TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED
 

1934 Act Registration No. 1-14700
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2007
Taiwan Semiconductor Manufacturing Company Ltd.
(Translation of Registrant’s Name Into English)
No. 8, Li-Hsin Rd. 6,
Hsinchu Science Park,
Taiwan
(Address of Principal Executive Offices)
     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F þ      Form 40-F o
     (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
Yes o      No þ
(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82:                     .)
 
 

 


 

Taiwan Semiconductor Manufacturing Company Limited
Financial Statements for the
Nine Months Ended September 30, 2007 and 2006 and
Independent Accountants’ Review Report

 


 

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited
We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of September 30, 2007 and 2006, and the related statements of income and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.
We conducted our reviews in accordance with Statement on Auditing Standards No. 36 “Review of Financial Statements” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by 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.
October 9, 2007
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the accountants’ review 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 accountants’ review report and financial statements shall prevail.

-1-


 

Taiwan Semiconductor Manufacturing Company Limited
BALANCE SHEETS
SEPTEMBER 30, 2007 AND 2006
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)
                                 
    2007     2006  
    Amount     %     Amount     %  
ASSETS
                               
 
                               
CURRENT ASSETS
                               
Cash and cash equivalents (Notes 2 and 4)
  $ 76,504,025       13     $ 77,785,750       14  
Financial assets at fair value through profit or loss (Notes 2, 3 and 6)
    366,445             45,295        
Available-for-sale financial assets (Notes 2, 3 and 7)
    19,945,922       4       35,749,909       7  
Held-to-maturity financial assets (Notes 2 and 8)
    12,168,201       2       6,220,737       1  
Receivables from related parties (Note 24)
    23,833,351       4       22,030,420       4  
Notes and accounts receivable
    20,622,354       4       19,339,939       4  
Allowance for doubtful receivables (Notes 2 and 5)
    (688,972 )           (975,705 )      
Allowance for sales returns and others (Notes 2 and 5)
    (3,739,026 )     (1 )     (5,012,934 )     (1 )
Other receivables from related parties (Note 24)
    505,914             1,042,223        
Other financial assets
    476,026             747,755        
Inventories, net (Notes 2 and 9)
    22,013,215       4       18,369,130       3  
Deferred income tax assets (Notes 2 and 17)
    3,068,708       1       2,683,412       1  
Prepaid expenses and other current assets
    967,180             704,492        
 
                       
 
                               
Total current assets
    176,043,343       31       178,730,423       33  
 
                       
 
                               
LONG-TERM INVESTMENTS (Notes 2, 7, 8, 10 and 11)
                               
Investments accounted for using equity method
    111,895,495       20       84,640,267       15  
Available-for-sale financial assets
    4,134,882       1       4,893,355       1  
Held-to-maturity financial assets
    16,167,443       3       30,747,122       6  
Financial assets carried at cost
    747,206             769,411        
 
                       
 
                               
Total long-term investments
    132,945,026       24       121,050,155       22  
 
                       
 
                               
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)
                               
Cost
                               
Buildings
    100,832,628       18       95,576,337       17  
Machinery and equipment
    578,009,705       102       508,975,810       92  
Office equipment
    9,095,417       1       8,443,812       2  
 
                       
 
    687,937,750       121       612,995,959       111  
Accumulated depreciation
    (469,874,398 )     (83 )     (401,098,736 )     (73 )
Advance payments and construction in progress
    20,940,284       4       21,069,769       4  
 
                       
 
                               
Net property, plant and equipment
    239,003,636       42       232,966,992       42  
 
                       
 
                               
INTANGIBLE ASSETS
                               
Goodwill (Note 2)
    1,567,756             1,567,756        
Deferred charges, net (Notes 2 and 13)
    5,166,482       1       5,639,776       1  
 
                       
 
                               
Total intangible assets
    6,734,238       1       7,207,532       1  
 
                       
 
                               
OTHER ASSETS
                               
Deferred income tax assets (Notes 2 and 17)
    10,436,868       2       10,989,791       2  
Refundable deposits
    2,688,320             83,738        
Assets leased to others, net (Note 2)
    62,845             68,579        
Others
                6,789        
 
                       
 
                               
Total other assets
    13,188,033       2       11,148,897       2  
 
                       
 
                               
TOTAL
  $ 567,914,276       100     $ 551,103,999       100  
 
                       
 
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
 
                               
CURRENT LIABILITIES
                               
Financial liabilities at fair value through profit or loss (Notes 2, 3 and 6)
  $ 130,828           $ 458,808        
Accounts payable
    8,722,415       1       6,641,641       1  
Payables to related parties (Note 24)
    3,308,642       1       3,894,488       1  
Income tax payable (Notes 2 and 17)
    7,395,744       1       6,535,446       1  
Accrued expenses and other current liabilities (Notes 15 and 26)
    11,163,015       2       7,477,769       2  
Payables to contractors and equipment suppliers
    10,711,333       2       15,299,614       3  
Current portion of bonds payable (Note 14)
    4,500,000       1       2,500,000        
 
                       
 
                               
Total current liabilities
    45,931,977       8       42,807,766       8  
 
                       
 
                               
LONG-TERM LIABILITIES
                               
Bonds payable (Note 14)
    12,500,000       2       17,000,000       3  
Other long-term payables (Note 15)
    1,021,824             1,291,484        
Other payables to related parties (Notes 24 and 26)
                409,588        
 
                       
 
                               
Total long-term liabilities
    13,521,824       2       18,701,072       3  
 
                       
 
