licensing arrangements for certain semiconductor patents. TSMC pays license fees to the said company. subsidiaries Summary: 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 The parties settled their patent infringement and trade secret misappropriation disputes, wherein SMIC agrees to pay TSMC US$175 million over six years. Patent License Agreement Term of Agreement: 2005 - End of patent terms Contracting Party: semiconductor patents. TSMC pays license fees to the said company. Industrial Technology Research Institute (ITRI) Summary: The parties entered into an exclusive license arrangement for certain semiconductor-related patents, wherein TSMC pays license fees to ITRI for such license rights. 45 Corpor ate Governance TSMC holds itself to the highest standards of integrity and fairness, and we measure our transparency and disclosure against the best companies in the world. Maintaining the highest standards of corporate governance has been integral to TSMC’s core values since its founding. 46 TSMC advocates and acts upon the principles of operational transparency and respect for shareholder rights. We believe that the basis for successful corporate governance is a sound and effective Board of Directors. In line with this principle, TSMC's Board of Directors established an Audit Committee in 2002 and a Compensation Committee in 2003. TSMC was recognized for its corporate governance in 2006 with the Best Corporate Governance Award for the Hong Kong and Taiwan Regions from IR Magazine and the Best Corporate Governance Award from FinanceAsia for the Taiwan region. 1. Board of Directors We believe that the cornerstone for successful corporate governance is a sound and effective Board of Directors. TSMC’s Board of Directors consists of eight (Note) distinguished members with a great breadth of experience as world-class business leaders or scholars. Four of the eight members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter Bonfield; Massachusetts Institute of Technology, Professor Lester Thurow; former Acer Group Chairman, Mr. Stan Shih; and former Hewlett-Packard Chairman and CEO, Ms. Carly Fiorina. Ms. Fiorina was elected to the Board of Directors in May 2006, adding her wealth of experience in leading world-class companies and raising the number of independent directors to four from three. The Board’s primary duty is to oversee the overall business and corporate affairs of TSMC. Day-to-day operations, preparation of financial statements, fund raising, and investments remain the responsibility of the company’s management. 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 United States, and changes to New York Stock Exchange and Taiwan Stock Exchange listing requirements. Note: Mr. J.C. Lobbezoo, the representative of Koninklijke Philips Electronics N.V., resigned from the Board on March 9, 2007. 1.1 Audit Committee The Audit Committee assists the Board in carrying out its financial oversight responsibilities, which include reviewing the company’s financial reports, the company’s auditing and accounting policies and procedures, and internal control systems. TSMC’s Audit Committee is empowered to conduct any study or investigation it deems appropriate to fulfill its responsibilities. It has direct access to TSMC’s internal auditors, the company’s independent external auditors, and all employees of the company. The committee is authorized to retain and oversee special legal, accounting, or other consultants as it deems appropriate to fulfill its mandate. As of March 2007, the Audit Committee comprised of all four independent directors and had engaged a financial expert consultant. Sir Peter Bonfield was the Chairman of the Audit Committee, who convened four regular meetings and four special meetings in 2006. In accordance with Taiwan's Securities and Exchange Law, TSMC's 2006 Shareholders' Meeting approved the amendments to the Articles of Incorporation to eliminate the Supervisors, and the expiration of tenure for TSMC's Supervisors on December 31, 2006. Beginning on January 1, 2007, the Audit Committee is responsible for the duties of the Supervisors specified under Taiwan's Company Law, Securities and Exchange Law, and other relevant regulations. Audit Committee Meeting Status The Audit Committee consists of all of the independent directors of the Company. Four regular meetings and four special meetings were convened in 2006. The committee members’ attendance status is as follows: Title Chair Member Member Member Annotation: None Name Sir Peter Leahy Bonfield Lester Carl Thurow Stan Shih Carleton (Carly) S. Fiorina 1.2 Compensation Committee Attendance in Person By Proxy Attendance Rate (%) Notes 8 5 8 3 - - - - 100％ Renewal of office (Re-elected on May 16) 63％ Renewal of office (Re-elected on May 16) 100％ Renewal of office (Re-elected on May 16) 75％ New office assumed (Elected on May 16) The Compensation Committee assists the Board in discharging its responsibilities related to the compensation and benefits policies, plans and programs of TSMC, and in the evaluation and compensation of TSMC’s executives. As of March 2007, the Compensation Committee comprised of five members. All four independent directors served as voting members of the committee and the Chairman of the Board, Dr. Morris Chang, was a non-voting member. Mr. Stan Shih was the Chairman of the Compensation Committee, who convened four regular meetings in 2006. 47 2. Board Members 2.1 Information Regarding Board Members Title Name Chairman Morris Chang Vice Chairman F.C. Tseng Koninklijke Philips Electronics N.V. Representative: (Note 1, 3, 4, 5) Director J.C. Lobbezoo National Development Fund, Executive Yuan Representative: (Note 2, 4, 5) Director Chintay Shih Director Rick Tsai Independent Director Lester Carl Thurow Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina Date Elected Term Expires Date First Elected Shareholding When Elected Current Shareholding Spouse & Minor Shareholding Shares % Shares % 05/16/2006 05/15/2009 12/10/1986 112,677,772 0.46% 116,057,019 0.45% Shares 120,826 % 0.00% 05/16/2006 05/15/2009 05/13/1997 39,010,891 0.16% 38,204,647 0.15% 130,878 0.00% 05/16/2006 05/15/2009 12/10/1986 4,066,046,793 16.44% 4,187,989,024 16.21% - - 05/16/2006 05/15/2009 12/10/1986 1,581,649,966 6.39% 1,629,084,227 6.31% 153,907 0.00% 05/16/2006 05/15/2009 06/03/2003 25,466,795 0.10% 27,813,033 0.11% Independent Director Sir Peter Leahy Bonﬁ eld 05/16/2006 05/15/2009 05/07/2002 05/16/2006 05/15/2009 05/07/2002 - - - - - - - - - - - - - - 05/16/2006 05/15/2009 04/14/2000 1,415,785 0.01% 1,458,244 0.01% 15,877 0.00% 05/16/2006 05/15/2009 05/16/2006 - - - - - - No member of the Board of Directors held TSMC shares by nominee arrangement. No member of the Board of Directors had a spouse or relative within two degrees of consanguinity serving as a manager at TSMC. Note 1: The tenure of Mr. Michel Besseau, our former Supervisor (representative of Koninklijke Philips Electronics N.V.), expired on May 16, 2006. Note 2: The tenure of Mr. James C. Ho (representative of National Development Fund, Executive Yuan) and Dr. Michael E. Porter, our former Supervisors, expired on December 31, 2006. Starting from January 1, 2007, the Audit Committee took over the duties of Supervisors speciﬁ ed under the relevant laws and regulations. Note 3: Koninklijke Philips Electronics N.V. (representative, Mr. J.C. Lobbezoo) resigned from TSMC's Board on March 9, 2007 and sold approximately 887 million TSMC shares to long-term ﬁ nancial investors in Taiwan on March 12, 2007. Note 4: Information on Directors that are Representatives of Juridical Person Shareholders Directors/That are Representatives of Juridical Person Shareholders Juridical Person Shareholders Top 10 Shareholders of Juridical Person Shareholders, or Shareholders Owning More than 10% of Juridical Person Shareholders Director: J.C. Lobbezoo Koninklijke Philips Electronics N.V. Top 10 Shareholders: Not Available Shareholders Owned More than 10% Shares: None Director: Chintay Shih National Development Fund, Executive Yuan Not Applicable Note 5: Major shareholders of Juridical Person Shareholders as stated in note 4: Not Applicable. 48 As of 02/28/2007 Education & Selected Positions Selected Positions in TSMC & Other Companies ● Ph.D., Electrical Engineering, Stanford University, USA ● Chairman, Industrial Technology Research Institute ● Senior Vice-President for Texas Instrument ● CEO, TSMC None ● President & COO, General Instrument Corporation ● Supervisor, Industrial Technology Research Institute ● Ph.D., Electrical Engineering, National Chengkung University, Taiwan ● President, Vanguard International Semiconductor Corp. ● President, TSMC ● Deputy CEO, TSMC ● Chairman, TSMC (Shanghai) Company Ltd. ● Chairman, Global Unichip Corp. ● Director, Prosperity Venture Capital Corp. ● Director, digimax, Inc. ● Director, Allegro Manufacturing Pte, Ltd. ● Master Degree, Business Economics, Erasmus ● Chairman, Systems on Silicon Manufacturing ● Executive Vice President, Philips International B.V. University, the Netherlands ● CFO, Philips Semiconductors B.V. Company Pte Ltd. ● Director, FEI Company ● Ph.D., Electrical Engineering, Princeton University, USA ● President, Industrial Technology Research Institute ● Professor and Dean, College of Technology Management, National Tsinghua University ● Director, Industrial Technology Investment Corporation ● Director of Vanguard International Semiconductor Corp. ● Managing Director and Special Advisor, Industrial Technology Research Institute ● Ph.D., Material Science, Cornell University, USA ● Executive Vice President, Worldwide Marketing and ● President, Vanguard International Semiconductor Corp. ● President & CEO, TSMC ● Director, TSMC subsidiary companies ● Director, MIT Corporation Board of Trustees ● Non Executive Director, Department of Constitutional ● Senior Non-Executive Director, AstraZeneca Group Plc, ● Member of the Sony Corporation Advisory Board Affairs London ● Director, L.M. Ericsson ● Director, Mentor Graphics Corporation Inc. ● Member of the Citigroup International Advisory Board ● Director, Sony Corporation (Japan) ● Non Executive Member of Actis LLP Supervisory Board ● Chairman of Supervisory Board, NXP B.V. ● Non Executive Director, Dubai International Capital ● Ph.D., Economics, Harvard University, USA ● Jerome and Dorothy Lemelson Professor of ● Director, Analog Devices Inc. ● Dean, Sloan School of Management, M.I.T. Management and Economics, Sloan School of Management, M.I.T. ● Honorary Doctor of International Law, Thunderbird, ● Honorary EE Ph.D., MSEE, BSEE, National Chiaotung University, Taiwan ● Co-Founder, Chairman Emeritus of the Acer Group ● Group Chairman, iD SoftCapital ● Director, ABW (Acer, BenQ, Wistron) Family ● Director, Nan Shan Life Insurance Company, Ltd. Sales, TSMC ● COO, TSMC ● Bachelor Degree in Engineering, Loughborough University of Technology, UK ● CEO and Chairman of the Executive Committee, British Telecommunications Plc ● Vice President, the British Quality Foundation 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 ● Master Degree in Business Administration, Robert H. Smith School of Business, University of Maryland at College Park, Md. ● Master Degree, Science, MIT's Sloan School ● Bachelor Degree in Medieval History and Philosophy, Stanford University, USA ● Senior Management, AT&T and Lucent Technologies ● Chairman and Chief Executive Ofﬁ cer, Hewlett- ● Director, CyberTrust, Inc. Packard ● Director, Revolution Healthcare Group ● Director, MIT Corporation Board of Trustees 49 2.2 Remuneration Paid to Directors and Supervisors Remuneration Paid to Directors (Supervisors) Salary (A) Compensation (B) (Note 3) Allowance (C) (Note 4) Directors (Supervisors) Salary, Compensation, and Allowance (A+B+C) as % 2006 Net Income Salary, Bonus..etc. (D) TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC 25,294 25,294 285,800 285,800 2,650 2,650 0.25％ 0.25％ 8,922 8,922 Unit: NT$ thousands Title / Name Chairman Morris Chang Vice Chairman F.C. Tseng Koninklijke Philips Electronics N.V. Representatives: Director J.C. Lobbezoo Supervisor Michel Besseau (Note 1) National Development Fund, Executive Yuan Representatives: Director Chintay Shih Supervisor James. C. Ho Director Rick Tsai Independent Director Sir Peter Leahy Bonﬁ eld Independent Director Lester Carl Thurow Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 2) Supervisor Michael E. Porter Note 1: The tenure of Mr. Michel Besseau, our former Supervisors (representative of Koninklijke Philips Electronics N.V.), expired on May 16, 2006. Note 2: Ms. Carly Fiorina was elected to the Board of Directors on May 16, 2006 Note 3: The Board adopted a proposal for 2006 compensation to TSMC’s directors and supervisors in the amount of NT$285,800 thousand at its meeting on February 6, 2007. The proposed compensation will be effected upon the approval of shareholders at the Annual Shareholder Meeting in May 2007. Note 4: Includes allowances for company cars. Compensation paid to company drivers totalled NT$4,868 thousand. Note 5: Directors and supervisors' compensation disclosed in the 2005 annual report was NT$282,867 thousand, accounting for 0.3 percent of 2005 net income. Remuneration Paid to Directors and Supervisors Directors and Supervisors Year 2006 Total Compensation Paid to Directors and Supervisors as % 2006 Net Income (A+B+C) Total Compensation Paid to Directors and Supervisors as % 2006 Net Income (A+B+C+D+E) TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC 1 0 1 0 6 4 0 0 12 1 0 1 0 6 4 0 0 12 0 0 1 0 6 4 0 1 12 0 0 1 0 6 4 0 1 12 Under NT$ 2,000,000 NT$2,000,000 〜 NT$5,000,000 NT$5,000,000 〜 NT$10,000,000 NT$10,000,000 〜 NT$15,000,000 NT$15,000,000 〜 NT$30,000,000 NT$30,000,000 〜 NT$50,000,000 NT$50,000,000 〜 NT$100,000,000 Over NT$100,000,000 Total 50 Compensation Earned as Employee of TSMC or of TSMC Subsidiary Afﬁ liates Employee Proﬁ t Sharing (E) ESOP (F) Total Compensation Paid to Directors (Supervisors) (A+B+C+D+E) as % 2006 Net Income (Note 5) TSMC Consolidated Subsidiaries of TSMC Cash Stock Cash Stock TSMC Consolidated Subsidiaries of TSMC TSMC Consolidated Subsidiaries of TSMC Other Compensation from Non- Subsidiary Afﬁ liates 44,000 297,000 44,000 297,000 1,576 1,576 0.52％ 0.52％ None 51 2.3 Net Change in Shareholding and Net Change in Shares Pledged by Directors and Supervisors For a summary of net changes in shareholding and shares pledged by Directors and Supervisors, please refer to "Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management, and Shareholders with 10% Shareholding or More" on page 15. 3. Directors and Supervisors' Professional Qualiﬁ cations and Independence Analysis According to the relevant requirements set by Taiwan's Securities and Futures Bureau, the professional qualiﬁ cations and independence status of the Company's Board members are listed in the table below. Information Regarding Directors and Supervisors Meet One of the Following Professional Qualiﬁ cation Requirements, Together with at Least Five Years Work Experience Criteria (Note) Have Work Experience in the Area of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certiﬁ ed Public Accountant, or Other Professional or Technical Specialists Who Has Passed a National Examination and Been Awarded a Certiﬁ cate in a Profession Necessary for the Business of the Company 1 2 3 4 5 6 7 8 9 10 Selected Current Positions/Number of Other Public Companies Concurrently Serving as an Independent Director ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 0 0 0 0 0 0 0 0 0 0 ˇ ˇ ˇ ˇ Name / Criteria Chairman Morris Chang Vice Chairman F.C. Tseng Director J.C. Lobbezoo Director Chintay Shih Director Rick Tsai Independent Director Sir Peter Leahy Bonﬁ eld Independent Director Lester Carl Thurow Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina Supervisor James C. Ho Supervisor Michael E. Porter Note: Directors or Supervisors, during the two years before being elected or during the term of ofﬁ ce, have been or be any of the following, please tick the appropriate corresponding boxes: 1. Not an employee of the company or any of its afﬁ liates; 2. Not a director or supervisor of the company or any of its afﬁ liates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50％ of the voting shares; 3. Not a natural-person shareholder who holds shares, together with those held by the person's spouse, minor children, or held by the person under others' names, in an aggregate amount of 1％ or more of the total number of issued shares of the company or ranking in the top 10 in holdings; 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the ﬁ fth degree of kinship, of any of the persons in the preceding three subparagraphs; 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5％ or more of the total number of issued shares of the company or that holds shares ranking in the top ﬁ ve in holdings; 6. Not a director, supervisor, ofﬁ cer, or shareholder holding 5％ or more of the shares, of a speciﬁ ed company or institution that has a ﬁ nancial or business relationship with the company; 7. Not a professional individual who, or an owner, partner, director, supervisor, or ofﬁ cer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, ﬁ nancial, accounting services or consultation to the company or to any afﬁ liate of the company, or a spouse thereof; 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company; 9. Not been a person of any conditions deﬁ ned in Article 30 of the Company Law; and 10. Not a governmental, juridical person or its representative as deﬁ ned in Article 27 of the Company Law. 52 4. Major Decisions of Shareholder Meeting and Board Meetings 4.1 Review of Shareholder Meeting TSMC’s 2006 regular Shareholder Meeting was held at the auditorium of the Activity Center of the Hsinchu Science Park on May 16, 2006. At the meeting, shareholders present in person or by proxy approved the following resolutions: (1) Acceptance of the 2005 business report and ﬁ nancial statements; (2) Distribution of 2005 proﬁ ts; (3) Amendments to the Articles of Incorporation; (4) Election of the 10th Board of Directors and Supervisors. 4.2 Review of Board Meetings During the 2006 calendar year, through the period from January 1 to February 28, 2007, ﬁ ve regular meetings and one special meeting were convened. Major resolutions passed at these meetings are summarized below: (1) The 2005 business report and ﬁ nancial statements; (2) Distribution of 2005 proﬁ ts and capitalization of capital surplus; (3) Convening the 2006 Annual Shareholder Meeting; (4) 2006 R&D projects and sustaining capital appropriation; (5) Election of Dr. Morris Chang as Chairman and Dr. F.C. Tseng as Vice Chairman of TSMC; (6) Capital injection into a TSMC wholly-owned foreign subsidiary for the purpose of holding TSMC’s ﬁ xed income investment portfolio and reducing foreign exchange hedging costs; (7) Promotion of Dr. Jack Sun and the appointment of Dr. Fu-Chieh Hsu as Vice Presidents of TSMC; (8) Appointment of Sir Peter L. Bonﬁ eld, Professor Lester Thurow, Mr. Stan Shih and Ms. Carly Fiorina as members of the Audit Committee, and designated Sir Peter L. Bonﬁ eld as the Chairman of the Committee; (9) The 2006 semi-annual ﬁ nancial statement; (10) Increase of investment in VisEra Technologies; (11) Purchase of additional 6.8% of shares in Systems on Silicon Manufacturing Company; (12) The 2006 business report and ﬁ nancial statements; (13) Distribution of 2006 proﬁ ts and capitalization of capital surplus; (14) Convening the 2007 Annual Shareholder Meeting; (15) 2007 R&D projects and sustaining capital appropriation. 4.3 Board of Directors Meeting Status Four regular meetings and one special meeting were convened in 2006. The directors and supervisors’ attendance status is as follows: Title Chairman Name Morris Chang Vice Chairman F.C. Tseng Director Director Director Director Koninklijke Philips Electronics N.V. Representative: J.C. Lobbezoo Koninklijke Philips Electronics N.V. Representative: Mario Alberto Rivas National Development Fund, Executive Yuan Representative: Chintay Shih Rick Tsai Independent Director Sir Peter Leahy Bonﬁ eld Independent Director Lester Carl Thurow Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina Supervisor National Development Fund, Executive Yuan Representative: James C. Ho Supervisor Michael E. Porter* Annotation(cid:237) I. Recusals of Directors due to conﬂ icts of interests: 1. Name of Director: Sir Peter Leahy Bonﬁ eld Attendance in Person By Proxy Attendance Rate (%) Notes 5 5 4 - 5 5 3 3 5 1 4 1 0 0 1 - 0 0 2 2 0 2 - - 100% Renewal of ofﬁ ce (Re-elected on May 16) 100% Renewal of ofﬁ ce (Re-elected on May 16) 80% Renewal of ofﬁ ce (Re-elected on May 16) - Resigned in January 2006 100% Renewal of ofﬁ ce (Re-elected on May 16) 100% Renewal of ofﬁ ce (Re-elected on May 16) 60% 60% Renewal of ofﬁ ce (Re-elected on May 16) Renewal of ofﬁ ce (Re-elected on May 16) 100% Renewal of ofﬁ ce (Re-elected on May 16) 33% New ofﬁ ce assumed (Elected on May 16) 80% Renewal of ofﬁ ce (Re-elected on May 16) 20% Renewal of ofﬁ ce (Re-elected on May 16) Resolution: To approve amendment to TSMC’s “Rules for Distribution of Compensation to Directors and Supervisors” Reason for the conﬂ ict of interests and voting status: As the resolution primarily intends to adjust the compensation for overseas independent directors. Since Sir Peter Bonﬁ eld is an overseas independent director, he recused himself from the discussion and voting. (Note: Another overseas independent director, Lester Carl Thurow, did not attend the meeting in person) 2. Name of Director: Sir Peter Leahy Bonﬁ eld Resolution: To approve the purchase of an additional 6.8% of SSMC shares from NXP Semiconductors Reason for the conﬂ ict of interests and voting status: Since Sir Peter Bonﬁ eld is the Chairman of Supervisory Board of NXP Semiconductors, he recused himself from the discussion and voting. II. The Audit Committee comprised of all independent directors. Starting from January 1, 2007, the Audit Committee took over the duties of Supervisors speciﬁ ed under the relevant laws and regulations, and the Supervisors were terminated as of December 31, 2006. * Supervisor Michael E. Porter met regularly with the Company's management team in Taiwan. The management also reported to him periodically in the U.S. on the Company's business operations and ﬁ nancial statements, and sought his advice on the Company's business strategy from time to time. 4.4 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors from January 1, 2006 to February 28, 2007: None. 53 5. Taiwan Corporate Governance Implementation as Required by Taiwan Financial Supervisory Commission Item Implementation Status 1. Shareholding Structure & Shareholders’ Rights (1) The way of handling shareholder suggestions or disputes TSMC has designated relevant departments, such as Investor Relations, Public Relations, Legal, etc., to handle shareholder's suggestions or disputes. (2) The Company’s possession of major shareholder’s list and the list of ultimate owners of these major shareholders TSMC tracks the shareholdings of directors, supervisors, ofﬁ cers, and shareholders holding more than 10% of the outstanding shares of TSMC. (3) Risk Management Mechanism and Fire Wall between the TSMC has established relevant guidelines in its "Internal Control System" policy and procedures. Reason for Non-Implementation None Company and its afﬁ liates 2. Composition and Responsibilities of the Board of Directors (1) Independent Directors Sir Peter Leahy Bonﬁ eld, Prof. Lester Carl Thurow, Mr. Stan Shih and Ms. Carly S. Fiorna 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 (1) Independent Supervisor(s) Prof. Michael E. Porter was an independent supervisor of TSMC. (2) Communication channel with employees or shareholders The employees and managers of relevant departments regularly report and present Company information to the Independent Supervisor; all Supervisors have access to Company employees or managers for information they need. 4. Communication channel with stakeholders TSMC designates relevant departments to communicate with stakeholders on a case by case basis. Note: The Audit Committee took over the duties of Supervisors starting from January 1, 2007. The Supervisors were terminated as of December 31, 2006. None None None None 5. Information Disclosure (1) Establishment of corporate website to disclose information regarding the Company’s ﬁ nancials, 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) 6. Operations of the Company’s nomination committee, Compensation Committee, or other committees of the Board of Directors TSMC discloses information through its website http://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 signiﬁ cant ways in which its corporate governance practices differ from those followed by US domestic companies under NYSE listing standards. You may ﬁ nd such disclosure information 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. TSMC's Board of Directors has established an Audit Committee and a Compensation Committee. Please refer to “Corporate Governance” section on page 46-55 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 the section titled “Corporate Governance” on pages 46-55 of this Annual Report. 8. Please describe the company’s corporate social responsibility (such as human rights, employee rights, employee wellness, community participation, social contribution, community service, investor relations, supplier relations and rights of shareholders) policy and implementation. For the status of TSMC’s corporate social responsibility, please refer to the section titled “Corporate Social Responsibility” on pages 56-59 of this Annual Report. 9. Other important information to facilitate better understanding of the Company's corporate governance practices (e.g. directors' and supervisors' training records, the implementation of risk management policies and risk evaluation measures, the implementation of consumers/customers protection policies, and purchasing insurance for directors and supervisors.): (1) From time to time, TSMC provides directors and supervisors information concerning regulatory requirements and developments as related to directors' and supervisors' activities. TSMC management also regularly present Company's business and other information to directors and supervisors. TSMC's independent director, Sir Peter Leahy Bonﬁ eld, has completed an Institutional Shareholder Services (ISS)-accredited board education program and a certiﬁ cation by ISS has been received. (2) TSMC conducts risk management and risk evaluation pursuant to the internal policies established in accordance with relevant laws and regulations, and has employed a professional consulting company in August 2006 to assist TSMC in operation related risk evaluation and execution of improvement plans. (3) TSMC maintains D&O Insurance for its directors, supervisors, and ofﬁ cers. 10. If the Company has a self corporate governance evaluation or has authorized any other professional organization to conduct such an evaluation, the evaluation results, major deﬁ ciency or suggestion, and improvement are stated as follows: The Company participated in 2006 "CG6002 Corporate Governance Compliance Evaluation" performed by the Corporate Governance Association in Taiwan, and has been granted by the same Association a "CG6002 Corporate Governance Compliance Evaluation Validation Certiﬁ cate". 54 6. Status of Personnel Responsible for Preparing Financial Reports No personnel responsible for preparing ﬁ nancial reports resigned or were dismissed in 2006. 7. Information Regarding TSMC’s Independent Auditor Audit Fees: Not applicable. Non-audit fees paid to TSMC’s independent audit ﬁ rm and its afﬁ liates did not exceed 25 percent of the audit fees paid in 2006. The 2006 audit fees paid to TSMC’s independent auditor were not reduced by more than 15 percent compared with 2005. TSMC did not replace its independent auditor during 2005, 2006, and as of February 28, 2007. TSMC’s Chairman, Chief Executive Ofﬁ cer, Chief Financial Ofﬁ cer, and managers in charge of its ﬁ nance and accounting operations did not hold any positions within TSMC’s independent audit ﬁ rm or its afﬁ liates during 2006. 8. Internal Control System Execution Status Date: February 6, 2007 Statement of Internal Control System Based on the ﬁ ndings of a self-assessment, Taiwan Semiconductor Manufacturing 5. Based on the ﬁ ndings of the evaluation mentioned in the preceding paragraph, Company Limited (TSMC) states the following with regard to its internal control system TSMC believes that, during the year 2006, its internal control system (including during the period from January 1, 2006 to December 31, 2006: its supervision and management of subsidiaries), as well as its internal controls 1. TSMC is fully aware that establishing, operating, and maintaining an internal to monitor the achievement of its objectives concerning operational effectiveness and efﬁ ciency, reliability of ﬁ nancial reporting, and compliance with applicable control system are the responsibility of its Board of Directors and management. laws and regulations, were effective in design and operation, and reasonably TSMC has established such a system aimed at providing reasonable assurance assured the achievement of the above-stated objectives. regarding the achievement of objectives in the following categories: (1) effectiveness and efﬁ ciency of operations (including proﬁ tability, performance, 6. This Statement will be an integral part of TSMC's Annual Report for the year and safeguarding of assets), (2) reliability of ﬁ nancial reporting, and (3) 2006 and Prospectus, and will be made public. Any falsehood, concealment, or compliance with applicable laws and regulations. other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law. 2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable 7. This Statement has been passed by the Board of Directors in their meeting assurance of accomplishing the three objectives mentioned above. Moreover, held on February 6, 2007, with zero of the nine attending directors expressing the effectiveness of an internal control system may be subject to changes of dissenting opinions, and the remainder all afﬁ rming the content of this environment or circumstances. Nevertheless, the internal control system of Statement. TSMC contains self-monitoring mechanisms, and TSMC takes corrective actions whenever a deﬁ ciency is identiﬁ ed. Taiwan Semiconductor Manufacturing Company Limited 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 ﬁ ve components of internal control based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Each component further contains several items. Please refer to the Regulations for details. 4. TSMC has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria. Morris Chang Chairman of the Board of Directors Rick Tsai President and CEO The Securities and Futures Bureau did not request TSMC to commission an independent auditor to audit its internal control system in 2006. 55 TSMC’s core value of commitment extends to all aspects of its business, including commitment to the welfare of employees, society, and the environment. TSMC was honored with Globalviews Magazine’s highest award for Corporate Social Responsibility in 2006. 56 1. Environmental, Safety, and Health Management Air and Water Pollution Control TSMC believes its environmental, safety, and health practices should not only comply with legal requirements, but also measure up to recognized international practices. The company aims to prevent pollution, efﬁ ciently use all resources, prevent accidents, improve employee safety and health, protect property, and establish a work environment that promotes the well- being of our employees and the communities in which we operate. All TSMC manufacturing facilities have received ISO 140001 certiﬁ cation for environmental management systems and OHSAS 180001 certiﬁ cation for occupational health and safety management systems. TSMC strives for continuous improvement and actively seeks to enhance pollution prevention, power and resource conservation, waste reduction, health and safety management, ﬁ re and explosion prevention and other risks such as earthquakes in order to reduce environmental, health, and safety risk. In 2006, TSMC began to adopt the IECQ QC080000 Hazardous Substance Process Management (HSPM) System in order to meet customer needs for management of hazardous materials and to meet the European Union’s Restriction of Hazardous Substance (RoHS) directive. TSMC expects all manufacturing facilities will meet QC080000 requirements in 2007. 1.1 Environmental Protection Inventory of Greenhouse Gases and Emission Reduction TSMC is committed to environmental protection and actively participates in international environmental protection programs. In 2005, TSMC was Taiwan’s ﬁ rst semiconductor company to make a complete inventory of its greenhouse gases and to gain ISO14064 certiﬁ cation for its procedure and results. The purpose of the inventory was to serve as a reference for TSMC’s strategy to reduce greenhouse gases, to meet future domestic regulatory requirements, and to prepare for carbon trading and corporate carbon asset management. TSMC is also taking measures to reduce emission of greenhouse gases, particularly perﬂ uorinated compounds (PFCs), the chief greenhouse gas emissions produced in the semiconductor manufacturing process. TSMC has endorsed a memorandum of understanding between the Taiwan Semiconductor Industry Association, the R.O.C. Environmental Protection Administration, and the World Semiconductor Council, whereby TSMC is committed to reducing PFC emissions to 10 percent below the average of 1997 and 1999 by 2010. This emissions target remains ﬁ xed as TSMC continues to grow and expand its manufacturing facilities, and we are taking the following measures to reduce emissions in line with recommendations provided by the Intergovernmental Panel on Climate Change (IPCC): ● Accurate measurement of PFC gas production and the effectiveness of exhaust gas abatement equipment in order to calculate actual PFC emission volumes ● Evaluation of feasible alternatives to greenhouse gases and gradually replacing greenhouse gases at all manufacturing facilities ● Evaluation of the effectiveness and safety of PFC exhaust gas abatement equipment and progressive installation and use of such equipment TSMC has installed effective air and water pollution control equipment in each wafer fab to meet regulatory emissions standards. In addition, TSMC maintains backup pollution control systems, including emergency power supplies, to lower the risk of pollutant emission in the event of equipment breakdown. TSMC monitors the operations of air and water pollution control equipment centrally around the clock and tracks system effectiveness to ensure emitted air and discharged water quality. Water Conservation To effectively use Taiwan’s limited water resources, all TSMC fabs make an effort to increase water reclamation rates by adjusting the water usage of manufacturing equipment and improving wastewater reclamation systems. New fabs are able to reclaim 85 percent of process water, meeting or exceeding the standards of the Science Park Administration and outperforming most semiconductor fabs around the world. TSMC also strives to reduce non-manufacturing related water consumption including water used in air conditioning systems, sanitary facilities, cleaning, landscaping and kitchens. Waste Management and Recycling TSMC has established a designated unit responsible for waste recycling and disposal. To meet the goal of sustainable resource utilization, TSMC’s ﬁ rst priority is to reduce process waste before considering recycling or disposal. TSMC carefully selects waste disposal and recycling contractors and performs annual audits of certiﬁ cation documents, site operations and transportation routes to ensure legal and proper disposal of waste. Other Environmental Protection Programs TSMC has implemented an environmental accounting system, allowing each fab to calculate cost savings or proﬁ ts created by each environmental program. In addition, TSMC conducts “Product Life Cycle Assessments” (Product LCAs), collecting and analyzing data from the entire semiconductor manufacturing chain from raw materials suppliers to ﬁ nished products, including statistics for such items as energy, raw materials consumption, and pollution. The product LCA study has established “Eco-Proﬁ les” for all TSMC fabs and will help the company meet future international regulations such as the European Union’s “Energy-Using Product” directive. These “Eco-Proﬁ les” can also be provided to customers who require such documentation. 57 TSMC also maintains “green procurement” procedures, requiring raw Environmental, Safety, and Health-related Awards in 2006 materials suppliers to declare that the materials they supply to TSMC do not ● Executive Yuan National Council for Sustainable Development “National contain any prohibited substances. This ensures that products manufactured Sustainable Development Award” by TSMC comply with customer requirements and the regulatory ● Environmental Protection Administration’s “Enterprise Environmental requirements of the European Union’s RoHS directive. Protection Award” Environmental Compliance Record for “Excellence in Water Conservation” The Tainan County Environmental Protection Bureau ﬁ ned TSMC NT$100,000 ● Environmental Protection Administration’s “Award for Outstanding in 2006 for violation of air pollution regulations by one of TSMC’s Achievement in Industrial Waste Disposal, Resources Reduction, and construction contractors. TSMC not only has required the contractor to fully Recycling” comply with the relevant regulations, we have ﬁ led an appeal against the ﬁ ne, ● Recognized by the Tainan Science Park for “Outstanding Achievement in as we believe that the contractor, not TSMC, is liable for the penalty. Environmental Protection” ● Recognized by the Ministry of Economic Affairs Water Resources Agency 1.2 Safety and Health Safety and Health Management ● Recognized by the Executive Yuan Council of Labor Affairs for “Excellence in Safety and Health” ● Recognized by Hsinchu and Tainan Science Parks for “Excellence in Labor TSMC’s safety and health management is built on the framework of the Safety and Health” OHSAS 18001 system, and adheres to the management principle of “Plan, ● Chosen for membership in the Dow Jones Sustainability World Index for a Do, Check, Act” to prevent accidents and protect employee safety and sixth consecutive year, and the only Taiwan member since 2003 health as well as company assets. Besides accident prevention, TSMC has established emergency response procedures to protect the lives of employees and contractors if disasters should occur, as well as minimize the impact on society and the environment. TSMC communicates to suppliers to reduce potential risks in operation of production equipment and follows safety control procedures when installing production equipment. The company places stringent controls on high-risk operations and also evaluates the seismic tolerance of facilities and equipment to reduce the risk of earthquake damage. In heath management, TSMC maintains regular wellness and professional health programs and also establishes company-level prevention committees when infectious diseases such as Severe Acute Respiratory Syndrome (SARS) or Avian Inﬂ uenza pose a potential risk to the company. Employee Wellness TSMC is committed to achieving the highest standards of wellness for employees. Employees have access to on-site clinics, 24-hour nursing services, annual physical exams, women’s health services, cancer screening, on-site ﬁ tness facilities and programs, weight management programs, and various health awareness programs. Employees also have access to stress management programs, counseling services, and other assistance programs. Supplier and Contractor Management TSMC is committed to communicating with and encouraging its contractors and suppliers to improve their environmental, safety, and health performance. TSMC audits the environmental, safety, and health practices of major raw materials suppliers and contractors and asks for continual improvement. Contractors performing high-risk works must lay out clearly-deﬁ ned safety precautions and preventative measures. In addition, contractors working on high-risk engineering must establish OHSAS 18001 occupational safety and health management systems before July 2007. 2. TSMC Education and Culture Foundation TSMC is dedicated to becoming Taiwan’s leading corporate citizen, and to sharing the values and business philosophies that led to the company’s success. In 1998, the company established the TSMC Education and Culture Foundation to organize and consolidate its contributions and to sponsor educational, cultural, and community activities in Taiwan. The TSMC Foundation believes long-term commitments make a longer-lasting impact than one-time events, and its programs reﬂ ect this belief. Led by TSMC Vice Chairman Dr. F.C. Tseng, the Foundation works in four areas: commitment to education, sponsorship of the arts and aesthetic education, contribution to local communities, and the TSMC employee volunteer program. 2.1 Commitment to Education TSMC is committed to nurturing future leaders by supporting top institutions of learning. In 2006, National Taiwan University broke ground on construction of a NT$120 million chemistry research center funded by the TSMC Foundation. The foundation also continued to support the construction of a new building complex for the MIT Sloan School of Business and disbursed the ﬁ rst payment of a grant for construction of a headquarters building for University of California Berkeley’s Center for Information Technology Research in the Interest of Society (CITRIS). In addition, TSMC completed its third year of a program to provide NT$5 million in scholarships to help youth from low- income families attend elite universities in Taiwan. 58 LONG-TERM Commitments Make a Longer-lasting Impact than One-time Events Part of the TSMC Foundation’s educational mission is to develop scientiﬁ c talent. The foundation sponsors the Wu Chien-Shiung Science Camp and the Wu Ta-You Science Camp, which give talented high school and university students an opportunity to learn from outstanding scientists from Taiwan, Hong Kong, China, and around the world. In 2006, teachers included 2004 Nobel Chemistry Prize Laureate Aaron Ciechanover and three U.S. National Academy of Science fellows. The Foundation also sponsors international education by providing students from National Tsinghua University and National Chiaotung University with scholarships to study abroad for one year. The foundation also works closely with leading universities on a wide-ranging program of chair professors positions and lecture series. 