                               
OTHER LIABILITIES
                               
Accrued pension cost (Notes 2 and 16)
    3,621,795       1       3,502,475       1  
Guarantee deposits (Note 26)
    2,560,554       1       3,680,687       1  
Deferred credits (Notes 2 and 24)
    1,003,256             1,275,872        
 
                       
 
                               
Total other liabilities
    7,185,605       2       8,459,034       2  
 
                       
 
                               
Total liabilities
    66,639,406       12       69,967,872       13  
 
                       
 
                               
CAPITAL STOCK — NT$10 PAR VALUE
                               
Authorized:  28,050,000 thousand shares in 2007
                               
27,050,000 thousand shares in 2006
                               
Issued:  26,426,202 thousand shares in 2007
    264,262,018       47       258,258,398       47  
 
                       
25,825,840 thousand shares in 2006
                               
 
                               
CAPITAL SURPLUS (Notes 2 and 19)
    53,713,165       9       53,857,667       10  
 
                       
 
                               
RETAINED EARNINGS (Note 19)
                               
Appropriated as legal capital reserve
    56,406,684       10       43,705,711       8  
Appropriated as special capital reserve
    629,550             640,742        
Unappropriated earnings
    127,343,560       22       124,866,387       22  
 
                       
 
 
    184,379,794       32       169,212,840       30  
 
                       
 
                               
OTHERS (Notes 2, 3, 21 and 23)
                               
Cumulative translation adjustments
    (690,056 )           223,105        
Unrealized gain on financial instruments
    528,024             502,192        
Treasury stock:  34,096 thousand shares in 2007
                               
33,926 thousand shares in 2006
    (918,075 )           (918,075 )      
 
                       
 
    (1,080,107 )           (192,778 )      
 
                       
Total shareholders’ equity
    501,274,870       88       481,136,127       87  
 
                       
 
                               
TOTAL
  $ 567,914,276       100     $ 551,103,999       100  
 
                       
     The accompanying notes are an integral part of the financial statements

-2-


 

Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)
                                 
    2007     2006  
    Amount     %     Amount     %  
GROSS SALES (Notes 2 and 24)
  $ 226,395,474             $ 245,148,192          
 
                               
SALES RETURNS AND ALLOWANCES (Note 2)
    3,736,354               5,202,252          
 
                           
 
                               
NET SALES
    222,659,120       100       239,945,940       100  
 
                               
COST OF SALES (Notes 18 and 24)
    128,356,018       58       123,155,982       51  
 
                       
 
                               
GROSS PROFIT
    94,303,102       42       116,789,958       49  
 
                               
UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2)
    285,784                    
 
                       
 
                               
REALIZED GROSS PROFIT
    94,017,318       42       116,789,958       49  
 
                       
 
                               
OPERATING EXPENSES (Notes 18 and 24)
                               
Research and development
    11,476,303       5       11,206,265       5  
General and administrative
    5,929,869       3       5,348,876       2  
Marketing
    911,225             1,360,794       1  
 
                       
 
                               
Total operating expenses
    18,317,397       8       17,915,935       8  
 
                       
 
                               
INCOME FROM OPERATIONS
    75,699,921       34       98,874,023       41  
 
                       
 
                               
NON-OPERATING INCOME AND GAINS
                               
Equity in earnings of equity method investees, net (Notes 2 and 10)
    3,931,127       2       4,696,522       2  
Interest income (Note 2)
    1,989,402       1       2,734,401       1  
Technical service income (Notes 24 and 26)
    527,868             514,995       1  
Settlement income (Note 26)
    491,385             483,734        
Rental income (Note 24)
    290,660             153,059        
Foreign exchange gain, net (Note 2)
    231,584             28,165        
Gain on disposal of property, plant and equipment and other assets (Notes 2 and 24)
    214,918             480,944        
Valuation gain on financial instruments, net (Notes 2, 6 and 23)
    201,767                    
Others (Note 24)
    335,694             189,175        
 
                       
 
                               
Total non-operating income and gains
    8,214,405       3       9,280,995       4  
 
                       
(Continued)

-3-


 

Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)
                                 
    2007     2006  
    Amount     %     Amount     %  
NON-OPERATING EXPENSES AND LOSSES
                               
Provision for litigation loss (Note 26j)
  $ 1,008,635           $        
Loss on settlement and disposal of financial instruments, net (Notes 2, 6 and 23)
    717,329             1,395,264       1  
Interest expense
    450,023             495,900        
Valuation loss on financial instruments, net (Notes 2, 6 and 23)
                413,514        
Loss on disposal of property, plant and equipment (Note 2)
    4,778             225,781        
Others (Note 2)
    45,175             129,031        
 
                       
 
                               
Total non-operating expenses and losses
    2,225,940             2,659,490       1  
 
                       
 
                               
INCOME BEFORE INCOME TAX
    81,688,386       37       105,495,528       44  
 
                               
INCOME TAX EXPENSE (Notes 2 and 17)
    6,996,070       3       6,151,303       3  
 
                       
 
                               
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
    74,692,316       34       99,344,225       41  
 
                               
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFIT OF $82,062 THOUSAND (Note 3)
                (246,186 )      
 
                       
 
                               
NET INCOME
  $ 74,692,316       34     $ 99,098,039       41  
 
                       
                                 
    2007     2006  
    Before     After     Before     After  
    Income     Income     Income     Income  
    Tax     Tax     Tax     Tax  
EARNINGS PER SHARE (NT$, Note 22)
                               
Basic earnings per share
  $ 3.10     $ 2.83     $ 3.99     $ 3.76  
 
                       
Diluted earnings per share
  $ 3.09     $ 2.83     $ 3.98     $ 3.75  
 
                       
(Continued)

-4-


 

Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)
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 21):
                 
    2007     2006  
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
  $ 74,794,078     $ 99,426,545  
 
           
 
               
NET INCOME
  $ 74,794,078     $ 99,180,359  
 
           
 
               
EARNINGS PER SHARE (NT$)
               
Basic earnings per share
  $ 2.83     $ 3.76  
 
           
Diluted earnings per share
  $ 2.83     $ 3.75  
 
           
     
The accompanying notes are an integral part of the financial statements.   (Concluded)

-5-


 

Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)
                 
    2007     2006  
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income
  $ 74,692,316     $ 99,098,039  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    54,359,150       48,809,141  
Unrealized gross profit from affiliates
    285,784        
Amortization of premium/discount of financial assets
    (90,347 )     16,004  
Loss (gain) on disposal of available-for-sale financial assets, net
    (260,367 )     11,258  
Equity in earnings of equity method investees, net
    (3,931,127 )     (4,696,522 )
Dividends received from equity method investees
    677,147       626,367  
Gain on disposal of property, plant and equipment and other assets, net
    (210,140 )     (255,163 )
Deferred income tax
    87,551       99,752  
Loss on idle assets
          37,283  
Changes in operating assets and liabilities:
               
Decrease (increase) in:
               
Financial assets and liabilities at fair value through profit or loss
    (201,767 )     1,560,139  
Receivables from related parties
    (6,963,842 )     (979,816 )
Notes and accounts receivable
    (4,344,190 )     1,251,879  
Allowance for doubtful receivables
    (1,959 )     (639 )
Allowance for sales returns and others
    987,961       742,965  
Other receivables from related parties
    (56,648 )     688,353  
Other financial assets
    177,286       105,781  
Inventories
    (2,861,001 )     (2,111,175 )
Prepaid expenses and other current assets
    254,019       467,281  
Increase (decrease) in:
               
Accounts payable
    2,578,736       (1,410,465 )
Payables to related parties
    (18,274 )     (38,596 )
Income tax payable
    (454,674 )     2,719,558  
Accrued expenses and other current liabilities
    2,319,917       (513,289 )
Accrued pension cost
    91,679       41,083  
Deferred credits
    26,592       (71,808 )
 
           
 
               
Net cash provided by operating activities
    117,143,802       146,197,410  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisitions of:
               
Available-for-sale financial assets
    (9,547,253 )     (78,666,694 )
Held-to-maturity financial assets
          (16,141,019 )
Investments accounted for using equity method
    (7,220,679 )     (1,495,552 )
Financial assets carried at cost
    (35,379 )     (11,921 )
Property, plant and equipment
    (62,643,771 )     (59,945,807 )
(Continued)

-6-


 

Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)
                 
    2007     2006  
Proceeds from disposal or redemption of:
               
Available-for-sale financial assets
  $ 18,344,519     $ 57,874,205  
Held-to-maturity financial assets
    9,200,400       8,512,000  
Financial assets carried at cost
          50,000  
Property, plant and equipment and others
    21,080       927,200  
Proceeds from return of capital by investees
    207,172       162,354  
Increase in deferred charges
    (2,028,206 )     (755,982 )
Increase in refundable deposits
    (1,382,086 )     (96 )
 
           
 
               
Net cash used in investing activities
    (55,084,203 )     (89,491,312 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
               
Repayment of bonds payable
    (2,500,000 )      
Increase (decrease) in guarantee deposits
    (1,249,407 )     787,742  
Cash dividends
    (77,489,064 )     (61,825,061 )
Cash bonus paid to employees
    (4,572,798 )     (3,432,129 )
Bonus to directors and supervisors
    (285,800 )     (257,410 )
Proceeds from exercise of employee stock options
    401,786       422,927  
 
           
 
               
Net cash used in financing activities
    (85,695,283 )     (64,303,931 )
 
           
 
               
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (23,635,684 )     (7,597,833 )
 
               
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    100,139,709       85,383,583  
 
           
 
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 76,504,025     $ 77,785,750  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Interest paid
  $ 420,000     $ 420,000  
 
           
Income tax paid
  $ 7,285,717     $ 3,146,676  
 
           
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
               
Acquisition of property, plant, and equipment
  $ 62,685,581     $ 66,386,191  
Increase in payables to contractors and equipment suppliers
    (41,810 )     (6,440,384 )
 
           
Cash paid
  $ 62,643,771     $ 59,945,807  
 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Current portion of bonds payable
  $ 4,500,000     $ 2,500,000  
 
           
Current portion of other payables to related parties (under payables to related parties)
  $     $ 699,195  
 
           
Current portion of other long-term payables (under accrued expenses and other current liabilities)
  $ 1,488,860     $ 971,596  
 
           
Transfer of available-for-sale financial assets and other net assets to investments accounted for using equity method (Note 7)
  $     $ 26,821,648  
 
           
     
The accompanying notes are an integral part of the financial statements.   (Concluded)

-7-


 

Taiwan Semiconductor Manufacturing Company Limited
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)
1.   GENERAL
 
    Taiwan Semiconductor Manufacturing Company Limited (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).
 
    The Company is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks.
 
    As of September 30, 2007 and 2006, the Company had 20,523 and 20,266 employees, respectively.
 