2.2 Sponsorship of the Arts and Aesthetic Education In 2006, the TSMC Foundation sponsored the Netherlands’ Royal Concertgebouw Orchestra under chief conductor Mariss Janson to Taiwan for two performances. The opening night of Beethoven was broadcast outdoors due to popular demand, and TSMC invited schoolchildren from remote school districts of Hsinchu and Tainan to the National Concert Hall in Taipei. This year the Foundation also sponsored the ﬁ rst Taipei-Beijing City Arts Festival, a week of Taipei artists’ performances and exhibitions in Beijing and a week of Beijing artists’ exhibitions and performances in Taipei. Other ongoing aesthetic education programs include the TSMC Youth Literature Award, and the “TSMC Aesthetic Education Tour“, a project organizing tours for 10,000 elementary school children from rural areas around Taiwan to visit National Palace Museum and other ﬁ ne arts institutes. The Taipei City Government Department of Cultural Affairs recognize TSMC The TSMC Foundation participates in social service through employee as an outstanding corporate sponsor of the arts in September 2006. volunteer programs. We initiated and organized the "TSMC Guide Volunteer 2.4 The Employee Volunteer Program Program" at the National Museum of Natural Science in Taichung for TSMC employees and family to serve as guides on weekends at the IC exhibition sponsored by TSMC. The number of volunteer guides has continued to increase as in 2006 the program was opened to employee children aged 12-18, encouraging teenagers to start volunteering work at younger age. The volunteer guides have served more than 300,000 visitors to the museum and have been recognized as an “Outstanding Volunteer Team” by the National Museum of Science. In addition, the Foundation has organized a “TSMC Reading Volunteer Program”, now its third year, where employees and their families read stories to elementary school children in remote townships. In 2006, the program expanded with some 50 volunteer readers serving elementary schools in Tainan, in addition to some 70 volunteers serving schools in Hsinchu. 2.3 Contribution to Local Communities For the past several years, the Foundation has focused on art and cultural activities in Hsinchu and Tainan, where nearly twenty thousand TSMC families are located. The foundation has organized a TSMC Arts Festival each year since 2003. The festival hosted 18 events in 2006 including performances by violinist Anne-Sophie Mutter and Vienna Philharmonic Orchestra musicians. In all, nearly 30,000 people from the community attended festival performances. 59 Affiliate Information and other Special Notes TSMC’s afﬁ liates support our core foundry business with related services such as design service and back-end assembly and test, enabling TSMC to provide customers with the most complete set of solutions for their needs. 60 1. Afﬁ liates 1.1 TSMC Afﬁ liated Companies Chart As of 12/31/2006 Taiwan Semiconductor Manufacturing Company, Ltd. TSMC North America Shareholding: 100% TSMC Europe B.V. Shareholding: 100% TSMC Japan Limited Shareholding: 100% TSMC Korea Limited Shareholding: 100% TSMC (Shanghai) Company Limited Shareholding: 100% TSMC International Investment, Ltd. Shareholding: 100% TSMC Partners, Ltd. Shareholding: 100% TSMC Global, Ltd. Shareholding: 100% Global Unichip Corp. Shareholding: 37.88% 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% VentureTech Alliance Fund III, L.P. Shareholding: 98% TSMC Technology, Inc. Shareholding: 100% TSMC Development, Inc. Shareholding: 100% WaferTech, LLC. Shareholding: 99.996% InveStar Semiconductor Development Fund, Inc. Shareholding: 97.09% Investar Semiconductor Development Fund, Inc. (II) LDC. Shareholding: 97.09% Global Unichip Corp.-NA Shareholding: 100% Global Unichip Corp.-JP Shareholding: 100% 61 1.2 Business Scope of TSMC and Its Afﬁ liated Companies TSMC’s afﬁ liates support the company’s core business of providing dedicated foundry services to customers around the world. Several of TSMC’s afﬁ liate companies are focused on investing in companies involved in design, manufacturing, and other related businesses in the semiconductor industry. TSMC and its afﬁ liates provide mutual support in technology, capacity, marketing and services to maximize synergy within the group, enabling TSMC to provide its customers with the most complete dedicated foundry services worldwide and ensure TSMC’s leading position in the global foundry market. 1.3 TSMC Afﬁ liated Companies Unit: NT (US, EUR, JPY, KRW)$ thousands As of 02/28/2007 Company TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited TSMC (Shanghai) Company Limited Date of Incorporation Place of Registration Capital Stock Business Activities Jan. 18, 1988 San Jose, California, USA US$ 11,000 Sales and marketing of integrated circuits and semiconductor devices Mar. 04, 1994 Sep. 10, 1997 May. 02, 2006 Aug. 04, 2003 Amsterdam, The Netherlands Yokohama, Japan Seoul, Korea Shanghai, China EUR JPY KRW US$ 90.76 Marketing activities 300,000 Marketing activities 400,000 Marketing activities 371,000 Manufacturing and marketing of integrated circuits and TSMC International Investment, Ltd. Apr. 09, 1996 Tortola, British Virgin Islands US$ 987,968 semiconductor devices Providing investment in companies involved in the design, manufacture and other related business in the semiconductor industry TSMC Technology, Inc. WaferTech, LLC Feb. 20, 1996 Jun. 03, 1996 Delaware, USA Washington, USA TSMC Partners, Ltd. TSMC Global, Ltd. Global Unichip Corporation Global Unichip Corporation-JP Global Unichip Corporation-NA XinTec Inc. Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. TSMC Development, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc.(II) LDC. Aug. 25, 2000 Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Jan. 10, 2001 Feb. 27, 2004 Mar. 25, 2006 Mar. 26, 1998 Tortola, British Virgin Islands Jul. 13, 2006 Jan. 22, 1998 Jun. 16, 2005 Feb. 02, 2004 Tortola, British Virgin Islands Hsinchu, Taiwan Yokohama, Japan San Jose, California, USA Sep. 11, 1998 Chungli, Taiwan Jul. 13, 1998 Jul. 15, 1998 Feb. 16, 1996 Sep. 10, 1996 Taipei, Taiwan Taipei, Taiwan Delaware, USA Cayman Islands Cayman Islands Cayman Islands Cayman Islands Cayman Islands US$ US$ US$ US$ NT$ JPY US$ NT$ NT$ NT$ US$ US$ US$ US$ US$ US$ 0.001 Engineering support activities 530,000 Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices 300 Investment activities 1,284,000 Investment activities 1,089,176 Researching, developing, manufacturing, testing and marketing of integrated circuits 10,000 Marketing activities 100 Providing consulting services for products in the North America region 2,105,260 Wafer level chip size package 840,000 Investment activities 840,000 Investment activities 0.001 Investment activities 9,483 Investing in new start-up technology companies 52,839 Investing in new start-up technology companies 42,248 Investing in new start-up technology companies 24,100 Investing in new start-up technology companies 7,700 Investing in new start-up technology companies 1.4 Common Shareholders of TSMC and Its Subsidiaries or Its Afﬁ liates with Actual of Deemed Control: None. 62 1.5 Rosters of Directors, Supervisors and Presidents of TSMC’s Afﬁ liated Companies Unit: NT$, except shareholding Company TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited TSMC (Shanghai) Company Limited TSMC International Investment, Ltd. TSMC Partners, Ltd. TSMC Global, Ltd. TSMC Technology, Inc. TSMC Development, Inc. WaferTech, LLC Title Director Director President Director Director Director President Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor President Director Director President Director Director President None Chairman Director President Chairman Director President Chairman Director President Name Kenneth Kin Rick Cassidy Rick Cassidy Kenneth Kin Wendell Huang Kees den Otter Kees den Otter Rick Tsai Kenneth Kin Makoto Onodera Lora Ho Makoto Onodera Wang Ta Ming Chih-Chun Tsai F.C. Tseng C.C. Wei Y.C. Chao Lora Ho Y.C. Chao Lora Ho Richard Thurston Lora Ho Lora Ho Richard Thurston Lora Ho None Lora Ho Richard Thurston Lora Ho Lora Ho Richard Thurston Lora Ho Rick Tsai Steve Tso Kuo-Chin Hsu InveStar Semiconductor Development Fund, Inc. Director Wendell Huang Shareholding Amount - - - As of 12/31/2006 % - - - (TSMC holds 11,000,000 shares) (100%) - - - - - - - - (TSMC holds 200 shares) (100%) - - - - - (TSMC holds 6,000 shares) - - (TSMC holds 80,000 shares) - - - - - - - - - - (100%) - - (100%) - - - - - (TSMC's investment US$371,000,000) (100%) - - - - - - (TSMC holds 987,968,244 shares) (100%) - - - (TSMC holds 300,000 shares) (TSMC's investment US$1,284,000,000) - - - (TSMC International Investment Ltd. holds 1,000 shares) - - - (TSMC International Investment Ltd. holds 1,000 shares) - - - (TSMC Development, Inc. holds 293,636,833 preferred shares) (TSMC International Investment Ltd. Holds 9,206,796 shares) - - - - (100%) (100%) - - - (100%) - - - (100%) - - - ( 99.996%) - ( 97.09%) (continued) 63 Company InveStar Semiconductor Development Fund, Inc.(II) LDC. Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. Global Unichip Corporation (Note) Global Unichip Corporation-NA Global Unichip Corporation-JP Title Director None None None Director Director Chairman Vice Chairman Director Director Director Director Director Director Director Supervisor Supervisor Supervisor President Director Director Supervisor President Director Director Director Supervisor President Name Wendell Huang None None None Shareholding Amount - (TSMC International Investment Ltd. holds 51,300,000 shares) (TSMC's investment US$42,036,394) (TSMC's investment US$23,618,000) (TSMC's investment US$7,546,000) Wendell Huang (Representative of Chi Cherng Investment Co., Ltd.) (Chi Cherng's investment NT$540,000,080) (TSMC's investment NT$299,999,880) (Hsin Ruey's investment NT$540,000,080) (TSMC's investment NT$299,999,880) (TSMC holds 41,263,171 shares) (K.C. Shih holds 3,489,201 shares) (Chin Yu holds 1,229,849 shares) - - - 0 0 0 - 0 0 0 - - - - James Chen (Representative of Hsin Ruey Investment Co., Ltd.) F.C. Tseng (Representative of TSMC) K.C. Shih C.C. Lu (Representative of Chin Yu Investment Ltd.) Ping Yang (Representative of TSMC) Jim Lai (Representative of TSMC) Jason Chen (Representative of TSMC) C.T. Hsing W.C. Liu S.C. Li Lora Ho (Representative of TSMC) C.H. Kao Yu Lin Jim Lai S.H. Cheng Jim Lai K.C. Shih Jim Lai Jim Lai Chung-Lin Tsai S.H. Cheng K.C. Shih Chung-Lin Tsai % - ( 97.09%) (99.50%) (98%) (98%) (64.29%) (35.71%) (64.29%) (35.71%) (37.88%) (3.20%) (1.12%) - - - 0% 0% 0% - 0% 0% 0% - - - - (GUC holds 100,000 shares) (100%) - - - - - - - - - - (GUC holds 200 shares) (100%) Note: On February 8, 2007, TSMC appointed Ms. Lora Ho to replace Mr. Yang Ping as a director and Mr. Wendell Huang to replace Ms. Lora Ho as a supervisor. 64 1.6 Operational Highlights of TSMC Afﬁ liated Companies (Note) Unit: NT$ thousands, except EPS($) Company Capital Stock Assets Liabilities Net Worth Net Sales Income Net Income Basic EPS from Operation (Net of Tax) (Net of Tax) As of 12/31/2006 Remark TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited 358,556 20,587,907 18,361,163 2,226,744 192,268,961 200,782 162,006 14.73 3,910 82,350 14,000 88,810 109,316 14,779 39,069 13,559 73 49,741 95,757 14,706 250,424 229,826 7,820 32,760 10,493 722 2,963 685 23,164 115,822.08 TSMC (Shanghai) Company Limited 12,816,780 18,565,489 9,537,504 9,027,985 5,181,420 (814,454) (637,220) TSMC International Investment, Ltd. 32,203,805 37,371,660 10,777,911 26,593,749 3,805,727 2,802,648 2,802,637 493.88 8.57 N/A 2.84 TSMC Technology, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc.(II) LDC. 0.033 309,108 935,015 979,345 737,547 100,214 197,468 879,131 80,159 10,839 13,366 13,365.84 1,180,812 1,002,637 975,341 102.85 1,722,340 1,551,402 470 1,550,932 547,308 512,276 368,502 6.97 TSMC Development, Inc. 0.033 14,862,485 (8,945) 14,871,430 3,450,384 3,448,741 3,441,085 3,441,085.13 17,275,880 10,338,023 1,033,007 9,305,016 12,491,934 3,365,579 3,367,215 N/A WaferTech, LLC TSMC Partners, Ltd. 9,779 13,248,649 8,814,830 4,433,819 308,054 Emerging Alliance Fund, L.P. 1,377,116 803,184 Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. 840,000 840,000 2,300,569 2,300,101 5,611 7,331 7,325 797,573 2,293,238 2,292,776 0 108,879 108,892 Global Unichip Corporation 1,089,176 2,786,238 1,077,444 1,708,794 3,358,747 TSMC Global, Ltd. 41,853,264 43,523,317 1,026,726 42,496,591 631,303 VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Global Unichip Corporation-JP Global Unichip Corporation-NA * Base on U.S. GAAP 785,564 250,989 2,745 3,259 746,742 230,148 2,949 6,964 0 0 263 568 746,742 230,148 2,685 6,396 0 0 7,830 42,022 Note: Foreign exchange rates for balance sheet amounts are as follows: $1 USD = $32.596 NT, $1 EUR = $42.97 NT, $1 JPY = $0.2745 NT, $1 RMB = $4.174 NT, $1 KRW = $0.035 NT Foreign exchange rates for income statement amounts are as follows: $1 USD = $32.523 NT, $1 EUR = $40.9 NT, $1 JPY = $0.28 NT, $1 RMB = $4.079 NT, $1 KRW = $0.034 NT 308,010 (31,440) 108,668 108,682 220,137 616,328 (23,151) (21,382) 373 2,001 308,009 1,026.70 (2,644) 98,605 99,647 237,295 N/A N/A N/A 2.44 616,171 479,884.40 (37,339) (20,794) (61) 1,714 N/A N/A (304.16) 17.14 * * * * * 65 2. Status of TSMC Common Shares /ADRs Acquired, Disposed of and Held by Subsidiaries (In thousands of NTD except number of shares) Name of Subsidiary (Note 1) Chi Cherng Investment Co., Ltd. Hsin Ruey Investment Co., Ltd. Paid-in Capital Source of Funding Percentage Owned by TSMC Transaction Date Acquisition (Note 2) Disposal Investment Balance (Note 1) Number of Shares Amount Number of Shares Amount Income (Loss) Number of Shares Amount (Note 3) Balance of Pledged Shares Balance of Balance of Guarantee Financing Provided Provided by TSMC by TSMC 840,000 840,000 Retained earnings Retained earnings 36% Year 2006 493,455 Year 2007 (Note 1) 0 36% Year 2006 494,380 Year 2007 (Note 1) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 16,947,271 458,564 16,947,271 458,564 16,979,038 459,511 16,979,038 459,511 0 0 0 0 0 0 0 0 0 0 0 0 Note 1: As of 02/28/2007 Note 2: Stock dividend distributed in 2006 Note 3: Carrying cost of TSMC shares 3. Special Notes 3.1 Private Placement Securities: None. 3.2 Regulatory Authorities' Legal Penalties to the Company, and the Company's Resulting Punishment on Its Employees: None. 3.3 Any Events in 2006 That Had Signiﬁ cant Impacts on Shareholders' Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None. 3.4 Other Necessary Supplement: None. 66 Financial Information 6767 1. Condensed Balance Sheet 2. Condensed Statement of Income Financial Analysis from 2002-2006 Financial Analysis from 2002-2006 Item Current Assets 2002 2003 2004 2005 2006 94,747,405 158,526,272 173,667,311 197,562,416 193,676,010 Item Net Sales 2002 2003 2004 2005 2006 160,961,329 201,904,341 255,992,427 264,588,364 313,881,635 Long-term Investments 34,978,495 37,965,353 73,292,863 80,659,601 137,378,205 Gross Profit 51,967,145 72,891,637 110,160,584 115,244,049 149,718,400 Unit: NT$ thousands Unit: NT$ thousands (Except EPS: NT$) 217,192,263 188,286,752 227,976,400 214,145,633 228,235,359 Income from Operations 34,176,306 52,647,577 86,822,778 93,013,824 126,299,859 23,097,348 11,638,485 12,616,636 15,172,165 14,295,330 Non-operating Income and Gains 1,762,893 2,665,799 6,785,048 7,381,360 *** 11,596,727 Non-operating Expenses and Losses 8,826,744 4,285,101 1,829,242 6,575,761 *** 3,090,087 Interest Revenue Interest Expense Income from Operations of Continued Segments - before Tax Income from Operations of Continued Segments - after Tax Net Income Earnings Per Share Adjusted Earnings Per Share Capitalized Interest 1,008,147 819,377 1,687,681 2,506,769 *** 3,382,868 2,119,935 1,576,343 1,278,072 1,180,484 *** 661,200 27,112,455 51,028,275 91,778,584 93,819,423 134,806,499 21,610,291 47,258,700 92,316,115 93,575,035 127,255,917 21,610,291 47,258,700 92,316,115 93,575,035 127,009,731 1.14 * 0.82 ** 2.33 * 1.82 ** 165,857 138,668 3.97 * 3.58 ** 262,109 3.79 * 3.63 ** - 4.93 * - - * Based on weighted average shares outstanding in each year ** Retroactive adjustment for capitalization of unappropriated earnings and bonus to employees *** Certain accounts of year 2005 have been reclassified to conform to year 2006 classifications. Fixed Assets Other Assets Current Liabilities Before Distribution After Distribution Long-term Liabilities Other Liabilities Capital Stock Capital Surplus Retained Earnings Before Distribution After Distribution 31,160,103 30,537,984 60,638,852 32,184,415 42,905,154 31,673,588 43,691,881 110,460,630 97,699,015 * 39,281,665 33,300,829 23,752,940 22,111,575 14,175,271 3,720,536 3,363,740 4,196,119 7,613,476 8,523,195 199,228,867 202,666,189 232,519,637 247,300,246 258,296,879 57,004,789 56,855,885 56,537,259 57,117,886 54,107,498 40,792,197 71,100,090 113,730,016 142,771,034 197,124,532 23,841,390 26,846,412 49,195,999 70,114,801 * - Unrealized Loss on Long-term Investment Cumulative Transaction Adjustments Unrealized Gains on Financial Instruments (194,283) 945,129 - (35) - - 225,408 (2,226,427) (640,742) (1,191,165) - - - 561,615 Total Assets Total Liabilities Before Distribution After Distribution Total Equity Before Distribution After Distribution 370,015,511 396,416,862 487,553,210 507,539,815 573,584,904 74,162,304 67,202,553 88,587,911 61,909,466 65,603,620 74,675,789 80,356,450 138,409,689 127,424,066 * 295,853,207 329,214,309 398,965,299 445,630,349 507,981,284 295,339,722 316,060,412 349,143,521 380,115,749 * * Subject to change after shareholders' meeting resolution 68 3. Financial Analysis 3.1 Financial Analysis from 2002-2006 (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 (%) Basic Earnings Per Share (NT$) (Note 1) Diluted Earnings Per Share (NT$) (Note 1) Cash Flow Cash Flow Ratio (%) Leverage Cash Flow Adequacy Ratio (%) Cash Flow Reinvestment Ratio (%) Operating Leverage Financial Leverage 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 0.82 0.82 302.59 122.72 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 1.82 1.82 355.85 145.42 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 3.58 3.58 236.94 149.94 18.12 2.46 1.02 2005 12.20 218.42 613.84 560.93 80.48 8.08 45.18 9.82 37.19 14.24 1.24 0.52 19.01 22.16 37.61 37.94 35.37 3.63 3.63 468.02 150.88 12.50 2.30 1.01 2006 11.44 228.78 451.40 404.49 204.39 9.26 39.40 9.27 39.37 15.81 1.38 0.55 23.60 26.64 48.90 52.06 40.46 4.93 4.92 457.01 153.75 14.18 2.04 1.01 Ananlysis of Deviation over 20% - 2006 vs. 2005: 1. The current ratio and the quick ratio both decreased by 26% and 28%, which was primarily due to reclassification of bonds payable from noncurrent 3. The return on total assets ratio and return on equity ratio increased by 24% and 20% was mainly due to an increase in net income. 4. The operating income to paid-in capital ratio and pre-tax income to paid in capital ratio increased by 30% and 37% was mainly due to higher portion to current and increase of income tax payable. operating income and higher pre-tax income. 2. The times interest earned increased by 154% was mainly due to an increase of operating income and a decrease in interest expense. 5. EPS increased by 36% mainly due to an increase of net income. Note 1: Retroactively adjusted for capitalization of unappropriated earnings and bonuses to employees. (3) Average inventory turnover = Cost of Sales / Average Inventory Note 2: Certain accounts of year 2005 have been reclassified to conform to year 2006 classifications. (4) Average inventory turnover days = 365 / Average Inventory Turnover 5. Cash Flow (1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities (5) Average payment turnover = Cost of Sales / Average Trade Payables (2) Cash flow adequacy ratio = Five-year sum of cash from operations / Five-year sum of *Glossary 1. Capital Structure Analysis (1) Debt ratio = Total Liabilities / Total Assets (6) Fixed assets turnover (7) Total assets turnover 4. Profitability Analysis = Net Sales / Net Fixed Assets = Net Sales / Total Assets (3) Cash flow reinvestment ratio = ( Cash Provided by Operating Activities - Cash Dividends ) / capital expenditures, inventory additions, and cash dividend ( Gross Fixed Assets + Investments + Other Assets + Working (2) Long-term fund to fixed assets ratio = (Shareholders' Equity + Long-term Liabilities) / Net Fixed Assets (1) Return on total assets = ( Net Income + Interest Expenses * (1 - Effective tax rate ) ) / Capital ) 2. Liquidity Analysis (1) Current ratio (2) Quick ratio = Current Assets / Current Liabilities (2) Return on equity = Net Income / Average Shareholders' Equity = (Current Assets - Inventories - Prepaid Expenses) / Current (3) Operating income to paid-in capital = Operating Income / Paid-in Capital Liabilities ratio Average Total Assets (3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses (4) Pre-tax income to paid-in capital ratio = Income before Tax / Paid-in Capital 3. Operating Performance Analysis (1) Average collection turnover = Net Sales / Average Trade Receivables (2) Days sales outstanding = 365 / Average Collection Turnover (5) Net margin = Net Income / Net Sales (6) Earnings per share = ( Net Income - Preferred Stock Dividend ) / Weighted Average Number of Shares Outstanding 6. Leverage (1) Operating leverage (2) Financial leverage = ( Net Sales - Variable Cost ) / Income from Operations = Income from Operations / ( Income from Operations - Interest Expenses ) 69 3.2 Financial Analysis from 2002-2006 (Consolidated) Capital Structure Analysis Debts 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 (%) Basic Earnings Per Share (NT$) (Note 1) Diluted Earnings Per Share (NT$) (Note 1) Cash Flow Cash Flow Ratio (%) Leverage Cash Flow Adequacy Ratio (%) Cash Flow Reinvestment Ratio (%) Operating Leverage Financial Leverage 2002 24.22 140.48 257.43 223.68 10.54 9.09 40.15 10.46 34.89 23.50 0.66 0.42 6.33 7.54 15.86 13.66 13.30 0.82 0.82 247.31 106.37 17.81 4.15 1.09 2003 19.17 175.65 547.46 502.20 26.14 9.03 40.41 10.98 33.24 15.43 0.96 0.50 12.30 15.12 25.31 25.25 23.28 1.82 1.82 381.44 132.59 17.97 3.23 1.04 2004 20.10 166.58 288.57 261.62 53.92 9.22 39.60 10.21 35.74 14.75 0.99 0.51 20.68 25.36 38.05 39.55 35.90 3.58 3.58 239.60 146.18 18.54 2.38 1.02 2005 14.10 194.69 604.46 549.94 67.69 7.84 46.54 8.91 40.94 14.37 1.09 0.51 18.89 22.16 36.78 38.12 35.13 3.63 3.63 447.65 154.53 12.64 2.31 1.02 2006 13.34 209.38 555.51 506.39 152.46 8.84 41.28 8.25 44.22 15.41 1.25 0.54 23.12 26.64 49.27 52.22 40.07 4.93 4.92 437.46 156.75 14.36 1.99 1.01 Analysis of Deviation over 20% - 2006 vs. 2005: 1. The times interest earned increased by 123%, primarily due to 41% increase in income before tax, and 37% decrease in interest expense. 2. Return on total assets and Return on equity increased by 22% and 20% respectively, maily due to 36% increase in net income. 3. Operating income to capital stock increased by 34%, primarily due to 40% increase in operating income. 4. Profit before tax to capital stock increased by 35%, mainly due to 41% increase in income before tax. 5. Earnings per share increased by 36%, mainly due to increase in net income. Note 1: Retroactive adjustment for capitalization of unappropriated earnings and bonus to employees. (2) Days sales outstanding = 365 / Average Collection Turnover Note 2: Certain accounts of prior years have been reclassified to conform to current year classifications. (3) Average inventory turnover = Cost of Sales / Average Inventory 5. Cash Flow (1) Cash flow ratio *Glossary : 1. Capital Structure Analysis (1) Debts ratio = Total Liabilities / Total Assets (4) Average inventory turnover days = 365 / Average Inventory Turnover (5) Average payment turnover = Cost of Sales / Average Trade Payables (6) Fixed assets turnover (7) Total assets turnover = Net Sales / Frxed Assets = Net Sales / Total Assets = Net Cash Provided by Operating Activities / Current Liabilities (2) Cash flow adequacy ratio = Five-year sum of cash from operations / Five-year sum of (3) Cash flow reinvestment ratio = ( Cash Provided by Operating Activities - Cash Dividends ) / capital expenditures, inventory additions, and cash dividend (2) Long-term fund to fixed assets ratio = (Shareholders' Equity + Long-term Liabilities) / Net Fixed 4. Profitability Analysis 2. Liquidity Analysis (1) Current ratio (2) Quick ratio Assets (1) Return on total assets = ( Net Income + Interest Expenses * (1 - Effective tax rate)) / Average Total Assets = Current Assets / Current Liabilities (2) Return on equity = Net Income / Average Shareholders' Equity = (Current Assets - Inventories - Prepaid Expenses) / (3) Operating income to paid-in capital ratio = Operating Income / Paid-in Capital Current Liabilities (4) Pre-tax income to paid-in capital ratio = Income before Tax / Paid-in Capital 6. Leverage (1) Operating leverage (2) Financial leverage (3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses 3. Operating Performance Analysis (1) Average collection turnover = Net Sales / Average Trade Receivables (5) Net margin (6) Earnings per share = Net Income / Net Sales = ( Net Income - Preferred Stock Dividend ) / Weighted Average Number of Shares Outstanding ( Gross Fixed Assets + Investment + Other Assets + Working Capital ) = ( Net Sales - Variable Cost ) / Income from Operations = Income from Operations / ( Income from Operations - Interest Expenses ) 70 4. Auditors' Opinions from 2002 to 2006 6. Financial Difficulties Year 2002 2003 2004 2005 2006 CPA Audit Opinion Shu-Chieh Huang, Yung-Do Way Yu-Feng Huang, Yung-Do Way Hung-Wen Huang, Ming-Cheng Chang Hung-Wen Huang, Ming-Cheng Chang Hung-Wen Huang, Ming-Cheng Chang An Unqualified Opinion with explantory An Unqualified Opinion with explantory An 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 5. Audit Committee's Report The Board of Directors has prepared the Company's 2006 Business Report, Financial Statements, and proposal for allocation of profits. The CPA firm of Deloitte & Touche was retained to audit TSMC's Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and profit allocation proposal have been reviewed and determined to be correct and accurate by the undersigned, the Audit Committee members of Taiwan Semiconductor Manufacturing Company Limited. According to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Law, we hereby submit this report. Taiwan Semiconductor Manufacturing Company Limited Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina February 26, 2007 The Company should disclose the financial impact to the Company if the Company and its affiliated companies have incurred any financial or cash flow difficulties from January 1, 2006 through until February 28, 2007: None. 71 7. Financial Statements for the Years Ended December 31, 2006 and 2005 and Independent Auditors’ Report The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Limited Notice to Readers We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2006 and 2005, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the 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 practices to audit such financial statements are those generally accepted and applied in the Republic responsibility of the Company’s management. Our responsibility is to express an opinion on these of China. 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 For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and assurance about whether the financial statements are free of material misstatement. An audit financial statements shall prevail. includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China. We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the years ended December 31, 2006 and 2005, and have expressed an unqualified opinion on the consolidated financial statements. January 11, 2007 72 Taiwan Semiconductor Manufacturing Company Limited BALANCE SHEETS DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss (Notes 2, 3 and 5) Available-for-sale financial assets (Notes 2, 3 and 6) Held-to-maturity financial assets (Notes 2, 3 and 7) Notes and accounts receivable Receivables from related parties (Note 23) Allowance for doubtful receivables (Note 2) Allowance for sales returns and others (Note 2) Other receivables from related parties (Note 23) Other financial assets (Note 3) Inventories, net (Notes 2 and 8) Deferred income taxes assets (Notes 2 and 16) Prepaid expenses and other current assets (Note 3) 2006 Amount $ 100,139,709 44,601 25,967,061 8,510,823 16,278,164 16,869,509 (690,931) (2,751,065) 449,266 653,460 19,152,214 7,832,000 1,221,199 2005 Amount $ 85,383,583 1,380,905 46,452,838 602,509 20,591,818 21,050,604 (976,344) (4,269,969) 1,797,714 1,106,030 16,257,955 7,013,000 1,171,773 % 17 - 5 2 3 3 - - - - 3 1 - % 17 1 9 - 4 4 - (1) 1 - 3 1 - Total current assets 193,676,010 34 197,562,416 39 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES 2006 2005 Amount % Amount % Financial liabilities at fair value through profit or loss (Notes 2, 3 and 5) Accounts payable Payables to related parties (Note 23) Income tax payable (Notes 2 and 16) Accrued expenses and other current liabilities (Notes 3 and 14) Payables to contractors and equipment suppliers Current portion of bonds payable (Note 13) $ 10,751 6,143,679 3,326,916 7,850,418 7,903,867 10,669,523 7,000,000 - 1 1 1 1 2 1 $ 234,279 8,052,106 3,242,197 3,815,888 7,980,715 8,859,230 - - 1 1 1 1 2 - Total current liabilities 42,905,154 7 32,184,415 6 LONG-TERM LIABILITIES Bonds payable (Note 13) Other long-term payables (Note 14) Other payables to related parties (Notes 23 and 25) 12,500,000 1,271,896 403,375 2 - - 19,500,000 1,511,100 1,100,475 4 - - Total long-term liabilities 14,175,271 2 22,111,575 4 LONG-TERM INVESTMENTS (Notes 2, 3, 6, 7, 9 and 10) Investments accounted for using equity method Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost 101,044,356 6,647,511 28,973,495 712,843 18 1 5 - 51,076,803 - 28,775,308 807,490 10 - 6 - OTHER LIABILITIES Accrued pension cost (Notes 2 and 15) Guarantee deposits (Note 25) Deferred credits (Notes 2 and 23) 3,530,116 3,809,961 1,183,118 1 1 - 3,461,392 2,892,945 1,259,139 1 1 - Total long-term investments 137,378,205 24 80,659,601 16 Total other liabilities 8,523,195 2 7,613,476 2 PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11 and 23) Total liabilities 65,603,620 11 61,909,466 12 Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Advance payments and construction in progress 96,961,851 527,850,728 8,659,225 633,471,804 (417,467,250) 12,230,805 17 92 2 111 (73) 2 90,769,622 459,850,773 7,850,035 558,470,430 (359,191,829) 14,867,032 18 91 1 110 (71) 3 CAPITAL STOCK - NT$10 PAR VALUE Authorized: 27,050,000 thousand shares Issued: 25,829,688 thousand shares in 2006 24,730,025 thousand shares in 2005 258,296,879 45 247,300,246 49 CAPITAL SURPLUS (Notes 2 and 18) 54,107,498 10 57,117,886 11 Net property, plant and equipment 228,235,359 40 214,145,633 42 RETAINED EARNINGS (Note 18) GOODWILL (Note 2) OTHER ASSETS Deferred income tax assets (Notes 2 and 16) Deferred charges, net (Notes 2 and 12) Refundable deposits Assets leased to others, net (Note 2) Others 1,567,756 - 1,567,756 - Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings 5,761,127 5,593,068 1,306,234 67,145 - 1 1 - - - 6,759,955 6,681,144 83,642 72,879 6,789 2 1 - - - OTHERS (Notes 2, 3 and 22) Cumulative translation adjustments Unrealized gains on financial instruments Total other assets 12,727,574 2 13,604,409 3 43,705,711 640,742 152,778,079 8 - 26 34,348,208 2,226,427 106,196,399 7 - 21 197,124,532 34 142,771,034 28 (1,191,165) 561,615 - - (640,742) - - - (629,550) - (640,742) - TREASURY STOCK (AT COST, Notes 2 and 20) 33,926 thousand shares in 2006 and 32,938 thousand shares in 2005 (918,075) - (918,075) - Total shareholders’ equity 507,981,284 89 445,630,349 88 TOTAL $ 573,584,904 100 $ 507,539,815 100 TOTAL $ 573,584,904 100 $ 507,539,815 100 The accompanying notes are an integral part of the financial statement. 73 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) GROSS SALES (Notes 2 and 23) $ 319,210,148 $ 270,315,064 INCOME BEFORE INCOME TAX SALES RETURNS AND ALLOWANCES (Note 2) 5,328,513 5,726,700 INCOME TAX EXPENSE (Notes 2 and 16) 2006 2005 Amount % Amount % NET SALES COST OF SALES (Notes 17 and 23) GROSS PROFIT OPERATING EXPENSES (Notes 17 and 23) Research and development General and administrative Marketing Total operating expenses 313,881,635 100 264,588,364 100 NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFIT OF NT$82,062 THOUSAND (Note 3) 164,163,235 149,718,400 14,601,385 7,190,422 1,626,734 23,418,541 52 48 5 2 1 8 149,344,315 115,244,049 13,395,801 7,485,011 1,349,413 22,230,225 56 44 5 3 1 9 2006 Amount $ 134,806,499 (7,550,582) 127,255,917 (246,186) 2005 Amount $ 93,819,423 (244,388) 93,575,035 - % 43 (2) 41 - % 35 - 35 - NET INCOME $ 127,009,731 41 $ 93,575,035 35 EARNINGS PER SHARE (NT$, Note 21) Basic earnings per share Diluted earnings per share 2006 2005 Before Income Tax After Income Tax Before Income Tax After Income Tax $ 5.21 $ 5.21 $ 4.93 $ 4.92 $ 3.64 $ 3.64 $ 3.63 $ 3.63 Certain pro forma information (after income tax) is shown as follows, based on the assumption that the Company’s stock held by subsidiaries is treated as an investment instead of treasury stock (Notes 2 and 20): NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES NET INCOME EARNINGS PER SHARE (NT$) Basic earnings per share Diluted earnings per share 2006 2005 $ 127,338,237 $ 93,881,698 $ 127,092,051 $ 93,881,698 $ 4.92 $ 4.92 $ 3.64 $ 3.64 The accompanying notes are an integral part of the financial statements. (Concluded) INCOME FROM OPERATIONS 126,299,859 40 93,013,824 35 NON-OPERATING INCOME AND GAINS Equity in earnings of equity method investees, net (Notes 2 and 9) Interest income (Notes 2 and 3) Settlement income (Note 25) Technical service income (Notes 23 and 25) Gain on disposal of property, plant and equipment and other assets (Notes 2 and 23) Valuation gain on financial instruments, net (Notes 2, 3, 5 and 22) Foreign exchange gain, net (Notes 2 and 3) Others (Note 23) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES Loss on settlement and disposal of financial instruments, net (Notes 2, 3 and 5) Interest expense (Note 3) Foreign exchange loss, net (Note 2) Loss on disposal of property, plant and equipment (Note 2) Equity in losses of equity method investees, net (Notes 2 and 9) Valuation loss on financial instruments, net (Notes 2, 3, 5 and 22) Others 5,526,727 3,382,868 967,506 670,297 596,459 33,850 - 419,020 11,596,727 1,623,882 661,200 412,726 240,985 - - 151,294 2 1 1 - - - - - 4 1 - - - - - - - 2,506,769 950,046 491,267 494,374 - 2,572,560 366,344 7,381,360 3,742,312 1,180,484 - 59,992 1,052,045 337,160 203,768 Total non-operating expenses and losses 3,090,087 1 6,575,761 - 1 - - - - 1 - 2 2 - - - - - - 2 (Continued) 74 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Stock Retained Earnings Shares (In Thousands) Amount Capital Surplus Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Others Unrealized Gain on Financial Instruments BALANCE, JANUARY 1, 2005 23,251,964 $ 232,519,637 $ 56,537,259 $ 25,528,007 $ - $ 88,202,009 $ 113,730,016 $ (2,226,427) $ 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 shareholders - NT$2.00 per share Stock dividends to shareholders - NT$0.50 per share Bonus to directors and supervisors Net income in 2005 Adjustment arising from changes in 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 - - - - - - - - - - - - - 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 - - - - - - - - - - - - - - - - - - - - - - - - 1,585,685 - - - 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) 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 shareholders - NT$2.50 per share Stock dividends to shareholders - NT$0.15 per share Bonus to directors and supervisors Capital surplus transferred to capital stock Net income in 2006 Adjustment arising from changes in percentage of ownership in investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from the Company Valuation gain on available-for-sale financial assets Equity in the valuation gain on available-for-sale financial assets of equity method investees - - - 343,213 - 370,950 - 370,950 - - - 14,550 - - - - - - 3,432,129 - 3,709,504 - 3,709,504 - - - 145,496 - - - - - - - - - - (3,709,504) - 187,095 - 429,701 82,320 - - 9,357,503 - - - - - - - - - (1,585,685) - - - - - - - (9,357,503) 1,585,685 (3,432,129) (3,432,129) (61,825,061) (3,709,504) (257,410) - 127,009,731 - - (3,432,129) (3,432,129) (61,825,061) (3,709,504) (257,410) - 127,009,731 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (550,423) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 242,248 319,367 Total Treasury Stock Total Shareholders’ Equity $ (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 (640,742) (918,075) 445,630,349 - - - - - - - - - - (550,423) - - 242,248 319,367 - - - - - - - - - - - - - - - - - (3,432,129) - (61,825,061) - (257,410) - 127,009,731 187,095 (550,423) 575,197 82,320 242,248 319,367 BALANCE, DECEMBER 31, 2006 25,829,688 $ 258,296,879 $ 54,107,498 $ 43,705,711 $ 640,742 $ 152,778,079 $ 197,124,532 $ (1,191,165) $ 561,615 $ (629,550) $ (918,075) $ 507,981,284 The accompanying notes are an integral part of the financial statements. 75 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars) 2006 2005 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of premium/discount of financial assets Loss on disposal of available-for-sale financial assets, net Equity in losses (earnings) of equity method investees, net Dividends received from equity method investees Gain on disposal of investments accounted for using equity method investees, net Gain on disposal of financial assets carried at cost, net Loss on impairment of financial assets carried at cost Gain on disposal of property, plant and equipment and other assets, net Deferred income taxes Loss on idle assets Donation of idle assets Changes in operating assets and liabilities: Decrease (increase) in: Financial assets and liabilities at fair value through profit or loss 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 Prepaid expenses and other current assets Increase (decrease) in: Accounts payable Payables to related parties Income tax payable Accrued expenses and other current liabilities Accrued pension cost Deferred credits $ 127,009,731 $ 93,575,035 66,699,455 2,399 485 (5,526,727) 626,367 (26,031) (212) 36,608 (355,474) 179,828 44,072 - 1,112,776 4,313,654 4,181,095 (285,413) (1,518,904) 985,419 (99,109) (2,894,259) (49,426) (1,908,427) (612,381) 4,034,530 157,262 68,724 (95,745) 67,991,423 120,872 150,081 1,052,045 668,464 (583) (2,919) - (434,382) (3,278,952) 131,849 7,207 10,739 (5,264,937) (4,914,565) (4,117) 942,055 (1,243,126) 64,288 (2,086,010) (84,341) 1,563,489 (1,224,371) 3,435,985 (1,001,293) 360,196 95,744 Net cash provided by operating activities 196,080,297 150,629,876 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Investments accounted for using equity method Property, plant and equipment (98,679,832) (18,554,027) (12,940) (5,515,466) (77,215,811) (99,436,242) (14,199,142) (48,536) (3,392,619) (73,659,014) Proceeds from disposal of: Available-for-sale financial assets Financial assets carried at cost Investments accounted for using equity method Property, plant and equipment and other assets Redemption of held-to-maturity financial assets upon maturity Proceeds from return of capital by investee Increase in deferred charges Decrease (increase) in refundable deposits $ 73,212,019 71,191 37,946 1,277,729 10,410,000 162,354 (1,272,355) (1,222,592) $ 101,609,384 16,599 65,076 2,087,236 14,595,394 - (847,721) 1,771 Net cash used in investing activities (117,301,784) (73,207,814) CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid for common stock Cash bonus paid to employees Increase in guarantee deposits Proceeds from exercise of employee stock options Bonus to directors and supervisors Repayment of long-term bonds payable Net cash used in financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR (61,825,061) (3,432,129) 917,016 575,197 (257,410) - (64,022,387) 14,756,126 85,383,583 (46,504,097) (3,086,215) 2,480,552 270,929 (231,466) (10,500,000) (57,570,297) 19,851,765 65,531,818 CASH AND CASH EQUIVALENTS, END OF YEAR $ 100,139,709 $ 85,383,583 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid Income tax paid INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of property, plant, and equipment Decrease (increase) in payables to contractors and equipment suppliers Cash paid NON-CASH INVESTING AND FINANCING ACTIVITIES Current portion of bonds payable Current portion of other payables to related parties (under payables to related parties) Current portion of other long-term payable (under accrued expenses and other current liabilities) Transfer of available-for-sale financial assets and other net assets to investments accounted for using equity method (Note 6) $ 661,200 $ 3,189,528 $ 1,212,449 $ 87,351 $ 79,026,104 (1,810,293) $ 77,215,811 $ 51,363,935 22,295,079 $ 73,659,014 $ 7,000,000 $ - $ 688,591 $ 693,956 $ 617,892 $ 869,072 $ 39,687,637 $ - (Continued) The accompanying notes are an integral part of the financial statements. (Concluded) 76 Taiwan Semiconductor Manufacturing Company Limited NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. GENERAL Classification of Current and Noncurrent Assets and Liabilities Current assets are asstes held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled 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 Repurchase agreements collateralized by government bonds and corporate notes acquired with Taiwan Semiconductor Manufacturing Company Limited (the Company or TSMC), a Republic of China maturities of less than three months from the date of purchase are classified as cash equivalents. The (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). carrying amount approximates fair value. Financial Assets/Liabilities at Fair Value Through Profit or Loss Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with the changes in fair value recognized in earnings. A regular way purchase or sale of financial The Company is engaged mainly in the manufacturing, selling, packaging, testing and computer- assets is accounted for using settlement date accounting. aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks. Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is As of December 31, 2006 and 2005, the Company had 20,202 and 19,460 employees, respectively. recognized as a financial asset; when the fair value is negative, the derivative is recognized as a 2. SIGNIFICANT ACCOUNTING POLICIES financial liability. The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guideline Governing Business Accounting, 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, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates. Available-for-sale Financial Assets Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. Except structured time deposits whose fair value is estimated using valuation techniques, fair values of open-end mutual funds and publicly traded stocks are determined using the net assets value and the closing-price at the end of the year, respectively. For debt securities, fair value is determined using the average of bid and asked prices at the end of the year. Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as reductions to the original cost of investments if such dividends are declared on the earnings of the investees attributable to periods prior to the purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares. Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings. 77 If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the Inventories Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost previously recognized impairment loss is reversed to the extent of the decrease and recorded as an and adjusted to the approximate weighted-average cost at the balance sheet date. Market value adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized represents replacement cost for raw materials, supplies and spare parts and net realizable value for in earnings, provided that the decrease is clearly attributable to an event which occurred after the work in process and finished goods. The Company assesses the impact of changing technology on impairment loss was recognized. Held-to-maturity Financial Assets Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost under the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, its inventories on hand and writes off inventories that are considered obsolete. Year-end inventories are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses. Investments Accounted for Using Equity Method Investments in companies wherein the Company exercises significant influence over the operating impairment or amortization. A regular way purchase or sale of financial assets is accounted for using and financial policy decisions are accounted for using the equity method. The Company’s share of settlement date accounting. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized. Allowance for Doubtful Receivables An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies. Revenue Recognition and Allowance for Sales Returns and Others The Company recognizes revenue when evidence of an arrangement exists, shipment is made, price is fixed or determinable, and collectibility is reasonably assured. Revenues from the design and manufacture of photo masks, which are used as manufacturing tools in the fabrication process, are recognized when the photo masks are qualified by customers. Provisions for estimated sales returns and others are generally recorded in the period the related revenue is recognized based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance. Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received. 78 the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. Prior to January 1, 2006, the difference, if any, between the cost of investment and the Company’s proportionate share of the investee’s equity was amortized by the straight-line method over five years, with the amortization recorded in the “equity in earnings/ losses of equity method investees, net” account. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standards No. 5, “Long-term Investments in Equity Securities” (SFAS No. 5), the cost of an investment shall be analyzed and the difference between the cost of investment and the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. The accounting treatment for the investment premiums acquired before January 1, 2006 is the same as that for goodwill which is no longer being amortized; while investment discounts continue to be amortized over the remaining periods. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings. When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees are deferred in proportion to the Company’s occurs or circumstances change which indicated that the fair value of goodwill is more likely than not weighted-average ownership percentages in the investees that record such gains or losses until they below its carrying amount, an impairment loss is recognized. A subsequent recovery in fair value of are realized through transactions with third parties. goodwill is not allowed. If an investee’s functional currency is a foreign currency, translation adjustments will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such Deferred Charges Deferred charges consist of technology license fees, software and system design costs and adjustments are accumulated and reported as a separate component of shareholders’ equity. other charges. The amounts are amortized over the following periods: Technology license Financial Assets Carried at Cost Investments in which the Company does not exercise significant influence and that do not have fees - the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges - 3 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount a quoted market price in an active market and whose fair value cannot be reliably measured are is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously carried at their original cost, such as non-publicly traded stocks and mutual funds. The costs of recognized impairment loss would be reversed and recognized as a gain. However, the adjusted mutual funds and non-publicly traded stocks are determined using the weighted-average method. amount may not exceed the carrying amount that would have been determined, net of amortization, If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A as if no impairment loss had been recognized. subsequent reversal of such impairment loss is not allowed. The accounting treatment for cash dividends and stock dividends arising from financial assets carried Pension Costs For employees under defined contribution pension plans, pension costs are recorded based on the at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets. actual contributions made to employees’ individual pension accounts during their service periods. For employees under defined benefit pension plans, pension costs are recorded based on actuarial Property, Plant and Equipment and Assets Leased to Others Property, plant, and equipment and assets leased to others are stated at cost less accumulated calculations. depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases Income Tax The Company applies intra-period and inter-period allocations for its income tax, whereby in a subsequent period, the amount previously recognized as impairment would be reversed and (1) a portion of current income tax expense is allocated to the cumulative effect of changes in recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would accounting principles; and (2) deferred income tax assets and liabilities are recognized for the tax have been determined, net of depreciation, as if no impairment loss had been recognized. Significant effects of temporary differences and unused tax credits. Valuation allowances are provided to the additions, renewals and betterments incurred during the construction period are capitalized. extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years. deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as to Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based non-operating gains or losses in the period of sale or disposal. enterprises are recognized using the flow-through method. Goodwill Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Prior to January 1, 2006, goodwill was amortized using the straight- line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25, “Business Combinations - Accounting Treatment under Purchase Method” (SFAS No. 25), goodwill is no longer amortized and instead is tested for impairment annually. If an event 79 Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s 3. ACCOUNTING CHANGES tax provision. Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder Standards No. 34, “Financial Instruments: Recognition and Measurement” (SFAS No. 34) and No. approval which is the year subsequent to the year the earnings are generated. 36, “Financial Instruments: Disclosure and Presentation” and related revisions of previously released On January 1, 2006, the Company adopted the newly released Statements of Financial Accounting SFASs. The R.O.C. government enacted the Alternative Minimum Tax Act (the AMT Act), which became effective on January 1, 2006. The alternative minimum tax (AMT) imposed under the AMT Act is a. Effect of adopting the newly released SFASs and related revisions of previously released SFASs a supplemental tax levied at a rate of 10% which is payable if the income tax payable determined pursuant to the Income Tax Law is below the minimum amount prescribed under the AMT Act. The The Company had categorized its financial assets and liabilities upon initial adoption of the newly taxable income for calculating the AMT includes most of the income that is exempted from income released SFASs. The adjustments made to the carrying amounts of the financial instruments tax under various laws and statutes. The Company has considered the impact of the AMT Act in the categorized as financial assets or financial liabilities at fair value through profit or loss were determination of its tax liabilities. Stock-based Compensation Employee stock option plans that are amended or have options granted on or after January 1, included in the cumulative effect of changes in accounting principles; the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity. 2004 are accounted for by the interpretations issued by the Accounting Research and Development The effect of adopting the newly released SFASs is summarized as follows: Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Treasury Stock The Company’s stock held by subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by subsidiaries and cash dividends received by subsidiaries from the Company are recorded under capital surplus - treasury stock transactions. Foreign-currency Transactions Foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the Recognized as Cumulative Effect of Changes in Accounting Principles (Net of Tax) Recognized as a Separate Component of Shareholders’ Equity Financial assets or liabilities at fair value through profit or loss Available-for-sale financial assets $ (246,186) - $ - - $ (246,186) $ - The adoption of the newly released SFASs resulted in a increase in net income before cumulative effect of changes in accounting principles of NT$280,036 thousand, a increase in net income of NT$33,850 thousand, and a increase in basic earnings per share (after income tax) of NT$0.001, for the year ended December 31, 2006. balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at Effective January 1, 2006, the Company adopted the newly revised SFAS No. 5 and SFAS No. 25, prevailing exchange rates with the resulting gains or losses recognized in earnings. which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortized. Such a change in accounting principle did not have a material effect on the Company’s financial statements as of and for the year ended December 31, 2006. 80 b. Reclassifications Upon adoption of SFAS No. 34, certain accounts in the financial statements as of and for the year ended December 31, 2005 were reclassified to conform with the financial statements as of and for balance sheet date was recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. the year ended December 31, 2006. The previously issued financial statements as of and for the The Company entered into interest rate swap contracts to manage exposures to changes in year ended December 31, 2005 need not be restated. interest rates on existing assets or liabilities. These transactions were accounted for on an accrual basis, in which the cash settlement receivable or payable was recorded as an adjustment to Certain accounting policies prior to the adoption of the newly released SFASs are summarized as interest income or expense associated with the hedged items. follows: 1) Short-term investments Short-term investments that were publicly-traded, easily converted to cash, and not acquired for the purpose of controlling the investees or establishing close business relationship with Certain accounts in the financial statements as of and for the year ended December 31, 2005 have been reclassified to conform to the classifications prescribed by the newly released SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows: the investees were carried at the lower of cost or market value at the balance sheet date, with Balance sheet any temporary decline in value charged to current income. The market value of publicly-traded stocks was determined using the average-closing prices for the last month of the year. 2) Derivative financial instruments The Company entered into forward exchange contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts were recorded in New Taiwan dollars at the current rate of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted forward rates were amortized over the terms of the forward contracts using the straight-line method. At the end of each year, the receivables or payables arising from forward contracts were restated using the prevailing exchange rates with the resulting differences credited or charged to income. In addition, the receivables and payables related to the same forward contracts were netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. The Company entered into cross currency swap contracts to manage currency exposures on foreign-currency-denominated assets and liabilities. The principal amount was recorded using the current rates of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted rates were amortized over the terms of the contracts using the straight-line method. At the end of each year, the receivables or payables arising from cross-currency swap contracts were restated using prevailing exchange rate with the resulting differences credited or charged to income. In addition, the receivables and payables related to the contracts of the same counter party were netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the Short-term investments, net Other financial assets Prepaid expenses and other current assets Long-term investments accounted for using cost method Long-term bond investments Other long-term investments Accrued expenses and other current liabilities Financial assets at fair value through profit or loss Financial liabilities at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Statement of income Interest income Foreign exchange gain (loss), net Interest expense Unrealized valuation loss on short-term investments Loss on disposal of investments, net Valuation loss on financial instruments, net Loss on settlement and disposal of financial instruments, net Before Reclassification After Reclassification $ 47,055,347 2,403,929 1,254,779 807,490 18,548,308 10,227,000 (8,214,994) - - - - - $ - 1,106,030 1,171,773 - - - (7,980,715) 1,380,905 (234,279) 46,452,838 29,377,817 807,490 $ 72,081,859 $ 72,081,859 $ 2,769,978 (34,379) (2,429,568) (337,160) (149,498) - - $ 2,506,769 2,572,560 (1,180,484) - - (337,160) (3,742,312) $ (180,627) $ (180,627) 81 4. CASH AND CASH EQUIVALENTS Outstanding cross currency swap contracts as of December 31, 2006 and 2005: Cash and deposits in banks Repurchase agreements collaterized by government bonds Corporate notes December 31 2006 $ 68,898,115 31,241,594 - $ 100,139,709 2005 $ 37,007,192 47,963,226 413,165 $ 85,383,583 Maturity Date December 31, 2006 Contract Amount (In Thousands) Range of Interest Rates Paid Range of Interest Rates Received January 2007 to February 2007 US$ 820,000 3.19% - 5.91% 0.90% - 3.25% December 31, 2005 January 2006 to March 2006 US$ 2,089,000 4.15% - 4.54% 0.02% - 2.12% 5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Derivatives - financial assets Forward exchange contracts Cross currency swap contracts Derivatives - financial liabilities Cross currency swap contracts December 31 2006 2005 $ - 44,601 $ 26,720 1,354,185 $ 44,601 $ 1,380,905 $ 10,751 $ 234,279 The Company did not enter into any interest rate swap contract during the year ended December 31, 2006. The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their original maturities. The rescission loss of NT$28,295 thousand has been reclassified and included in the “loss on settlement and disposal of financial instruments” account. Net losses arising from derivative financial instruments for the year ended December 31, 2006 were NT$1,615,796 thousand (including realized settlement losses of NT$1,649,646 thousand and a valuation gain of NT$33,850 thousand). 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS The Company entered into derivative contracts during the years ended December 31, 2006 and 2005 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting prescribed by SFAS No. 34. Therefore, effective from January 1, 2006, the Company discontinued applying hedge accounting treatment for its derivative contracts. Outstanding forward contracts as of December 31, 2005: Open-end mutual funds Corporate bonds Government bonds Structured time deposits Agency bonds Corporate issued asset-backed securities Corporate notes Money market funds Publicly-traded stocks Currency Maturity Date Contract Amount (In Thousands) Current portion December 31, 2005 Sell US$/NT$ January 2006 US$ 60,000 December 31 2006 $ 25,967,061 4,150,202 1,998,067 499,242 - - - - - 32,614,572 (25,967,061) 2005 $ 6,198,982 11,853,044 1,776,279 - 14,496,728 11,582,590 263,249 260,686 21,280 46,452,838 (46,452,838) $ 6,647,511 $ - 82 Starting from 2004, the Company entered into investment management agreements with three well- Structured time deposits categorized as held-to-maturity financial assets consisted of the following: known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. Beginning from the third quarter of 2006, the Company transferred investment portfolios managed by the fund managers of US$1,277,789 thousand to TSMC Global Ltd. (TSMC-Global), a subsidiary of TSMC. The transferred investment portfolios held by TSMC Global are still being managed by the same fund managers in accordance with the aforementioned investment guidelines and terms. Principal Amount Interest Receivable Range of Interest Rates Maturity Date December 31, 2006 Step-up callable deposits Domestic deposits Callable range accrual deposits Domestic deposits Foreign deposits $ 4,500,000 $ 13,928 1.40% - 1.83% June 2007 to October 2008 3,911,520 3,259,600 4,808 4,998 (See below) (See below) September 2009 to December 2009 October 2009 to January 2010 As of December 31, 2006, structured time deposits categorized as available-for-sale financial assets $ 11,671,120 $ 23,734 consisted of the following: Step-up callable deposits Principal Amount Carrying Amount Range of Interest Rates Maturity Date Domestic deposits $ 500,000 $ 499,242 1.76% March 2008 December 31, 2005 Step-up callable deposits Domestic deposits Callable range accrual deposits Domestic deposits Foreign deposits $ 3,000,000 $ 8,145 1.40% - 1.50% June 2007 to October 2007 3,942,000 3,285,000 4,928 5,023 (See below) (See below) September 2009 to December 2009 October 2009 to January 2010 $ 10,227,000 $ 18,096 The interest rate of the step-up callable deposits was pre-determined by the Company and the banks. 7. HELD-TO-MATURITY FINANCIAL ASSETS Corporate bonds Structured time deposits Government bonds Current portion December 31 2006 $ 13,742,541 11,671,120 12,070,657 37,484,318 (8,510,823) 2005 $ 8,927,317 10,227,000 10,223,500 29,377,817 (602,509) 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 contracts, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the contracts prior to the maturity date. As of December 31, 2006 and 2005, the principal of the deposits that resided in banks located in Hong Kong amounted to US$80,000 thousand; those resided in banks located in Singapore $ 28,973,495 $ 28,775,308 amounted to US$20,000 thousand. 8. INVENTORIES, NET Finished goods Work in process Raw materials Supplies and spare parts Allowance for losses December 31 2006 $ 4,754,342 13,251,174 1,515,996 421,648 19,943,160 (790,946) 2005 $ 2,768,575 12,407,286 1,700,314 786,772 17,662,947 (1,404,992) $ 19,152,214 $ 16,257,955 83 9. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD 11. PROPERTY, PLANT AND EQUIPMENT December 31 2006 2005 Carrying Amount % of Ownership Carrying Amount % of Ownership Accumulated depreciation consisted of the following: Buildings Machinery and equipment Office equipment TSMC Global (Note 6) TSMC International Investment Ltd. (TSMC International) TSMC (Shanghai) Company Limited (TSMC-Shanghai) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Vanguard International Semiconductor Corporation (VIS) 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) VentureTech Alliance Fund III, L.P. (VTAF III) Chi Cherng Investment Co., Ltd. (Chi Cherng) Hsin Ruey Investment Co., Ltd. (Hsin Ruey) TSMC Japan K.K. (TSMC-Japan) Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe) Taiwan Semiconductor Manufacturing Company Korea (TSMC-Korea) $ 42,496,592 26,593,749 9,027,984 7,960,869 5,741,870 4,433,819 2,014,990 793,585 733,130 629,755 228,005 115,507 114,297 95,757 49,741 14,706 100 100 100 39 27 100 100 99 98 38 98 36 36 100 100 100 $ - 23,912,812 9,438,856 4,215,200 5,419,747 4,091,166 1,790,186 850,534 642,479 442,233 - 78,139 77,415 94,949 23,087 - - 100 100 32 27 100 100 99 98 46 - 36 36 100 100 - $ 101,044,356 $ 51,076,803 Technology license fees Software and system design costs Others In November 2006, the Company acquired 81 thousand shares in SSMC from EDB Investments Pte Ltd. under a Shareholders Agreement. After the acquisition, the number of SSMC shares owned by the Company increased from 382 thousand to 463 thousand; the percentage of ownership increased from 32% to 39%. 13. BONDS PAYABLE For the years ended December 31, 2006 and 2005, net equity in earnings of NT$5,526,727 thousand and net equity in losses of NT$1,052,045 thousand were recognized, respectively. The carrying amounts of the investments accounted for using the equity method and the related equity in earnings Domestic unsecured bonds: or losses of equity method investees were determined based on the audited financial statements of the investees as of and for the same periods ended as the Company. 10. FINANCIAL ASSETS CARRIED AT COST Issued in December 2000 and repayable in December 2005 and 2007 in two installments, 5.25% and 5.36% interest payable annually, respectively 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 December 31 2006 $ 49,595,917 361,401,800 6,469,533 2005 $ 42,902,526 310,626,317 5,662,986 $ 417,467,250 $ 359,191,829 December 31 2006 $ 4,038,551 1,517,575 36,942 2005 $ 4,985,806 1,623,276 72,062 $ 5,593,068 $ 6,681,144 December 31 2006 2005 $ 4,500,000 $ 4,500,000 15,000,000 19,500,000 (7,000,000) 15,000,000 19,500,000 - $ 12,500,000 $ 19,500,000 No interest was capitalized during the years ended December 31, 2006 and 2005. 12. DEFERRED CHARGES, NET As of December 31, 2006, future principal repayments for the Company’s bonds were as follows: Year of Repayment 2007 2009 2012 Amount $ 7,000,000 8,000,000 4,500,000 $ 19,500,000 Non-publicly traded stocks Mutual funds 84 December 31 2006 2005 $ 364,913 347,930 $ 472,500 334,990 $ 712,843 $ 807,490 B 0.3mm Service costs Interest costs Projected return on plan assets Amortization Net periodic pension costs 2006 2005 $ 178,432 163,740 (49,115) 12,339 $ 468,044 163,294 (49,627) 8,300 $ 305,396 $ 590,011 b. Reconciliation of funded status of the plan and accrued pension cost at December 31, 2006 and 14. OTHER LONG-TERM PAYABLES a. Components of net periodic pension cost for the year Most of the payables resulted from license agreements for certain semiconductor-related patents. As of December 31, 2006, future payments for other long-term payables were as follows: Year of Payment 2007 2008 2009 2010 2011 Current portion (classified under accrued expenses and other current liabilities) 15. PENSION PLANS Amount $ 617,892 337,043 337,043 337,043 260,767 1,889,788 (617,892) $ 1,271,896 The Labor Pension Act (the Act) became effective on July 1, 2005. The employees who were subject to the Labor Standards Law prior to July 1, 2005 were allowed to choose to be subject to the pension mechanism under the Act with their seniority as of July 1, 2005 retained or continue to be subject to the pension mechanism under the Labor Standards Law. Employees who joined the Company after July 1, 2005 can only be subject to the pension mechanism under the Act. The pension mechanism under the Act is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts starting from July 1, 2005, and recognized pension costs of NT$618,975 thousand and NT$261,096 thousand for the years ended December 31, 2006 and 2005, respectively. The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the pension fund monitoring committee (the Committee) and deposited in the Committee’s name in the Central Trust of China. 2005 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 transition obligation Unrecognized net loss Accrued pension cost Vested benefits c. Actuarial assumptions at December 31, 2006 and 2005 Discount rate used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Fund for the year Pension information on the defined benefit plan is summarized as follows: e. Payments from the Fund for the year 2006 2005 $ 102,920 3,873,239 3,976,159 2,964,923 6,941,082 (1,945,572) 4,995,510 (116,191) (1,349,203) $ 62,302 3,356,213 3,418,515 2,546,186 5,964,701 (1,681,365) 4,283,336 (124,491) (697,453) $ 3,530,116 $ 3,461,392 $ 106,645 $ 67,752 2006 2.25% 3.00% 2.50% 2005 2.75% 3.00% 2.75% 2006 2005 $ 230,577 $ 223,654 2006 2005 $ 10,823 $ 8,419 85 16. INCOME TAX The estimated creditable ratio for distribution of earnings of 2006 and 2005 was 0.54% and 2.88%, respectively. a. A reconciliation of income tax expense based on “income before income tax” at statutory rate and income tax currently payable was as follows: Years Ended December 31 2006 2005 The imputation credit allocated to shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made. $ (33,701,625) $ (23,454,856) e. All earnings generated prior to December 31, 1997 have been appropriated. Income tax expense based on “income before income tax” at statutory rate (25%) Tax effect of the following: Tax-exempt income Temporary and permanent differences Cumulative effect of changes in accounting principles Additional tax at 10% on unappropriated earnings Income tax credits 12,274,041 2,080,110 82,062 (1,156,130) 12,715,377 12,243,435 (860,918) - (1,489,709) 10,110,561 Income tax currently payable $ (7,706,165) $ (3,451,487) b. Income tax expense consisted of the following: f. As of December 31, 2006, investment tax credits consisted of the following: Regulation Item Statute for Upgrading Industries Purchase of machinery and equipment Income tax currently payable Other income tax adjustments Net change in deferred income tax assets Investment tax credits Temporary differences Adjustment in valuation allowance Years Ended December 31 2006 2005 $ (7,706,165) 335,411 $ (3,451,487) (71,853) Statute for Upgrading Industries Research and development expenditures (3,908,879) 1,522,734 2,206,317 (2,018,813) 1,768,265 3,529,500 Income tax expense $ (7,550,582) $ (244,388) Statute for Upgrading Industries Personnel training c. Net deferred income tax assets consisted of the following: Current deferred income tax assets Investment tax credits Noncurrent deferred income tax assets, net Investment tax credits Temporary differences Valuation allowance d. Integrated income tax information: December 31 2006 2005 $ 7,832,000 $ 7,013,000 $ 12,124,892 840,464 (7,204,229) $ 16,852,771 (682,270) (9,410,546) $ 5,761,127 $ 6,759,955 Statute for Upgrading Industries Investments in important $ 79,804 $ 79,804 2010 technology-based enterprises g. The profits generated from the following expansion and construction projects are exempt from income tax: Construction of Fab 8 - modules 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, 2006 and 2005 was NT$ 828,612 thousand and NT$20,087 thousand, respectively. h. The tax authorities have examined income tax returns of the Company through 2003. 86 Total Creditable Amount Remaining Creditable Amount $ 2,685,805 4,113,439 6,802,469 6,030,309 5,114,762 $ - - 3,955,466 6,030,309 5,114,762 $ 24,746,784 $ 15,100,537 $ 1,780,480 1,245,142 1,627,095 1,534,230 1,534,050 $ - - 1,627,095 1,534,230 1,534,050 $ 7,720,997 $ 4,695,375 $ 27,311 16,197 40,734 40,442 $ - - 40,734 40,442 $ 124,684 $ 81,176 Expiry Year 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 17. LABOR COST, DEPRECIATION AND AMORTIZATION Year Ended December 31, 2006 Year Ended December 31, 2005 Classified as Cost of Sales Classified as Operating Expenses Total Classified as Cost of Sales Classified as Operating Expenses The Company’s Articles of Incorporation as revised on May 10, 2005 provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly: Total a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve has equaled the Company’s paid-in capital; Labor cost Salary Labor and health insurance Pension Meal Welfare Others $ 9,877,603 686,125 610,873 449,505 184,560 225,615 $ 4,172,915 352,085 313,416 159,302 99,323 19,784 $ 14,050,518 1,038,210 924,289 608,807 283,883 245,399 $ 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 $ 12,034,281 $ 5,116,825 $ 17,151,106 $ 11,119,345 $ 4,535,403 $ 15,654,748 Depreciation Amortization $ 61,028,727 $ 1,430,069 $ 3,296,764 $ 918,011 $ 64,325,491 $ 2,348,080 $ 61,576,001 $ 1,763,527 $ 3,031,796 $ 1,603,496 $ 64,607,797 $ 3,367,023 18. SHAREHOLDERS’ EQUITY b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; c. Bonus to directors and supervisors and bonus to employees of the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors and supervisors. The Company may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; d. Any balance left over shall be allocated according to the resolution of the shareholders’ meeting. As of December 31, 2006, 889,740 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs is 4,448,702 thousand (one ADS represents five common shares). Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from The Company’s Articles of Incorporation also provide that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution. Any appropriations of the profits are recorded in the year of shareholder approval and given effect to treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain in the financial statements of that year. percentage of the Company’s paid-in capital. Capital surplus consisted of the following: From merger Additional paid-in capital From convertible bonds From treasury stock transactions From long-term investments Donations December 31 2006 $ 24,003,546 19,974,431 9,360,424 389,188 379,854 55 2005 $ 24,003,546 23,254,234 9,360,424 306,868 192,759 55 The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Company’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Company’s paid-in capital, up to 50% of the reserve may be transferred to capital. A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial assets, $ 54,107,498 $ 57,117,886 but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. 87 The appropriations of earnings for 2005 and 2004 had been approved in the shareholders’ meetings 19. STOCK-BASED COMPENSATION PLANS held on May 16, 2006 and May 10, 2005, respectively. The appropriations and dividends per share were as follows: Legal capital reserve Special capital reserve Employees’ profit sharing - in cash Employees’ profit sharing - in stock Cash dividends to shareholders Stock dividends to shareholders Bonus to directors and supervisors Appropriation of Earnings Dividends Per Share (NT$) For Fiscal Year 2005 For Fiscal Year 2004 For Fiscal Year 2005 For Fiscal Year 2004 $ 9,357,503 (1,585,685) 3,432,129 3,432,129 61,825,061 3,709,504 257,410 $ 8,820,201 2,226,427 3,086,215 3,086,215 46,504,097 11,626,024 231,466 $ 80,428,051 $ 75,580,645 $ 2.50 0.15 $ 2.00 0.50 The Company’s Employee Stock Option Plans under the 2004 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 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercisable. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TSE on the grant date. The shareholders’ meeting held on May 16, 2006 also resolved to distribute stock dividends out of Options of the aforementioned plans that had never been granted or had been granted but capital surplus in the amount of NT$3,709,504 thousand. subsequently cancelled had expired as of December 31, 2006. The amounts of the above appropriations of earnings for 2005 and 2004 are consistent with the Information about outstanding options for the years ended December 31, 2006 and 2005 was as resolutions of the meetings of the Board of Directors held on February 14, 2006 and February 22, follows: 2005, respectively. If the above bonus to employees, directors and supervisors had been paid entirely in cash and charged to earnings of 2005 and 2004, the basic earnings per share (after income tax) for the years ended December 31, 2005 and 2004 shown in the respective financial statements would Year ended December 31, 2006 have decreased from NT$3.79 to NT$3.50 and NT$3.97 to NT$3.70, respectively. The shares distributed as a bonus to employees represented 1.39% and 1.33% of the Company’s total outstanding common shares as of December 31, 2005 and 2004, respectively. As of January 11, 2007, the Board of Directors had not resolved the appropriation for earnings of 2006. The above information about the appropriations of bonus to employees, directors and supervisors is available at the Market Observation Post System website. Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998. Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year Year ended December 31, 2005 Balance, beginning of year Options granted Options exercised Options cancelled Balance, end of year Number of Options (In Thousands) Weighted-Average Exercise Price (NT$) 67,758 2,758 (14,550) (3,152) 52,814 64,367 14,864 (6,837) (4,636) 67,758 $ 39.4 40.1 40.1 43.7 39.6 $ 40.5 48.4 39.6 44.1 42.1 88 The number of outstanding options and exercise prices have been adjusted to reflect the Proceeds from sales of treasury stock for the year ended December 31, 2005 were NT$899,489 appropriations of dividends in accordance with the plans. As of December 31, 2006, information about outstanding and exercisable options was as follows: Options Exercisable thousand. As of December 31, 2006 and 2005, the book value of the treasury stock was NT$918,075 thousand; the market value was NT$2,290,026 thousand and NT$2,047,126 thousand, respectively. The Company’s stock held by subsidiaries is treated as treasury stock and the holders are entitled to the rights of shareholders, except that starting from June 24, 2005, pursuant to the revised Company Law, the holders are no longer entitled to vote in shareholders’ meetings. Options Outstanding Weighted-average Remaining Contractual Life (Years) Range of Exercise Price (NT$) Number of Options (In Thousands) $27.6 - $39.7 45.1 - 52.3 34,584 18,230 52,814 Weighted-average Exercise Price (NT$) Number of Options (In Thousands) Weighted-average Exercise Price (NT$) 21. EARNINGS PER SHARE 5.15 6.88 $ 35.5 47.5 $ 35.5 45.7 28,351 4,390 32,741 No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2006 and 2005. Had the Company used the fair value based method (based on the Black-Scholes model) to evaluate the options granted after January 1, 2004, the assumptions and pro forma results of the Company for the years ended December 31, 2006 and 2005 would have been as follows: Assumptions: Expected dividend yield Expected volatility Risk free interest rate Expected life Net income: Net income as reported Pro forma net income Earnings per share (EPS) - after income tax (NT$): Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS 20. TREASURY STOCK Years Ended December 31 2006 2005 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years $ 127,009,731 126,889,209 $ 93,575,035 93,458,191 $ 4.93 4.92 4.92 4.92 $ 3.63 3.63 3.63 3.63 Beginning Shares Stock Dividends Disposal Ending Shares (Shares in Thousands) Year ended December 31, 2006 Parent company stock held by subsidiaries 32,938 988 - 33,926 Year ended December 31, 2005 Parent company stock held by subsidiaries 45,521 2,242 14,825 32,938 Years Ended December 31 2006 2005 Before Income Tax After Income Tax Before Income Tax After Income Tax Basic EPS (NT$) Income before cumulative effect of changes in accounting principles Cumulative effect of changes in accounting principles $ 5.22 (0.01) $ 4.94 (0.01) $ 3.64 - $ 3.63 - Income for the year $ 5.21 $ 4.93 $ 3.64 $ 3.63 Diluted EPS (NT$) Income before cumulative effect of change in accounting principles Cumulative effect of changes in accounting principles $ 5.22 (0.01) $ 4.93 (0.01) $ 3.64 - $ 3.63 - Income for the year $ 5.21 $ 4.92 $ 3.64 $ 3.63 EPS is computed as follows: Year ended December 31, 2006 Basic EPS Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (In Thousands) EPS (NT$) Before Income Tax After Income Tax Income available to common shareholders Effect of dilutive potential common stock - stock options $134,478,251 - $ 127,009,731 - 25,788,555 24,628 $ 5.21 $ 4.93 Diluted EPS Income available to common shareholders (including effect of dilutive potential common stock) $134,478,251 $ 127,009,731 25,813,183 $ 5.21 $ 4.92 Year ended December 31, 2005 Basic EPS Income available to common shareholders Effect of dilutive potential common stock - stock options Diluted EPS $ 93,819,423 - $ 93,575,035 - 25,763,320 12,647 $ 3.64 $ 3.63 Income available to common shareholders (including $ 93,819,423 $ 93,575,035 25,775,967 $ 3.64 $ 3.63 effect of dilutive potential common stock) 89 22. DISCLOSURES FOR FINANCIAL INSTRUMENTS a. Fair values of financial instruments were as follows: December 31 2006 Carrying Amount Fair Value 2005 Carrying Amount Fair Value $ 44,601 32,614,572 37,484,318 $ 44,601 32,614,572 37,375,517 $ 1,380,905 46,452,838 29,377,817 $ 818,550 46,452,838 29,063,831 6,371,625 17,044,040 5,419,747 10,991,064 Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Investments accounted for using equity method (with market price) Liabilities d. As of December 31, 2006 and 2005, financial assets exposed to fair value interest rate risk were NT$70,143,491 thousand and NT$77,190,280 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$10,751 thousand and NT$234,279 thousand, respectively, and financial assets exposed to cash flow interest rate risk were NT$7,171,120 thousand and NT$7,227,000 thousand, respectively. e. The Company recognized an unrealized gain of NT$242,248 thousand in shareholders’ equity for the changes in fair value of available-for-sale financial assets for the year ended December 31, 2006. The Company also recognized an unrealized gain of NT$319,367 thousand in shareholders’ equity for the changes in available-for-sale financial assets held by equity method investees for the year ended December 31, 2006. f. Information about financial risks Financial liabilities at fair value through profit or loss Bonds payable (including current portion) Other long-term payables (including current portion) 10,751 19,500,000 2,981,754 10,751 19,817,149 2,981,754 234,279 19,500,000 4,174,603 173 19,924,923 4,174,603 b. Methods and assumptions used in the determination of fair values of financial instruments 1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payables to contractors and equipment suppliers. The carrying amounts of these financial instruments approximate their fair values. 2) Fair values of financial assets/liabilities at fair value through profit or loss were determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. 1) Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign- currency-denominated assets and liabilities. Therefore, the market risk of derivatives will be offset by the foreign exchange risk of these assets and liabilities. Available-for-sale financial assets held by the Company are mainly fixed-interest-rate debt securities. Therefore, the fluctuations in market interest rates would result in changes in fair values of these debt securities. 2) Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the foregoing financial instruments are reputable financial institutions, business organizations, and government agencies. Management believes that the Company’s exposure to default by those parties is low. 3) Fair values of available-for-sale and held-to-maturity financial assets were based on their quoted market prices; while fair values of structured time deposits were estimated using valuation techniques. 3) Liquidity risk. The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low. 4) Cash flow interest rate risk. The Company mainly engages in investments in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. 4) Fair value of bonds payable was based on their quoted market price. 5) Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount. c. Gains recognized for the changes in fair value of derivatives estimated using valuation techniques were NT$33,850 thousand for the year ended December 31, 2006. 90 23. RELATED PARTY TRANSACTIONS Transactions with the aforementioned parties, other than those disclosed in other notes, are The Company engages in business transactions with the following related parties: a. Industrial Technology Research Institute (ITRI), the chairman of the Company was one of its supervisors, who resigned in October 2006. b. Philips, a major shareholder of the Company. c. Subsidiaries TSMC-North America TSMC-Shanghai TSMC-Europe TSMC-Japan TSMC-Korea d. Investees GUC (with a controlling interest) VIS (accounted for using equity method) SSMC (accounted for using equity method) e. Indirect subsidiaries WaferTech, LLC (WaferTech) TSMC Technology, Inc. (TSMC Technology) f. Indirect investee VisEra, originally an investee over which the Company had a controlling interest; beginning in November 2005, VisEra became an indirect investee accounted for using the equity method due to changes in investment structure. summarized as follows: For the year Sales TSMC-North America Philips Others Purchases WaferTech SSMC TSMC-Shanghai VIS 2006 2005 Amount % Amount % $ 190,459,073 4,024,990 972,872 60 1 - $ 153,618,916 3,298,770 650,239 57 1 - $ 195,456,935 61 $ 157,567,925 58 $ 12,530,552 6,820,632 4,405,843 3,911,838 27 15 10 8 $ 11,137,313 5,729,672 1,405,030 4,142,457 28 15 4 10 $ 27,668,865 60 $ 22,414,472 57 Manufacturing expenses - technical assistance fees Philips (Note 25a) $ 755,904 1 $ 581,059 Marketing expenses - commission TSMC-Japan TSMC-Europe TSMC-Korea General and administrative expenses - rental expense GUC Research and development expenses GUC TSMC Technology Sales of property, plant and equipment TSMC-Shanghai VisEra Non-operating income and gains SSMC (primarily technical service income, see Note 25e) TSMC-Shanghai VIS (primarily technical service income, see Note 25h) VisEra - 18 16 - $ 254,758 236,454 9,981 16 15 - $ 243,646 221,164 - $ 501,193 31 $ 464,810 34 $ 14,606 $ 39,421 37,559 - - - $ 16,744 $ 19,467 - $ 76,980 - $ 19,467 - - - - $ 401,561 - 44 - $ 125,381 534,279 13 52 $ 401,561 44 $ 659,660 65 $ 314,953 278,295 261,237 246,242 $ 1,100,727 3 2 2 2 9 $ 316,243 180,234 210,720 308,071 4 3 3 4 $ 1,015,268 14 (Continued) 91 As of December 31 Receivables TSMC-North America Philips Others Other receivables TSMC-Shanghai VIS SSMC TSMC-North America VisEra TSMC Technology Others Payables WaferTech VIS Philips TSMC-Shanghai SSMC Others Other long-term payables Philips (Note 25a) Deferred credits TSMC-Shanghai VisEra 2006 2005 Amount % Amount % The Company leased part of its office space from GUC with a quarterly rental of NT$4,186 thousand; beginning from June 2006, the renewed quarterly rental was NT$3,473 thousand. The Company also leased certain buildings and facilities to VisEra with a monthly rental of NT$7,684 thousand (classified $ 16,461,956 250,919 156,634 97 2 1 $ 20,407,621 573,565 69,418 97 3 - $ 16,869,509 100 $ 21,050,604 100 $ 123,853 121,911 69,568 59,547 58,980 3,785 11,622 28 27 15 13 13 1 3 $ 28,593 74,457 149,251 198,505 374,202 972,563 143 2 4 8 11 21 54 - $ 449,266 100 $ 1,797,714 100 $ 864,733 717,562 688,591 478,714 459,305 118,011 26 22 21 14 14 3 $ 1,133,217 563,240 693,956 274,820 485,873 91,091 35 17 21 9 15 3 under the non-operating income and gains). 