2.   SIGNIFICANT ACCOUNTING POLICIES
 
    The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines 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.
 
    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 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, asset-backed commercial papers and corporate notes acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.

-8-


 

    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 changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
 
    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 recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.
 
    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 period, respectively. For debt securities, fair value is determined using the average of bid and asked prices at the end of the period.
 
    Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. 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.
 
    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 previously recognized impairment loss is reversed to the extent of the decrease and recorded as an 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 except for structured time deposits which are carried at acquisition cost. 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.
 
    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.

-9-


 

    Allowance for Doubtful Receivables
 
    An allowance for doubtful receivables is provided based on a review of the collectibility of notes and accounts receivable. The Company determines the amount of the allowance for doubtful receivables by examining the aging analysis of outstanding notes and 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 manufacturing 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.
 
    Inventories
 
    Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the balance sheet date. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Period-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 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 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 Accounted for Using the Equity Method” (SFAS No. 5), the cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). The accounting treatment for the investment premiums paid 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.

-10-


 

    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 weighted-average ownership percentages in the investees with which the Company has a controlling interest. In transactions between equity method investees with which the Company has no controlling interest, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are recorded until they are realized through transactions with third parties.
 
    If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.
 
    Financial Assets Carried at Cost
 
    Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If 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.
 
    Property, Plant and Equipment and Assets Leased to Others
 
    Property, plant and equipment and assets leased to others are stated at cost less accumulated 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 in a subsequent period, the amount previously recognized as impairment 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 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: Buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.
 
    Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

-11-


 

    Intangible Assets
 
    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 Statement of Financial Accounting Standards 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 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 reversal of such impairment loss is not allowed.
 
    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 — 3 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.
 
    Effective January 1, 2007, the Company adopted the newly released Statement of Financial Accounting Standards No. 37, “Accounting for Intangible Assets”. The Company had reassessed the useful lives and the amortization method of its recognized intangible assets at the effective date. Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.
 
    Pension Costs
 
    For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.
 
    Income Tax
 
    The Company applies intra-period and inter-period allocations for its income tax whereby (1) a portion of current period’s 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 or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
 
    Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training expenditures, and investments in important technology-based enterprises are recognized using the flow-through method.
 
    Adjustments of prior years’ tax liabilities are added to or deducted from the current period’s tax provision.
 
    Income tax on unappropriated earnings 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.

-12-


 

    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 tax-exempt income under various laws and statutes. The Company has considered the impact of the AMT Act in the determination of its tax liabilities.
 
    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 of the Republic of China. 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 its 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 balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.
 
    Recent Accounting Pronouncements
 
    In March 2007, the Accounting Research and Development Foundation of the Republic of China issued an interpretation that requires companies to record the bonus paid to directors, supervisors and employees as an expense rather than an appropriation of earnings. This interpretation should be applied to financial statements for the fiscal year beginning on or after January 1, 2008.
 
    The Accounting Research and Development Foundation of the Republic of China also issued Statement of Financial Accounting Standards No. 39, “Accounting for Share-based Payment” (SFAS No.39) in August 2007, which requires companies to record share-based payment transactions in the financial statements at fair value. SFAS No.39 should be applied to financial statements for the fiscal year beginning on or after January 1, 2008.
 
3.   ACCOUNTING CHANGES
 
    On January 1, 2006, the Company adopted the newly released Statements of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” (SFAS No. 34) and No. 36, “Financial Instruments: Disclosure and Presentation”.
 
    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 liabilities at fair value through profit or loss were included in the cumulative effect of

-13-


 

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.
The effect of adopting the newly released SFASs is summarized as follows:
                 
    Recognized as        
    Cumulative        
    Effect of     Recognized as  
    Changes in     a Separate  
    Accounting     Component of  
    Principles     Shareholders’  
    (Net of Tax)     Equity  
Financial assets or liabilities at fair value through profit or loss
  $ (246,186 )   $  
Available-for-sale financial assets
           
 
           
 
               
 
  $ (246,186 )   $  
 
           
The adoption of the newly released SFASs resulted in a decrease in net income before cumulative effect of changes in accounting principles of NT$167,328 thousand, a decrease in net income of NT$413,514 thousand, and a decrease in basic earnings per share (after income tax) of NT$0.02, for the nine months ended September 30, 2006.
Effective January 1, 2006, the Company adopted the newly revised SFAS No. 5 and SFAS No. 25, 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 nine months ended September 30, 2006.
4. CASH AND CASH EQUIVALENTS
                 
    September 30  
    2007     2006  
Cash and deposits in banks
  $ 44,552,995     $ 56,452,326  
Repurchase agreements collaterized by government bonds
    31,354,207       21,200,915  
Asset-backed commercial papers
    596,823        
Corporate notes
          132,509  
 
           
 
               
 
  $ 76,504,025     $ 77,785,750  
 
           
5. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS
Movements of the allowance for doubtful receivables were as follows:
                 
    Nine Months Ended  
    September 30  
    2007     2006  
Balance, beginning of period
  $ 690,931     $ 976,344  
Write-off
    (1,959 )     (639 )
 
           
 
               
Balance, end of period
  $ 688,972     $ 975,705  
 
           

-14-


 

Movements of the allowance for sales returns and others were as follows:
                 
    Nine Months Ended  
    September 30  
    2007     2006  
Balance, beginning of period
  $ 2,751,065     $ 4,269,969  
Provision
    3,736,354       5,202,252  
Write-off
    (2,748,393 )     (4,459,287 )
 
           
 