24. SIGNIFICANT LONG-TERM LEASES The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from March 2008 to December 2020 and can be renewed upon expiration. As of December 31, 2006, future lease payments were as follows: Year 2007 2008 2009 2010 2011 2012 and thereafter Amount $ 291,646 260,249 251,671 204,603 203,089 1,487,039 $ 2,698,297 $ 3,326,916 100 $ 3,242,197 100 25. SIGNIFICANT COMMITMENTS AND CONTINGENCIES $ 403,375 100 $ 1,100,475 100 The significant commitments and contingencies of the Company as of December 31, 2006, excluding those disclosed in other notes, were as follows: $ 723,661 124,350 61 11 $ 641,762 186,525 51 15 $ 848,011 72 $ 828,287 66 (Concluded) 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 The terms of sales to related parties were not significantly different from those of sales to third Technical Cooperation Agreement. Under this amended Technical Cooperation Agreement, the parties. For other related party transactions, prices were determined in accordance with mutual Company will pay Philips royalties based on a fixed amount mutually agreed-on, rather than under agreements. The Company deferred the gains (classified under the deferred credits) derived from sales of property, plant and equipment to TSMC-Shanghai and VisEra, and then recognized such gains (classified under a certain percentage of the Company’s annual net sales. The Company and Philips agreed to cross license the patents owned by each party. The Company also obtained through Philips a number of cross patent licenses. the non-operating income and gains) over the depreciable lives of the disposed assets. b. Under a technical cooperation agreement with ITRI, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. The agreement was automatically renewed in 1992, 1997, 2002 and on January 1, 2007. 92 c. Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of December 31, h. The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 2004. The Company receives compensation for such 2006, the Company had a total of US$116,297 thousand of guarantee deposits. technology transfer in the form of royalty payments from VIS computed at specific percentages d. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for the Company certain products at prices as agreed by the parties. in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its i. TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 semiconductor company which was renamed as NXP B.V. in September, 2006. The Company and against Semiconductor Manufacturing International Corporation (“SMIC”), SMIC (Shanghai) and NXP purchased all the SSMC shares owned by EDB Investments Pte Ltd. Pro rata according to the SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. misappropriated TSMC’s trade secrets. These suits were settled out of court on January 30, 2005. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and As part of the settlement, SMIC shall pay TSMC US$175,000 thousand over six years to resolve Philips (now NXP) committed to buy specific percentages of the production capacity of SSMC. The TSMC’s claims. As of December 31, 2006, SMIC had paid US$60,000 thousand in accordance Company and Philips (now NXP) are required, in the aggregate, to purchase up to 70% of SSMC's with the terms of this settlement agreement. In August 2006, TSMC, TSMC-North America capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any and Wafertech filed a lawsuit against SMIC in Alameda County Superior Court in California for party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage breach of aforementioned settlement agreement, breach of promissory notes and trade secret of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed e. The Company provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. The Company receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement a cross-complaint against TSMC in the same court, alleging TSMC of breach of the settlement agreement and implied covenant of good faith and fair dealing, in response to TSMC's August complaint. The outcome of this litigation cannot be determined at this time. shall remain in force for ten years and may be automatically renewed for successive periods of five j. Amounts available under unused letters of credit as of December 31, 2006 were NT$6,480 years each unless pre-terminated by either party under certain conditions. thousand. f. Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation 26. ADDITIONAL DISCLOSURES (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives written notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated. Under the Termination Agreement, the Company will be relieved of any further obligation to transfer any additional technology. In addition, the Company granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008. g. In December 2003, the Company entered into a Technology Development and License Agreement with Freescale Semiconductor, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. The Company will also license related 90-nm SOI technology from Freescale Semiconductor, Inc. Any Following are the additional disclosures required by the SFB for the Company and its investees: a. Financing provided: Please see Table 1 attached; b. Endorsement/guarantee provided: Please see Table 2 attached; c. Marketable securities held: Please see Table 3 attached; d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached; intellectual properties arising out of the co-development project shall be jointly owned by the parties. e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the In accordance with the agreement, the Company will pay royalties to Freescale Semiconductor, Inc. paid-in capital: Please see Table 5 attached; and will share a portion of the costs associated with the joint development project. f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid- in capital: None; 93 g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the 27. SEGMENT FINANCIAL INFORMATION paid-in capital: Please see Table 6 attached; a. Industry financial information h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached; The Company operates in one industry. Therefore, the disclosure of industry financial information is not applicable to the Company. i. Names, locations, and related information of investees on which the Company exercises significant influence: Please see Table 8 attached; b. Export sales j. Information about derivatives of investees over which the Company has a controlling interest: Area TSMC-Shanghai entered into forward exchange contracts during the year ended December 31, 2006 to manage exposures due to foreign exchange rate fluctuations. Americas Asia Europe and others Outstanding forward exchange contracts as of December 31, 2006: Years Ended December 31 2006 2005 $ 153,974,683 102,121,046 29,109,649 $ 119,838,520 99,594,071 20,041,920 $ 285,205,378 $ 239,474,511 Currency Maturity Date Contract Amount (In Thousands) The export sales information is based on the amounts billed to customers within the areas. December 31, 2006 c. Major customers representing at least 10% of gross sales Buy US$/JPY January 2007 JPY 38,610 Net realized settlement gains arising from TSMC-Shanghai’s forward transactions for the year ended December 31, 2006 were NT$2,543 thousand. Customer A Customer B 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, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 9 attached. 2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial reports: Please see Note 23. Years Ended December 31 2006 Amount $ 190,459,073 25,214,878 2005 Amount $ 153,618,916 29,258,338 % 60 8 % 57 11 94 TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Investees FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) No. Financing Name Counter-party Financial Statement Account 1 TSMC International TSMC Development Other receivables Note 1: The type No. 2 represents necessary for short-term financing. Note 2: Not exceeding the issued capital of the Company. Maximum Balance for the Period (US$ in Thousands) $ 1,140,860 (US$ 35,000) 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 $ - 1.50% 2 $ - Operating capital $ - - $ - N/A Financing Company's Financing Amount Limits (US$ in Thousands) $ 32,203,805 (US$ 987,968) (Note 2) TABLE 2 Taiwan Semiconductor Manufacturing Company Limited ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement/ Guarantee Provider Name Counter-party Nature of Relationship (Note 2) Limits on Each Counter- party’s Endorsement/ Guarantee Amounts 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) 0 TSMC 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 otherwise approved by Board of Directors. $ 1,303,840 (US$ 40,000) $ 1,955,760 (US$ 60,000) Note 1: 25% of the net worth of the Company as of December 31, 2006. Note 2: The No. 2 represents a subsidiary in which the Company holds directly over 50% of the equity interest. The No. 3 represents an investee in which the Company holds directly and indirectly over 50% of the equity interest. $ - $ - - - $ 126,995,321 - - 95 TABLE 3 Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES HELD DECEMBER 31, 2006 (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, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note The Company Government bond 2004 Government Bond Series B 2003 Government Bond Series B 2006 Government Bond Series D 2005 Government Bond Series A 2003 Government Bond Series B 2003 Asian Development Bank Govt. Bond 2003 Government Bond Series F 2004 Kaohsiung Municipal Series A 2003 Government Bond Series H European Investment Bank Bonds 2002 Government Bond Series B 2004 Kaohsiung Municipal Series B 2003 European Bank for Recomspruction and Developement Govt. Bond Series A Open-end mutual funds NITC Bond Fund ABN AMRO Bond Fund Fuh Hwa Bond Mega Diamond Bond Fund Prudential Financial Bond Fund NITC Taiwan Bond JF Taiwan Bond Fund Cathay Bond Jih Sun Bond Fund Dresdner Bond DAM Fund ABN AMRO Income President James Bond AIG Taiwan Bond Fund JF Taiwan First Bond Fund Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund Taishin Lucky Fund Polaris De-Bao Fund TIIM High Yield HSBC Taiwan Money Management Invesco Bond Fund Corporate bond Hua Nan Bank Cathay Bank Taiwan Power Company Formosa Petrochemical Corporation Taiwan Power Company Formosa Petrochemical Corporation Nan Ya Plastics Corporation Chinese Petroleum Corporation China Steel Corporation - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 Held-to-maturity financial assets 〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃 Hold-to-maturity financial assets 〃〃〃〃 - - - - - - - - - - - - - $ 999,779 998,288 3,657,320 3,049,919 1,647,851 835,840 797,299 620,000 401,568 372,265 350,399 249,998 88,198 22,219 175,156 125,122 139,333 103,751 93,312 85,145 109,720 88,165 95,553 63,947 65,496 78,629 66,826 62,183 76,593 78,624 63,273 44,685 34,093 27,176 - - - - - - - - - 3,655,939 2,639,459 1,667,908 1,602,947 1,516,294 1,314,669 1,299,088 1,265,092 1,202,901 1,107,206 1,012,377 1,010,426 1,002,595 939,082 890,660 868,076 806,386 701,069 554,863 506,250 403,774 1,545,864 1,159,576 1,046,799 397,963 4,080,391 3,566,946 2,773,810 1,451,378 1,000,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 999,779 998,288 3,657,446 3,049,726 1,645,179 875,103 796,354 618,760 400,920 400,000 350,378 250,004 90,000 3,655,939 2,639,459 1,667,908 1,602,947 1,516,294 1,314,669 1,299,088 1,265,092 1,202,901 1,107,206 1,012,377 1,010,426 1,002,595 939,082 890,660 868,076 806,386 701,069 554,863 506,250 403,774 1,545,864 1,159,576 1,046,799 397,963 4,087,276 3,563,249 2,781,223 1,450,722 999,689 96 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Shares/Units (In Thousands) Formosa Plastic Corporation Shanghai commercial & Saving Bank Formosa Chemicals & Fiber Corporation Stocks TSMC Global TSMC International SSMC VIS TSMC Partners TSMC-North America GUC TSMC-Japan TSMC-Europe TSMC-Korea United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Hontung Venture Capital Co., Ltd. Fund Horizon Ventures Fund Crimson Asia Capital Capital TSMC-Shanghai Emerging Alliance VTAF II VTAF III Chi Cheng Hsin Ruey Stock TSMC VIS Stock TSMC Chi Cherng Hsin Ruey - - - Subsidiary Hold-to-maturity financial assets 〃〃 Invest accounted for using equity method Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Subsidiary Investee with controlling financial interest 〃〃〃〃〃〃 Subsidiary Subsidiary Subsidiary - - - - - - Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary 〃〃〃 Financial assets carried at cost 〃〃〃 Financial assets carried at cost 〃 Investment accounted for using equity method 〃〃〃〃〃 442,262 5,741,870 December 31, 2006 Carrying Value (US$ in Thousands) $ 516,663 286,497 66,856 42,496,592 26,593,749 7,960,869 4,433,819 2,014,990 629,755 95,757 49,741 14,706 193,584 105,000 40,000 26,329 280,179 67,751 Percentage of Ownership N/A N/A N/A 100 100 39 27 100 100 38 100 100 100 10 7 2 10 12 1 Note Market Value or Net Asset Value (US$ in Thousands) $ 519,076 286,408 68,123 42,496,592 26,593,749 6,794,726 10,813,301 4,433,819 2,014,990 6,230,739 95,757 49,741 14,706 299,493 223,062 51,398 26,310 280,179 67,751 9,027,984 100 9,027,984 793,585 733,130 228,005 115,507 114,297 99 98 98 36 36 793,585 731,808 225,545 574,071 573,809 - - - 1 987,968 463 300 11,000 41,263 6 - 80 16,783 10,500 4,000 2,633 - - - - - - - - Parent Company Available-for-sale financial assets 16,947 1,143,941 N/A 1,143,941 Equity method investee Investments accounted for using 5,032 107,224 - 107,224 equity method Parent Company Available-for-sale financial assets 16,979 1,146,085 N/A 1,146,085 Treasury stock of NT$458,564 thousand is deducted from the carrying value Treasury stock of NT$459,511 thousand is deducted from the carrying value (Continued) 97 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note TSMC International VIS Stock InveStar InveStar II TSMC Development TSMC Technology TSMC Development WaferTech Partners Common stock VisEra Holdings Equity method investee Investments accounted for using 3,711 $ 82,661 - $ 82,661 equity method Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Investments accounted for using 9,207 US$ 26,185 97 US$ 26,185 equity method 〃〃〃 51,300 1 1 US$ US$ US$ 46,195 659,356 6,058 97 100 100 US$ US$ US$ 46,195 659,356 4,473 Investments accounted for using - US$ 282,420 100 US$ 282,420 equity method Equity method investee Investments accounted for using 25,000 US$ 34,000 49 US$ 34,000 Emerging Alliance VTAF II 98 Common stock NetLogic Microsystems, Inc. Pixim, Inc. RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Ikanos Communication, Inc. Audience, Inc. Axiom Microdevices, Inc. Centrality Comunications Miradia, Inc. Mobilygen Mosaic Systems, Inc. Next IO, Inc. NuCORE Technology Inc. Optichron, Inc. Optimal Corporation Pixim, Inc. Reflectivity, Inc. Teknovus, Inc. Zenasis Technologies, Inc. Option Pixim, Inc. Common stock Beceem Communications Leadtrend Yobon Sentelic Preferred stock 5V Technologies, Inc. Ageia Technologies, Inc. Aquantia Corporation Audience, Inc. Axiom Microdevices, Inc. GemFire Corporation Impinj, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - equity method Financial assets at fair value through profit or loss Financial assets carried at cost 〃〃 Available-for-sale financial assets Financial assets carried at cost 〃〃〃〃〃〃〃〃〃〃〃〃〃 Financial assets carried at cost Financial assets carried at cost 〃〃〃 Financial assets carried at cost 〃〃〃〃〃〃 84 US$ 1,828 - US$ 1,828 1,924 4,247 10,800 515 1,654 1,000 1,325 3,040 1,415 2,481 800 2,254 714 582 2,193 4,848 6,977 2,410 242 650 1,150 1,675 1,200 2,357 2,030 1,264 2,208 3,015 600 257 US$ US$ $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 512 1,648 100,000 4,473 250 1,000 1,800 1,000 750 12 500 1,455 1,000 600 583 531 1,327 1,399 4 13 6 2 1 3 3 3 1 6 2 2 4 4 - 4 3 5 - N/A 1,600 660 787 2,040 1,768 2,074 1,150 474 1,466 68 500 1 6 13 15 11 2 5 1 2 1 - US$ US$ $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 512 1,648 100,000 4,473 250 1,000 1,800 1,000 750 12 500 1,455 1,000 600 583 531 1,327 1,399 - 1,600 660 787 2,040 1,768 2,074 1,150 474 1,466 68 500 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value ( US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note VTAF III Investar Investar II Miradia, Inc. Next IO, Inc. Optichron, Inc. Power Analog Microelectronics Powerprecise Solutions, Inc. RichWave Technology Corp. Teknovus, Inc. Tzero Technologies, Inc. Xceive Common stock M2000, Inc. Mutual-Pak Limited Quellan, Inc. SynDiTec, Inc. Validity-Pak Limited Common stock Monolithic Power Systems, Inc. Broadtek Electronics Corp. Broadtek Electronics Corp. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic,Inc. IP Unity, Inc. Memsic, Inc. NanoAmp Solutions, Inc. Sonics, Inc. Common stock Monolithic Power Systems, Inc. RichTek Technology Corp. Geo Vision, Inc. RichTek Technology Corp. Geo Vision, Inc. eChannelOpen Holding, Inc. eLCOS Microdisplay Technology, Ltd. EoNEX Technologies, Inc. Sonics, Inc. Epic Communications, Inc. EON Technology, Corp. Goyatek Technology, Corp. Capella Microsystems (Taiwan), Inc. Trendchip Technologies Corp. Ralink Technology (Taiwan), Inc. Auden Technology MFG Co., Ltd. Preferred stock eLCOS Microdisplay Technology, Ltd. Alchip Technologies Limited FangTek, Inc. Kilopass Technology, Inc. Memsic, Inc. NanoAmp Solutions, Inc. Sonics, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Financial assets carried at cost 〃〃〃〃〃〃〃〃 Financial assets carried at cost 〃〃〃〃 Financial assets at fair value through profit or loss 〃 Available-for-sale financial assets Financial assets carried at cost Financial assets carried at cost 〃〃〃〃 Financial assets at fair value through profit or loss 〃〃 Available-for-sale financial assets 〃 Financial assets carried at cost 〃〃〃〃〃〃〃〃〃〃 Financial assets carried at cost 〃〃〃〃〃〃 2,740 216 353 2,000 1,445 500 518 730 714 1,500 170 2,231 4,332 5,333 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,424 182 869 1,500 1,400 231 119 1,500 1,000 1,500 52 2,500 720 2,000 1,975 US$ 21,939 29 116 530 1,831 1,008 2,724 541 1,843 US$ US$ US$ US$ US$ US$ US$ US$ 10 40 154 1,221 494 1,500 853 3,530 864 US$ 9,604 255 46 227 15 358 270 55 2,220 191 4,247 2,088 534 2,000 1,833 953 2,667 3,531 6,930 3,887 2,289 375 2,115 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,045 229 1,824 73 251 27 3,048 32 37 1,175 545 210 574 791 223 3,500 2,950 3,250 2,000 1,560 1,500 3,082 3 - 2 13 11 2 - 2 2 4 13 7 7 7 7 - - 2 9 1 9 2 2 3 - - - - 4 1 5 - 1 7 7 2 4 3 4 8 15 20 6 7 1 6 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,424 182 869 1,500 1,400 231 119 1,500 1,000 1,500 52 2,500 720 2,000 21,939 10 40 154 1,221 494 1,500 853 3,530 9,604 2,045 229 1,824 73 251 27 3,048 32 37 1,175 545 210 574 791 223 3,500 2,950 3,250 2,000 1,560 1,500 3,082 (Continued) 99 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note GUC TSMC Global 100 Open-end mutual funds ABN AMRO Bond Fund Ta chong Bond Fund Dresdner Bond DAM Fund NITC Taiwan Bond AIG Taiwan Bond Fund Fuh Hwa You Li Bond Fund Stock Global Unichip Corporation-North America Global Unichip Japan Government bond United States Treas Nts Corporate bonds Abbott Labs Abbott Labs Ace Ltd. Aig Sunamerica Global Fing Ix Allstate Life Global Fdg Secd American Express Co. American Gen Fin Corp. American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn Ameritech Capital Funding Co. Amgen Inc. Anz Cap Tr I Associates Corp. North Amer Axa Finl Inc. Bank New York Inc. Bank One Corp. Bank One Corp. Bank Utd Houston Tx Mtbn Bear Stearns Cos Inc. Beneficial Corp. Mtn Bk Entry Berkshire Hathaway Fin Corp. Chase Manhattan Corp. New Chase Manhattan Corp. New Chubb Corp. Cit Group Hldgs Inc. Citicorp Cogentrix Energy Inc. Colonial Pipeline Co. Consolidated Edison Inc. Countrywide Fdg Corp. Mtn 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. - - - - - - Subsidiary Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃 Investments accounted for using equity method 〃 Available-for-sale financial assets Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 $ 2,325 2,306 2,592 2,132 2,355 2,018 100 35,041 30,037 30,036 30,035 30,031 25,035 6,396 2,681 $ N/A N/A N/A N/A N/A N/A 100 100 35,041 30,037 30,036 30,035 30,031 25,035 6,396 2,681 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 151,045 N/A US$ 151,045 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,505 2,547 1,001 1,000 2,956 3,452 1,620 3,448 1,971 1,001 3,092 801 483 2,905 972 2,541 2,151 1,487 3,365 2,045 528 3,379 2,297 1,486 5,077 2,115 2,116 3,027 1,372 3,751 1,494 2,910 2,037 1,500 734 2,177 977 751 2,020 4,928 2,820 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 1,505 2,547 1,001 1,000 2,956 3,452 1,620 3,448 1,971 1,001 3,092 801 483 2,905 972 2,541 2,151 1,487 3,365 2,045 528 3,379 2,297 1,486 5,077 2,115 2,116 3,027 1,372 3,751 1,494 2,910 2,037 1,500 734 2,177 977 751 2,020 4,928 2,820 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Den Danske Bk Aktieselskab Diageo Plc Emerson Elec Co. European Invt Bk European Invt Bk Federal Home Ln Bks Fifth Third Bk Cincinnati Oh Fleet Boston Corp. Fleet Finl Group Inc. New Fpl Group Cap Inc. Ge Global Ins Hldg Corp. General Elec Cap Corp. Mtn 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. Greenpoint Finl Corp. Hancock John Global Fdg Ii Mtn 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 Medium Term Sr Nts Heller Finl Inc. Hershey Foods Corp. Household Fin Corp. Household Fin Corp. Household Intl Inc. Hsbc Fin Corp. Hsbc Fin Corp. Mtn Huntington National Bank Ing Sec Life Instl Fdg International Business Machs Intl Lease Fin Corp. Mtn Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Jackson Natl Life Global Fdg Key Bk Na Med Term Nts Bk Entr KeyCorp. Mtn Book Entry Kraft Foods Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lincoln Natl Corp. In Marshall + Ilsley Corp. Mbna America Bank Na Y Merita Bk Ltd. Ny Brh Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Mgic Invt Corp. Monumental Global Fdg Ii - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,019 3,444 3,215 3,970 6,057 7,937 2,427 2,643 905 849 1,915 3,888 8,759 8,282 2,119 3,292 4,989 3,456 968 2,896 5,132 975 5,037 1,345 3,205 2,952 1,929 1,504 2,903 501 2,851 3,028 5,096 1,886 2,483 2,217 2,939 4,138 3,298 1,000 4,401 3,010 1,000 1,626 487 989 3,150 1,077 500 8,420 6,403 501 3,453 1,985 4,865 3,369 1,204 1,468 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,019 3,444 3,215 3,970 6,057 7,937 2,427 2,643 905 849 1,915 3,888 8,759 8,282 2,119 3,292 4,989 3,456 968 2,896 5,132 975 5,037 1,345 3,205 2,952 1,929 1,504 2,903 501 2,851 3,028 5,096 1,886 2,483 2,217 2,939 4,138 3,298 1,000 4,401 3,010 1,000 1,626 487 989 3,150 1,077 500 8,420 6,403 501 3,453 1,985 4,865 3,369 1,204 1,468 (Continued) 101 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Monumental Global Fdg Ii 2002a Monunmetal Global Fdg Ii Mony Group Inc. Morgan Stanley Morgan Stanley National City Corp. National Westminster Bk Plc Nationwide Bldg Soc Nationwide Life Global Fdg I Nationwide Life Global Mtn Nucor Corp. Oracle Corp. / Ozark Hldg Inc. Pepsico Inc. Mtn Book Entry Pnc Fdg Corp. Popular North Amer Inc. Praxair Inc. Premark Intl Inc. Pricoa Global Fdg I Mtn Principal Finl Group Australia Principal Life Global Fdg I Gl Protective Life Secd Trs Protective Life Secd Trs Mtn Prudential Ins Co. Amer Public Svc Elec Gas Co. Regions Finl Corp. New Safeco Corp. Sbc Communications Inc. Sbc Communications Inc. Simon Ppty Group Lp Slm Corp. Medium Term Nts Sp Powerassests Ltd. Global St Paul Cos Inc. Mtn Bk Ent Suntrust Bk Atlanta Ga Medium Tiaa Global Mkts Inc. Unitedhealth Group Inc. Us Bk Natl Assn Cincinnati Oh Vodafone Airtouch Plc Wachovia Corp. New Washington Mut Bk Fa Washington Mut Inc. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Wells Fargo + Co. New Med Trm Westfield Cap Corp. Ltd. Wps Resources Corp. Corporate issued asset - backed securities American Home Mtg Invt Tr Americredit Auto Rec Tr Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receiva Americredit Automobile Receivb Atlantic City Elc Trns Fdgllc Ba Cr Card Tr Banc Amer Coml Mtg Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000 1,961 2,175 1,926 2,126 3,410 1,323 3,537 3,501 1,485 3,797 1,973 3,619 1,007 2,910 3,138 2,729 3,401 1,013 1,165 2,913 3,390 2,629 3,682 2,371 715 1,041 697 1,009 8,998 969 2,550 3,442 500 3,000 2,915 4,449 2,040 3,997 1,692 1,000 3,001 2,943 4,311 2,005 1,047 116 1,004 1,116 2,598 3,269 4,609 2,891 420 4,300 2,869 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000 1,961 2,175 1,926 2,126 3,410 1,323 3,537 3,501 1,485 3,797 1,973 3,619 1,007 2,910 3,138 2,729 3,401 1,013 1,165 2,913 3,390 2,629 3,682 2,371 715 1,041 697 1,009 8,998 969 2,550 3,442 500 3,000 2,915 4,449 2,040 3,997 1,692 1,000 3,001 2,943 4,311 2,005 1,047 116 1,004 1,116 2,598 3,269 4,609 2,891 420 4,300 2,869 102 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Banc Amer Fdg 2006 I Tr Bank Of Amer Lease Equip Tr Bear Stearns Alt A Tr Bear Stearns Arm Tr Bear Stearns Arm Tr Bear Stearns Coml Mtg Secs Inc. Bear Stearns Coml Mtg Secs Inc. Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Prime Auto Rec Capitial One Prime Auto Receiv Caterpillar Finl Asset Tr Caterpillar Finl Asset Tr Cbass Tr Cendant Rent Car Fdg Aesop Llc Cit Equip Coll Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citibank Cr Card Issuance Tr CitiCorp. Mtg Secs Cnh Equip Tr Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Cwabs Cwabs Inc. Cwmbs Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Deere John Owner Tr Drive Auto Receivables Tr Fifth Third Auto Tr First Franklin Mtg Ln Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr Ford Credit Auto Owner Trust Ge Cap Cr Card Master Nt Tr Granite Mtgs Plc Gs Mtg Secs Corp. Gsamp Tr Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Hertz Veh Fing Llc Holmes Fing No 8 Plc Home Equity Mtg Tr 2006 4 Hsbc Automotive Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Impac Cmb Tr Impac Cmb Tr Lb Ubs Coml Mtg Tr Long Beach Mtg Ln Tr Mastr Asset Backed - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,332 1,057 628 3,480 1,951 6,358 3,541 3,243 2,618 2,986 4,998 3,941 2,963 3,981 2,507 1,525 8,142 4,262 9,297 1,899 3,985 9,864 2,688 582 1,984 3,740 3,576 444 4,261 224 893 4,315 1,695 2,452 3,191 12 4,290 528 1,715 4,324 2,846 564 4,145 4,251 150 5,825 5,319 5,000 4,222 2,980 5,537 3,212 3,928 308 238 3,493 3,203 4,224 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,332 1,057 628 3,480 1,951 6,358 3,541 3,243 2,618 2,986 4,998 3,941 2,963 3,981 2,507 1,525 8,142 4,262 9,297 1,899 3,985 9,864 2,688 582 1,984 3,740 3,576 444 4,261 224 893 4,315 1,695 2,452 3,191 12 4,290 528 1,715 4,324 2,846 564 4,145 4,251 150 5,825 5,319 5,000 4,222 2,980 5,537 3,212 3,928 308 238 3,493 3,203 4,224 (Continued) 103 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Mbna Master Cr Card Tr Ii Merrill Lynch Mtg Invs Inc. Morgan Stanley Ixis Estate Tr National City Auto Receivables Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Nomura Asset Accep Corp. Onyx Accep Owner Tr Pg+E Energy Recovery Fdg Llc 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. Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Adj Rate Mtg Ln Tr Terwin Mtg Tr Tw Hotel Fdg 2005 Llc Txu Elec Delivery Transition Usaa Auto Owner Tr Wamu Mtg Pass Thru Ctfs Wamu Tr Washington Mut Mtg Pass Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Backed Secs Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Tr Wfs Finl Wfs Finl 2004 4 Owner Tr Wfs Finl 2005 2 Oner Tr Whole Auto Ln Tr Whole Auto Ln Tr Agency bond 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 7,605 5,887 4,110 41 2,956 72 3,928 4,150 3,774 3,997 3,942 2,486 2,484 1,865 2,711 2,014 4,058 548 496 737 1,389 472 4,065 4,103 2,219 4,238 1,002 975 1,759 2,984 4,986 4,926 4,367 2,856 3,399 2,748 620 932 2,220 1,219 2,955 8,768 4,920 8,743 4,856 5,851 7,952 4,885 2,991 6,099 12,279 6,905 5,898 7,506 2,386 1,976 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 7,605 5,887 4,110 41 2,956 72 3,928 4,150 3,774 3,997 3,942 2,486 2,484 1,865 2,711 2,014 4,058 548 496 737 1,389 472 4,065 4,103 2,219 4,238 1,002 975 1,759 2,984 4,986 4,926 4,367 2,856 3,399 2,748 620 932 2,220 1,219 2,955 8,768 4,920 8,743 4,856 5,851 7,952 4,885 2,991 6,099 12,279 6,905 5,898 7,506 2,386 1,976 104 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Banks 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 Medium Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Tennessee Valley Auth Fed Hm Ln Pc Pool 1H2520 Fed Hm Ln Pc Pool 1H2524 Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool 847628 Fed Hm Ln Pc Pool B19205 Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Fed Hm Ln Pc Pool M80855 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 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 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 555549 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,948 6,440 8,049 4,365 5,915 3,943 7,868 19,766 14,973 10,467 6,511 3,000 3,415 2,914 2,900 5,318 6,024 3,100 2,354 6,040 3,796 8,560 1,595 1,371 3,287 3,019 2,208 3,917 3,626 3,076 4,464 1,389 3,176 3,738 3,216 1,356 8,535 3,409 2,976 4,502 2,965 3,743 4,381 4,223 2,807 259 3,158 2,465 4,290 1,994 4,339 632 2,215 2,239 1,616 1,417 3,490 1,616 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,948 6,440 8,049 4,365 5,915 3,943 7,868 19,766 14,973 10,467 6,511 3,000 3,415 2,914 2,900 5,318 6,024 3,100 2,354 6,040 3,796 8,560 1,595 1,371 3,287 3,019 2,208 3,917 3,626 3,076 4,464 1,389 3,176 3,738 3,216 1,356 8,535 3,409 2,976 4,502 2,965 3,743 4,381 4,223 2,807 259 3,158 2,465 4,290 1,994 4,339 632 2,215 2,239 1,616 1,417 3,490 1,616 (Continued) 105 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Fnma Pool 632399 Fnma Pool 662401 Fnma Pool 667766 Fnma Pool 680932 Fnma Pool 681393 Fnma Pool 685116 Fnma Pool 687863 Fnma Pool 696485 Fnma Pool 703711 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 813641 Fnma Pool 815626 Fnma Pool 816594 Fnma Pool 825395 Fnma Pool 825398 Fnma Pool 841069 Fnma Pool 879906 Gnma Ii Pool 081150 Gnma Ii Pool 081153 Money market funds SSGA Cash Mgmt Global Offshore - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 434 659 1,574 1,307 2,749 629 2,647 3,194 538 1,204 1,470 1,415 2,559 2,466 631 825 411 1,235 3,720 2,945 2,067 2,818 4,224 2,882 1,636 613 2,119 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 434 659 1,574 1,307 2,749 629 2,647 3,194 538 1,204 1,470 1,415 2,559 2,466 631 825 411 1,235 3,720 2,945 2,067 2,818 4,224 2,882 1,636 613 2,119 US$ 20,488 N/A US$ 20,488 (Concluded) 106 TABLE 4 Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares/Units (In Thousands) Amount (US$ 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) The Company Government bond Kreditanatalt Fur Wiederaufbau Available-for-sale financial assets - United States Treas NTS 2004 Government Bond Series B 2003 Government Bond Series B 〃〃〃 2006 Government Bond Series D 2005 Government Bond Series A 2003 Government Bond Series B 2003 Asian Development Bank Govt. Bond Series 2003 Government Bond Series F 2003 Government Bond Series H European Investment Bank Bonds 2004 Kachsiung Municipal Series B 2003 European Bank for Recomspruction and Development Govt Bond Series A Open-end mutual funds NITC Bond Fund ABN AMRO Bond Fund Fuh Hwa Bond Mega Diamond Bond Fund Prudential Financial Bond Fund NITC Taiwan Bond JF Taiwan Bond Fund Cathay Bond JIH SUN Bond Fund Dresdner Bond DAM Fund ABN AMRO Income President James Bond AGI Taiwan Bond Fund JF Taiwan First Bond Fund Held-to-maturity financial assets 〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃 - KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions JP Morgan Chase Bank KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions JP Morgan Chase Bank National Investment Trust Co., Ltd. ABN-AMRO Securities Investment Trust (Taiwan) Ltd. Fuh Hwa Investment Trust Co. Mega Investment Trust Corporation Cathay Securities Investment Trust Co., Ltd. Allianz Dresdner Securities Investment Consulting Co.,Ltd. JF Asset Management (Taiwan) Ltd. National Investment Trust Co., Ltd. JIH SUN Investment Trust (Taiwan) Ltd. JF Asset Management (Taiwan) Ltd. Fuh Hwa Investment Trust Co. HSBC Investment (Taiwan) Ltd. AGI Securities Investment Trust (Taiwan) Ltd. ABN-AMRO Securities Investment Trust (Taiwan) Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,881 US$ 46,173 $ - - - 2,548,977 - - 149,441 - - - - - - - - - - - - - - - - - US$ - US$ 268,521 $ 1,005,115 998,324 3,658,659 499,084 1,647,823 827,820 647,445 401,728 367,600 249,998 87,461 3,764 610,864 18,455 3,000,000 134,906 2,004,862 40,250 600,000 - - - - 125,122 139,333 103,751 1,655,781 1,600,000 1,500,000 93,312 1,300,000 - - - - 62,009 - - 69,303 - - - - - - - - - - - - - - - - - - - - - - US$ 6,866 US$ 6,881 US$ (15) US$ 310,469 - $ US$ 311,106 $ - US$ (638) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - $ 999,779 998,288 3,657,320 3,049,919 1,647,851 835,840 797,299 401,568 372,265 249,998 88,198 22,219 3,655,939 175,156 2,639,459 125,122 139,333 103,751 1,667,908 1,602,947 1,516,294 93,312 1,314,669 85,145 109,720 88,165 95,553 63,947 65,496 78,629 1,299,088 1,265,092 1,202,901 1,107,206 1,012,377 1,010,426 1,002,595 933,430 - - 792,068 - - - 23,136 122,762 88,165 34,914 63,947 72,002 78,629 350,000 1,400,000 1,200,000 400,000 1,000,000 1,100,000 1,000,000 - 13,042 - 8,664 - 6,506 - - 150,000 - 100,000 - 100,000 - - 148,736 - 99,103 - 99,401 - - 1,264 - 897 - 599 - 63,131 875,416 14,399 200,000 10,704 150,000 148,472 1,528 66,826 939,082 (Continued) 107 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund Taishin Lucky Fund Polaris De-Bao Fund TIIM High Yield HSBC Taiwan Money Management Invesco R.O.C. Bond Rund Fuhwa Albatross Fund Invesco Income Fund Available-for-sale financial assets Fuh Hwa Investment Trust Co. 〃〃〃〃〃〃〃〃 ABN-AMRO Securities Investment Trust (Taiwan) Ltd. Uni-President Assets Management Corp. Polaris International Securities Investment Trust Co., Ltd. Shinkong Securities Investment Trust (Taiwan) Ltd. Taiwan International Securities Corp. Taishin Securities Investment Trust (Taiwan) Ltd. Invesco Asset management Taiwan Taishin Securities Investment Trust (Taiwan) Ltd. Stock SSMC Capital VTAF II VTAF III Investment accounted for using equity method Investment accounted for using equity method 〃 - - - - - - - - - - - - Equity method investee Subsidiary 〃 Corporate bond Taiwan Power Company Formosa Petrochemical Corporation Nan Ya Plastics Corporation Chinese Petroleum Corporation China Steel Corporation Formosa Plastic Corporation Shanghai commercial & Saving Bank Hua Nan Bank Cathay Bank Taiwan Power Company Formosa Petrochemical Corporation American Express Co. American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn Bank One Corp. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Cargill Inc. Caterpillar Finl Svcs Mtn Chase Manhattan Corp. New Cit Group Hldgs Inc. Held-to-maturity financial assets KGI Securities Co., Ltd. 〃〃〃〃〃〃 KGI Securities Co., Ltd. KGI Securities Co., Ltd. KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. Available-for-sale financial assets HSBC 〃〃〃〃〃〃〃〃〃〃〃〃〃〃 HSBC KGI Securities Co., Ltd. KGI Securities Co., Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 108 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) 55,063 $ 778,482 17,617 $ 250,000 10,497 $ 150,000 $ 148,542 $ 1,458 62,183 $ 890,660 18,235 203,860 93,738 1,050,000 35,380 400,000 396,179 3,821 76,593 868,076 - - - - - - - - - - - - - 78,624 800,000 - 63,273 700,000 - - - - - - 56,812 700,000 12,127 150,000 149,276 47,667 700,000 13,574 200,007 199,327 27,176 403,727 - - - - - 724 680 - 78,624 806,386 63,273 701,069 44,685 554,863 34,093 506,250 27,176 403,774 89,510 44,180 1,000,000 500,000 89,510 44,180 1,005,781 503,727 1,000,000 500,000 5,781 3,727 - - - - 382 4,215,200 81 2,432,705 - - - - - - - - - - - - - - - - - - - - - - - - 642,479 - 3,263,349 1,093,283 2,150,842 705,436 1,010,532 268,855 - - - - - US$ 3,550 - - US$ 3,800 - US$ 3,329 US$ 3,757 - US$ 5,721 US$ 1,628 US$ 3,203 - - - - - - - - - - - - - - - - - - - - - - - - 130,956 243,545 1,690,567 2,769,533 1,097,943 1,000,441 1,000,000 379,809 283,996 1,526,049 1,144,877 1,046,302 397,076 - US$ 3,415 US$ 3,087 - US$ 3,326 - - US$ 3,337 - US$ 3,540 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,432 US$ 3,446 US$ 3,095 US$ 3,805 US$ 3,325 US$ 3,340 US$ 3,575 US$ 3,370 US$ 5,761 US$ 5,091 US$ 3,036 - - - US$ 3,550 US$ 3,415 US$ 3,087 US$ 3,800 US$ 3,326 US$ 3,329 US$ 3,757 US$ 3,337 US$ 5,721 US$ 5,168 US$ 3,203 - - - US$ (118) US$ 31 US$ 8 US$ 5 US$ (1) US$ 11 US$ (182) US$ 33 US$ 40 US$ (77) US$ (167) 463 7,960,869 - - - - - - - - - - - - - - - - - - - - - - - - 733,130 228,005 4,080,391 3,566,946 2,773,810 1,451,378 1,000,000 516,663 286,497 1,545,864 1,159,576 1,046,799 397,963 - - - - - - - - - - - (Continued) Company Name Marketable Securities Type and Name Cogentrix Energy Inc. Countrywide Home Lns Inc. Credit Suisse Fb Usa Inc. Deere John Cap Corp. Deere John Cap Corp. Diageo Plc European Invt Bk European Invt Bk European Invt Bk Federal Home Ln Bks General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Re Corp. Genworth Finl Inc. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Hancock John Global Fdg Ii Mtn Hancock John Global Fdg Ii Mtn Hartford Finl Svcs Group Inc. Hbos Plc Medium Term Sr Nts Hewlett Packard Co. Honeywell Inc. Hsbc Fin Corp. Mtn Intl Lease Fin Corp. Mtn Jp Morgan Chase + Co. Jp Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Keycorp Mtn Book Entry Keycorp Mtn Book Entry Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg Ii 2 Morgan Stanley Group Inc. National City Corp. Nationwide Bldg Soc Nationwide Bldg Soc Mtn Nationwide Life Global Fdg I Nucor Corp. Pepsico Inc. Mtn Book Entry Praxair Inc. Pricoa Global Fdg 1 Mtn Pricoa Global Fdg I Mtn Public Svc Elec Gas Co. Santander Us Debt S A Uniperso Slm Corp. Medium Term Nts Suntrust Bk Atlanta Ga Medium Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Wells Fargo + Co. New Corporate issued asset-backed securities Americredit Automobile Rec Tr Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets Americredit Automobile Receiva 〃 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 2,885 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,210 4,141 - 5,079 3,459 8,315 3,918 - - - 3,989 8,862 3,500 3,412 4,981 3,477 3,566 - - 3,201 3,373 3,284 5,097 2,471 3,406 3,663 4,450 3,500 - 3,486 4,900 1,907 - 4,507 3,426 3,457 3,000 - - 3,818 - 3,500 - 3,225 4,998 2,950 - 4,735 3,182 3,697 - - US$ 5,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 1,132 - - 4,911 - - - - 5,995 7,937 3,351 - - - - - - - 3,808 5,016 - - - - 4,100 - - - - 3,006 - - 1,419 3,348 - - - - 3,491 3,828 - 3,180 - 3,394 483 - 6,012 3,409 - - - 6,076 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,249 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,777 US$ 4,017 US$ (239) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,001 4,003 4,899 5,013 3,436 8,002 3,930 5,994 7,937 3,399 3,893 8,716 3,319 3,415 4,941 3,453 3,486 3,808 5,048 3,182 3,177 3,017 5,066 6,578 3,310 3,519 4,393 3,508 3,016 3,426 4,842 3,361 3,382 4,386 3,402 3,495 3,004 3,520 3,811 3,624 3,147 3,504 3,403 3,684 4,957 8,949 3,448 4,505 3,007 3,512 6,073 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,210 4,141 4,911 5,079 3,459 8,315 3,918 5,995 7,937 3,351 3,989 8,862 3,500 3,412 4,981 3,477 3,566 3,808 5,016 3,201 3,373 3,284 5,097 6,571 3,406 3,663 4,450 3,500 3,006 3,486 4,900 3,326 3,348 4,507 3,426 3,457 3,000 3,491 3,828 3,818 3,180 3,500 3,394 3,708 4,998 8,962 3,409 4,735 3,182 3,697 6,076 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (209) (138) (12) (66) (23) (313) 12 (1) - 48 (96) (146) (181) 3 (40) (24) (80) - 32 (19) (196) (267) (31) 7 (96) (143) (57) 8 10 (60) (58) 35 34 (121) (24) 38 4 29 (17) (194) (33) 4 9 (24) (41) (13) 39 (230) (175) (185) (3) US$ 3,261 US$ 3,249 US$ 12 US$ 4,959 US$ 5,000 US$ (41) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Continued) 109 Company Name Marketable Securities Type and Name Americredit Automobile Receivb Banc Amer Coml Mtg Inc. Bear Stearns Arm Tr Bear Stearns Coml Mtg Secs Inc. Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Caterpillar Finl Asset Tr Cendant Rent Car Fdg Aesop Llc Cit Equip Coll Tr Citibank Cr Card Issuance Tr Cnh Equip Tr Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Drive Auto Receivables Tr Federal Natl Mtg Assn Ford Cr Auto Owner Tr Gs Mtg Secs Corp. Gsamp Tr Harley Davidson Motorcycle Tr Hertz Veh Fing Llc Holmes Fing No 8 Plc Home Equity Mtg Tr 2006 4 Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Lb Ubs Coml Mtg Tr Long Beach Mtg Ln Tr Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mbna Master Cr Card Tr Ii Merrill Lynch Mtg Invs Inc. Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nomura Asset Accep Corp. Onyx Accep Owner Tr Pg+E Energy Recovery Fdg Llc Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Terwin Mtg Tr Toyota Auto Receivables 2003 B Tw Hotel Fdg 2005 Llc Usaa Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Wfs Finl 2004 2 Owner Tr Wfs Finl 2004 4 Owner Tr World Omni Auto Receivables Tr Agency bond Fed Hm Ln Pc Pool 1h2520 Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,949 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,462 - 6,350 - - 4,957 3,974 8,219 11,626 - 9,782 5,000 - - - 3,200 - 10,908 - - 5,999 5,350 5,001 - 6,442 3,250 3,999 4,001 - 3,900 3,499 8,108 - 4,928 7,000 - 4,913 4,749 3,992 4,973 3,780 4,817 - 4,970 8,197 3,718 4,067 5,299 - 3,661 - 4,994 5,399 5,963 US$ 3,753 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 3,826 - 3,250 5,000 - - - - 3,975 - - 4,773 3,750 3,572 - 4,828 - 4,150 4,250 - - - 4,200 - - - - 3,200 - - - 6,665 - - 4,150 - - - - - - 4,050 - (4,100) - - - 4,893 - 3,772 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,826 US$ 3,856 US$ (30) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,254 3,597 6,362 3,232 5,008 4,879 3,932 8,121 11,412 3,996 9,797 3,457 4,834 3,728 3,566 3,183 4,577 5,782 4,134 4,241 5,793 5,284 5,000 4,200 6,202 3,208 3,904 3,733 3,195 3,830 3,083 7,653 6,561 3,994 6,132 4,144 4,885 4,646 3,911 3,994 3,052 4,224 4,033 4,963 4,116 3,696 3,261 5,235 4,932 3,020 3,488 4,913 4,883 5,869 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,325 3,609 6,350 3,250 5,000 4,957 3,974 8,219 11,626 3,975 9,782 3,500 4,773 3,750 3,572 3,200 4,561 5,836 4,150 4,250 5,999 5,350 5,001 4,200 6,279 3,250 3,999 3,779 3,200 3,900 3,079 8,108 6,558 4,035 6,194 4,150 4,913 4,749 3,992 4,162 3,100 4,309 4,050 4,970 4,097 3,718 3,302 5,299 4,893 3,054 3,500 4,994 4,955 5,963 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (71) (12) 12 (18) 8 (78) (42) (98) (214) 21 15 (43) 61 (22) (6) (17) 16 (54) (16) (9) (206) (66) - - (77) (42) (95) (46) (5) (70) 4 (455) 3 (41) (62) (6) (28) (103) (81) (168) (48) (85) (17) (7) 19 (22) (41) (64) 39 (34) (12) (81) (72) (94) US$ 3,329 US$ 3,345 US$ (16) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 110 (Continued) Company Name Marketable Securities Type and Name Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool M80855 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 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 Loan Mtg Federal Natl Mtg Assn Federal Natl Mtg Assn Fnma Pool 255883 Fnma Pool 696485 Fnma Pool 813641 Fnma Pool 815626 Fnma Pool 825398 Fnma Pool 841069 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 Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 7,112 - 3,848 - 3,954 6,096 - - - 4,098 9,905 4,902 3,755 - - - - - - - 4,030 4,051 3,771 4,175 - 3,622 4,949 3,673 3,985 3,962 3,976 8,594 3,932 4,927 - 4,136 4,939 8,672 4,965 4,808 - 7,558 - 7,886 6,110 - 3,972 7,887 19,846 6,908 6,098 9,134 3,379 - 3,388 9,997 6,980 5,929 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 3,882 - 3,898 - - 4,962 3,351 4,317 - - - - 4,481 3,349 3,857 5,380 4,631 4,488 5,009 - - - - 3,906 - - - - - - - - - 8,628 - - - - - 5,740 - 4,823 - - 12,227 - - - - - - - 7,490 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,577 US$ 6,553 US$ 24 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,381 3,308 3,919 3,909 4,316 4,665 3,299 3,893 3,388 8,812 4,069 3,308 4,476 3,114 3,789 4,574 4,450 4,444 4,937 3,515 3,131 3,559 3,393 3,916 3,189 4,562 3,134 3,940 3,955 3,964 8,519 3,980 4,930 8,716 4,140 4,872 8,735 4,944 4,850 5,825 7,515 4,882 7,960 6,061 12,233 3,951 7,758 19,800 6,881 5,907 8,968 3,296 7,490 3,481 9,788 6,941 5,930 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,462 3,336 3,898 3,920 4,424 4,683 3,294 3,883 3,402 8,851 4,159 3,362 4,481 3,089 3,776 4,565 4,435 4,406 4,889 3,568 3,196 3,581 3,403 3,906 3,203 4,672 3,156 3,985 3,962 3,976 8,594 3,932 4,927 8,628 4,136 4,939 8,672 4,965 4,808 5,740 7,558 4,823 7,886 6,110 12,227 3,972 7,887 19,846 6,908 6,098 9,134 3,379 7,490 3,388 9,997 6,980 5,929 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (81) (28) 21 (11) (108) (18) 5 10 (14) (39) (90) (54) (5) 25 13 9 15 38 48 (53) (65) (22) (10) 10 (14) (110) (22) (45) (7) (12) (75) 47 3 88 4 (67) 63 (21) 42 85 (43) 59 74 (49) 6 (21) (129) (46) (27) (191) (166) (83) - 93 (209) (39) 1 US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Continued) 111 Company Name Marketable Securities Type and Name 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 Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Medium 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 Freddie Mac Tennessee Valley Auth Chi Cheng Stock VIS TSMC Global Government bond United States Treas Nts Corporate bond American Express Co. American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn Bank One Corp. Bear Stearns Cos Inc. Cit Group Hldgs Inc. Chase Manhattan Corp. New Cogentrix Energy Inc. Counrywide Finl Corp. Deere John Cap Corp. Diageo Plc Emerson Elec Co. European Invt Bk European Invt Bk Federal Home Ln Bks General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn 112 Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Investment accounted for using equity method Available-for-sale financial assets Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Equity method investee - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - 4,930 3,475 4,847 4,903 4,943 8,971 4,921 7,892 4,430 17,888 5,928 - 7,926 - - - - - 15,787 9,758 7,000 - 5,740 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,415 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 14,175 9,974 - - - - - - - - - - - 7,800 - 19,539 14,901 10,430 7,966 3,353 - - - 5,255 - 9,391 6,039 5,032 $ 100,116 - US$ 501,897 - - - - - - - - - - - - - - - - - US$ 3,432 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,446 3,095 3,325 3,340 3,036 5,091 3,777 5,005 4,899 3,436 3,222 3,930 5,994 7,937 8,716 3,893 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,410 US$ 6,415 US$ (5) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 14,269 9,929 4,912 3,459 4,901 4,927 4,944 8,940 4,916 7,908 4,364 17,782 5,885 7,832 7,834 19,702 14,931 10,459 7,979 3,417 15,851 9,781 6,925 5,292 5,562 9,314 6,038 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 14,175 9,974 4,930 3,475 4,847 4,903 4,943 8,971 4,921 7,892 4,430 17,888 5,928 7,800 7,926 19,539 14,901 10,430 7,966 3,353 15,787 9,758 7,000 5,255 5,740 9,391 6,039 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 94 (45) (18) (16) 54 24 1 (31) (5) 16 (66) (106) (43) 32 (92) 163 30 29 13 64 64 23 (75) 37 (178) (77) (1) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,032 $ 107,224 US$ 351,917 US$ 351,594 US$ 323 - US$ 151,045 - - - - - - - - 5,005 - - - - - - - - - - - - - - - - 5,005 - - - - - - - - US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,452 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,448 3,092 3,365 3,379 3,027 5,077 3,751 - 4,928 3,444 3,215 3,970 6,057 7,937 8,759 3,888 (Continued) Company Name Marketable Securities Type and Name General Elec Cap Corp. Mtn General Re Corp. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Hbos Plc Medium Term Sr Nts Hsbc Fin Corp. Mtn Hsbc Fin Corp. Hancock John Global Fdg Ii Mtn Hartford Finl Svcs Group Inc. Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Keycorp Mtn Book Entry Lehman Brothers Hldgs Inc. Mbna America Bank Na Y Marshall + Ilsley Corp. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Morgan Stanley Group Inc. National City Corp. Nationwide Bldg Soc Nationwide Life Global Fdg I Nucor Corp. Pepsico Inc. Mtn Book Entry Praxair Inc. Pricoa Global Fdg I Mtn Protective Life Secd Trs Mtn Public Svc Elec Gas Co. Slm Corp. Medium Term Nts Suntrust Bk Atlanta Ga Medium Vodafone Airtouch Plc Washington Mut Inc. Washington Mut Bk Fa Washington Post Co. Wells Fargo + Co. New Wells Fargo + Co. New Med Trm Corporate issued asset-backed securities Americredit Automobile Rec Tr Americredit Automobile Receivb Americredit Automobile Receiva Ba Cr Card Tr Banc Amer Coml Mtg Inc. Banc Amer Fdg 2006 I Tr Bear Stearns Coml Mtg Secs Inc. Bear Stearns Arm Tr Bear Stearns Coml Mtg Secs Inc. Cit Equip Coll Tr Cnh Equip Tr Cwabs Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Prime Auto Rec Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Beginning Balance Acquisition Disposal (Note 1) Ending Balance 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 8,268 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,319 3,453 4,941 3,182 5,066 3,028 5,170 5,048 4,118 3,310 4,393 3,016 3,150 6,437 8,453 3,426 4,842 3,361 4,386 3,402 3,495 3,520 3,811 3,624 3,147 3,403 3,396 3,684 8,949 3,448 4,477 4,505 5,000 3,007 6,073 4,282 US$ 3,261 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,826 4,959 4,350 3,254 4,336 3,551 3,597 6,362 3,996 3,457 4,300 3,232 5,008 4,879 3,932 3,999 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ - US$ - - - - - - - - - - - - - - - - - - 4,384 - - - - - - - - - - - - 3,500 1,000 - 3,167 - - - - - - - - - - - - - - - 4,883 - - US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - 4,386 - - - - - - - - - - - - 3,504 1,000 - 3,148 - - - - - - - - - - - - - - - 4,879 - - US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - (2) - - - - - - - - - - - - (4) - - 19 - - - - - - - - - - - - - - - 4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount (US$ in Thousands) (Note 2) US$ 8,282 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,292 3,456 4,989 3,205 5,096 3,028 5,132 5,037 4,138 3,298 4,401 3,010 3,150 6,403 8,420 3,453 4,865 3,369 - 3,410 3,537 3,501 3,797 3,619 3,138 3,401 3,390 3,682 8,998 3,442 4,449 1,000 3,997 3,001 2,943 4,311 US$ 3,269 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,891 4,609 4,300 2,869 4,332 3,541 3,480 6,358 3,985 1,984 4,261 3,243 4,998 - 3,941 3,981 (Continued) 113 Company Name Marketable Securities Type and Name Caterpillar Finl Asset Tr Cbass Tr Cendant Rent Car Fdg Aesop Llc Citibank Cr Card Issuance Tr Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Daimlerchrysler Auto Tr Drive Auto Receivables Tr First Franklin Mtg Ln Tr Ford Credit Auto Owner Trust Gs Mtg Secs Corp. Gsamp Tr Harley Davidson Motorcycle Tr Hertz Veh Fing Llc Holmes Fing No 8 Plc Home Equity Mtg Tr 2006 4 Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Lb Ubs Coml Mtg Tr Long Beach Mtg Ln Tr Mbna Master Cr Card Tr Ii Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mastr Asset Backed Merrill Lynch Mtg Invs Inc. Morgan Stanley Ixis Estate Tr Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nomura Asset Accep Corp. Onyx Accep Owner Tr Pg+E Energy Recovery Fdg Llc Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Tw Hotel Fdg 2005 Llc Terwin Mtg Tr Usaa Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Mtg Backed Secs Wells Fargo Finl Auto Owner Tr Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Agency Bonds Fed Hm Ln Pc Pool M80855 Fed Hm Ln Pc Pool 847628 Fed Hm Ln Pc Pool 1h2520 Fed Hm Ln Pc Pool B19205 Federal Home Ln Mtg Corp. Fed Hm Ln Pc Pool 781959 Fnma Pool 255883 Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Home Ln Mtg Corp. 114 Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃 Beginning Balance Acquisition Disposal (Note 1) Ending Balance 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 8,121 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,260 9,249 9,797 3,566 3,728 4,334 3,183 4,301 4,310 4,134 4,241 5,793 5,284 5,000 4,200 6,202 3,208 3,904 3,733 3,195 7,653 3,830 3,083 4,300 6,561 4,300 3,994 3,943 4,144 4,885 4,646 3,911 3,994 3,052 4,224 4,116 4,033 4,246 3,261 4,426 5,235 4,932 3,020 3,488 US$ 3,381 US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,884 3,286 8,626 4,574 6,472 3,559 4,375 4,577 3,919 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ - US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - 3,416 3,082 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ - - - - - - - - - - - - - - - - - - - - - 3,396 3,083 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 (1) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount (US$ in Thousands) (Note 2) US$ 8,142 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,262 9,297 9,864 3,576 3,740 4,315 3,191 4,290 4,324 4,145 4,251 5,825 5,319 5,000 4,222 5,537 3,212 3,928 3,493 3,203 7,605 - - 4,224 5,887 4,110 2,956 3,928 4,150 3,774 3,997 3,942 2,486 2,711 4,058 4,103 4,065 4,238 2,984 4,367 4,986 4,926 2,856 3,399 US$ 3,287 US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,796 3,100 8,560 4,381 6,040 3,490 4,338 4,290 3,917 (Continued) Company Name Marketable Securities Type and Name Federal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn 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 Home Ln Mtg Corp. Federal Home Ln Mtg Federal Home Ln Mtg Corp. Federal Home Loan Mtg Federal Home Ln Mtg Corp. Fnma Pool 696485 Fnma Pool 813641 Fnma Pool 815626 Fnma Pool 825398 Fnma Pool 841069 Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Assn Federal Home Loan Mtg Corp. Federal Home Ln Mtg Corp. Freddie Mac Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Farm Cr 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 Loan Bank Federal Home Ln Bank Federal Home Ln Bks Federal Home Loan Banks Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Beginning Balance Acquisition Disposal (Note 1) Ending Balance 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,316 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,515 3,131 3,909 3,789 3,388 4,450 4,069 3,893 3,114 3,299 4,665 3,308 3,308 8,812 4,937 4,476 3,393 3,916 3,189 4,562 3,134 3,481 4,912 4,901 4,927 9,789 9,314 6,410 5,930 9,929 14,269 3,940 4,851 3,296 4,930 4,882 8,735 8,716 5,825 5,907 7,960 4,872 6,061 4,140 12,233 7,515 6,881 3,459 3,955 7,490 8,081 14,931 7,979 4,364 6,516 5,885 7,834 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ - US$ - - - - - - - - - - - - - - 4,868 - - - - - - - 4,953 4,951 4,968 7,906 9,378 - - 10,000 14,304 3,946 - 3,297 4,971 - - - - - - - - 4,141 - 7,520 - 3,463 3,967 - - - 5,001 - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - 4,858 - - - - - - - 4,912 4,901 4,927 7,831 9,314 - - 9,929 14,269 3,940 - 3,296 4,930 - - - - - - - - 4,140 - 7,515 - 3,459 3,955 - - - 4,987 - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - 10 - - - - - - - 41 50 41 75 64 - - 71 35 6 - 1 41 - - - - - - - - 1 - 5 - 4 12 - - - 14 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount (US$ in Thousands) (Note 2) US$ 3,076 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,158 2,465 3,626 3,743 3,216 4,223 3,409 3,738 2,965 3,176 4,464 2,976 3,019 8,535 - 4,502 3,194 3,720 2,945 4,224 2,882 - - - - 1,976 - 6,440 5,948 - - - 4,856 - - 4,885 8,743 8,768 5,851 5,898 7,952 4,920 6,099 - 12,279 - 6,905 - - 7,506 8,049 14,973 3,000 4,365 6,511 5,915 7,868 (Continued) 115 Company Name Marketable Securities Type and Name Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Medium Tennessee Valley Auth Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃 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) - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - US$ 3,950 US$ US$ US$ US$ US$ US$ 19,702 10,459 5,562 5,292 3,417 6,038 - - - - - - - US$ - US$ - US$ US$ - - 5,560 - - - US$ - - 5,562 - - - US$ - - - (2) - - - - - - - - - - Beginning Balance Acquisition Disposal (Note 1) Ending Balance Amount (US$ in Thousands) (Note 2) US$ 3,943 US$ US$ US$ US$ US$ 19,766 10,467 - 5,318 3,415 6,024 (Concluded) Note 1: The proceeds of bond investments matured are excluded. Note 2: The ending balance included the amortization of premium or discount on bonds investments and unrealized valuation gains or losses on financial assets. 116 TABLE 5 Taiwan Semiconductor Manufacturing Company Limited ACQUISITION OF INDIVIDUAL REAL ESTATES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party Nature of Relationships Prior Transaction of Related Counter-party Owner Relationships Transfer Date Amount Price Reference Purpose of Acquisition Other Terms The Company Fab. 14 January 6, 2006 $ 854,000 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 12 March 30, 2006 US$ 3,340 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 12 June 1, 2006 $ 487,000 By the construction progress United Integrated Services Co., Ltd. Fab. 12 June 1, 2006 US$ 3,770 By the construction progress Celerity, Inc. Fab. 14 June 2, 2006 $ 197,500 By the construction progress China Steel Structure Co., Ltd. Fab. 12 June 6, 2006 192,000 By the construction progress Marketech International Corp. Fab. 12 June 9, 2006 142,000 By the construction progress Uangyih-tech Industrial Co., Ltd. Fab. 14 June 26, 2006 EUR 2,733 By the construction progress Siemens Limited Fab. 14 June 30, 2006 $ 517,500 By the construction progress United Steel Engineering & Construction Fab. 14 August 7, 2006 453,000 By the construction progress China Steel Structure Co., Ltd. Corp. Fab. 14 August 25, 2006 1,365,000 By the construction progress Fu Tsu Construction Co., Ltd. Fab. 14 September 28, 2006 JPY 1,080,000 By the construction progress Organo Corporation Fab. 14 September 28, 2006 $ 407,000 By the construction progress Organo Technology Co., Ltd. Fab. 14 September 29, 2006 US$ 4,250 By the construction progress York Internation Corp. Fab. 14 October 12, 2006 $ 278,950 By the construction progress Shihlin Electric & Engineering Corp. Fab. 14 November 20, 2006 US$ 9,150 By the construction progress Mega Union Technology Inc. Fab. 14 November 23, 2006 $ 179,573 By the construction progress United Integrated Services Co., Ltd. Fab. 14 November 24, 2006 US$ 9,890 By the construction progress Marketech International Corp. Fab. 14 November 28, 2006 US$ 29,750 By the construction progress United Integrated Services Co., Ltd. Fab. 14 November 29, 2006 US$ 15,000 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 14 November 29, 2006 $ 847,365 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 14 November 29, 2006 123,000 By the construction progress Desiccant Technology Corp. Fab. 14 December 7, 2006 177,200 By the construction progress Uangyih-tech Industrial Co., Ltd. Fab. 14 December 8, 2006 US$ 12,900 By the construction progress Marketech International Corp. Fab. 14 December 28, 2006 US$ 9,100 By the construction progress Celerity, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose 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 117 TABLE 6 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 YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships The Company TSMC-North America Philips Subsidiary Major shareholder GUC WaferTech SSMC TSMC-Shanghai VIS TSMC-North America GUC Investee over which the Company had a controlling interest Indirect subsidiary Investee accounted for using equity method Subsidiary Investee accounted for using equity method The same parent Transaction Details Amount % to Total Payment Terms $ 190,459,073 4,024,990 60 1 Net 30 days after invoice date Net 30 days/Net 45 days (since 12/27/2006) 755,710 - Net 30 days after monthly closing after monthly closing 12,530,552 6,820,632 4,405,843 3,911,838 920,045 27 15 10 8 60 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 Abnormal Transaction Unit Price (Note) Payment Terms (Note) - - - - - - - - - - - - - - - - Notes/Accounts Payable or Receivable Ending Balance $ 16,461,956 250,919 155,216 (864,733) (459,305) (478,714) (717,562) (301,507) Note % to Total 50 1 - 9 5 5 8 40 Purchase/ Sale Sales Sales Sales Purchases Purchases Purchases Purchases Purchases 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 7 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, 2006 (Amounts in Thousands of New Taiwan Dollars) Company Name The Company Related Party Nature of Relationships Ending Balance Turnover Rate Overdue Amounts Action Taken TSMC-North America Philips GUC TSMC-Shanghai VIS Subsidiary Major shareholder Investee over which the Company had a controlling interest Subsidiary Investee accounted for using equity method $ 16,521,503 257,313 155,216 36 days 38 days 49 days $ 4,721,288 11,304 117 - - - 123,853 121,911 Note Note 21,089 3,064 Accelerate demand on account receivables - 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 $ 5,883,939 18,648 38,062 - 3,064 Allowance for Bad Debts $ - - - - - 118 TABLE 8 Taiwan Semiconductor Manufacturing Company Limited NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars) Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2006 December 31, 2006 December 31, 2005 Shares (In Thousands) Percentage of Ownership Carrying Value (Note) Net Income (Losses) of the Investee Equity in the Earnings (Losses) Note The Company TSMC Global TSMC International Tortola, British Virgin Islands Tortola, British Virgin Islands Investment activities Providing investment in companies involved in the $ 42,327,245 31,445,780 $ - 31,445,780 1 987,968 100 100 $ 42,496,592 26,593,749 $ 616,171 2,802,637 $ 616,171 2,802,637 Subsidiary Subsidiary TSMC-Shanghai Shanghai, China Manufacturing and sales of integrated circuits at the order 12,180,367 12,180,367 design, manufacture, and other related business in the semiconductor industry Singapore Fabrication and supply of integrated circuits 8,840,895 6,408,190 of and pursuant to product design specifications provided by customers - 463 SSMC VIS Hsinchu, Taiwan TSMC Partners TSMC-North America Tortola, British Virgin Islands San Jose, California, U.S.A. Emerging Alliance VTAF II GUC Cayman Islands Cayman Islands Hsinchu, Taiwan Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts Investment activities Sales and marketing of integrated circuits and semiconductor devices Investing in new start-up technology companies Investing in new start-up technology companies Researching, developing, manufacturing, testing and marketing of integrated circuits VTAF III Chi Cherng Hsin Ruey TSMC-Japan TSMC-Europe TSMC-Korea Cayman Islands Taipei, Taiwan Taipei, Taiwan Yokohama, Japan Amsterdam, the Netherlands Seoul, Korea Investing in new start-up technology companies Investment activities Investment activities Marketing activities Marketing activities Marketing activities Note: The treasury stock is deducted from the carrying value. 8,119,816 8,119,816 442,262 10,350 333,718 1,418,717 785,465 386,568 243,545 300,000 300,000 83,760 15,749 13,656 10,350 333,718 1,526,074 654,509 409,920 - 300,000 300,000 83,760 15,749 - 300 11,000 - - 41,263 - - - 6 - 80 100 9,027,984 (637,220) (637,220) Subsidiary 39 27 100 100 99 98 38 98 36 36 100 100 100 7,960,869 4,437,059 1,394,921 5,741,870 3,018,694 748,006 Investee accounted for using equity method Investee accounted for using equity method 4,433,819 2,014,990 793,585 733,130 629,755 228,005 115,507 114,297 95,757 49,741 14,706 308,009 238,111 (2,644) (37,339) 237,295 (20,794) 99,647 98,605 2,963 23,164 685 308,009 238,111 Subsidiary Subsidiary (2,631) (36,592) 100,396 Subsidiary Subsidiary Investee over which the Company has a controlling interest (20,378) (5,533) (5,982) 2,963 23,164 685 Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary 119 TABLE 9 Taiwan Semiconductor Manufacturing Company Limited INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investee Company Main Businesses and Products TSMC (Shanghai) Company Limited Manufacturing and sales of integrated circuits at the order of and pursuant to product design specifications provided by customers Total Amount of Paid-in Capital (RMB in Thousand) Method of Investment Accumulated Outflow of Investment from Taiwan as of January 1, 2006 (US$ in Thousand) Investment Flows Outflow (US$ in Thousand) Accumulated Outflow of Investment from Taiwan as of December 31,2006 (US$ in Thousand) Percentage of Ownership Equity in the Earnings (Losses) (Note 2) Carrying Value as of December 31, 2006 Accumulated Inward Remittance of Earnings as of December 31, 2006 Inflow $ 12,180,367 (RMB 3,070,623) (Note 1) $ 12,180,367 (US$ 371,000) $ - $ - $ 12,180,367 (US$ 371,000) 100% $ (637,220) $ 9,027,984 $ - Accumulated Investment in Mainland China as of December 31, 2006 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) Note 1: Direct investments US$371,000 thousand in TSMC-Shanghai. Note 2: Amount was recognized based on the audited financial statements. 120 8. Consolidated Financial Statements for the Years Ended December 31, 2006 and 2005 and Independent Auditors' Report REPRESENTATION LETTER The entities included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2006, which are required under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises, are the same as those included in the consolidated financial statements prepared in conformity with the revised Statement of Financial Accounting Standards No. 7, “Consolidated Financial Statements”. In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries do not prepare a separate set of combined financial statements. Accumulated Investment in Mainland China as of December 31, 2006 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) Very truly yours, TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED By MORRIS CHANG Chairman January 11, 2007 121 INDEPENDENT AUDITORS’ REPORT Notice to Readers The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Limited We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the 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 standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. years then ended. These consolidated financial statements are the responsibility of the Company’s For the convenience of readers, the auditors’ report and the accompanying financial statements have management. Our responsibility is to express an opinion on these consolidated financial statements been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail. based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 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, 2006 and 2005, and the results of their consolidated operations and their consolidated cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China. January 11, 2007 122 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss (Notes 2, 3 and 5) Available-for-sale financial assets (Notes 2, 3 and 6) Held-to-maturity financial assets (Notes 2, 3 and 7) Notes and accounts receivable Receivables from related parties (Note 25) Allowance for doubtful receivables (Note 2) Allowance for sales returns and others (Note 2) Other receivables from related parties (Note 25) Other financial assets (Note 3) Inventories, net (Notes 2 and 8) Deferred income tax assets, net (Notes 2 and 18) Prepaid expenses and other current assets (Note 3) Total current assets LONG-TERM INVESTMENTS (Notes 2, 3, 6, 7, 9 and 10) Investments accounted for using equity method Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11 and 25) Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased assets Accumulated depreciation Advance payments and construction in progress Net property, plant and equipment GOODWILL (Note 2) OTHER ASSETS Deferred charges, net (Notes 2, and 12) Deferred income tax assets, net (Notes 2 and 18) Refundable deposits Others Total other assets 2006 Amount $ 117,837,192 1,206,854 67,523,858 8,510,823 34,957,650 252,339 (749,888) (2,870,802) 256,863 2,356,542 21,430,728 8,013,992 1,591,017 260,317,168 15,000,891 6,648,485 28,973,495 3,272,280 53,895,151 844,644 112,595,124 579,825,289 10,646,725 612,941 704,524,723 (463,038,084) 12,607,551 254,094,190 5,984,993 5,936,915 5,802,142 1,331,245 123,355 13,193,657 2005 Amount $ 96,483,707 1,770,445 46,452,838 602,509 43,082,275 693,266 (980,594) (4,317,413) 597,910 1,617,797 17,728,303 7,149,306 1,420,441 212,300,790 10,287,424 117,247 28,775,308 3,202,515 42,382,494 851,225 105,832,028 510,922,064 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 90,942 13,992,412 % 20 - 12 2 6 - - (1) - 1 4 1 - 45 2 1 5 1 9 - 19 99 2 - 120 (79) 2 43 1 1 1 - - 2 % 19 - 9 - 8 - - (1) - 1 3 2 - 41 2 - 5 1 8 - 21 98 2 - 121 (77) 3 47 1 2 1 - - 3 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Short-term bank loans (Note 13) Financial liabilities at fair value through profit or loss (Notes 2, 3 and 5) Accounts payable Payables to related parties (Note 25) Income tax payable (Notes 2 and 18) Accrued expenses and other current liabilities (Notes 2, 3 and 16) Payables to contractors and equipment suppliers Current portion of bonds payable and long-term liabilities (Notes 14 and 15) $ Total current liabilities LONG-TERM LIABILITIES Bonds payable (Note 14) Long-term bank loans (Note 15) Other long-term payables (Notes 16 and 27) Other payables to related parties (Notes 25 and 27) Obligations under capital leases (Note 2) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 17) Guarantee deposits (Note 27) Deferred credits (Notes 2 and 25) Others Total other liabilities 2006 2005 Amount % Amount % - 10,864 7,934,388 1,867,728 7,946,473 11,328,350 10,768,591 7,004,137 46,860,531 12,500,000 653,959 8,703,267 403,375 612,941 22,873,542 3,540,060 3,817,132 1,177,138 78,640 8,612,970 - - 1 - 2 2 2 1 8 2 - 2 - - 4 1 1 - - 2 $ 328,500 234,279 9,421,452 1,743,069 4,015,451 10,307,951 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 Total liabilities 78,347,043 14 73,270,881 14 EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT Capital stock - $10 par value Authorized: 27,050,000 thousand shares Issued: 25,829,688 thousand shares in 2006 and 24,730,025 thousand shares in 2005 Capital surplus (Notes 2 and 20) Retained earnings (Note 20) Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings Others (Notes 2 and 3) Cumulative translation adjustments Unrealized gain on financial instruments Treasury stock (at cost) -33,926 thousand shares in 2006 and 32,938 thousand shares in 2005 (Notes 2 and 22) Equity attributable to shareholders of the parent MINORITY INTERESTS (Note 2) Total shareholders’ equity 258,296,879 54,107,498 43,705,711 640,742 152,778,079 197,124,532 (1,191,165) 561,615 (629,550) (918,075) 507,981,284 1,156,832 509,138,116 44 9 7 - 26 33 - - - - 86 - 86 247,300,246 57,117,886 34,348,208 2,226,427 106,196,399 142,771,034 (640,742) - (640,742) (918,075) 445,630,349 608,359 446,238,708 48 11 7 - 20 27 - - - - 86 - 86 TOTAL $ 587,485,159 100 $ 519,509,589 100 TOTAL $ 587,485,159 100 $ 519,509,589 100 The accompanying notes are an integral part of the consolidated financial statements. 123 2006 Amount $ 133,362,208 (7,773,711) 125,588,497 1,606,749 2005 Amount $ 94,263,247 (630,579) 93,632,668 - % 42 2 40 - % 35 - 35 - $ 127,195,246 40 $ 93,632,668 35 $ 127,009,731 185,515 40 - $ 93,575,035 57,633 35 - $ 127,195,246 40 $ 93,632,668 35 2006 2005 Income Attributable to Shareholders of the Parent Income Attributable to Shareholders of the Parent Before Income Tax After Income Tax Before Income Tax After Income Tax $ 5.22 $ 5.22 $ 4.93 $ 4.92 $ 3.66 $ 3.66 $ 3.63 $ 3.63 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFITOF NT$82,062 THOUSAND (Note 3) NET INCOME ATTRIBUTABLE TO: Shareholders of the parent Minority interests CONSOLIDATED EARNINGS PER SHARE (Note 23) 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, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Consolidated Earnings Per Share) GROSS SALES (Notes 2 and 25) $ 322,883,499 $ 271,801,696 INCOME BEFORE INCOME TAX SALES RETURNS AND ALLOWANCES (Note 2) 5,476,328 5,236,626 INCOME TAX EXPENSE (Notes 2 and 18) 2006 2005 Amount % Amount % 317,407,171 100 266,565,070 100 NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES NET SALES COST OF SALES (Notes 19 and 25) GROSS PROFIT OPERATING EXPENSES (Note 19) Research and development General and administrative Marketing Total operating expenses 161,597,081 155,810,090 16,076,432 8,716,653 3,752,311 28,545,396 51 49 5 3 1 9 148,362,196 118,202,874 14,016,506 9,085,536 4,132,273 27,234,315 INCOME FROM OPERATIONS 127,264,694 40 90,968,559 NON-OPERATING INCOME AND GAINS Interest income (Notes 2 and 3) Equity in earnings of equity method investees, net (Notes 2 and 9) Settlement income (Note 27) Technical service income (Notes 25 and 27) Gain on disposal of property, plant and equipment and other assets (Notes 2 and 25) Subsidy income (Note 2) Foreign exchange gain, net (Notes 2 and 3) Others (Note 25) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES Interest expense (Note 3) Valuation loss on financial instruments, net (Notes 2, 3, 5 and 24) Loss on settlement and disposal of financial instruments, net (Notes 2, 3 and 5) Foreign exchange loss, net (Notes 2 and 3) Loss on impairment of financial assets (Note 2) Loss on disposal of property, plant and equipment (Note 2) Others Total non-operating expenses and losses 4,542,149 2,347,153 979,214 571,500 421,051 334,478 - 510,047 9,705,592 890,602 812,937 798,610 400,863 279,690 241,397 183,979 3,608,078 2 1 - - - - - - 3 1 - - - - - - 1 2,806,226 1,433,226 964,710 462,624 342,756 321,850 2,609,979 457,989 9,399,360 1,413,374 337,160 3,602,799 - 128,900 60,109 562,330 6,104,672 124 56 44 5 3 2 10 34 1 1 - - - - 1 - 3 - - 2 - - - - 2 (Continued) Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Equity Attributable to Shareholders of the Parent (Notes 2, 16, 17 and 18) Capital Stock Retained Earnings Others Shares (Thousands) Amount Capital Surplus Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Unrealized Gain on Financial Instruments BALANCE, JANUARY 1, 2005 23,251,964 $ 232,519,637 $ 56,537,259 $ 25,528,007 $ - $ 88,202,009 $ 113,730,016 $ (2,226,427) $ 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 shareholders - NT$2.00 per share Stock dividends to shareholders - NT$0.50 per share Bonus to directors and supervisors Net income in 2005 Adjustment arising from changes in 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 interests - - - 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,585,685 - - - - 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) 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 shareholders - NT$2.50 per share Stock dividends to shareholders - NT$0.15 per share Bonus to directors and supervisors Capital surplus transferred to capital stock Net income in 2006 Adjustment arising from changes in percentage of ownership in investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from parent company Valuation gain on available-for-sale financial assets Equity in the valuation gain on available-for-sale financial assets of equity method investees Increase in minority interests - - - 343,213 - 370,950 - 370,950 - - - 14,550 - - - - - - - 3,432,129 - 3,709,504 - 3,709,504 - - - 145,496 - - - - - - - - - - - (3,709,504) - 187,095 - 429,701 82,320 - - - 9,357,503 - - - - - - - - - (1,585,685) - - - - - - - (9,357,503) 1,585,685 (3,432,129) (3,432,129) (61,825,061) (3,709,504) (257,410) - 127,009,731 - - (3,432,129) (3,432,129) (61,825,061) (3,709,504) (257,410) - 127,009,731 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (550,423) - - - - - - 386,017 175,598 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Treasury Stock Total Minority Interests Total Shareholders’ Equity $ (1,595,186) $ 398,965,299 $ 75,737 $ 399,041,036 - - - - - - - - - - - - 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) - - - (3,086,215) - (46,504,097) - (231,466) 93,632,668 71,405 1,533,890 270,929 - 84,285 - 526,784 899,489 526,784 (918,075) 445,630,349 608,359 446,238,708 - - - - - - - - - - - - - - - - - - (3,432,129) - (61,825,061) - (257,410) - 127,009,731 187,095 (550,423) 575,197 82,320 386,017 175,598 - - - - - - - - - 185,515 - (126,206) - - 2,147 - 487,017 - - (3,432,129) - (61,825,061) - (257,410) - 127,195,246 187,095 (676,629) 575,197 82,320 388,164 175,598 487,017 BALANCE, DECEMBER 31, 2006 25,829,688 $ 258,296,879 $ 54,107,498 $ 43,705,711 $ 640,742 $ 152,778,079 $ 197,124,532 $ (1,191,165) $ 561,615 $ (918,075) $ 507,981,284 $ 1,156,832 $ 509,138,116 The accompanying notes are an integral part of the consolidated financial statements. 125 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars) 2006 2005 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to shareholders of the parent Net income attributable to minority interests Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of premium/discount of financial assets Loss (gain) on disposal of available-for-sale financial assets, net Equity in earnings of equity method investees, net Dividends received from equity method investees Gain on disposal of investments accounted for using equity method Gain on disposal of financial assets carried at cost, net Loss on impairment of financial assets Gain on disposal of property, plant and equipment and other assets, net Deferred income taxes Loss on idle assets Donation of idle assets Net changes in operating assets and liabilities: Decrease (increase) in: Financial assets and liabilities at fair value through profit or loss 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 Accrued pension cost Deferred credits $ 127,009,731 185,515 $ 93,575,035 57,633 73,715,242 2,399 (90,826) (2,347,153) 614,567 - (16,210) 279,690 (179,654) 121,590 44,072 - 340,176 8,124,625 440,927 (230,706) (1,446,611) 341,047 (738,745) (3,702,425) (170,576) (1,487,064) (572,441) 3,931,022 862,428 65,676 (99,310) 75,649,429 120,872 150,081 (1,433,226) 668,464 (583) (14,721) 128,900 (282,647) (3,353,013) 131,849 7,207 72,842 (11,572,809) (101,915) (3,145) 974,963 (87,979) (305,881) (2,006,165) 119,985 2,088,582 (1,629,217) 3,611,486 181,748 360,128 117,335 Net cash provided by operating activities 204,996,986 157,225,238 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Investments accounted for using equity method Property, plant and equipment Proceeds from disposal of: Available-for-sale financial assets Financial assets carried at cost Investments accounted for using equity method Property, plant and equipment and other assets Redemption of held-to-maturity financial assets upon maturity Increase in deferred charges Decrease (increase) in refundable deposits Decrease (increase) in other assets Net cash used in investing activities 126 (119,291,685) (18,554,027) (511,632) (2,613,009) (78,737,265) (99,436,242) (14,199,142) (456,897) (621,883) (79,878,724) 91,620,367 126,465 - 518,705 10,410,000 (1,414,742) (1,224,443) (52,086) (119,723,352) 102,577,763 76,186 65,076 480,707 14,595,394 (855,967) 771 741 (77,652,217) (Continued) CASH FLOWS FROM FINANCING ACTIVITIES Repayments on: Short-term bank loans Bonds payable Long-term bank loans Increase in guarantee deposits Cash bonus paid to employees Cash dividends Bonus to directors and supervisors Proceeds from: Exercise of employee stock options Disposal of treasury stock Increase in minority interests Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS EFFECT OF FIRST INCLUSION FOR CONSOLIDATION OF CERTAIN SUBSIDIARIES $ (328,500) - (5,489) 920,702 (3,432,129) (61,742,741) (257,410) 575,197 - 487,017 (63,783,353) 21,490,281 $ (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 (136,796) 348,921 - 228,101 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 96,483,707 74,302,351 CASH AND CASH EQUIVALENTS, END OF YEAR $ 117,837,192 $ 96,483,707 SUPPLEMENTAL INFORMATION Interest paid Income tax paid INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of property, plant and equipment Decrease (increase) in payables to contractors and equipment suppliers Increase in other long-term payables Cash paid NONCASH FINANCING ACTIVITIES Current portion of long-term liabilities Current portion of other long-term payables (under accrued expenses and other current liabilities) Current portion of other payables to related parties (under payables to $ 951,450 $ 3,630,029 $ 1,378,610 $ 341,671 $ 80,675,310 (1,702,555) (235,490) $ 78,737,265 $ 56,166,205 24,361,666 (649,147) $ 79,878,724 $ 7,004,137 $ 5,489 $ 617,892 $ 869,072 related parties) $ 688,591 $ 693,956 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries The consolidated entities were as follows: Name of Investor Name of Investee Percentage of Ownership at December 31, 2006 Remark NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) TSMC 1. GENERAL Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). TSMC Global, Ltd. (TSMC Global) TSMC North America (TSMC-NA) TSMC Japan K.K. (TSMC-Japan) Taiwan Semiconductor Manufacturing Company Korea (TSMC-Korea) TSMC International Investment Ltd. (TSMC International) Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe) TSMC Partners, Ltd. (TSMC Partners) TSMC (Shanghai) Company Limited (TSMC-Shanghai) Chi Cherng Investment Co., Ltd. (Chi Cherng) 100% 100% 100% 100% 100% 100% 100% 100% 36% 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. Hsin Ruey Investment Co., Ltd. 36% (Hsin Ruey) TSMC Global was acquired in August 2006. - - TSMC-Korea was established in May 2006. - - - - TSMC and Hsin Ruey held in aggregate a 100% ownership of Chi Cherng. As of December 31, 2006, Chi Cherng held 16,947 thousand common 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, 2006, Hsin Ruey held 16,979 thousand common shares in TSMC (approximately 0.07% of outstanding common shares). As of December 31, 2006 and 2005, TSMC and its subsidiaries had 22,969 and 21,950 employees, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guideline Governing Business Accounting, and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying consolidated 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 consolidated financial statements shall prevail. Emerging Alliance Fund, L.P. (Emerging Alliance) VentureTech Alliance Fund II, L.P. (VTAF II) 99.5% 98% - - VentureTech Alliance Fund III, L.P. 98% VTAF III was established in April 2006. (VTAF III) Global Unichip Corporation (GUC) 38% VisEra Technology Company, Ltd. - (VisEra) 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 hiring decisions of GUC. Due to the changes in investment structure, TSMC no longer had a controlling interest in VisEra beginning in November 2005 resulting in VisEra being deconsolidated. TSMC Partners VisEra Holding Company (VisEra 49% Due to the changes in investment structure, Holding) TSMC no longer had a controlling interest in VisEra beginning in November 2005 resulting in VisEra Holding being deconsolidated. Significant accounting policies are summarized as follows: TSMC International TSMC Technology, Inc. (TSMC 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 percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation. Technology) TSMC Development, Inc. (TSMC Development) InveStar Semiconductor Development Fund, Inc. (ISDF) InveStar Semiconductor Development Fund, Inc. (II) LDC (ISDF II) 100% 100% 97% 97% - - - - (Continued) 127 Name of Investor Name of Investee Percentage of Ownership at December 31, 2006 Remark TSMC Development WaferTech, LLC (WaferTech) 99.996% - GUC Global Unichip Corp.