               
Balance, end of period
  $ 3,739,026     $ 5,012,934  
 
           
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
                 
    September 30  
    2007     2006  
Derivatives — financial assets
               
 
Forward exchange contracts
  $     $ 45,295  
Cross currency swap contracts
    366,445        
 
           
 
               
 
  $ 366,445     $ 45,295  
 
           
 
               
Derivatives — financial liabilities
               
 
               
Forward exchange contracts
  $ 127,588     $  
Cross currency swap contracts
    3,240       458,808  
 
           
 
               
 
  $ 130,828     $ 458,808  
 
           
The Company entered into derivative contracts during the nine months ended September 30, 2007 and 2006 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, the Company did not apply hedge accounting treatment for its derivative contracts.
Outstanding forward exchange contracts as of September 30, 2007 and 2006:
         
        Contract
        Amount
    Maturity Date   (in Thousands)
September 30, 2007
       
 
       
Sell EUR/buy NT$
  October 2007 to July 2008   EUR 70,040
September 30, 2006
       
 
       
Sell NT$/buy US$
  October 2006 to November 2006   US$145,000

-15-


 

Outstanding cross currency swap contracts as of September 30, 2007 and 2006:
             
    Contract   Range of   Range of
    Amount   Interest Rates   Interest Rates
Maturity Date   (in Thousands)   Paid   Received
September 30, 2007
           
 
           
October 2007 to November 2007
  US$930,000   3.76%-5.80%   1.6%-3.69%
 
           
September 30, 2006
           
 
           
October 2006 to November 2006
  US$1,550,000   3.34%-5.50%   0.60%-2.72%
For the nine months ended September 30, 2007 and 2006, net losses arising from derivative financial instruments were NT$775,929 thousand (including realized settlement losses of NT$977,696 thousand and valuation gains of NT$201,767 thousand) and NT$1,797,738 thousand (including realized settlement losses of NT$1,384,224 thousand and valuation losses of NT$413,514 thousand), respectively.
7. AVAILABLE-FOR-SALE FINANCIAL ASSETS
                 
    September 30  
    2007     2006  
Open-end mutual funds
  $ 15,403,622     $ 21,781,496  
Government bonds
    4,139,554       1,200,097  
Corporate bonds
    4,039,041       9,137,742  
Structured time deposits
    498,587       499,549  
Agency bonds
          4,786,766  
Corporate issued asset-backed securities
          3,237,614  
 
           
 
    24,080,804       40,643,264  
Current portion
    (19,945,922 )     (35,749,909 )
 
           
 
               
 
  $ 4,134,882     $ 4,893,355  
 
           
In 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. In the second half year 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.

-16-


 

Structured time deposits categorized as available-for-sale financial assets consisted of the following:
                                 
    Principal     Carrying        
    Amount     Amount     Interest Rate     Maturity Date
September 30, 2007
                               
 
                               
Step-up callable deposits
                               
Domestic deposits
  $ 500,000     $ 498,587       1.76 %   March 2008
 
                           
 
                               
September 30, 2006
                               
 
                               
Step-up callable deposits
                               
Domestic deposits
  $ 500,000     $ 499,549       1.76 %   March 2008
 
                           
The interest rate of the step-up callable deposits was pre-determined by the Company and the banks.
8. HELD-TO-MATURITY FINANCIAL ASSETS
                 
    September 30  
    2007     2006  
Corporate bonds
  $ 11,540,506     $ 14,670,013  
Structured time deposits
    8,726,720       11,281,560  
Government bonds
    8,068,418       11,016,286  
 
           
 
    28,335,644       36,967,859  
Current portion
    (12,168,201 )     (6,220,737 )
 
           
 
               
 
  $ 16,167,443     $ 30,747,122  
 
           
As of September 30, 2007 and 2006, structured time deposits categorized as held-to-maturity financial assets consisted of the following:
                                 
    Principal     Interest     Range of        
    Amount     Receivable     Interest Rates     Maturity Date  
September 30, 2007
                               
 
                               
Step-up callable deposits
                               
Domestic deposits
  $ 3,500,000     $ 13,340       1.69%-1.83 %   October 2007 to October 2008
Callable range accrual deposits
                               
Domestic deposits
    3,266,700       14,265     (See below)   October 2009 to December 2009
Foreign deposits
    1,960,020       6,016     (See below)   October 2009 to December 2009
 
                           
 
                               
 
  $ 8,726,720     $ 33,621                  
 
                           
September 30, 2006
                               
 
                               
Step-up callable deposits
                               
Domestic deposits
  $ 4,000,000     $ 35,459       1.40%-2.01 %   June 2007 to March 2009
Callable range accrual deposits
                               
Domestic deposits
    3,971,760       15,004     (See below)   September 2009 to December 2009
Foreign deposits
    3,309,800       7,585     (See below)   October 2009 to January 2010
 
                           
 
                               
 
  $ 11,281,560     $ 58,048                  
 
                           
The amount of interest earned from 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

-17-


 

range, the interest paid to the Company is at a fixed rate ranging 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 September 30, 2007 and 2006, the principal of the deposits that resided in banks located in Hong Kong amounted to US$40,000 thousand and US$80,000 thousand, respectively; the principal of those resided in banks located in Singapore amounted to US$20,000 thousand each.
9. INVENTORIES, NET
                 
    September 30  
    2007     2006  
Finished goods
  $ 3,711,693     $ 4,499,585  
Work in process
    17,183,031       12,806,387  
Raw materials
    1,508,536       1,403,443  
Supplies and spare parts
    460,266       483,892  
 
           
 
    22,863,526       19,193,307  
Allowance for losses
    (850,311 )     (824,177 )
 
           
 
               
 
  $ 22,013,215     $ 18,369,130  
 
           
10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
                                 
    September 30  
    2007     2006  
            % of             % of  
    Carrying     Owner-     Carrying     Owner-  
    Amount     ship     Amount     ship  
TSMC Global (Note 7)
  $ 44,234,333       100     $ 28,423,113       100  
TSMC International Investment Ltd. (TSMC International)
    27,553,919       100       27,017,212       100  
Vanguard International Semiconductor Corporation (VIS)
    10,760,885       36       5,359,803       27  
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)
    8,674,862       39       5,611,199       32  
TSMC (Shanghai) Company Limited (TSMC- Shanghai)
    8,567,668       100       9,250,288       100  
TSMC Partners, Ltd. (TSMC Partners)
    4,667,437       100       4,397,781       100  
TSMC North America (TSMC-North America)
    2,227,896       100       1,876,355       100  
Xintec Inc. (Xintec)
    1,429,804       43              
VentureTech Alliance Fund II, L.P. (VTAF II)
    1,026,700       98       717,136       98  
VentureTech Alliance Fund III, L.P. (VTAF III)
    786,064       98       224,580       98  
Global UniChip Corporation (GUC)
    750,200       37       468,150       44  
Emerging Alliance Fund, L.P. (Emerging Alliance)
    683,002       99       908,370       99  
Chi Cherng Investment Co., Ltd. (Chi Cherng)
    170,542       36       115,347       36  
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)
    168,918       36       114,548       36  
TSMC Japan Limited (TSMC-Japan)
    102,257       100       97,810       100  
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe)
    74,994       100       44,143       100  
TSMC Korea Limited (TSMC-Korea)
    16,014       100       14,432       100  
 
                           
 
  $ 111,895,495             $ 84,640,267          
 
                           

-18-


 

In November 2006, the Company acquired 81 thousand shares in SSMC for SGD115,227 thousand from EDB Investments Pte Ltd. under a Shareholders Agreement. After the acquisition, the number of SSMC shares owned by the Company increased to 463 thousand and the Company’s percentage of ownership increased from 32% to 39%.
In January 2007, the Company acquired 90,526 thousand shares in Xintec, representing 43% of its total common shares, for NT$1,357,890 thousand.
In August 2007, the Company acquired 169,600 thousand shares in VIS for NT$4,927,865 thousand; after the acquisition, the Company’s percentage of ownership in VIS increased from 27% to 36%.
For the nine months ended September 30, 2007 and 2006, net equity in earnings of NT$3,931,127 thousand and NT$4,696,522 thousand was recognized, respectively. The carrying amounts of the investments accounted for using the equity method and the related equity in earnings or losses of equity method investees were determined based on the reviewed financial statements of the investees for the same periods as the Company.
11. FINANCIAL ASSETS CARRIED AT COST
                 
    September 30  
    2007     2006  
Non-publicly traded stocks
  $ 364,913     $ 422,500  
Funds
    382,293       346,911  
 
           
 
               
 
  $ 747,206     $ 769,411  
 
           
12. PROPERTY, PLANT AND EQUIPMENT
                                         
    Nine Months Ended September 30, 2007  
                            Advance        
                            Payments and        
            Machinery and     Office     Construction in        
    Buildings     Equipment     Equipment     Progress     Total  
Cost
                                       
Balance, beginning of period
  $ 96,961,851     $ 527,850,728     $ 8,659,225     $ 12,230,805     $ 645,702,609  
Addition
    3,899,788       49,970,603       612,079       8,203,111       62,685,581  
Deduction
    (31,835 )     (332,641 )     (164,684 )           (529,160 )
Reclassification
    2,824       521,015       (11,203 )     506,368       1,019,004  
 
                             
Balance, end of period
    100,832,628       578,009,705       9,095,417       20,940,284       708,878,034  
 
                             
Accumulated depreciation
                                       
Balance, beginning of period
    49,595,917       361,401,800       6,469,533             417,467,250  
Addition
    5,879,548       45,786,652       734,081             52,400,281  
Deduction
    (30,958 )     (316,480 )     (164,527 )           (511,965 )
Reclassification
    1,036       520,161       (2,365 )           518,832  
 
                             
Balance, end of period
    55,445,543       407,392,133       7,036,722             469,874,398  
 
                             
 
                                       
Balance, end of period, net
  $ 45,387,085     $ 170,617,572     $ 2,058,695     $ 20,940,284     $ 239,003,636  
 
                             

-19-


 

                                         
    Nine Months Ended September 30, 2006  
                            Advance        
                            Payments and        
            Machinery and     Office     Construction in        
    Buildings     Equipment     Equipment     Progress     Total  
Cost
                                       
Balance, beginning of period
  $ 90,769,622     $ 459,850,773     $ 7,850,035     $ 14,867,032     $ 573,337,462  
Addition
    5,751,950       53,627,240       804,264       6,202,737       66,386,191  
Deduction
    (941,642 )     (4,235,410 )     (169,313 )           (5,346,365 )
Reclassification
    (3,593 )     (266,793 )     (41,174 )           (311,560 )
 
                             
Balance, end of period
    95,576,337       508,975,810       8,443,812       21,069,769       634,065,728  
 