-North America (GUC-NA) Global Unichip Japan Co., Ltd. 100% (GUC-Japan) 100% GUC-NA, a subsidiary of GUC, became a consolidated entity of TSMC since TSMC has control over GUC. GUC-Japan, a subsidiary of GUC, became a consolidated entity of TSMC since TSMC has control over GUC. (Concluded) The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated subsidiaries as of December 31, 2006: TSMC 100% 100% 100% 100% 100% 100% 100% 100% 36% 36% 99.5% 38% 98% 98% TSMC Global TSMC-NA TSMC-Japan TSMC-Korea TSMC International TSMC- Europe TSMC Partners TSMC- Shanghai Chi Cherng 64% 64% Hsin Ruey Emerging Alliance GUC VTAF II VTAF III 100% 100% 97% 97% TSMC Technology TSMC Development ISDF ISDF II 99.996% WaferTech 100% 100% GUC-NA GUC-Japan 128 TSMC-NA is engaged in selling and marketing of integrated circuits and semiconductor devices. Fair value is determined as follows: Publicly-traded stocks - closing price at the end of the year; and TSMC-Japan, TSMC-Korea and TSMC-Europe are engaged mainly in marketing activities. TSMC derivatives - using valuation techniques incorporating estimates and assumptions that are consistent International is engaged in investment in companies involved in the design, manufacture, and other with prevailing market conditions. When the fair value is positive, the derivative is recognized as a related business in the semiconductor industry. TSMC Global, TSMC Partners, TSMC Development, financial asset; when the fair value is negative, the derivative is recognized as a financial liability. Chi Cherng and Hsin Ruey are engaged in investing activities. TSMC-Shanghai is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, ISDF and ISDF II are engaged in investing in new start-up technology companies. TSMC Technology is engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. GUC is engaged in researching, developing, manufacturing, testing and marketing of integrated circuits. GUC-NA and GUC-Japan are engaged in providing products consulting in North America and Japan, respectively. TSMC together with its consolidated subsidiaries are hereinafter referred to collectively as the “Company”. Available-for-sale Financial Assets Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. Fair value is determined as follows: Structured time deposits - using valuation techniques; open-end mutual funds and money market funds - net asset value at the end of the year; publicly-traded stocks - closing prices at the end of the year; and other debt securities - average of bid and asked prices at Minority interests in the aforementioned subsidiaries are presented as a separate component of the end of the year. shareholders’ equity. Use of Estimates The preparation of consolidated financial statements in conformity with the aforementioned Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as reductions to the original cost of investments if such dividends are declared on the earnings of the investees attributable to periods prior to the purchase of the investments. Stock guidelines, law and principles requires management to make reasonable assumptions and estimates dividends are recorded as an increase in the number of shares held and do not affect investment of matters that are inherently uncertain. The actual results may differ from management’s estimates. income. The cost per share is recalculated based on the new total number of shares. Any difference Classification of Current and Noncurrent Assets and Liabilities Current assets are assets held for trading purposes and assets expected to be converted to cash, sold between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings. or consumed within one year from the balance sheet date. Current liabilities are obligations incurred If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. for trading purposes and obligations expected to be settled within one year from the balance sheet If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, previously recognized impairment loss is reversed to the extent of the decrease and recorded as an respectively. Cash Equivalents Repurchase agreements collateralized by government bonds, corporate notes and treasury bills acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value. Financial Assets/Liabilities at Fair Value Through Profit or Loss Derivatives that do not meet the criteria for hedge accounting and financial assets acquired principally for the purpose of selling them in the near term are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives and financial assets are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized. Held-to-maturity Financial Assets Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost under the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. 129 If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. method investees, net” account. Prior to January 1, 2006, the difference, if any, between the cost If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly of investment and the Company’s proportionate share of the investee’s equity was amortized by attributable to an event which occurred after the impairment loss was recognized, the previously the straight-line method over five years, with the amortization recorded in the “equity in earnings/ recognized impairment loss is reversed to the extent of the decrease. The reversal may not result losses of equity method investees, net” account. Effective January 1, 2006, pursuant to the revised in a carrying amount that exceeds the amortized cost that would have been determined as if no Statement of Financial Accounting Standards No. 5, “Long-term Investments in Equity Securities” impairment loss had been recognized. Allowance for Doubtful Receivables An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies. (SFAS No. 5), the cost of an investment shall be analyzed and the difference between the cost of investment and the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. The accounting treatment for the investment premiums acquired before January 1, 2006 is the same as that for goodwill which is no longer being amortized; while investment discounts continue to be amortized over the remaining periods. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings. 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 manufacture of photo masks, which are used as manufacturing tools in the fabrication process, are When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or recognized when the photo masks are qualified by customers. Provisions for estimated sales returns credited to capital surplus. and others are generally recorded in the period the related revenue is recognized based on historical experience, management’s judgment, and any known factors that would significantly affect the Gains or losses on sales from the Company to equity method investees are deferred in proportion to allowance. Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are the Company and its customers. Sales agreements typically provide that payment is due 30 days from realized through transactions with third parties. 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 If an investee’s functional currency is a foreign currency, translation adjustments will result from the such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of translation of the investee’s financial statements into the reporting currency of the Company. Such the cash to be received. adjustments are accumulated and reported as a separate component of shareholders’ equity. Inventories Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost Financial Assets Carried at Cost Investments in which the Company does not exercise significant influence and that do not have and adjusted to the approximate weighted-average cost at the balance sheet date. Market value a quoted market price in an active market and whose fair value cannot be reliably measured are represents replacement cost for raw materials, supplies and spare parts and net realizable value for carried at their original cost, such as non-publicly traded stocks and mutual funds. The costs of non- work in process and finished goods. The Company assesses the impact of changing technology on publicly traded stocks and mutual funds are determined using the weighted-average method. If its inventories on hand and writes off inventories that are considered obsolete. Year-end inventories are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses. there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed. The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets. Investments Accounted for Using Equity Method Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity 130 Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Properties covered Pension Costs For employees under defined contribution pension plans, pension costs are recorded based on the by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market actual contributions made to employees’ individual pension accounts during their service periods. value or the present value of the minimum lease payments at the inception date of the lease, with For employees under defined benefit pension plans, pension costs are recorded based on actuarial the corresponding amount recorded as obligations under capital leases. When an indication of calculations. impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the Government Subsidies Income-related subsidies from foreign governments are recognized in earnings when the requirements adjusted amount may not exceed the carrying amount that would have been determined, net of for subsidies are met. depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the following estimated service lives: Land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 3 to 10 years; office equipment - 3 to 15 years; and leased assets - 20 years. Income Tax The Company applies intra-period and inter-period allocations for its income tax, whereby (1) a portion of current income tax expense is allocated to the cumulative effect of changes in accounting principles; and (2) deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset Upon sale or disposal of property, plant and equipment, the related cost and accumulated or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non- financial statements, then it is classified as either current or noncurrent based on the expected length operating gains or losses in the year of sale or disposal. of time before it is realized or settled. Goodwill Goodwill represents the excess of the consideration paid for an acquisition over the fair value of Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based identifiable net assets acquired. Prior to January 1, 2006, goodwill was amortized using the straight- enterprises are recognized using the flow-through method. line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25, “Business Combinations - Accounting Treatment under Purchase Method” (SFAS Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax No. 25), goodwill is no longer amortized and instead is tested for impairment annually. If an event provision. occurs or circumstances change which indicated that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent recovery in fair value of goodwill is not allowed. Deferred Charges Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: Technology license fees - the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges - 2 to 5 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized. Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. The R.O.C. government enacted the Alternative Minimum Tax Act (the AMT Act), which became effective on January 1, 2006. The alternative minimum tax (AMT) imposed under the AMT Act is a supplemental tax levied at a rate of 10% which is payable if the income tax payable determined pursuant to the Income Tax Law is below the minimum amount prescribed under the AMT Act. The taxable income for calculating the AMT includes most of the income that is exempted from income tax under various laws and statutes. The Company has considered the impact of the AMT Act in the determination of its tax liabilities. 131 Stock-based Compensation Employee stock option plans that are amended or have options granted on or after January 1, 2004 are accounted for by the interpretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Treasury Stock TSMC’s stock held by subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury The effect of adopting the newly released SFASs is summarized as follows: Financial assets/liabilities at fair value through profit or loss Available-for-sale financial assets Recognized as Cumulative Effect of Changes in Accounting Principles (Net of Tax) Recognized as a Separate Component of Shareholders’ Equity $ 1,606,749 - $ - 306,531 $ 1,606,749 $ 306,531 stock held by subsidiaries and cash dividends received by subsidiaries from TSMC are recorded under The adoption of the newly released SFASs resulted in a decrease in net income before cumulative capital surplus - treasury stock transactions. Foreign-currency Transactions Foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect effect of changes in accounting principles of NT$1,083,574 thousand, an increase in net income of NT$ 523,175 thousand, and an increase in basic earnings per share (after income tax) of NT$0.02 for the year ended December 31, 2006. when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or Effective January 1, 2006, the Company adopted the newly revised SFAS No. 5 and SFAS No. 25, monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the which prescribe that investment premiums, representing goodwill, be assessed for impairment at balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at least on an annual basis instead of being amortized. Such a change in accounting principle did not prevailing exchange rates with the resulting gains or losses recognized in earnings. have a material effect on the Company’s consolidated financial statements as of and for the year Translation of Foreign-currency Financial Statements Statements of Financial Accounting Standards No. 14, “Accounting for Foreign-currency Translation” applies to foreign subsidiaries that use the local currency as their functional currency. The financial ended December 31, 2006. b. Reclassifications statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange Upon adoption of SFAS No. 34, certain accounts in the consolidated financial statements as of and rates: Assets and liabilities - spot rates at year-end; shareholders’ equity - historical rates; income for the year ended December 31, 2005 were reclassified to conform with the consolidated financial and expenses - average rates during the year. The resulting translation adjustments are recorded as a statements as of and for the year ended December 31, 2006. The previously issued consolidated separate component of shareholders’ equity. financial statements as of and for the year ended December 31, 2005 were not required to be 3. ACCOUNTING CHANGES restated. Certain accounting policies prior to the adoption of the newly released SFASs are summarized as On January 1, 2006, the Company adopted the newly released Statements of Financial Accounting follows: Standards No. 34, “Financial Instruments: Recognition and Measurement” (SFAS No. 34) and No. 36, “Financial Instruments: Disclosure and Presentation” and related revisions of previously released 1) Short-term investments SFASs. a. Effect of adopting the newly released SFASs and related revisions of previously released SFASs The Company had categorized its financial assets and liabilities upon initial adoption of the newly released SFASs. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or financial liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles; the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity. 132 Short-term investments that were publicly-traded, easily converted to cash, and not acquired for the purpose of controlling the investees or establishing close business relationship with the investees were carried at the lower of cost or market value at the balance sheet date, with any temporary decline in value charged to current income. The market value of publicly-traded stocks was determined using the average-closing prices for the last month of the year. 2) Derivative financial instruments The Company entered into forward exchange contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts were recorded in New Taiwan dollars at the current rate of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted forward rates were amortized over the terms of the forward contracts using the straight-line method. At the end of each year, the receivables or payables arising from forward contracts were restated using the prevailing exchange rates with the resulting differences credited or charged to income. In addition, the receivables and payables related to the same forward contracts were netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. The Company entered into cross currency swap contracts to manage currency exposures on foreign-currency-denominated assets and liabilities. The principal amount was recorded using the current rates of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted rates were amortized over the terms of the contracts using the straight-line method. At the end of each year, the receivables or payables arising from cross-currency swap contracts were restated using prevailing exchange rate with the resulting differences credited or charged to income. In addition, the receivables and payables related to the contracts of the same counter party were netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date was recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. The Company entered into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions were accounted for on an accrual basis, in which the cash settlement receivable or payable was recorded as an adjustment to interest income or expense associated with the hedged items. Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2005 have been reclassified to conform to the classifications prescribed by the newly released SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows: Balance sheet Short-term investments, net Other financial assets Prepaid expenses and other current assets Long-term investments accounted for using cost method Long-term bond investments Other long-term investments Accrued expenses and other current liabilities Financial assets at fair value through profit or loss Financial liabilities at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Statement of income Interest income Foreign exchange gain, net Interest expense Unrealized valuation loss on short-term investments Loss on disposal of investment, net Valuation loss on financial instruments, net Loss on settlement and disposal of financial instruments, net 4. CASH AND CASH EQUIVALENTS Cash and deposits in banks Repurchase agreements collaterized by government bonds Corporate notes Treasury bills Before Reclassification After Reclassification $ 47,399,308 2,915,696 1,503,447 3,365,341 18,548,308 10,227,000 (10,542,230) - - - - - $ - 1,617,797 1,420,441 - - - (10,307,951) 1,770,445 (234,279) 46,570,085 29,377,817 3,202,515 $ 73,416,870 $ 73,416,870 $ 3,069,435 3,040 (2,662,458) (337,160) (9,985) - - $ 2,806,226 2,609,979 (1,413,374) - - (337,160) (3,602,799) $ 62,872 $ 62,872 December 31 2006 $ 85,496,085 31,241,594 1,026,522 72,991 2005 $ 48,107,316 47,963,226 413,165 - $ 117,837,192 $ 96,483,707 133 5. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR The Company did not enter into any interest rate swap contracts during the year ended December 31, LOSS Trading financial assets Publicly-traded stocks Forward exchange contracts Cross currency swap contracts Trading financial liabilities Forward exchange contracts Cross currency swap contracts December 31 2006 2005 $ 1,162,253 - 44,601 $ 389,540 26,720 1,354,185 $ 1,206,854 $ 1,770,445 $ 113 10,751 $ - 234,279 $ 10,864 $ 234,279 The Company entered into derivative contracts during the years ended December 31, 2006 and 2005 to manage exposures due to the fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting prescribed by SFAS No. 34. Therefore, effective from January 1, 2006, the Company discontinued applying hedge accounting treatment for its derivative financial contracts. Outstanding forward contracts as of December 31, 2006 and 2005: Currency Maturity Date Contract Amount (In Thousands) December 31, 2006 Buy US$/JPY$ January 2007 JPY$ 38,610 December 31, 2005 Sell US$/NT$ January 2006 US$ 60,000 2006. The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their original maturities. The rescission loss of NT$28,295 thousand has been reclassified and included in the “loss on settlement and disposal of financial instruments” account. Net losses arising from derivative financial instruments for the year ended December 31, 2006 were NT$1,613,366 thousand (including realized settlement losses of NT$1,647,103 thousand and a valuation gain of NT$33,737 thousand). 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Open-end mutual funds Corporate bonds Agency bonds Corporate issued asset-backed securities Government bonds Money market funds Structured time deposits Publicly-traded stocks Corporate notes Current portion December 31 2006 $ 26,147,276 16,494,244 12,691,612 10,541,679 6,921,532 667,828 499,242 208,930 - 74,172,343 (67,523,858) 2005 $ 6,198,982 11,853,044 14,496,728 11,582,590 1,776,279 260,686 - 138,527 263,249 46,570,085 (46,452,838) $ 6,648,485 $ 117,247 Starting from 2004, the Company entered into investment management agreements with three well- known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of December 31, 2006, the Company’s investment portfolios managed by these fund managers aggregated to an original amount of US$1,206,211 thousand. The investment portfolios included securities such as corporate bonds, agency bonds, asset-backed securities, government bonds and others. Securities acquired with Outstanding cross currency swap contracts as of December 31, 2006 and 2005: maturities of less than three months from the date of purchase were classified as cash equivalents. Maturity Date December 31, 2006 Contract Amount (In Thousands) Range of Interest Rates Paid Range of Interest Rates Received As of December 31, 2006, structured time deposits categorized as available-for-sale financial assets January 2007 to February 2007 US$ 820,000 3.19% - 5.91% 0.90% - 3.25% December 31, 2005 consisted of the following: Step-up callable deposits Principal Amount Carrying Amount Range of Interest Rates Maturity Date January 2006 to March 2006 US$ 2,089,000 4.15% - 4.54% 0.02% - 2.12% Domestic deposits $ 500,000 $ 499,242 1.76% March 2008 The interest rate of the step-up callable deposits was pre-determined by the Company and the banks. 134 December 31, 2006 Step-up callable deposits Domestic deposits Callable range accrual deposits Domestic deposits December 31, 2005 Step-up callable deposits Domestic deposits Callable range accrual deposits Domestic deposits Foreign deposits 7. HELD-TO-MATURITY FINANCIAL ASSETS 8. INVENTORIES, NET Corporate bonds Structured time deposits Government bonds Current portion December 31 2006 $ 13,742,541 11,671,120 12,070,657 37,484,318 (8,510,823) 2005 $ 8,927,317 10,227,000 10,223,500 29,377,817 (602,509) $ 28,973,495 $ 28,775,308 Finished goods Work in process Raw materials Supplies and spare parts Allowance for losses December 31 2006 $ 5,146,839 14,688,719 1,673,982 926,120 22,435,660 (1,004,932) 2005 $ 2,963,989 13,359,209 1,765,369 1,325,582 19,414,149 (1,685,846) $ 21,430,728 $ 17,728,303 Structured time deposits categorized as held-to-maturity financial assets consisted of the following: Principal Amount Interest Receivable Range of Interest Rates Maturity Date 9. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD $ 4,500,000 $ 13,928 1.40% - 1.83% June 2007 to October 2008 Foreign deposits 3,259,600 3,911,520 4,808 4,998 (See below) September 2009 to December 2009 (See below) October 2009 to January 2010 Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Vanguard International Semiconductor Corporation (VIS) VisEra Holding $ 11,671,120 $ 23,734 December 31 2006 2005 Carrying Amount % of Ownership Carrying Amount % of Ownership $ 7,960,869 5,931,755 1,108,267 39 27 49 $ 4,215,200 5,419,747 652,477 32 27 50 $ 15,000,891 $ 10,287,424 $ 3,000,000 $ 8,145 1.40% - 1.50% June 2007 to October 2007 In November 2006, the Company acquired 81 thousand shares in SSMC from EDB Investments Pte 3,942,000 3,285,000 4,928 5,023 $ 10,227,000 $ 18,096 (See below) September 2009 to December Ltd. under a Shareholders Agreement. After the acquisition, the number of SSMC shares owned by the 2009 (See below) October 2009 to January 2010 Company increased from 382 thousand to 463 thousand; the percentage of ownership increased from 32% to 39%. The amount of interest earned by the Company for the callable range accrual deposits is based on a and NT$1,433,226 thousand were recognized, respectively. The carrying amounts of the investments pre-defined range as determined by the 3-month or 6-month LIBOR plus an agreed upon rate ranging accounted for using the equity method and the related equity in earnings of equity method investees were between 2.10% and 3.45%. Based on the terms of the contracts, if the 3-month or 6-month LIBOR determined based on the audited financial statements of the investees as of and for the same periods For the years ended December 31, 2006 and 2005, net equity in earnings of NT$2,347,153 thousand moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between ended as the Company. zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the contracts prior to the maturity date. 10. FINANCIAL ASSETS CARRIED AT COST As of December 31, 2006 and 2005, the principal of the deposits that resided in banks located in Hong Kong amounted to US$80,000 thousand; those resided in banks located in Singapore amounted to US$20,000 thousand. Non-publicly traded stocks Mutual funds December 31 2006 2005 $ 2,924,350 347,930 $ 2,867,525 334,990 $ 3,272,280 $ 3,202,515 135 11. PROPERTY, PLANT AND EQUIPMENT 14. BONDS PAYABLE Accumulated depreciation consisted of the following: Land improvements Buildings Machinery and equipment Office equipment Leased assets December 31 2006 $ 234,377 54,288,225 400,579,587 7,839,303 96,592 2005 $ 206,408 46,560,127 344,431,001 6,862,502 64,569 Domestic unsecured bonds: Issued in December 2000 and repayable in December 2005 and 2007 in two installments, 5.25% and 5.36% interest payable annually, respectively 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 $ 463,038,084 $ 398,124,607 Current portion December 31 2006 2005 $ 4,500,000 $ 4,500,000 15,000,000 19,500,000 (7,000,000) 15,000,000 19,500,000 - $ 12,500,000 $ 19,500,000 No interest was capitalized during the years ended December 31, 2006 and 2005. 12. DEFERRED CHARGES, NET As of December 31, 2006, future principal repayments for the Company’s bonds were as follows: Year of Repayment 2007 2009 2012 December 31 2006 $ 4,132,174 1,669,781 134,960 2005 $ 5,099,227 1,737,384 169,639 $ 5,936,915 $ 7,006,250 15. LONG-TERM BANK LOANS Technology license fees Software and system design costs Others 13. SHORT-TERM BANK LOANS Unsecured loans: US$10,000 thousand repayable by June 2006, annual interest at 4.77% $ - $ 328,500 Science Park Administration (SPA) SOC loan, repayable by July 2008 in 20 payments, interest-free SPA DSP loan, repayable by April 2007 in 20 payments, interest-free Current portion December 31 2006 Secured loan: US$20,000 thousand, repayable by November 2008 in 5 payments, 2005 annual interest at 5.91% Unsecured loans: 136 Amount $ 7,000,000 8,000,000 4,500,000 $ 19,500,000 December 31 2006 2005 $ 651,871 $ 656,914 4,873 1,352 658,096 (4,137) 7,658 4,057 668,629 (5,489) $ 653,959 $ 663,140 As of December 31, 2006, assets of TSMC-Shanghai with an aggregate carrying amount of NT$4,293,595 thousand (RMB1,028,652 thousand) were provided as collateral for the 17. PENSION PLANS aforementioned secured loan. Pursuant to the loan agreement, the annual audited financial The Labor Pension Act (the Act) became effective on July 1, 2005. The employees of TSMC and GUC statements of TSMC-Shanghai must comply with certain financial covenants. As of December 31, who were subject to the Labor Standards Law prior to July 1, 2005 were allowed to choose to be 2006, TSMC-Shanghai was in compliance with all such financial covenants. subject to the pension mechanism under the Act with their seniority as of July 1, 2005 retained or continue to be subject to the pension mechanism under the Labor Standards Law. Employees who As of December 31, 2006, future principal repayments under the Company’s long-term bank loans joined TSMC and GUC after July 1, 2005 can only be subject to the pension mechanism under the were as follows: Year of Repayment 2007 2008 2009 2010 16. OTHER LONG-TERM PAYABLES Payables for acquisition of property, plant and equipment (Note 27k) Payables for royalties Current portion (under accrued expenses and other current liabilities) Amount $ 4,137 132,463 260,748 260,748 $ 658,096 December 31 2006 $ 7,431,371 1,889,788 9,321,159 (617,892) 2005 $ 7,037,787 2,380,172 9,417,959 (869,072) $ 8,703,267 $ 8,548,887 Act. The pension mechanism under the Act is deemed a defined contribution plan. Pursuant to the Act, TSMC and GUC have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts starting from July 1, 2005. Furthermore, TSMC-NA and TSMC- Shanghai are required by local regulations to make monthly contributions, at a certain percentage of the monthly basic salary of their local employees. Pursuant to the aforementioned Act and local regulations, the Company has made monthly contributions and recognized pension costs of NT$679,919 thousand and NT$305,270 thousand for the years ended December 31, 2006 and 2005, 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 at retirement. TSMC and GUC contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the pension fund monitoring committees and deposited by the names of the committees in the Central Trust of China. Information about the defined benefit plans is summarized as follows: The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents. a. Components of net periodic pension cost for the year As of December 31, 2006, future payments for other long-term payables were as follows: Year of Payment 2007 2008 2009 2010 2011 2012 and thereafter Amount $ 617,892 337,043 337,043 337,043 260,767 7,431,371 $ 9,321,159 Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 2006 2005 $ 178,460 164,168 (49,399) 12,096 $ 470,886 163,854 (49,843) 8,345 $ 305,325 $ 593,242 137 b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 18. INCOME TAX 2006 and 2005 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 transition obligation Unrecognized net loss Accrued pension cost Vested benefit 2006 2005 a. A reconciliation of income tax expense based on “income before income tax” at statutory rates and income tax currently payable was as follows: $ 102,920 3,883,344 3,986,264 2,969,830 6,956,094 (1,958,595) 4,997,499 (118,420) (1,339,019) $ 62,302 3,364,333 3,426,635 2,550,307 5,976,942 (1,691,603) 4,285,339 (126,969) (684,429) $ 3,540,060 $ 3,473,941 Income tax expense based on “income before income tax” at statutory rates Tax effect of the following: Tax-exempt income Temporary and permanent differences Additional tax at 10% on unappropriated earnings Cumulative effect of changes in accounting principles Investment tax credits used Years Ended December 31 2006 2005 $ (34,786,278) $ (23,658,498) 12,281,413 2,817,104 (1,170,108) 82,062 12,769,386 12,243,435 (1,123,735) (1,494,811) - 10,133,848 $ 106,645 $ 67,752 Income tax currently payable $ (8,006,421) $ (3,899,761) c. Actuarial assumptions at December 31, 2006 and 2005 b. Income tax expense consisted of the following: Discount rate used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Funds for the year 2006 2.25% - 3.50% 2.00% - 3.00% 2.50% 2005 2.75% - 3.50% 2.00% - 3.00% 2.50% - 2.75% 2006 2005 Income tax currently payable Other income tax adjustments Net change in deferred income tax assets Investment tax credits Temporary differences Net operating loss carryforwards Adjustments in valuation allowance Years Ended December 31 2006 2005 $ (8,006,421) 328,152 $ (3,899,761) (117,314) (3,914,757) 2,181,558 (1,412,946) 3,050,703 (1,965,878) 2,402,406 (690,615) 3,640,583 $ 233,111 $ 226,181 Income tax expense $ (7,773,711) $ (630,579) e. Payments from the Funds for the year c. Net deferred income tax assets consisted of the following: 2006 2005 $ 7,407 $ 8,419 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 Temporary differences Net operating loss carryforwards Valuation allowance December 31 2006 $ 7,870,800 584,210 - (441,018) 2005 $ 7,033,622 454,051 15,825 (354,192) $ 8,013,992 $ 7,149,306 $ 12,252,389 (3,580,754) 4,816,846 (7,686,339) $ 17,004,324 (5,640,477) 6,261,469 (10,836,898) $ 5,802,142 $ 6,788,418 138 As of December 31, 2006, the net operating loss carryforwards were generated by WaferTech, g. The profits generated from the following expansion and construction projects of TSMC are exempt TSMC Development and TSMC Technology and will expire on various dates through 2026. from income tax: d. Integrated income tax information: The balance of the imputation credit account as of December 31, 2006 and 2005 was NT$828,612 thousand and NT$20,087 thousand, respectively. 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 2002 to 2005 2003 to 2006 2004 to 2007 Tax-Exemption Periods The estimated creditable ratio for distribution of TSMC’s earnings of 2006 and 2005 was 0.54% and 2.88%, respectively. 19. LABOR COST, DEPRECIATION AND AMORTIZATION h. The tax authorities have examined income tax returns of TSMC through 2003. The imputation credit allocated to shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made. e. All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2006, the Company’s investment tax credits consisted of the following: Regulation Item Statute for Upgrading Industries Purchase of machinery and equipment Statute for Upgrading Industries Research and development expenditures Statute for Upgrading Industries Personnel training Total Creditable Amount Remaining Creditable Amount Expiry Year $ 2,685,977 4,113,439 6,802,983 6,030,309 5,114,762 $ - - 3,955,980 6,030,309 5,114,762 $ 24,747,470 $ 15,101,051 $ 1,800,884 1,283,760 1,668,780 1,572,164 1,580,589 $ - 38,618 1,668,780 1,572,164 1,580,589 $ 7,906,177 $ 4,860,151 $ 27,357 16,379 40,777 40,628 596 $ - 182 40,777 40,628 596 $ 125,737 $ 82,183 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Statute for Upgrading Industries Investments in important $ 79,804 $ 79,804 2010 technology-based enterprises Labor cost Salary Labor and health insurance Pension Meal Welfare Others Year Ended December 31, 2006 Year Ended December 31, 2005 Classified as Cost of Sales Classified as Operating Expenses Total Classified as Cost of Sales Classified as Operating Expenses Total $ 11,713,445 714,170 627,731 460,980 236,022 226,032 $ 6,692,437 404,845 369,398 173,185 211,272 217,045 $ 18,405,882 1,119,015 997,129 634,165 447,294 443,077 $ 11,031,464 633,790 589,342 434,729 167,218 168,959 $ 6,678,630 343,937 320,607 160,175 166,360 225,389 $ 17,710,094 977,727 909,949 594,904 333,578 394,348 $ 13,978,380 $ 8,068,182 $ 22,046,562 $ 13,025,502 $ 7,895,098 $ 20,920,600 Depreciation Amortization $ 67,685,744 $ 1,436,908 $ 3,539,472 $ 1,035,482 $ 71,225,216 $ 2,472,390 $ 68,135,117 $ 1,766,702 $ 3,250,651 $ 2,574,566 $ 71,385,768 $ 4,341,268 20. SHAREHOLDERS’ EQUITY As of December 31, 2006, 889,740 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs is 4,448,702 thousand (one ADS represents five common shares). Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. 139 Capital surplus consisted of the following: Any appropriations of the profits are recorded in the year of shareholder approval and given effect to From merger Additional paid-in capital From convertible bonds From treasury stock transactions From long-term investments Donations December 31 2006 $ 24,003,546 19,974,431 9,360,424 389,188 379,854 55 2005 $ 24,003,546 23,254,234 9,360,424 306,868 192,759 55 in the financial statements of that year. The appropriation for legal capital reserve shall be made until the reserve equals TSMC’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if TSMC has no unappropriated earnings and the reserve balance has exceeded 50% of TSMC’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of TSMC’s paid-in capital, up to 50% of the reserve may be $ 54,107,498 $ 57,117,886 transferred to capital. 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 following items accordingly: a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve has equaled TSMC’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 TSMC of 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. The Articles of Incorporation also provide 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 that the ratio for stock dividend shall not exceed 50% of the total distribution. A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial assets, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. The appropriations of earnings for 2005 and 2004 had been approved in the shareholders’ meetings held on May 16, 2006 and May 10, 2005, respectively. The appropriations and dividends per share were as follows: Legal capital reserve Special capital reserve Employees’ profit sharing - in cash Employees’ profit sharing - in stock Cash dividends to shareholders Stock dividends to shareholders Bonus to directors and supervisors Appropriation of Earnings Dividends Per Share (NT$) For Fiscal Year 2005 For Fiscal Year 2004 For Fiscal Year 2005 For Fiscal Year 2004 $ 9,357,503 (1,585,685) 3,432,129 3,432,129 61,825,061 3,709,504 257,410 $ 8,820,201 2,226,427 3,086,215 3,086,215 46,504,097 11,626,024 231,466 $ 80,428,051 $ 75,580,645 $ 2.50 0.15 $ 2.00 0.50 140 The shareholders’ meeting held on May 16, 2006 also resolved to distribute stock dividends out of Information about TSMC’s outstanding stock options for the years ended December 31, 2006 and capital surplus in the amount of NT$3,709,504 thousand. 2005 was as follows: The amounts of the above appropriations of earnings for 2005 and 2004 are consistent with the resolutions of the meetings of the Board of Directors held on February 14, 2006 and February 22, Year ended December 31, 2006 2005, respectively. If the above bonus to employees, directors and supervisors had been paid entirely in cash and charged to earnings of 2005 and 2004, the basic earnings per share (after income tax) for the years ended December 31, 2005 and 2004 shown in the respective financial statements would have decreased from NT$3.79 to NT$3.50 and NT$3.97 to NT$3.70, respectively. Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year The shares distributed as a bonus to employees represented 1.39% and 1.33% of TSMC’s total Year ended December 31, 2005 outstanding common shares as of December 31, 2005 and 2004, respectively. As of January 11, 2007, the Board of Directors had not resolved the appropriation for earnings of 2006. The above information about the appropriations of bonus to employees, directors and supervisors is available at the Market Observation Post System website. Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Number of Options (In Thousands) Weighted-average Exercise Price (NT$) 67,758 2,758 (14,550) (3,152) 52,814 64,367 14,864 (6,837) (4,636) 67,758 $ 39.4 40.1 40.1 43.7 39.6 $ 40.5 48.4 39.6 44.1 42.1 The number of outstanding options and exercise prices have been adjusted to reflect the appropriations of dividends in accordance with the plans. Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on As of December 31, 2006, information about TSMC’s outstanding and exercisable options was as earnings generated since January 1, 1998. follows: 21. STOCK-BASED COMPENSATION PLANS TSMC’s Employee Stock Option Plans under the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 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 TSMC 2004 Plan, TSMC 2003 Plan and TSMC 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 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 subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC’s common shares listed on the TSE on the grant date. Options of the aforementioned TSMC Plans that had never been granted or had been granted but subsequently cancelled had expired as of December 31, 2006. Range of Exercise Price (NT$) Number of Options (In Thousands) $27.6 - $39.7 45.1 - 52.3 34,584 18,230 52,814 Options Outstanding Weighted-average Remaining Contractual Life (Years) Options Exercisable Weighted-average Exercise Price (NT$) Number of Options (In Thousands) Weighted-average Exercise Price (NT$) 5.15 6.88 $ 35.5 47.5 $ 35.5 45.7 28,351 4,390 32,741 GUC’s Employee Stock Option Plans, consisting of the 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 at certain percentages subsequent to the second anniversary of the grant date. 141 Moreover, the GUC 2006 Plan and GUC 2004 Plan were approved by the SFB on July 3, 2006 and No compensation cost was recognized under the intrinsic value method for the years ended August 16, 2004 to grant a maximum of 3,665 options and 2,500 options, respectively, with each December 31, 2006 and 2005. Had the Company used the fair value based method (based on the option eligible to subscribe for one thousand common shares when exercisable. The options may be Black-Scholes model) to evaluate the options granted after January 1, 2004, the assumptions and pro granted to qualified employees of GUC or any of its subsidiaries. The options of the GUC 2006 Plan forma results of the Company for the years ended December 31, 2006 and 2005 would have been as are valid until August 15, 2011 and the options of the GUC 2004 Plan are valid for six years. Options follows: of both Plans are exercisable at certain percentages subsequent to the second anniversary of the grant date. Options of the aforementioned GUC Plans, except those of the GUC 2006 Plan, that had never been granted, or had been granted but subsequently canceled had expired as of December 31, 2006. Information about GUC’s outstanding stock options for the years ended December 31, 2006 and 2005 was as follows: Year ended December 31, 2006 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Year ended December 31, 2005 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Number of Options Weighted-Average Exercise Price (NT$) 7,132 3,689 (2,862) (617) 7,342 7,889 2,499 (2,641) (615) 7,132 $ 10.7 19.5 10.5 12.1 14.0 10.5 11.0 10.5 10.6 10.7 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 22. TREASURY STOCK Year ended December 31, 2006 2006 2005 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years - 22.65% - 41.74% 2.23% - 2.56% 3 - 6 years 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years - 22.65% - 28.02% 2.56% 6 years $ 127,009,731 126,887,247 $ 93,575,035 93,456,533 $ 4.93 4.92 4.92 4.92 $ 3.63 3.63 3.63 3.63 Beginning Shares Stock Dividends Disposal Ending Shares (Shares in Thousands) As of December 31, 2006, information about GUC’s outstanding and exercisable options was as Year ended December 31, 2005 follows: Parent company stock held by subsidiaries 45,521 2,242 14,825 32,938 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$) Proceeds from sales of treasury stock for the year ended December 31, 2005 were NT$899,489 thousand. As of December 31, 2006 and 2005, the book value of the treasury stock was NT$918,075 thousand, the market value was NT$2,290,026 thousand and NT$2,047,126 thousand, respectively. $10.0 - $18.4 7,342 1.58 - 4.75 $ 14.0 15 $ 10.5 TSMC’s stock held by subsidiaries is treated as treasury stock and the holders are entitled to the rights Parent company stock held by subsidiaries 32,938 988 - 33,926 of shareholders, except that starting from June 24, 2005, pursuant to the revised Company Law, the holders are no longer entitled to vote in shareholders’ meetings. 