                             
Accumulated depreciation
                                       
Balance, beginning of period
    42,902,526       310,626,317       5,662,986             359,191,829  
Addition
    5,504,100       40,755,310       746,943             47,006,353  
Deduction
    (725,584 )     (3,931,539 )     (169,184 )           (4,826,307 )
Reclassification
    (177 )     (265,921 )     (7,041 )           (273,139 )
 
                             
Balance, end of period
    47,680,865       347,184,167       6,233,704             401,098,736  
 
                             
 
                                       
Balance, end of period, net
  $ 47,895,472     $ 161,791,643     $ 2,210,108     $ 21,069,769     $ 232,966,992  
 
                             
No interest was capitalized during the nine months ended September 30, 2007 and 2006.
13. DEFERRED CHARGES, NET
                                 
    Nine Months Ended September 30, 2007  
            Software and              
    Technology     System Design              
    License Fees     Costs     Others     Total  
Balance, beginning of period
  $ 4,038,551     $ 1,517,575     $ 36,942     $ 5,593,068  
Addition
    825,075       789,738       413,393       2,028,206  
Amortization
    (1,250,158 )     (631,054 )     (73,357 )     (1,954,569 )
Deduction
          (51 )           (51 )
Reclassification
    (296,451 )     (500,172 )     296,451       (500,172 )
 
                       
 
                               
Balance, end of period
  $ 3,317,017     $ 1,176,036     $ 673,429     $ 5,166,482  
 
                       
                                 
    Nine Months Ended September 30, 2006  
    Technology     Software and              
    License     System Design              
    Fees     Costs     Others     Total  
Balance, beginning of period
  $ 4,985,806     $ 1,623,276     $ 72,062     $ 6,681,144  
Addition
    373,054       382,928             755,982  
Amortization
    (985,343 )     (786,171 )     (26,974 )     (1,798,488 )
Reclassification
          1,138             1,138  
 
                       
 
                               
Balance, end of period
  $ 4,373,517     $ 1,221,171     $ 45,088     $ 5,639,776  
 
                       

-20-


 

14. BONDS PAYABLE
                 
    September 30  
    2007     2006  
Domestic unsecured bonds:
               
Issued in December 2000 and repayable in December 2007, 5.36% interest payable annually
  $ 4,500,000     $ 4,500,000  
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
    12,500,000       15,000,000  
 
           
 
    17,000,000       19,500,000  
Current portion
    (4,500,000 )     (2,500,000 )
 
           
 
               
 
  $ 12,500,000     $ 17,000,000  
 
           
As of September 30, 2007, future principal repayments for the bonds payable were as follows:
         
Year of Repayment   Amount
2007 (4th quarter)
  $ 4,500,000  
2009
    8,000,000  
2012
    4,500,000  
 
     
 
       
 
  $ 17,000,000  
 
     
15. OTHER LONG-TERM PAYABLES
Most of the payables resulted from license agreements for certain semiconductor-related patents. As of September 30, 2007, future payments for other long-term payables were as follows:
         
Year of Payment   Amount  
2007 (4th quarter)
  $ 459,496  
2008
    1,029,364  
2009
    422,711  
2010
    337,777  
2011
    261,336  
 
     
 
    2,510,684  
Current portion (classified under accrued expenses and other current liabilities)
    (1,488,860 )
 
     
 
       
 
  $ 1,021,824  
 
     
16. PENSION PLANS
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’

-21-


 

pension accounts starting from July 1, 2005, and recognized pension costs of NT$458,523 thousand and NT$468,808 thousand for the nine months ended September 30, 2007 and 2006, respectively.
The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s service years 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 Bank of Taiwan (originally the Central Trust of China, which was dissolved after merger with Bank of Taiwan on July 1, 2007). The Company recognized pension costs of NT$243,466 thousand and NT$229,046 thousand for the nine months ended September 30, 2007 and 2006, respectively.
Movements of the Fund and accrued pension cost under the defined benefit plan were as follows:
                 
    Nine Months Ended  
    September 30  
    2007     2006  
The Fund
               
Balance, beginning of period
  $ 1,913,002     $ 1,658,864  
Contributions
    154,573       183,810  
Interest
    46,279       34,383  
Payments
          (7,407 )
 
           
 
               
Balance, end of period
  $ 2,113,854     $ 1,869,650  
 
           
 
               
Accrued pension cost
               
Balance, beginning of period
  $ 3,530,116     $ 3,461,392  
Accruals
    91,679       41,083  
 
           
 
               
Balance, end of period
  $ 3,621,795     $ 3,502,475  
 
           
17. INCOME TAX
  a.   A reconciliation of income tax expense based on “income before income tax” at statutory rate and income tax currently payable was as follows:
                 
    Nine Months Ended  
    September 30  
    2007     2006  
Income tax expense based on “income before income tax” at statutory rate (25%)
  $ 20,422,097     $ 26,373,882  
Tax effect of the following:
               
Tax-exempt income
    (5,167,274 )     (8,871,751 )
Temporary and permanent differences
    (380,451 )     (1,347,129 )
Additional tax at 10% on unappropriated earnings
    2,686,561       1,156,130  
Cumulative effect of changes in accounting principles
          (82,062 )
Income tax credits used
    (10,279,817 )     (10,799,894 )
 
           
 
               
Income tax currently payable
  $ 7,281,116     $ 6,429,176  
 
           

-22-


 

  b.   Income tax expense consisted of the following:
                 
    Nine Months Ended  
    September 30  
    2007     2006  
Income tax currently payable
  $ 7,281,116     $ 6,429,176  
Other income tax adjustments
    (372,597 )     (377,625 )
Net change in deferred income tax assets
               