142 23. CONSOLIDATED EARNINGS PER SHARE 24. DISCLOSURES FOR FINANCIAL INSTRUMENTS Years Ended December 31 2006 2005 Before Income Tax After Income Tax Before Income Tax After Income Tax a. Fair values of financial instruments were as follows: Consolidated basic EPS (NT$) Income before cumulative effect of changes in accounting principles attributable to shareholders of the parent Cumulative effect of changes in accounting principles attributable to shareholders of the parent $ 5.16 $ 4.87 $ 3.66 $ 3.63 0.06 0.06 - - Income attributable to shareholders of the parent $ 5.22 $ 4.93 $ 3.66 $ 3.63 Consolidated diluted EPS (NT$) Income before cumulative effect of changes in accounting principles attributable to shareholders of the parent Cumulative effect of changes in accounting principles attributable to shareholders of the parent $ 5.16 $ 4.86 $ 3.66 $ 3.63 0.06 0.06 - - Income attributable to shareholders of the parent $ 5.22 $ 4.92 $ 3.66 $ 3.63 Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Investments accounted for using equity method (with market price) Liabilities Financial liabilities at fair value through profit or loss Bonds payable (including current portion) Long-term bank loans (including current portion) Other long-term payables (including current portion) Obligations under capital leases December 31 2006 Carrying Amount Fair Value 2005 Carrying Amount Fair Value $ 1,206,854 74,172,343 37,484,318 $ 1,206,854 74,172,343 37,375,517 $ 1,770,445 46,570,085 29,377,817 $ 3,000,839 46,560,924 29,081,927 5,931,755 11,027,066 5,419,747 10,991,064 10,864 19,500,000 658,096 10,413,125 612,941 10,864 19,817,149 658,096 10,413,125 612,941 234,279 19,500,000 668,629 11,212,390 597,669 173 19,924,923 668,629 11,212,390 597,669 Consolidated EPS for the years ended December 31, 2006 and 2005 is computed as follows: b. Methods and assumptions used in the determination of fair values of financial instruments Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (In Thousands) EPS (NT$) Before Income Tax After Income Tax 1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, short-term bank loans, payables, and payables to contractors and equipment suppliers. The carrying amounts of these financial instruments approximate their fair values. Year ended December 31, 2006 Consolidated basic EPS Consolidated diluted EPS Income available to common shareholders of the parent (including effect of dilutive potential common stock) Year ended December 31, 2005 Consolidated basic EPS Income available to common shareholders of the parent Effect of dilutive potential common stock - stock options $134,698,725 - $127,009,731 - 25,788,555 24,628 $ 5.22 $ 4.93 2) Fair values of financial assets at fair value through profit or loss, available-for-sale and held-to- maturity financial assets other than derivatives and structured time deposits were based on their quoted market prices. $134,698,725 $127,009,731 25,813,183 $ 5.22 $ 4.92 3) Fair values of derivatives and structured time deposits were determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. Income available to common shareholders of the parent Effect of dilutive potential common stock - stock options $ 94,214,625 - $ 93,575,035 - 25,763,320 12,647 $ 3.66 $ 3.63 4) Fair value of bonds payable was based on their quoted market price. Consolidated diluted EPS Income available to common shareholders of the parent (including effect of dilutive potential common stock) $ 94,214,625 $ 93,575,035 25,775,967 $ 3.66 $ 3.63 were based on the present value of expected cash flows, which approximate their carrying amount. 5) Fair values of long-term bank loans, other long-term payables and obligation under capital leases 143 c. Gains recognized for the changes in fair value of derivatives estimated using valuation techniques 25. RELATED PARTY TRANSACTIONS were NT$33,739 thousand for the year ended December 31, 2006. d. As of December 31, 2006 and 2005, financial assets exposed to fair value interest rate risk were summary of significant related party transactions: NT$111,492,332 thousand and NT$77,190,280 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$10,864 thousand and NT$234,279 thousand, respectively, a. Industrial Technology Research Institute (ITRI), the chairman of TSMC was one of ITRI’s supervisors, Except as disclosed in the consolidated financial statements and other notes, the following is a and financial assets exposed to cash flow interest rate risk were NT$7,171,120 thousand and who resigned in October 2006. NT$7,227,000 thousand, respectively. e. The Company recognized an unrealized gain of NT$388,164 thousand (NT$386,017 thousand attributable to shareholders’ equity of the parent and NT$2,147 thousand attributable to minority interests) in shareholder’s equity for the changes in fair value of available-for-sale financial assets c. Investees of TSMC for the year ended December 31, 2006. The Company also recognized an unrealized gain of NT$175,598 thousand in shareholders’ equity for the changes in fair value of available-for-sale financial assets held by equity method investees for the year ended December 31, 2006. VIS (accounted for using equity method) SSMC (accounted for using equity method) b. Philips, a major shareholder of TSMC f. Information about financial risk d. Indirect investee 1) Market risk. The publicly-traded stocks categorized as financial assets at fair value through profit or loss are exposed to market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign-currency-denominated assets and liabilities. Therefore, the market risk of derivatives will be offset by the foreign exchange risk of these assets and liabilities. Available-for- sale financial assets held by the Company are mainly fixed-interest-rate debt securities. Therefore, the fluctuations in market interest rates would result in changes in fair values of these debt securities. 2) Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the VisEra, originally an investee over which the Company had a controlling interest; beginning in November 2005, VisEra became an indirect investee accounted for using the equity method due to changes in investment structure. XinTec Corporation (XinTec), the chairman of VisEra was previously one of Xintec’s directors. Because VisEra has not been a consolidated entity of the Company since November 2005, XinTec is no longer considered a related party. e. Omnivision International Holding, Ltd. (Omnivision), originally a shareholder holding a 25% ownership in VisEra. Because VisEra has not been a consolidated entity of the Company since November 2005, Omnivision is no longer considered a related party. foregoing financial instruments are reputable financial institutions, business organizations, and f. Huawei Semiconductor (Shanghai) Co., Ltd. (Huawei), which has the same president as VisEra. government agencies. Management believes that the Company’s exposure to default by those However, because VisEra has not been a consolidated entity of the Company since November 2005, parties is low. Huawei is no longer considered a related party. 3) Liquidity risk. The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments, bonds payable and loans. Therefore, the liquidity risk is low. 4) Cash flow interest rate risk. The Company mainly engages in investments in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. 144 2006 2005 Amount % Amount % The Company leased certain buildings and facilities to VisEra with a monthly rental of NT$7,684 thousand (classified under non-operating incomes and gains). The Company deferred the gains For the year Sales Philips Omnivision Others Purchases SSMC VIS $ 4,024,990 - 162,343 $ 4,187,333 $ 6,820,632 3,919,566 $ 10,740,198 Manufacturing expenses - technical assistance fees Philips (see Note 27a) $ 755,904 Non-operating income and gains SSMC (primarily technical service income; see Note 27e) VIS (primarily technical service income; see Note 27h) VisEra $ 314,953 261,245 246,242 $ 822,440 1 - - 1 4 3 7 - 3 3 2 8 $ 3,298,770 2,489,252 492,683 $ 6,280,705 $ 5,729,672 4,142,457 $ 9,872,129 $ 581,059 $ 316,243 210,720 308,071 1 1 - 2 4 3 7 - 4 3 4 $ 835,034 11 $ 250,919 1,420 99 1 $ 573,565 119,701 83 17 $ 252,339 100 $ 693,266 100 $ 121,911 69,568 58,989 6,395 47 27 23 3 $ 74,457 149,251 374,202 - 12 25 63 - $ 256,863 100 $ 597,910 100 $ 719,832 688,591 459,305 38 37 25 $ 563,240 693,956 485,873 32 40 28 As of December 31 Receivables Philips Others Other receivables VIS SSMC VisEra Others Payables VIS Philips SSMC Other long-term payables Philips (see Note 27a) Deferred credits VisEra (classified under deferred credits) derived from sales of property, plant, and equipment to VisEra, and then recognized such gains (classified under non-operating incomes and gains) over the depreciable lives of the disposed assets. 26. SIGNIFICANT LONG-TERM LEASES The Company leases several 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. The Company entered into lease agreements for its office premises and certain equipment located in North America, Japan and Shanghai. These operating leases expire between 2007 and 2011 and can be renewed upon expiration. As of December 31, 2006, future lease payments were as follows: Year 2007 2008 2009 2010 2011 2012 and thereafter Amount $ 945,657 697,264 422,415 306,709 211,051 1,507,005 $ 4,090,101 27. SIGNIFICANT COMMITMENTS AND CONTINGENCIES Significant commitments and contingencies of the Company as of December 31, 2006, excluding those disclosed in other notes, were as follows: a. On June 20, 2004, TSMC and Philips amended the Technical Cooperation Agreement, which was $ 1,867,728 100 $ 1,743,069 100 originally signed on May 12, 1997. The amended Technical Cooperation Agreement is for five $ 403,375 100 $ 1,100,475 100 $ 124,350 11 $ 186,525 14 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 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 a certain The terms of sales to related parties were not significantly different from those of sales to third percentage of TSMC’s annual net sales. TSMC and Philips agreed to cross license the patents owned parties. For other related party transactions, prices were determined in accordance with mutual by each party. TSMC also obtained through Philips a number of cross patent licenses. agreements. 145 b. Under a technical cooperation agreement with ITRI, the R.O.C. Government or its designee properties arising out of the co-development project shall be jointly owned by the parties. In approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments accordance with the agreement, TSMC will pay royalties to Freescale Semiconductor, Inc. and will to its customers are not prejudiced. The term of this agreement is for five years beginning from share a portion of the costs associated with the joint development project. January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. The agreement was automatically renewed in 1992, 1997, 2002 and on January 1, 2007. h. TSMC provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 2004. TSMC receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages c. Under several foundry agreements, TSMC shall reserve a portion of its production capacity for of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to certain major customers that have guarantee deposits with TSMC. As of December 31, 2006, TSMC manufacture for TSMC certain products at prices as agreed by the parties. had a total of US$116,297 thousand of guarantee deposits. d. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on with Philips, Freescale Semiconductor, Inc. and STMicroelectronics to jointly develop 45-nm and March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit beyond advanced CMOS Logic and e-DRAM technologies. The Company will contribute process foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with technologies and share a portion of the costs associated with this joint development project. This its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP agreement will expire on December 31, 2008. i. Effective January 1, 2006, the Company entered into the Joint Technology Cooperation Agreement purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP) committed to buy specific percentages of the production capacity of SSMC. TSMC and Philips (now NXP) are required, in the aggregate, to purchase up to 70% of SSMC's capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. j. TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation (“SMIC”), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC’s trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, SMIC shall pay TSMC US$175,000 thousand over six years to resolve TSMC’s claims. As of December 31, 2006, SMIC had paid US$60,000 thousand in accordance with the terms of this settlement agreement. In August 2006, TSMC, TSMC-North America and Wafertech filed a lawsuit against SMIC in Alameda County Superior Court in California for e. TSMC provides technical services to SSMC under a Technical Cooperation Agreement (the breach of aforementioned settlement agreement, breach of promissory notes and trade secret Agreement) entered into on May 12, 1999. TSMC receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court, alleging TSMC of breach of the settlement shall remain in force for ten years and may be automatically renewed for successive periods of five agreement and implied covenant of good faith and fair dealing, in response to TSMC's August years each unless pre-terminated by either party under certain conditions. complaint. The outcome of this litigation cannot be determined at this time. f. Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) k. TSMC-Shanghai entered into an agreement with a certain foreign company. In accordance with the entered into on June 27, 2000, TSMC shall receive payments for the licensing of certain technology agreement, TSMC-Shanghai is obligated to purchase certain property, plant and equipment at the to National. The agreement was to remain in force for ten years and could be automatically agreed-upon price within the contract period. If the purchase is not completed, TSMC-Shanghai is renewed for successive periods of two years thereafter unless either party gives written notice for obligated to compensate the counterparty for the loss incurred. early termination under certain conditions. In January 2003, TSMC and National entered into a Termination Agreement whereby the TTA was terminated. Under the Termination Agreement, l. Amounts available under unused letters of credit as of December 31, 2006 were NT$6,480 TSMC will be relieved of any further obligation to transfer any additional technology. In addition, thousand. TSMC granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008. g. 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 will also license related 90-nm SOI technology from Freescale Semiconductor, Inc. Any intellectual 146 28. ADDITIONAL DISCLOSURES 29. SEGMENT FINANCIAL INFORMATION Following are the additional disclosures required by the SFB for TSMC and its investees: a. Industry financial information a. Financing provided: Please see Table 1 attached; The Company is engaged mainly in the manufacturing, selling, packaging and testing of integrated circuits. Therefore, the disclosure of industry financial information is not applicable to the b. Endorsement/guarantee provided: Please see Table 2 attached; Company. c. Marketable securities held: Please see Table 3 attached; b. Geographic information: 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; 2006 North America and Others Taiwan Adjustments and Elimination Consolidated e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the Sales to other than consolidated entities Sales among consolidated entities $ 191,511,929 18,998,614 $ 125,895,242 191,345,140 $ - (210,343,754) $ 317,407,171 - paid-in capital: Please see Table 5 attached; Total sales $ 210,510,543 $ 317,240,382 $ (210,343,754) $ 317,407,171 f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid- in capital: None; g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached; 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 2005 $ 5,641,405 $ 150,498,038 $ (329,353) $ 133,341,631 $ 441,339,388 $ (41,091,011) $ 155,810,090 (28,545,396) 9,705,592 (3,608,078) $ 133,362,208 $ 533,590,008 53,895,151 $ 587,485,159 i. Names, locations, and related information of investees on which the Company exercises significant 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 - influence: Please see Table 8 attached; Total sales $ 166,031,012 $ 266,179,789 $ (165,645,731) $ 266,565,070 j. Information on investment in Mainland China 1) The name of the investee in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 9 attached. 2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial reports: Please see Table 10 attached. k. Intercompany relationships and significant intercompany transactions: Please see Table 10 attached. 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 $ 2,858,063 $ 115,722,187 $ (377,376) $ 92,904,411 $ 430,083,964 $ (45,861,280) $ 118,202,874 (27,234,315) 9,399,360 (6,104,672) $ 94,263,247 $ 477,127,095 42,382,494 $ 519,509,589 147 c. Export sales The export sales were as follows: Area Asia Europe and others Years Ended December 31 2006 2005 $ 62,434,071 23,764,877 $ 64,942,647 15,932,575 $ 86,198,948 $ 80,875,222 The export sales information is based on the amounts billed to customers within the areas. d. Major customers representing at least 10% of gross sales Customer A Customer B Years Ended December 31 2006 Amount $ 33,950,441 25,214,878 2005 Amount $ 24,718,306 29,855,447 % 11 8 % 9 11 148 TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) No. Financing Name Counter-party Financial Statement Account 1 TSMC International TSMC Development Other receivables Note 1: The type No. 2 represents necessary for short-term financing. Note 2: Not exceeding the issued capital of the Company. Maximum Balance for the Period (US$ in Thousands) $ 1,140,860 (US$ 35,000) 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 $ - 1.50% 2 $ - Operating capital $ - - $ - N/A Financing Company's Financing Amount Limits (US$ in Thousands) $ 32,203,805 (US$ 987,968) (Note 2) TABLE 2 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement/ Guarantee Provider Name Counter-party Nature of Relationship (Note 2) Limits on Each Counter- party’s Endorsement/ Guarantee Amounts 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) 0 TSMC 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 otherwise approved by Board of Directors. $ 1,303,840 (US$ 40,000) $ 1,955,760 (US$ 60,000) Note 1: 25% of the net worth of the Company as of December 31, 2006. Note 2: The No. 2 represents a subsidiary in which the Company holds directly over 50% of the equity interest. The No. 3 represents an investee in which the Company holds directly and indirectly over 50% of the equity interest. $ - $ - - - $ 126,995,321 - - 149 TABLE 3 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries MARKETABLE SECURITIES HELD DECEMBER 31, 2006 (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, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note The Company Government bond 2004 Government Bond Series B 2003 Government Bond Series B 2006 Government Bond Series D 2005 Government Bond Series A 2003 Government Bond Series B 2003 Asian Development Bank Govt. Bond 2003 Government Bond Series F 2004 Kaohsiung Municipal Series A 2003 Government Bond Series H European Investment Bank Bonds 2002 Government Bond Series B 2004 Kaohsiung Municipal Series B 2003 European Bank for Recomspruction and Developement Govt. Bond Series A Open-end mutual funds NITC Bond Fund ABN AMRO Bond Fund Fuh Hwa Bond Mega Diamond Bond Fund Prudential Financial Bond Fund NITC Taiwan Bond JF Taiwan Bond Fund Cathay Bond Jih Sun Bond Fund Dresdner Bond DAM Fund ABN AMRO Income President James Bond AIG Taiwan Bond Fund JF Taiwan First Bond Fund Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund Taishin Lucky Fund Polaris De-Bao Fund TIIM High Yield HSBC Taiwan Money Management Invesco Bond Fund Corporate bond Hua Nan Bank Cathay Bank Taiwan Power Company Formosa Petrochemical Corporation Taiwan Power Company Formosa Petrochemical Corporation Nan Ya Plastics Corporation Chinese Petroleum Corporation China Steel Corporation - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 Held-to-maturity financial assets 〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃 Hold-to-maturity financial assets 〃〃〃〃 - - - - - - - - - - - - - $ 999,779 998,288 3,657,320 3,049,919 1,647,851 835,840 797,299 620,000 401,568 372,265 350,399 249,998 88,198 22,219 175,156 125,122 139,333 103,751 93,312 85,145 109,720 88,165 95,553 63,947 65,496 78,629 66,826 62,183 76,593 78,624 63,273 44,685 34,093 27,176 - - - - - - - - - 3,655,939 2,639,459 1,667,908 1,602,947 1,516,294 1,314,669 1,299,088 1,265,092 1,202,901 1,107,206 1,012,377 1,010,426 1,002,595 939,082 890,660 868,076 806,386 701,069 554,863 506,250 403,774 1,545,864 1,159,576 1,046,799 397,963 4,080,391 3,566,946 2,773,810 1,451,378 1,000,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 999,779 998,288 3,657,446 3,049,726 1,645,179 875,103 796,354 618,760 400,920 400,000 350,378 250,004 90,000 3,655,939 2,639,459 1,667,908 1,602,947 1,516,294 1,314,669 1,299,088 1,265,092 1,202,901 1,107,206 1,012,377 1,010,426 1,002,595 939,082 890,660 868,076 806,386 701,069 554,863 506,250 403,774 1,545,864 1,159,576 1,046,799 397,963 4,087,276 3,563,249 2,781,223 1,450,722 999,689 150 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Shares/Units (In Thousands) Formosa Plastic Corporation Shanghai commercial & Saving Bank Formosa Chemicals & Fiber Corporation Stocks TSMC Global TSMC International SSMC VIS TSMC Partners TSMC-North America GUC TSMC-Japan TSMC-Europe TSMC-Korea United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Hontung Venture Capital Co., Ltd. Fund Horizon Ventures Fund Crimson Asia Capital Capital TSMC-Shanghai Emerging Alliance VTAF II VTAF III Chi Cheng Hsin Ruey Stock TSMC VIS Stock TSMC Chi Cherng Hsin Ruey - - - Subsidiary Hold-to-maturity financial assets 〃〃 Invest accounted for using equity method Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Subsidiary Investee with controlling financial interest 〃〃〃〃〃〃 Subsidiary Subsidiary Subsidiary - - - - - - Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary 〃〃〃 Financial assets carried at cost 〃〃〃 Financial assets carried at cost 〃 Investment accounted for using equity method 〃〃〃〃〃 442,262 5,741,870 December 31, 2006 Carrying Value (US$ in Thousands) $ 516,663 286,497 66,856 42,496,592 26,593,749 7,960,869 4,433,819 2,014,990 629,755 95,757 49,741 14,706 193,584 105,000 40,000 26,329 280,179 67,751 Percentage of Ownership N/A N/A N/A 100 100 39 27 100 100 38 100 100 100 10 7 2 10 12 1 Note Market Value or Net Asset Value (US$ in Thousands) $ 519,076 286,408 68,123 42,496,592 26,593,749 6,794,726 10,813,301 4,433,819 2,014,990 6,230,739 95,757 49,741 14,706 299,493 223,062 51,398 26,310 280,179 67,751 9,027,984 100 9,027,984 793,585 733,130 228,005 115,507 114,297 99 98 98 36 36 793,585 731,808 225,545 574,071 573,809 - - - 1 987,968 463 300 11,000 41,263 6 - 80 16,783 10,500 4,000 2,633 - - - - - - - - Parent Company Available-for-sale financial assets 16,947 1,143,941 N/A 1,143,941 Equity method investee Investments accounted for using 5,032 107,224 - 107,224 equity method Parent Company Available-for-sale financial assets 16,979 1,146,085 N/A 1,146,085 Treasury stock of NT$458,564 thousand is deducted from the carrying value Treasury stock of NT$459,511 thousand is deducted from the carrying value (Continued) 151 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note TSMC International VIS Stock InveStar InveStar II TSMC Development TSMC Technology TSMC Development WaferTech Partners Common stock VisEra Holdings Equity method investee Investments accounted for using 3,711 $ 82,661 - $ 82,661 equity method Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Investments accounted for using 9,207 US$ 26,185 97 US$ 26,185 equity method 〃〃〃 51,300 1 1 US$ US$ US$ 46,195 659,356 6,058 97 100 100 US$ US$ US$ 46,195 659,356 4,473 Investments accounted for using - US$ 282,420 100 US$ 282,420 equity method Equity method investee Investments accounted for using 25,000 US$ 34,000 49 US$ 34,000 Emerging Alliance VTAF II 152 Common stock NetLogic Microsystems, Inc. Pixim, Inc. RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Ikanos Communication, Inc. Audience, Inc. Axiom Microdevices, Inc. Centrality Comunications Miradia, Inc. Mobilygen Mosaic Systems, Inc. Next IO, Inc. NuCORE Technology Inc. Optichron, Inc. Optimal Corporation Pixim, Inc. Reflectivity, Inc. Teknovus, Inc. Zenasis Technologies, Inc. Option Pixim, Inc. Common stock Beceem Communications Leadtrend Yobon Sentelic Preferred stock 5V Technologies, Inc. Ageia Technologies, Inc. Aquantia Corporation Audience, Inc. Axiom Microdevices, Inc. GemFire Corporation Impinj, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - equity method Financial assets at fair value through profit or loss Financial assets carried at cost 〃〃 Available-for-sale financial assets Financial assets carried at cost 〃〃〃〃〃〃〃〃〃〃〃〃〃 Financial assets carried at cost Financial assets carried at cost 〃〃〃 Financial assets carried at cost 〃〃〃〃〃〃 84 US$ 1,828 - US$ 1,828 1,924 4,247 10,800 515 1,654 1,000 1,325 3,040 1,415 2,481 800 2,254 714 582 2,193 4,848 6,977 2,410 242 650 1,150 1,675 1,200 2,357 2,030 1,264 2,208 3,015 600 257 US$ US$ $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 512 1,648 100,000 4,473 250 1,000 1,800 1,000 750 12 500 1,455 1,000 600 583 531 1,327 1,399 4 13 6 2 1 3 3 3 1 6 2 2 4 4 - 4 3 5 - N/A 1,600 660 787 2,040 1,768 2,074 1,150 474 1,466 68 500 1 6 13 15 11 2 5 1 2 1 - US$ US$ $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 512 1,648 100,000 4,473 250 1,000 1,800 1,000 750 12 500 1,455 1,000 600 583 531 1,327 1,399 - 1,600 660 787 2,040 1,768 2,074 1,150 474 1,466 68 500 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value ( US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note VTAF III Investar Investar II Miradia, Inc. Next IO, Inc. Optichron, Inc. Power Analog Microelectronics Powerprecise Solutions, Inc. RichWave Technology Corp. Teknovus, Inc. Tzero Technologies, Inc. Xceive Common stock M2000, Inc. Mutual-Pak Limited Quellan, Inc. SynDiTec, Inc. Validity-Pak Limited Common stock Monolithic Power Systems, Inc. Broadtek Electronics Corp. Broadtek Electronics Corp. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic,Inc. IP Unity, Inc. Memsic, Inc. NanoAmp Solutions, Inc. Sonics, Inc. Common stock Monolithic Power Systems, Inc. RichTek Technology Corp. Geo Vision, Inc. RichTek Technology Corp. Geo Vision, Inc. eChannelOpen Holding, Inc. eLCOS Microdisplay Technology, Ltd. EoNEX Technologies, Inc. Sonics, Inc. Epic Communications, Inc. EON Technology, Corp. Goyatek Technology, Corp. Capella Microsystems (Taiwan), Inc. Trendchip Technologies Corp. Ralink Technology (Taiwan), Inc. Auden Technology MFG Co., Ltd. Preferred stock eLCOS Microdisplay Technology, Ltd. Alchip Technologies Limited FangTek, Inc. Kilopass Technology, Inc. Memsic, Inc. NanoAmp Solutions, Inc. Sonics, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Financial assets carried at cost 〃〃〃〃〃〃〃〃 Financial assets carried at cost 〃〃〃〃 Financial assets at fair value through profit or loss 〃 Available-for-sale financial assets Financial assets carried at cost Financial assets carried at cost 〃〃〃〃 Financial assets at fair value through profit or loss 〃〃 Available-for-sale financial assets 〃 Financial assets carried at cost 〃〃〃〃〃〃〃〃〃〃 Financial assets carried at cost 〃〃〃〃〃〃 2,740 216 353 2,000 1,445 500 518 730 714 1,500 170 2,231 4,332 5,333 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,424 182 869 1,500 1,400 231 119 1,500 1,000 1,500 52 2,500 720 2,000 1,975 US$ 21,939 29 116 530 1,831 1,008 2,724 541 1,843 US$ US$ US$ US$ US$ US$ US$ US$ 10 40 154 1,221 494 1,500 853 3,530 864 US$ 9,604 255 46 227 15 358 270 55 2,220 191 4,247 2,088 534 2,000 1,833 953 2,667 3,531 6,930 3,887 2,289 375 2,115 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,045 229 1,824 73 251 27 3,048 32 37 1,175 545 210 574 791 223 3,500 2,950 3,250 2,000 1,560 1,500 3,082 3 - 2 13 11 2 - 2 2 4 13 7 7 7 7 - - 2 9 1 9 2 2 3 - - - - 4 1 5 - 1 7 7 2 4 3 4 8 15 20 6 7 1 6 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,424 182 869 1,500 1,400 231 119 1,500 1,000 1,500 52 2,500 720 2,000 21,939 10 40 154 1,221 494 1,500 853 3,530 9,604 2,045 229 1,824 73 251 27 3,048 32 37 1,175 545 210 574 791 223 3,500 2,950 3,250 2,000 1,560 1,500 3,082 (Continued) 153 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note GUC TSMC Global 154 Open-end mutual funds ABN AMRO Bond Fund Ta chong Bond Fund Dresdner Bond DAM Fund NITC Taiwan Bond AIG Taiwan Bond Fund Fuh Hwa You Li Bond Fund Stock Global Unichip Corporation-North America Global Unichip Japan Government bond United States Treas Nts Corporate bonds Abbott Labs Abbott Labs Ace Ltd. Aig Sunamerica Global Fing Ix Allstate Life Global Fdg Secd American Express Co. American Gen Fin Corp. American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn Ameritech Capital Funding Co. Amgen Inc. Anz Cap Tr I Associates Corp. North Amer Axa Finl Inc. Bank New York Inc. Bank One Corp. Bank One Corp. Bank Utd Houston Tx Mtbn Bear Stearns Cos Inc. Beneficial Corp. Mtn Bk Entry Berkshire Hathaway Fin Corp. Chase Manhattan Corp. New Chase Manhattan Corp. New Chubb Corp. Cit Group Hldgs Inc. Citicorp Cogentrix Energy Inc. Colonial Pipeline Co. Consolidated Edison Inc. Countrywide Fdg Corp. Mtn 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. - - - - - - Subsidiary Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃 Investments accounted for using equity method 〃 Available-for-sale financial assets Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 $ 2,325 2,306 2,592 2,132 2,355 2,018 100 35,041 30,037 30,036 30,035 30,031 25,035 6,396 2,681 $ N/A N/A N/A N/A N/A N/A 100 100 35,041 30,037 30,036 30,035 30,031 25,035 6,396 2,681 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 151,045 N/A US$ 151,045 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,505 2,547 1,001 1,000 2,956 3,452 1,620 3,448 1,971 1,001 3,092 801 483 2,905 972 2,541 2,151 1,487 3,365 2,045 528 3,379 2,297 1,486 5,077 2,115 2,116 3,027 1,372 3,751 1,494 2,910 2,037 1,500 734 2,177 977 751 2,020 4,928 2,820 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 1,505 2,547 1,001 1,000 2,956 3,452 1,620 3,448 1,971 1,001 3,092 801 483 2,905 972 2,541 2,151 1,487 3,365 2,045 528 3,379 2,297 1,486 5,077 2,115 2,116 3,027 1,372 3,751 1,494 2,910 2,037 1,500 734 2,177 977 751 2,020 4,928 2,820 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Den Danske Bk Aktieselskab Diageo Plc Emerson Elec Co. European Invt Bk European Invt Bk Federal Home Ln Bks Fifth Third Bk Cincinnati Oh Fleet Boston Corp. Fleet Finl Group Inc. New Fpl Group Cap Inc. Ge Global Ins Hldg Corp. General Elec Cap Corp. Mtn 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. Greenpoint Finl Corp. Hancock John Global Fdg Ii Mtn 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 Medium Term Sr Nts Heller Finl Inc. Hershey Foods Corp. Household Fin Corp. Household Fin Corp. Household Intl Inc. Hsbc Fin Corp. Hsbc Fin Corp. Mtn Huntington National Bank Ing Sec Life Instl Fdg International Business Machs Intl Lease Fin Corp. Mtn Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Jackson Natl Life Global Fdg Key Bk Na Med Term Nts Bk Entr KeyCorp. Mtn Book Entry Kraft Foods Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lincoln Natl Corp. In Marshall + Ilsley Corp. Mbna America Bank Na Y Merita Bk Ltd. Ny Brh Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Mgic Invt Corp. Monumental Global Fdg II - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,019 3,444 3,215 3,970 6,057 7,937 2,427 2,643 905 849 1,915 3,888 8,759 8,282 2,119 3,292 4,989 3,456 968 2,896 5,132 975 5,037 1,345 3,205 2,952 1,929 1,504 2,903 501 2,851 3,028 5,096 1,886 2,483 2,217 2,939 4,138 3,298 1,000 4,401 3,010 1,000 1,626 487 989 3,150 1,077 500 8,420 6,403 501 3,453 1,985 4,865 3,369 1,204 1,468 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,019 3,444 3,215 3,970 6,057 7,937 2,427 2,643 905 849 1,915 3,888 8,759 8,282 2,119 3,292 4,989 3,456 968 2,896 5,132 975 5,037 1,345 3,205 2,952 1,929 1,504 2,903 501 2,851 3,028 5,096 1,886 2,483 2,217 2,939 4,138 3,298 1,000 4,401 3,010 1,000 1,626 487 989 3,150 1,077 500 8,420 6,403 501 3,453 1,985 4,865 3,369 1,204 1,468 (Continued) 155 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Monumental Global Fdg II 2002a Monunmetal Global Fdg II Mony Group Inc. Morgan Stanley Morgan Stanley National City Corp. National Westminster Bk Plc Nationwide Bldg Soc Nationwide Life Global Fdg I Nationwide Life Global Mtn Nucor Corp. Oracle Corp. / Ozark Hldg Inc. Pepsico Inc. Mtn Book Entry Pnc Fdg Corp. Popular North Amer Inc. Praxair Inc. Premark Intl Inc. Pricoa Global Fdg I Mtn Principal Finl Group Australia Principal Life Global Fdg I Gl Protective Life Secd Trs Protective Life Secd Trs Mtn Prudential Ins Co. Amer Public Svc Elec Gas Co. Regions Finl Corp. New Safeco Corp. Sbc Communications Inc. Sbc Communications Inc. Simon Ppty Group Lp Slm Corp. Medium Term Nts Sp Powerassests Ltd. Global St Paul Cos Inc. Mtn Bk Ent Suntrust Bk Atlanta Ga Medium Tiaa Global Mkts Inc. Unitedhealth Group Inc. Us Bk Natl Assn Cincinnati Oh Vodafone Airtouch Plc Wachovia Corp. New Washington Mut Bk Fa Washington Mut Inc. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Wells Fargo + Co. New Med Trm Westfield Cap Corp. Ltd. Wps Resources Corp. Corporate issued asset - backed securities American Home Mtg Invt Tr Americredit Auto Rec Tr Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receiva Americredit Automobile Receivb Atlantic City Elc Trns Fdgllc Ba Cr Card Tr Banc Amer Coml Mtg Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000 1,961 2,175 1,926 2,126 3,410 1,323 3,537 3,501 1,485 3,797 1,973 3,619 1,007 2,910 3,138 2,729 3,401 1,013 1,165 2,913 3,390 2,629 3,682 2,371 715 1,041 697 1,009 8,998 969 2,550 3,442 500 3,000 2,915 4,449 2,040 3,997 1,692 1,000 3,001 2,943 4,311 2,005 1,047 116 1,004 1,116 2,598 3,269 4,609 2,891 420 4,300 2,869 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000 1,961 2,175 1,926 2,126 3,410 1,323 3,537 3,501 1,485 3,797 1,973 3,619 1,007 2,910 3,138 2,729 3,401 1,013 1,165 2,913 3,390 2,629 3,682 2,371 715 1,041 697 1,009 8,998 969 2,550 3,442 500 3,000 2,915 4,449 2,040 3,997 1,692 1,000 3,001 2,943 4,311 2,005 1,047 116 1,004 1,116 2,598 3,269 4,609 2,891 420 4,300 2,869 156 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Banc Amer Fdg 2006 I Tr Bank Of Amer Lease Equip Tr Bear Stearns Alt A Tr Bear Stearns Arm Tr Bear Stearns Arm Tr Bear Stearns Coml Mtg Secs Inc. Bear Stearns Coml Mtg Secs Inc. Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Prime Auto Rec Capitial One Prime Auto Receiv Caterpillar Finl Asset Tr Caterpillar Finl Asset Tr Cbass Tr Cendant Rent Car Fdg Aesop Llc Cit Equip Coll Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citibank Cr Card Issuance Tr CitiCorp. Mtg Secs Cnh Equip Tr Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Cwabs Cwabs Inc. Cwmbs Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Deere John Owner Tr Drive Auto Receivables Tr Fifth Third Auto Tr First Franklin Mtg Ln Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr Ford Credit Auto Owner Trust Ge Cap Cr Card Master Nt Tr Granite Mtgs Plc Gs Mtg Secs Corp. Gsamp Tr Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Hertz Veh Fing Llc Holmes Fing No 8 Plc Home Equity Mtg Tr 2006 4 Hsbc Automotive Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Impac Cmb Tr Impac Cmb Tr Lb Ubs Coml Mtg Tr Long Beach Mtg Ln Tr Mastr Asset Backed - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,332 1,057 628 3,480 1,951 6,358 3,541 3,243 2,618 2,986 4,998 3,941 2,963 3,981 2,507 1,525 8,142 4,262 9,297 1,899 3,985 9,864 2,688 582 1,984 3,740 3,576 444 4,261 224 893 4,315 1,695 2,452 3,191 12 4,290 528 1,715 4,324 2,846 564 4,145 4,251 150 5,825 5,319 5,000 4,222 2,980 5,537 3,212 3,928 308 238 3,493 3,203 4,224 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,332 1,057 628 3,480 1,951 6,358 3,541 3,243 2,618 2,986 4,998 3,941 2,963 3,981 2,507 1,525 8,142 4,262 9,297 1,899 3,985 9,864 2,688 582 1,984 3,740 3,576 444 4,261 224 893 4,315 1,695 2,452 3,191 12 4,290 528 1,715 4,324 2,846 564 4,145 4,251 150 5,825 5,319 5,000 4,222 2,980 5,537 3,212 3,928 308 238 3,493 3,203 4,224 (Continued) 157 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Mbna Master Cr Card Tr II Merrill Lynch Mtg Invs Inc. Morgan Stanley Ixis Estate Tr National City Auto Receivables Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Nomura Asset Accep Corp. Onyx Accep Owner Tr Pg + E Energy Recovery Fdg Llc 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. Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Adj Rate Mtg Ln Tr Terwin Mtg Tr Tw Hotel Fdg 2005 Llc Txu Elec Delivery Transition Usaa Auto Owner Tr Wamu Mtg Pass Thru Ctfs Wamu Tr Washington Mut Mtg Pass Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Backed Secs Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Tr Wfs Finl Wfs Finl 2004 4 Owner Tr Wfs Finl 2005 2 Oner Tr Whole Auto Ln Tr Whole Auto Ln Tr Agency bond 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 7,605 5,887 4,110 41 2,956 72 3,928 4,150 3,774 3,997 3,942 2,486 2,484 1,865 2,711 2,014 4,058 548 496 737 1,389 472 4,065 4,103 2,219 4,238 1,002 975 1,759 2,984 4,986 4,926 4,367 2,856 3,399 2,748 620 932 2,220 1,219 2,955 8,768 4,920 8,743 4,856 5,851 7,952 4,885 2,991 6,099 12,279 6,905 5,898 7,506 2,386 1,976 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 7,605 5,887 4,110 41 2,956 72 3,928 4,150 3,774 3,997 3,942 2,486 2,484 1,865 2,711 2,014 4,058 548 496 737 1,389 472 4,065 4,103 2,219 4,238 1,002 975 1,759 2,984 4,986 4,926 4,367 2,856 3,399 2,748 620 932 2,220 1,219 2,955 8,768 4,920 8,743 4,856 5,851 7,952 4,885 2,991 6,099 12,279 6,905 5,898 7,506 2,386 1,976 158 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Banks 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 Medium Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Tennessee Valley Auth Fed Hm Ln Pc Pool 1H2520 Fed Hm Ln Pc Pool 1H2524 Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool 847628 Fed Hm Ln Pc Pool B19205 Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Fed Hm Ln Pc Pool M80855 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 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 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 555549 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,948 6,440 8,049 4,365 5,915 3,943 7,868 19,766 14,973 10,467 6,511 3,000 3,415 2,914 2,900 5,318 6,024 3,100 2,354 6,040 3,796 8,560 1,595 1,371 3,287 3,019 2,208 3,917 3,626 3,076 4,464 1,389 3,176 3,738 3,216 1,356 8,535 3,409 2,976 4,502 2,965 3,743 4,381 4,223 2,807 259 3,158 2,465 4,290 1,994 4,339 632 2,215 2,239 1,616 1,417 3,490 1,616 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,948 6,440 8,049 4,365 5,915 3,943 7,868 19,766 14,973 10,467 6,511 3,000 3,415 2,914 2,900 5,318 6,024 3,100 2,354 6,040 3,796 8,560 1,595 1,371 3,287 3,019 2,208 3,917 3,626 3,076 4,464 1,389 3,176 3,738 3,216 1,356 8,535 3,409 2,976 4,502 2,965 3,743 4,381 4,223 2,807 259 3,158 2,465 4,290 1,994 4,339 632 2,215 2,239 1,616 1,417 3,490 1,616 (Continued) 159 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2006 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousands) Note Fnma Pool 632399 Fnma Pool 662401 Fnma Pool 667766 Fnma Pool 680932 Fnma Pool 681393 Fnma Pool 685116 Fnma Pool 687863 Fnma Pool 696485 Fnma Pool 703711 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 813641 Fnma Pool 815626 Fnma Pool 816594 Fnma Pool 825395 Fnma Pool 825398 Fnma Pool 841069 Fnma Pool 879906 Gnma Ii Pool 081150 Gnma Ii Pool 081153 Money market funds SSGA Cash Mgmt Global Offshore - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 434 659 1,574 1,307 2,749 629 2,647 3,194 538 1,204 1,470 1,415 2,559 2,466 631 825 411 1,235 3,720 2,945 2,067 2,818 4,224 2,882 1,636 613 2,119 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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$ 434 659 1,574 1,307 2,749 629 2,647 3,194 538 1,204 1,470 1,415 2,559 2,466 631 825 411 1,235 3,720 2,945 2,067 2,818 4,224 2,882 1,636 613 2,119 US$ 20,488 N/A US$ 20,488 (Concluded) 160 TABLE 4 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 1) Ending Balance Shares/Units (In Thousands) Amount (US$ 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) The Company Government bond Kreditanatalt Fur Wiederaufbau Available-for-sale financial assets - United States Treas NTS 2004 Government Bond Series B 2003 Government Bond Series B 〃〃〃 2006 Government Bond Series D 2005 Government Bond Series A 2003 Government Bond Series B 2003 Asian Development Bank Govt. Bond Series 2003 Government Bond Series F 2003 Government Bond Series H European Investment Bank Bonds 2004 Kachsiung Municipal Series B 2003 European Bank for Recomspruction and Development Govt Bond Series A Open-end mutual funds NITC Bond Fund ABN AMRO Bond Fund Fuh Hwa Bond Mega Diamond Bond Fund Prudential Financial Bond Fund NITC Taiwan Bond JF Taiwan Bond Fund Cathay Bond JIH SUN Bond Fund Dresdner Bond DAM Fund ABN AMRO Income President James Bond AGI Taiwan Bond Fund JF Taiwan First Bond Fund Held-to-maturity financial assets 〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃 - KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions JP Morgan Chase Bank KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. and several financial institutions JP Morgan Chase Bank National Investment Trust Co., Ltd. ABN-AMRO Securities Investment Trust (Taiwan) Ltd. Fuh Hwa Investment Trust Co. Mega Investment Trust Corporation Cathay Securities Investment Trust Co., Ltd. Allianz Dresdner Securities Investment Consulting Co.,Ltd. JF Asset Management (Taiwan) Ltd. National Investment Trust Co., Ltd. JIH SUN Investment Trust (Taiwan) Ltd. JF Asset Management (Taiwan) Ltd. Fuh Hwa Investment Trust Co. HSBC Investment (Taiwan) Ltd. AGI Securities Investment Trust (Taiwan) Ltd. ABN-AMRO Securities Investment Trust (Taiwan) Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,881 US$ 46,173 $ - - - 2,548,977 - - 149,441 - - - - - - - - - - - - - - - - - US$ - US$ 268,521 $ 1,005,115 998,324 3,658,659 499,084 1,647,823 827,820 647,445 401,728 367,600 249,998 87,461 3,764 610,864 18,455 3,000,000 134,906 2,004,862 40,250 600,000 - - - - 125,122 139,333 103,751 1,655,781 1,600,000 1,500,000 93,312 1,300,000 - - - - 62,009 - - 69,303 - - - - - - - - - - - - - - - - - - - - - - US$ 6,866 US$ 6,881 US$ (15) US$ 310,469 - $ US$ 311,106 $ - US$ (638) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - $ 999,779 998,288 3,657,320 3,049,919 1,647,851 835,840 797,299 401,568 372,265 249,998 88,198 22,219 3,655,939 175,156 2,639,459 125,122 139,333 103,751 1,667,908 1,602,947 1,516,294 93,312 1,314,669 85,145 109,720 88,165 95,553 63,947 65,496 78,629 1,299,088 1,265,092 1,202,901 1,107,206 1,012,377 1,010,426 1,002,595 933,430 - - 792,068 - - - 23,136 122,762 88,165 34,914 63,947 72,002 78,629 350,000 1,400,000 1,200,000 400,000 1,000,000 1,100,000 1,000,000 - 13,042 - 8,664 - 6,506 - - 150,000 - 100,000 - 100,000 - - 148,736 - 99,103 - 99,401 - - 1,264 - 897 - 599 - 63,131 875,416 14,399 200,000 10,704 150,000 148,472 1,528 66,826 939,082 (Continued) 161 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund Taishin Lucky Fund Polaris De-Bao Fund TIIM High Yield HSBC Taiwan Money Management Invesco R.O.C. Bond Rund Fuhwa Albatross Fund Invesco Income Fund Available-for-sale financial assets Fuh Hwa Investment Trust Co. 〃〃〃〃〃〃〃〃 ABN-AMRO Securities Investment Trust (Taiwan) Ltd. Uni-President Assets Management Corp. Polaris International Securities Investment Trust Co., Ltd. Shinkong Securities Investment Trust (Taiwan) Ltd. Taiwan International Securities Corp. Taishin Securities Investment Trust (Taiwan) Ltd. Invesco Asset management Taiwan Taishin Securities Investment Trust (Taiwan) Ltd. Stock SSMC Capital VTAF II VTAF III Investment accounted for using equity method Investment accounted for using equity method 〃 - - - - - - - - - - - - Equity method investee Subsidiary 〃 Corporate bond Taiwan Power Company Formosa Petrochemical Corporation Nan Ya Plastics Corporation Chinese Petroleum Corporation China Steel Corporation Formosa Plastic Corporation Shanghai commercial & Saving Bank Hua Nan Bank Cathay Bank Taiwan Power Company Formosa Petrochemical Corporation American Express Co. American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn Bank One Corp. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Cargill Inc. Caterpillar Finl Svcs Mtn Chase Manhattan Corp. New Cit Group Hldgs Inc. Held-to-maturity financial assets KGI Securities Co., Ltd. 〃〃〃〃〃〃 KGI Securities Co., Ltd. KGI Securities Co., Ltd. KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. KGI Securities Co., Ltd. and several financial institutions KGI Securities Co., Ltd. Available-for-sale financial assets HSBC 〃〃〃〃〃〃〃〃〃〃〃〃〃〃 HSBC KGI Securities Co., Ltd. KGI Securities Co., Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 162 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) 55,063 $ 778,482 17,617 $ 250,000 10,497 $ 150,000 $ 148,542 $ 1,458 62,183 $ 890,660 18,235 203,860 93,738 1,050,000 35,380 400,000 396,179 3,821 76,593 868,076 - - - - - - - - 78,624 800,000 - 63,273 700,000 - - - - - - - - - - - 56,812 700,000 12,127 150,000 149,276 47,667 27,176 89,510 44,180 700,000 403,727 1,000,000 500,000 13,574 - 89,510 44,180 200,007 - 199,327 - 1,005,781 503,727 1,000,000 500,000 382 4,215,200 81 2,432,705 - - - - - - - - - - - - - - - - - - - - - - - - 642,479 - 3,263,349 1,093,283 2,150,842 705,436 1,010,532 268,855 - - - - - US$ 3,550 - - US$ 3,800 - US$ 3,329 US$ 3,757 - US$ 5,721 US$ 1,628 US$ 3,203 - - - - - - - - - - - - - - - - - - - - - - - - 130,956 243,545 1,690,567 2,769,533 1,097,943 1,000,441 1,000,000 379,809 283,996 1,526,049 1,144,877 1,046,302 397,076 - US$ 3,415 US$ 3,087 - US$ 3,326 - - US$ 3,337 - US$ 3,540 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,432 US$ 3,446 US$ 3,095 US$ 3,805 US$ 3,325 US$ 3,340 US$ 3,575 US$ 3,370 US$ 5,761 US$ 5,091 US$ 3,036 - - - US$ 3,550 US$ 3,415 US$ 3,087 US$ 3,800 US$ 3,326 US$ 3,329 US$ 3,757 US$ 3,337 US$ 5,721 US$ 5,168 US$ 3,203 - - - US$ (118) US$ 31 US$ 8 US$ 5 US$ (1) US$ 11 US$ (182) US$ 33 US$ 40 US$ (77) US$ (167) - - 724 680 - 5,781 3,727 - - - - - - - - - - - 78,624 806,386 63,273 701,069 44,685 554,863 34,093 27,176 506,250 403,774 - - - - 463 7,960,869 - - - - - - - - - - - - - - - - - - - - - - - - 733,130 228,005 4,080,391 3,566,946 2,773,810 1,451,378 1,000,000 516,663 286,497 1,545,864 1,159,576 1,046,799 397,963 - - - - - - - - - - - (Continued) Company Name Marketable Securities Type and Name Cogentrix Energy Inc. Countrywide Home Lns Inc. Credit Suisse Fb USA Inc. Deere John Cap Corp. Deere John Cap Corp. Diageo Plc European Invt Bk European Invt Bk European Invt Bk Federal Home Ln Bks General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Re Corp. Genworth Finl Inc. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Hancock John Global Fdg Ii Mtn Hancock John Global Fdg Ii Mtn Hartford Finl Svcs Group Inc. Hbos Plc Medium Term Sr Nts Hewlett Packard Co. Honeywell Inc. Hsbc Fin Corp. Mtn Intl Lease Fin Corp. Mtn Jp Morgan Chase + Co. Jp Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Keycorp Mtn Book Entry Keycorp Mtn Book Entry Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg Ii 2 Morgan Stanley Group Inc. National City Corp. Nationwide Bldg Soc Nationwide Bldg Soc Mtn Nationwide Life Global Fdg I Nucor Corp. Pepsico Inc. Mtn Book Entry Praxair Inc. Pricoa Global Fdg 1 Mtn Pricoa Global Fdg I Mtn Public Svc Elec Gas Co. Santander Us Debt S A Uniperso Slm Corp. Medium Term Nts Suntrust Bk Atlanta Ga Medium Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Wells Fargo + Co. New Corporate issued asset-backed securities Americredit Automobile Rec Tr Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets Americredit Automobile Receiva 〃 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 2,885 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,210 4,141 - 5,079 3,459 8,315 3,918 - - - 3,989 8,862 3,500 3,412 4,981 3,477 3,566 - - 3,201 3,373 3,284 5,097 2,471 3,406 3,663 4,450 3,500 - 3,486 4,900 1,907 - 4,507 3,426 3,457 3,000 - - 3,818 - 3,500 - 3,225 4,998 2,950 - 4,735 3,182 3,697 - - US$ 5,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 1,132 - - 4,911 - - - - 5,995 7,937 3,351 - - - - - - - 3,808 5,016 - - - - 4,100 - - - - 3,006 - - 1,419 3,348 - - - - 3,491 3,828 - 3,180 - 3,394 483 - 6,012 3,409 - - - 6,076 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,249 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,777 US$ 4,017 US$ (239) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,001 4,003 4,899 5,013 3,436 8,002 3,930 5,994 7,937 3,399 3,893 8,716 3,319 3,415 4,941 3,453 3,486 3,808 5,048 3,182 3,177 3,017 5,066 6,578 3,310 3,519 4,393 3,508 3,016 3,426 4,842 3,361 3,382 4,386 3,402 3,495 3,004 3,520 3,811 3,624 3,147 3,504 3,403 3,684 4,957 8,949 3,448 4,505 3,007 3,512 6,073 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,210 4,141 4,911 5,079 3,459 8,315 3,918 5,995 7,937 3,351 3,989 8,862 3,500 3,412 4,981 3,477 3,566 3,808 5,016 3,201 3,373 3,284 5,097 6,571 3,406 3,663 4,450 3,500 3,006 3,486 4,900 3,326 3,348 4,507 3,426 3,457 3,000 3,491 3,828 3,818 3,180 3,500 3,394 3,708 4,998 8,962 3,409 4,735 3,182 3,697 6,076 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (209) (138) (12) (66) (23) (313) 12 (1) - 48 (96) (146) (181) 3 (40) (24) (80) - 32 (19) (196) (267) (31) 7 (96) (143) (57) 8 10 (60) (58) 35 34 (121) (24) 38 4 29 (17) (194) (33) 4 9 (24) (41) (13) 39 (230) (175) (185) (3) US$ 3,261 US$ 3,249 US$ 12 US$ 4,959 US$ 5,000 US$ (41) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Continued) 163 Company Name Marketable Securities Type and Name Americredit Automobile Receivb Banc Amer Coml Mtg Inc. Bear Stearns Arm Tr Bear Stearns Coml Mtg Secs Inc. Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Caterpillar Finl Asset Tr Cendant Rent Car Fdg Aesop Llc Cit Equip Coll Tr Citibank Cr Card Issuance Tr Cnh Equip Tr Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Drive Auto Receivables Tr Federal Natl Mtg Assn Ford Cr Auto Owner Tr Gs Mtg Secs Corp. Gsamp Tr Harley Davidson Motorcycle Tr Hertz Veh Fing Llc Holmes Fing No 8 Plc Home Equity Mtg Tr 2006 4 Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Lb Ubs Coml Mtg Tr Long Beach Mtg Ln Tr Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mbna Master Cr Card Tr Ii Merrill Lynch Mtg Invs Inc. Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nomura Asset Accep Corp. Onyx Accep Owner Tr Pg + E Energy Recovery Fdg Llc Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Terwin Mtg Tr Toyota Auto Receivables 2003 B Tw Hotel Fdg 2005 Llc Usaa Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Finl Auto Owner Tr Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Wfs Finl 2004 2 Owner Tr Wfs Finl 2004 4 Owner Tr World Omni Auto Receivables Tr Agency bond Fed Hm Ln Pc Pool 1h2520 Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,949 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,462 - 6,350 - - 4,957 3,974 8,219 11,626 - 9,782 5,000 - - - 3,200 - 10,908 - - 5,999 5,350 5,001 - 6,442 3,250 3,999 4,001 - 3,900 3,499 8,108 - 4,928 7,000 - 4,913 4,749 3,992 4,973 3,780 4,817 - 4,970 8,197 3,718 4,067 5,299 - 3,661 - 4,994 5,399 5,963 US$ 3,753 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 3,826 - 3,250 5,000 - - - - 3,975 - - 4,773 3,750 3,572 - 4,828 - 4,150 4,250 - - - 4,200 - - - - 3,200 - - - 6,665 - - 4,150 - - - - - - 4,050 - (4,100) - - - 4,893 - 3,772 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,826 US$ 3,856 US$ (30) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,254 3,597 6,362 3,232 5,008 4,879 3,932 8,121 11,412 3,996 9,797 3,457 4,834 3,728 3,566 3,183 4,577 5,782 4,134 4,241 5,793 5,284 5,000 4,200 6,202 3,208 3,904 3,733 3,195 3,830 3,083 7,653 6,561 3,994 6,132 4,144 4,885 4,646 3,911 3,994 3,052 4,224 4,033 4,963 4,116 3,696 3,261 5,235 4,932 3,020 3,488 4,913 4,883 5,869 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,325 3,609 6,350 3,250 5,000 4,957 3,974 8,219 11,626 3,975 9,782 3,500 4,773 3,750 3,572 3,200 4,561 5,836 4,150 4,250 5,999 5,350 5,001 4,200 6,279 3,250 3,999 3,779 3,200 3,900 3,079 8,108 6,558 4,035 6,194 4,150 4,913 4,749 3,992 4,162 3,100 4,309 4,050 4,970 4,097 3,718 3,302 5,299 4,893 3,054 3,500 4,994 4,955 5,963 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (71) (12) 12 (18) 8 (78) (42) (98) (214) 21 15 (43) 61 (22) (6) (17) 16 (54) (16) (9) (206) (66) - - (77) (42) (95) (46) (5) (70) 4 (455) 3 (41) (62) (6) (28) (103) (81) (168) (48) (85) (17) (7) 19 (22) (41) (64) 39 (34) (12) (81) (72) (94) US$ 3,329 US$ 3,345 US$ (16) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 164 (Continued) Company Name Marketable Securities Type and Name Fed Hm Ln Pc Pool 781959 Fed Hm Ln Pc Pool M80855 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 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 Loan Mtg Federal Natl Mtg Assn Federal Natl Mtg Assn Fnma Pool 255883 Fnma Pool 696485 Fnma Pool 813641 Fnma Pool 815626 Fnma Pool 825398 Fnma Pool 841069 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 Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 7,112 - 3,848 - 3,954 6,096 - - - 4,098 9,905 4,902 3,755 - - - - - - - 4,030 4,051 3,771 4,175 - 3,622 4,949 3,673 3,985 3,962 3,976 8,594 3,932 4,927 - 4,136 4,939 8,672 4,965 4,808 - 7,558 - 7,886 6,110 - 3,972 7,887 19,846 6,908 6,098 9,134 3,379 - 3,388 9,997 6,980 5,929 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 3,882 - 3,898 - - 4,962 3,351 4,317 - - - - 4,481 3,349 3,857 5,380 4,631 4,488 5,009 - - - - 3,906 - - - - - - - - - 8,628 - - - - - 5,740 - 4,823 - - 12,227 - - - - - - - 7,490 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,577 US$ 6,553 US$ 24 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,381 3,308 3,919 3,909 4,316 4,665 3,299 3,893 3,388 8,812 4,069 3,308 4,476 3,114 3,789 4,574 4,450 4,444 4,937 3,515 3,131 3,559 3,393 3,916 3,189 4,562 3,134 3,940 3,955 3,964 8,519 3,980 4,930 8,716 4,140 4,872 8,735 4,944 4,850 5,825 7,515 4,882 7,960 6,061 12,233 3,951 7,758 19,800 6,881 5,907 8,968 3,296 7,490 3,481 9,788 6,941 5,930 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,462 3,336 3,898 3,920 4,424 4,683 3,294 3,883 3,402 8,851 4,159 3,362 4,481 3,089 3,776 4,565 4,435 4,406 4,889 3,568 3,196 3,581 3,403 3,906 3,203 4,672 3,156 3,985 3,962 3,976 8,594 3,932 4,927 8,628 4,136 4,939 8,672 4,965 4,808 5,740 7,558 4,823 7,886 6,110 12,227 3,972 7,887 19,846 6,908 6,098 9,134 3,379 7,490 3,388 9,997 6,980 5,929 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (81) (28) 21 (11) (108) (18) 5 10 (14) (39) (90) (54) (5) 25 13 9 15 38 48 (53) (65) (22) (10) 10 (14) (110) (22) (45) (7) (12) (75) 47 3 88 4 (67) 63 (21) 42 85 (43) 59 74 (49) 6 (21) (129) (46) (27) (191) (166) (83) - 93 (209) (39) 1 US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Continued) 165 Company Name Marketable Securities Type and Name 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 Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Medium 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 Freddie Mac Tennessee Valley Auth Chi Cheng Stock VIS TSMC Global Government bond United States Treas Nts Corporate bond American Express Co. American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn Bank One Corp. Bear Stearns Cos Inc. Cit Group Hldgs Inc. Chase Manhattan Corp. New Cogentrix Energy Inc. Counrywide Finl Corp. Deere John Cap Corp. Diageo Plc Emerson Elec Co. European Invt Bk European Invt Bk Federal Home Ln Bks General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn 166 Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Investment accounted for using equity method Available-for-sale financial assets Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 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) Amount (US$ in Thousands) (Note 2) Beginning Balance Acquisition Disposal (Note 1) Ending Balance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Equity method investee - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - 4,930 3,475 4,847 4,903 4,943 8,971 4,921 7,892 4,430 17,888 5,928 - 7,926 - - - - - 15,787 9,758 7,000 - 5,740 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,415 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 14,175 9,974 - - - - - - - - - - - 7,800 - 19,539 14,901 10,430 7,966 3,353 - - - 5,255 - 9,391 6,039 5,032 $ 100,116 - US$ 501,897 - - - - - - - - - - - - - - - - - US$ 3,432 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,446 3,095 3,325 3,340 3,036 5,091 3,777 5,005 4,899 3,436 3,222 3,930 5,994 7,937 8,716 3,893 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 6,410 US$ 6,415 US$ (5) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 14,269 9,929 4,912 3,459 4,901 4,927 4,944 8,940 4,916 7,908 4,364 17,782 5,885 7,832 7,834 19,702 14,931 10,459 7,979 3,417 15,851 9,781 6,925 5,292 5,562 9,314 6,038 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 14,175 9,974 4,930 3,475 4,847 4,903 4,943 8,971 4,921 7,892 4,430 17,888 5,928 7,800 7,926 19,539 14,901 10,430 7,966 3,353 15,787 9,758 7,000 5,255 5,740 9,391 6,039 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 94 (45) (18) (16) 54 24 1 (31) (5) 16 (66) (106) (43) 32 (92) 163 30 29 13 64 64 23 (75) 37 (178) (77) (1) US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,032 $ 107,224 US$ 351,917 US$ 351,594 US$ 323 - US$ 151,045 - - - - - - - - 5,005 - - - - - - - - - - - - - - - - 5,005 - - - - - - - - US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,452 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,448 3,092 3,365 3,379 3,027 5,077 3,751 - 4,928 3,444 3,215 3,970 6,057 7,937 8,759 3,888 (Continued) Company Name Marketable Securities Type and Name General Elec Cap Corp. Mtn General Re Corp. Goldman Sachs Group Inc. Goldman Sachs Group Inc. Hbos Plc Medium Term Sr Nts Hsbc Fin Corp. Mtn Hsbc Fin Corp. Hancock John Global Fdg Ii Mtn Hartford Finl Svcs Group Inc. Intl Lease Fin Corp. Mtn JP Morgan Chase + Co. Key Bk Na Med Term Nts Bk Entr Keycorp Mtn Book Entry Lehman Brothers Hldgs Inc. Mbna America Bank Na Y Marshall + Ilsley Corp. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Morgan Stanley Group Inc. National City Corp. Nationwide Bldg Soc Nationwide Life Global Fdg I Nucor Corp. Pepsico Inc. Mtn Book Entry Praxair Inc. Pricoa Global Fdg I Mtn Protective Life Secd Trs Mtn Public Svc Elec Gas Co. Slm Corp. Medium Term Nts Suntrust Bk Atlanta Ga Medium Vodafone Airtouch Plc Washington Mut Inc. Washington Mut Bk Fa Washington Post Co. Wells Fargo + Co. New Wells Fargo + Co. New Med Trm Corporate issued asset-backed securities Americredit Automobile Rec Tr Americredit Automobile Receivb Americredit Automobile Receiva Ba Cr Card Tr Banc Amer Coml Mtg Inc. Banc Amer Fdg 2006 I Tr Bear Stearns Coml Mtg Secs Inc. Bear Stearns Arm Tr Bear Stearns Coml Mtg Secs Inc. Cit Equip Coll Tr Cnh Equip Tr Cwabs Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Multi Asset Execut Capital One Multi Asset Execut Capital One Prime Auto Rec Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Beginning Balance Acquisition Disposal (Note 1) Ending Balance 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 8,268 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,319 3,453 4,941 3,182 5,066 3,028 5,170 5,048 4,118 3,310 4,393 3,016 3,150 6,437 8,453 3,426 4,842 3,361 4,386 3,402 3,495 3,520 3,811 3,624 3,147 3,403 3,396 3,684 8,949 3,448 4,477 4,505 5,000 3,007 6,073 4,282 US$ 3,261 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,826 4,959 4,350 3,254 4,336 3,551 3,597 6,362 3,996 3,457 4,300 3,232 5,008 4,879 3,932 3,999 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ - US$ - - - - - - - - - - - - - - - - - - 4,384 - - - - - - - - - - - - 3,500 1,000 - 3,167 - - - - - - - - - - - - - - - 4,883 - - US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - 4,386 - - - - - - - - - - - - 3,504 1,000 - 3,148 - - - - - - - - - - - - - - - 4,879 - - US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - (2) - - - - - - - - - - - - (4) - - 19 - - - - - - - - - - - - - - - 4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount (US$ in Thousands) (Note 2) US$ 8,282 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,292 3,456 4,989 3,205 5,096 3,028 5,132 5,037 4,138 3,298 4,401 3,010 3,150 6,403 8,420 3,453 4,865 3,369 - 3,410 3,537 3,501 3,797 3,619 3,138 3,401 3,390 3,682 8,998 3,442 4,449 1,000 3,997 3,001 2,943 4,311 US$ 3,269 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,891 4,609 4,300 2,869 4,332 3,541 3,480 6,358 3,985 1,984 4,261 3,243 4,998 - 3,941 3,981 (Continued) 167 Company Name Marketable Securities Type and Name Caterpillar Finl Asset Tr Cbass Tr Cendant Rent Car Fdg Aesop Llc Citibank Cr Card Issuance Tr Credit Suisse First Boston Mtg Credit Suisse First Boston Mtg Daimlerchrysler Auto Tr Drive Auto Receivables Tr First Franklin Mtg Ln Tr Ford Credit Auto Owner Trust Gs Mtg Secs Corp. Gsamp Tr Harley Davidson Motorcycle Tr Hertz Veh Fing Llc Holmes Fing No 8 Plc Home Equity Mtg Tr 2006 4 Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Hyundai Auto Receivables Tr Lb Ubs Coml Mtg Tr Long Beach Mtg Ln Tr Mbna Master Cr Card Tr Ii Massachusetts Rrb Spl Purp Tr Mastr Asset Backed Secs Tr Mastr Asset Backed Merrill Lynch Mtg Invs Inc. Morgan Stanley Ixis Estate Tr Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nomura Asset Accep Corp. Onyx Accep Owner Tr Pg + E Energy Recovery Fdg Llc Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Sec Mtg Pass Residential Fdg Mtg Secs I Inc. Tw Hotel Fdg 2005 Llc Terwin Mtg Tr Usaa Auto Owner Tr Washington Mut Mtg Secs Corp. Wells Fargo Mtg Backed Secs Wells Fargo Finl Auto Owner Tr Wells Fargo Finl Auto Owner Tr Wells Fargo Mtg Bkd Secs Wells Fargo Mtg Bkd Secs Agency bonds Fed Hm Ln Pc Pool M80855 Fed Hm Ln Pc Pool 847628 Fed Hm Ln Pc Pool 1h2520 Fed Hm Ln Pc Pool B19205 Federal Home Ln Mtg Corp. Fed Hm Ln Pc Pool 781959 Fnma Pool 255883 Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Home Ln Mtg Corp. 168 Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃 Beginning Balance Acquisition Disposal (Note 1) Ending Balance 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 8,121 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,260 9,249 9,797 3,566 3,728 4,334 3,183 4,301 4,310 4,134 4,241 5,793 5,284 5,000 4,200 6,202 3,208 3,904 3,733 3,195 7,653 3,830 3,083 4,300 6,561 4,300 3,994 3,943 4,144 4,885 4,646 3,911 3,994 3,052 4,224 4,116 4,033 4,246 3,261 4,426 5,235 4,932 3,020 3,488 US$ 3,381 US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,884 3,286 8,626 4,574 6,472 3,559 4,375 4,577 3,919 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ - US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - 3,416 3,082 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ - - - - - - - - - - - - - - - - - - - - - 3,396 3,083 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 (1) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount (US$ in Thousands) (Note 2) US$ 8,142 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,262 9,297 9,864 3,576 3,740 4,315 3,191 4,290 4,324 4,145 4,251 5,825 5,319 5,000 4,222 5,537 3,212 3,928 3,493 3,203 7,605 - - 4,224 5,887 4,110 2,956 3,928 4,150 3,774 3,997 3,942 2,486 2,711 4,058 4,103 4,065 4,238 2,984 4,367 4,986 4,926 2,856 3,399 US$ 3,287 US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,796 3,100 8,560 4,381 6,040 3,490 4,338 4,290 3,917 (Continued) Company Name Marketable Securities Type and Name Federal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn 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 Home Ln Mtg Corp. Federal Home Ln Mtg Federal Home Ln Mtg Corp. Federal Home Loan Mtg Federal Home Ln Mtg Corp. Fnma Pool 696485 Fnma Pool 813641 Fnma Pool 815626 Fnma Pool 825398 Fnma Pool 841069 Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Assn Federal Home Loan Mtg Corp. Federal Home Ln Mtg Corp. Freddie Mac Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Farm Cr 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 Loan Bank Federal Home Ln Bank Federal Home Ln Bks Federal Home Loan Banks Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃 Beginning Balance Acquisition Disposal (Note 1) Ending Balance 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,316 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,515 3,131 3,909 3,789 3,388 4,450 4,069 3,893 3,114 3,299 4,665 3,308 3,308 8,812 4,937 4,476 3,393 3,916 3,189 4,562 3,134 3,481 4,912 4,901 4,927 9,789 9,314 6,410 5,930 9,929 14,269 3,940 4,851 3,296 4,930 4,882 8,735 8,716 5,825 5,907 7,960 4,872 6,061 4,140 12,233 7,515 6,881 3,459 3,955 7,490 8,081 14,931 7,979 4,364 6,516 5,885 7,834 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - US$ - US$ - - - - - - - - - - - - - - 4,868 - - - - - - - 4,953 4,951 4,968 7,906 9,378 - - 10,000 14,304 3,946 - 3,297 4,971 - - - - - - - - 4,141 - 7,520 - 3,463 3,967 - - - 5,001 - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - 4,858 - - - - - - - 4,912 4,901 4,927 7,831 9,314 - - 9,929 14,269 3,940 - 3,296 4,930 - - - - - - - - 4,140 - 7,515 - 3,459 3,955 - - - 4,987 - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - 10 - - - - - - - 41 50 41 75 64 - - 71 35 6 - 1 41 - - - - - - - - 1 - 5 - 4 12 - - - 14 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount (US$ in Thousands) (Note 2) US$ 3,076 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,158 2,465 3,626 3,743 3,216 4,223 3,409 3,738 2,965 3,176 4,464 2,976 3,019 8,535 - 4,502 3,194 3,720 2,945 4,224 2,882 - - - - 1,976 - 6,440 5,948 - - - 4,856 - - 4,885 8,743 8,768 5,851 5,898 7,952 4,920 6,099 - 12,279 - 6,905 - - 7,506 8,049 14,973 3,000 4,365 6,511 5,915 7,868 (Continued) 169 Company Name Marketable Securities Type and Name Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Medium Tennessee Valley Auth Financial Statement Account Available-for-sale financial assets 〃〃〃〃〃〃 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) - - - - - - - - - - - - - - US$ - - - - - - - - - - - - - - - - - - - - - US$ 3,950 US$ US$ US$ US$ US$ US$ 19,702 10,459 5,562 5,292 3,417 6,038 - - - - - - - US$ - US$ - US$ US$ - - 5,560 - - - US$ - - 5,562 - - - US$ - - - (2) - - - - - - - - - - Beginning Balance Acquisition Disposal (Note 1) Ending Balance Amount (US$ in Thousands) (Note 2) US$ 3,943 US$ US$ US$ US$ US$ 19,766 10,467 - 5,318 3,415 6,024 (Concluded) Note 1: The proceeds of bond investments matured are excluded. Note 2: The ending balance included the amortization of premium or discount on bonds investments and unrealized valuation gains or losses on financial assets. 170 TABLE 5 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries ACQUISITION OF INDIVIDUAL REAL ESTATES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party Nature of Relationships Prior Transaction of Related Counter-party Owner Relationships Transfer Date Amount Price Reference Purpose of Acquisition Other Terms The Company Fab. 14 January 6, 2006 $ 854,000 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 12 March 30, 2006 US$ 3,340 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 12 June 1, 2006 $ 487,000 By the construction progress United Integrated Services Co., Ltd. Fab. 12 June 1, 2006 US$ 3,770 By the construction progress Celerity, Inc. Fab. 14 June 2, 2006 $ 197,500 By the construction progress China Steel Structure Co., Ltd. Fab. 12 June 6, 2006 192,000 By the construction progress Marketech International Corp. Fab. 12 June 9, 2006 142,000 By the construction progress Uangyih-tech Industrial Co., Ltd. Fab. 14 June 26, 2006 EUR 2,733 By the construction progress Siemens Limited Fab. 14 June 30, 2006 $ 517,500 By the construction progress United Steel Engineering & Construction Fab. 14 August 7, 2006 453,000 By the construction progress China Steel Structure Co., Ltd. Corp. Fab. 14 August 25, 2006 1,365,000 By the construction progress Fu Tsu Construction Co., Ltd. Fab. 14 September 28, 2006 JPY 1,080,000 By the construction progress Organo Corporation Fab. 14 September 28, 2006 $ 407,000 By the construction progress Organo Technology Co., Ltd. Fab. 14 September 29, 2006 US$ 4,250 By the construction progress York Internation Corp. Fab. 14 October 12, 2006 $ 278,950 By the construction progress Shihlin Electric & Engineering Corp. Fab. 14 November 20, 2006 US$ 9,150 By the construction progress Mega Union Technology Inc. Fab. 14 November 23, 2006 $ 179,573 By the construction progress United Integrated Services Co., Ltd. Fab. 14 November 24, 2006 US$ 9,890 By the construction progress Marketech International Corp. Fab. 14 November 28, 2006 US$ 29,750 By the construction progress United Integrated Services Co., Ltd. Fab. 14 November 29, 2006 US$ 15,000 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 14 November 29, 2006 $ 847,365 By the construction progress M+W Zander Facility Engineering Co., Ltd. Fab. 14 November 29, 2006 123,000 By the construction progress Desiccant Technology Corp. Fab. 14 December 7, 2006 177,200 By the construction progress Uangyih-tech Industrial Co., Ltd. Fab. 14 December 8, 2006 US$ 12,900 By the construction progress Marketech International Corp. Fab. 14 December 28, 2006 US$ 9,100 By the construction progress Celerity, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose 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 171 TABLE 6 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 YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships The Company TSMC-North America Philips Subsidiary Major shareholder GUC WaferTech SSMC TSMC-Shanghai VIS TSMC-North America GUC Investee over which the Company had a controlling interest Indirect subsidiary Investee accounted for using equity method Subsidiary Investee accounted for using equity method The same parent Transaction Details Amount % to Total Payment Terms $ 190,459,073 4,024,990 60 1 Net 30 days after invoice date Net 30 days/Net 45 days (since 12/27/2006) 755,710 - Net 30 days after monthly closing after monthly closing 12,530,552 6,820,632 4,405,843 3,911,838 920,045 27 15 10 8 60 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 Abnormal Transaction Unit Price (Note) Payment Terms (Note) - - - - - - - - - - - - - - - - Notes/Accounts Payable or Receivable Ending Balance $ 16,461,956 250,919 155,216 (864,733) (459,305) (478,714) (717,562) (301,507) Note % to Total 50 1 - 9 5 5 8 40 Purchase/ Sale Sales Sales Sales Purchases Purchases Purchases Purchases Purchases 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 7 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, 2006 (Amounts in Thousands of New Taiwan Dollars) Company Name The Company Related Party Nature of Relationships Ending Balance Turnover Rate Overdue Amounts Action Taken TSMC-North America Philips GUC TSMC-Shanghai VIS Subsidiary Major shareholder Investee over which the Company had a controlling interest Subsidiary Investee accounted for using equity method $ 16,521,503 257,313 155,216 36 days 38 days 49 days $ 4,721,288 11,304 117 - - - 123,853 121,911 Note Note 21,089 3,064 Accelerate demand on account receivables - 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 $ 5,883,939 18,648 38,062 - 3,064 Allowance for Bad Debts $ - - - - - 172 TABLE 8 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars) Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2006 December 31, 2006 December 31, 2005 Shares (In Thousands) Percentage of Ownership Carrying Value (Note) Net Income (Losses) of the Investee Equity in the Earnings (Losses) Note The Company TSMC Global TSMC International Tortola, British Virgin Islands Tortola, British Virgin Islands Investment activities Providing investment in companies involved in the $ 42,327,245 31,445,780 $ - 31,445,780 1 987,968 100 100 $ 42,496,592 26,593,749 $ 616,171 2,802,637 $ 616,171 2,802,637 Subsidiary Subsidiary TSMC-Shanghai Shanghai, China Manufacturing and sales of integrated circuits at the order 12,180,367 12,180,367 design, manufacture, and other related business in the semiconductor industry Singapore Fabrication and supply of integrated circuits 8,840,895 6,408,190 of and pursuant to product design specifications provided by customers - 463 SSMC VIS Hsinchu, Taiwan TSMC Partners TSMC-North America Tortola, British Virgin Islands San Jose, California, U.S.A. Emerging Alliance VTAF II GUC Cayman Islands Cayman Islands Hsinchu, Taiwan Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts Investment activities Sales and marketing of integrated circuits and semiconductor devices Investing in new start-up technology companies Investing in new start-up technology companies Researching, developing, manufacturing, testing and marketing of integrated circuits VTAF III Chi Cherng Hsin Ruey TSMC-Japan TSMC-Europe TSMC-Korea Cayman Islands Taipei, Taiwan Taipei, Taiwan Yokohama, Japan Amsterdam, the Netherlands Seoul, Korea Investing in new start-up technology companies Investment activities Investment activities Marketing activities Marketing activities Marketing activities Note: The treasury stock is deducted from the carrying value. 8,119,816 8,119,816 442,262 10,350 333,718 1,418,717 785,465 386,568 243,545 300,000 300,000 83,760 15,749 13,656 10,350 333,718 1,526,074 654,509 409,920 - 300,000 300,000 83,760 15,749 - 300 11,000 - - 41,263 - - - 6 - 80 100 9,027,984 (637,220) (637,220) Subsidiary 39 27 100 100 99 98 38 98 36 36 100 100 100 7,960,869 4,437,059 1,394,921 5,741,870 3,018,694 748,006 Investee accounted for using equity method Investee accounted for using equity method 4,433,819 2,014,990 793,585 733,130 629,755 228,005 115,507 114,297 95,757 49,741 14,706 308,009 238,111 (2,644) (37,339) 237,295 (20,794) 99,647 98,605 2,963 23,164 685 308,009 238,111 Subsidiary Subsidiary (2,631) (36,592) 100,396 Subsidiary Subsidiary Investee over which the Company has a controlling interest (20,378) (5,533) (5,982) 2,963 23,164 685 Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary 173 TABLE 9 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2006 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investee Company Main Businesses and Products TSMC (Shanghai) Company Limited Manufacturing and sales of integrated circuits at the order of and pursuant to product design specifications provided by customers Total Amount of Paid-in Capital (RMB in Thousand) Method of Investment Accumulated Outflow of Investment from Taiwan as of January 1, 2006 (US$ in Thousand) Investment Flows Outflow (US$ in Thousand) Accumulated Outflow of Investment from Taiwan as of December 31,2006 (US$ in Thousand) Percentage of Ownership Equity in the Earnings (Losses) (Note 2) Carrying Value as of December 31, 2006 Accumulated Inward Remittance of Earnings as of December 31, 2006 Inflow $ 12,180,367 (RMB 3,070,623) (Note 1) $ 12,180,367 (US$ 371,000) $ - $ - $ 12,180,367 (US$ 371,000) 100% $ (637,220) $ 9,027,984 $ - Accumulated Investment in Mainland China as of December 31, 2006 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) Note 1: Direct investments US$371,000 thousand in TSMC-Shanghai. Note 2: Amount was recognized based on the audited financial statements. 174 TABLE 10 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) A. FOR THE YEAR ENDED DECEMBER 31, 2006 No. 0 Company Name Counter Party Nature of Relationship (Note 1) Financial Statements Item Intercompany Transactions Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets TSMC TSMC-NA 1 Sales $ 190,459,073 Accumulated Investment in Mainland China as of December 31, 2006 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) TSMC-Shanghai TSMC-Japan TSMC-Europe GUC TSMC Technology WaferTech TSMC Development TSMC Technology TSMC International WaferTech TSMC-NA GUC-NA Receivables from related parties Other receivables from related parties Payables to related parties 1 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 1 1 1 1 1 3 3 3 3 3 Payables to related parties Deferred credits Marketing expenses - commission Payables to related parties Marketing expenses - commission Payables to related parties Sales General and administrative expenses - rental expense Research and development expenses Receivables from related parties Payables to related parties Other receivables from related parties Payables to related parties Sales Purchases Payables to related parties Interest income Deferred royalty income Other receivables Deferred revenue Receivables from related parties Purchases Manufacturing overhead Payables to related parties 3 Operating expenses 16,461,956 59,547 27,455 61,951 4,405,843 179,498 98,797 401,561 123,853 478,714 723,661 254,758 20,295 236,454 22,158 755,710 14,606 39,421 155,216 2,117 3,785 42,389 34,517 12,530,552 864,733 8,029 643,679 10,003,652 8,814,830 1,366 920,045 330,129 301,507 41,984 1 2 3 4 TSMC International TSMC Partners TSMC Technology GUC 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 mutual agreements. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 60% 3% - - - 1% - - - - - - - - - - - - - - - - - - 4% - - - 3% 3% - - - - - (Continued) 175 B. FOR THE YEAR ENDED DECEMBER 31, 2005 No. Company Name Counter Party TSMC-NA TSMC-Shanghai TSMC-Japan TSMC-Europe GUC TSMC Technology WaferTech VisEra TSMC Development TSMC Technology TSMC Development TSMC International 0 TSMC 1 2 3 4 5 TSMC-NA TSMC International TSMC Partners TSMC Technology WaferTech GUC TSMC-NA GUC-NA Nature of Relationship (Note 1) Financial Statements Item 1 Sales Receivables from related parties Other receivables from related parties Payables to related parties 1 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 Purchases Manufacturing expenses Operating expenses Payables to related parties 1 1 1 1 1 3 3 3 3 3 3 3 3 Operating expenses Intercompany Transactions Amount $ 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 12,625 266,372 345,064 3,333 66,138 27,871 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 mutual agreements. 176 Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 58% 4% - - - 1% - - - - - - - - - - - - - - - - - 4% - - - - - - 2% 2% - - - - - - (Concluded) 9. U.S. GAAP Financial Information Please be advised that our 2006 full annual report that includes complete U.S. GAAP reconciled financial statements and footnotes will be available when we file Form 20-F with the U.S. SEC. Our Form 20-F, or our 2006 full annual report, can be found at the U.S. SEC and on TSMC’s website no later than June 30, 2007. Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries U.S. GAAP RECONCILIATIONS OF NET INCOME FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousand New Taiwan Dollars) Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries Net income attributable to shareholders of the parent based on R.O.C. GAAP $ 127,009,731 $ 93,575,036 2006 2005 U.S. GAAP RECONCILIATIONS OF SHAREHOLDERS’ EQUITY DECEMBER 31, 2006 AND 2005 (In Thousand New Taiwan Dollars) Equity attributable to shareholders of the parent based on R.O.C. GAAP $ 507,981,284 $ 445,630,349 2006 2005 Adjustments - Marketable securities - Adjustment of unrealized gain on trading securities - Unrealized gain (loss) on available-for-sale marketable securities - TSMC - Equity-method investees - Reversal of unrealized loss on marketable securities under R.O.C. GAAP - U.S. GAAP adjustments on equity-method investees - Impairment of long-lived assets - Loss on impairment of assets - Reversal of depreciation on assets impaired under U.S. GAAP - 10% tax on undistributed earnings - Goodwill - Carrying amount difference for 68% equity interest in TASMC’s share acquisition - Reversal of amortization of goodwill recognized under R.O.C. GAAP - Derivative financial instruments - Bonuses to employees, directors and supervisors - Accrued pension cost - Accrual for accumulated other comprehensive income under U.S. SFAS No. 158 - Carry Interest - Income tax effect of U.S. GAAP adjustments - Minority interest effect of U.S. GAAP adjustments - - - - (445,102) (10,657,618) 8,561,791 (3,278,020) 52,212,732 (11,257,528) - (9,488,556) (43,783) (1,391,322) - 208,967 121 24,421,682 1,875,840 (99,733) 21,291 412,372 (463,808) (10,740,666) 7,223,040 - 52,212,732 (11,229,979) (328,248) (7,121,667) (47,654) - (193,285) 194,184 (47,550) 31,666,869 Equity attributable to shareholders of the parent based on U.S. GAAP $ 532,402,966 $ 477,297,218 Adjustments - Marketable securities - Adjustment of unrealized gain on trading securities - Reversal (realization) of unrealized loss on marketable securities - Reversal of cumulative effect of changes in accounting principle for adopting R.O.C. SFAS No. 34 - U.S. GAAP adjustments on equity-method investees - Reversal of depreciation on assets impaired under U.S. GAAP - 10% tax on undistributed earnings - Reversal of amortization of goodwill recognized under R.O.C. GAAP - 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 - Stock-based compensation - Cumulative effect of changes in accounting principle for adopting U.S. SFAS 123R - Adjustment of carrying interest - Income tax effect of U.S. GAAP adjustments - Minority interest effect of U.S. GAAP adjustments Net income attributable to shareholders of the parent based on U.S. GAAP Cumulative preferred dividends - (262,032) (1,606,749) (42,590) 1,391,478 (3,278,020) - - (9,488,556) (18,016,360) 3,871 (471,696) 37,935 170,380 98,320 164,997 (31,299,022) 95,710,709 - 1,061,999 337,160 - (161,871) 1,398,736 - 1,220,316 (225,271) (7,121,667) (13,795,382) (9,948) (791,425) - (193,285) 147,802 (23,846) (18,156,682) 75,418,354 - Income attributable to common shareholders of the parent $ 95,710,709 $ 75,418,354 177 Contact Information TSMC Spokesperson Name: Lora Ho Title: Vice President & CFO Tel: 886-3-5636688 Fax: 886-3-5637000 Email: spokesperson@tsmc.com Deputy Spokesperson Name: J.H. Tzeng Title: Public Relations Deputy Director Tel: 886-3-5055028 Fax: 886-3-5670121 Email: jhtzeng@tsmc.com Auditors Company: Deloitte & Touche Auditors: Hung-Wen Huang, Ming-Cheng Chang Address: 12F, 156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan 105, R.O.C. Tel: 886-2-25459988 Fax: 886-2-25459966 Website: http://www.deloitte.com.tw Common Share Transfer Agent and Registrar Company: The Transfer Agency Department of Chinatrust Commercial Bank Address: 5F, 83, Sec. 1, Chung-Ching S. Rd., Taipei, Taiwan 100, R.O.C. Tel: 886-2-23613033 Fax: 886-2-23116723 Website: http://www.chinatrust.com.tw ADR Depositary Bank Company: Citibank, N.A. Depositary Receipts Services Address: 388 Greenwich Street, New York, NY10013, U.S.A. Website: http://www.citigroup.com/adr Tel: 1-877-2484237 (toll free) Tel: 1-781-5754555 (out of US) Fax: 1-201-3243284 E-mail: citibank@shareholders-online.com TSMC's depositary receipts of the common shares are listed on New York Stock Exchange (NYSE) under the symbol TSM. The information relating to TSM is available at http://www.nyse.com and http://newmops.tse.com.tw Corporate Headquarters & Fab 12 8, Li-Hsin Rd. 6, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5637000 Fab 2, Fab 5 121, Park Ave. 3, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5781546 Fab 3 9, Creation Rd. 1, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5781548 Fab 6 1, Nan-Ke North Rd., Tainan Science Park, Tainan, Taiwan 741-44, R.O.C. Tel: 886-6-5056688 Fax: 886-6-5052057 Fab 8 25, Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 300-77, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5662051 Fab 14 1-1, Nan-Ke North Rd., Tainan Science Park, Tainan, Taiwan 741-44, R.O.C. Tel: 886-6-5056688 Fax: 886-6-5051262 TSMC North America 2585 Junction Avenue, San Jose, CA 95134, U.S.A. Tel: 408-3828000 Fax: 408-3828008 TSMC Europe B.V. World Trade Center, Zuidplein 60, 1077 XV Amsterdam, The Netherlands Tel: 31-20-3059900 Fax: 31-20-3059911 TSMC Japan Limited 21F, Queen's Tower C, 2-3-5, Minato, Mirai, Nishi-ku, Yokohama, Kanagawa 220-6221, Japan Tel: 81-45-6820670 Fax: 81-45-6820673 TSMC (Shanghai) Company Limited 4000, Wen Xiang Road, Songjiang, Shanghai, China Postcode: 201616 Tel: 86-21-57768000 Fax: 86-21-57762525 TSMC Korea Limited 15F, AnnJay Tower, 718-2, Yeoksam-dong, Gangnam-gu, Seoul135-080, Korea Tel: 82-2-20511688 Fax: 82-2-20511669 TSMC Liaison Office in India 1st Floor, Pine Valley, Embassy Golf-Links Business Park, Bangalore-560071, India Tel: 91-80-41768615 Fax: 91-80-41764568 Copyright © 2007 by Taiwan Semiconductor Manufacturing Company, Ltd. All rights reserved. i T a w a n S e m i c o n d u c t o r M a n u f a c t u r i n g C o m p a n y , L t d . A n n u a l R e p o r t 2 0 0 6 ( I ) Taiwan Semiconductor Manufacturing Company, Ltd. Morris Chang, Chairman 8, Li-Hsin Rd. 6, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R. O. C. Tel: 886-3-5636688 Fax: 886-3-5637000 http://www.tsmc.com TSE: 2330 NYSE: TSM TSMC Annual Report 2006 (I) (cid:339) Taiwan Stock Exchange Market Observation Post System: http://newmops.tse.com.tw (cid:339) TSMC annual report is available at http://www.tsmc.com/english/e_investor/e02_annual/e02_annual.htm Printed on March 12, 2007

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