Investment tax credits
    2,745,686       4,483,230  
Temporary differences
    (1,275,433 )     (1,822,230 )
Valuation allowance
    (1,382,702 )     (2,561,248 )
 
           
 
               
Income tax expense
  $ 6,996,070     $ 6,151,303  
 
           
  c.   Net deferred income tax assets consisted of the following:
                 
    September 30  
    2007     2006  
Current deferred income tax assets
               
Investment tax credits
  $ 3,068,708     $ 2,683,412  
 
           
 
               
Noncurrent deferred income tax assets
               
Investment tax credits
  $ 14,142,498     $ 16,699,129  
Temporary differences
    2,115,897       1,139,960  
Valuation allowance
    (5,821,527 )     (6,849,298 )
 
           
 
               
 
  $ 10,436,868     $ 10,989,791  
 
           
  d.   Integrated income tax information:
The balance of the imputation credit account as of September 30, 2007 and 2006 was NT$2,784,514 thousand and NT$746,437 thousand, respectively.
The creditable ratio for distribution of earnings of 2006 and 2005 was 5.23% (estimate) and 2.88%, respectively.
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 earnings generated prior to December 31, 1997 have been appropriated.

-23-


 

  f.   As of September 30, 2007, investment tax credits consisted of the following:
                                 
            Total     Remaining        
            Creditable     Creditable     Expiry  
Law/Statute   Item     Amount     Amount     Year  
Statute for Upgrading
  Purchase of machinery and equipment   $ 238,012     $       2007  
Industries
        3,177,526             2008  
 
            6,029,482       3,003,151       2009  
 
            6,463,688       6,463,688       2010  
 
            3,032,860       3,032,860       2011  
 
                           
 
                               
 
          $ 18,941,568     $ 12,499,699          
 
                           
 
                               
Statute for Upgrading
  Research and development expenditures   $ 1,245,142     $       2007  
Industries
        2,560,454             2008  
 
            1,486,845       1,486,845       2009  
 
            1,781,376       1,781,376       2010  
 
            1,276,100       1,276,100       2011  
 
                           
 
                               
 
          $ 8,349,917     $ 4,544,321          
 
                           
 
                               
Statute for Upgrading
  Personnel training expenditures   $ 16,197     $       2007  
Industries
            16,155             2008  
 
            46,130       46,130       2009  
 
            41,252       41,252       2010  
 
                           
 
                               
 
          $ 119,734     $ 87,382          
 
                           
 
                               
Statute for Upgrading
  Investments in important technology-based enterprises   $ 79,804     $ 79,804       2010  
 
                           
Industries
                         
  g.   The profits generated from the following projects are exempt from income tax for a four-year or five-year period:
     
    Tax-Exemption Period
Construction of Fab 12 — Module A
  2004 to 2007
Construction of Fab 14 — Module A
  2006 to 2010
  h.   The tax authorities have examined income tax returns of the Company through 2004.

-24-


 

18. LABOR COST, DEPRECIATION AND AMORTIZATION
                         
    Nine Months Ended September 30, 2007  
            Classified as        
    Classified as     Operating        
    Cost of Sales     Expenses     Total  
Labor cost
                       
Salary
  $ 6,634,163     $ 3,282,577     $ 9,916,740  
Labor and health insurance
    445,387       244,836       690,223  
Pension
    452,851       249,138       701,989  
Meal
    323,299       123,426       446,725  
Welfare
    159,946       96,478       256,424  
Others
    116,956       8,591       125,547  
 
                 
 
                       
 
  $ 8,132,602     $ 4,005,046     $ 12,137,648  
 
                 
 
                       
Depreciation
  $ 49,558,115     $ 2,812,106     $ 52,370,221  
 
                 
Amortization
  $ 1,353,135     $ 600,537     $ 1,953,672  
 
                 
                         
    Nine Months Ended September 30, 2006  
            Classified as        
    Classified as     Operating        
    Cost of Sales     Expenses     Total  
Labor cost
                       
Salary
  $ 7,383,078     $ 3,140,749     $ 10,523,827  
Labor and health insurance
    514,883       262,833       777,716  
Pension
    462,022       235,806       697,828  
Meal
    335,397       117,518       452,915  
Welfare
    141,602       76,398       218,000  
Others
    167,104       17,644       184,748  
 
                 
 
                       
 
  $ 9,004,086     $ 3,850,948     $ 12,855,034  
 
                 
 
                       
Depreciation
  $ 44,547,208     $ 2,454,035     $ 47,001,243  
 
                 
Amortization
  $ 1,075,802     $ 711,017     $ 1,786,819  
 
                 
19. SHAREHOLDERS’ EQUITY
As of September 30, 2007, 1,134,382 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,671,912 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.

-25-


 

Capital surplus consisted of the following:
                 
    September 30  
    2007     2006  
From merger
  $ 24,003,546     $ 24,003,546  
Additional paid-in capital
    19,500,470       19,860,644  
From convertible bonds
    9,360,424       9,360,424  
From treasury stock transactions
    490,950       389,188  
From long-term investments
    357,720       243,810  
Donations
    55       55  
 
           
 
               
 
  $ 53,713,165     $ 53,857,667  
 
           
The Company’s Articles of Incorporation 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:
  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;
 
  b.   Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge;
 
  c.   Bonus to directors 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. The Company may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;
 
  d.   Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.
The Company’s Articles of Incorporation also 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 in the financial statements of that year.
The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.
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 instruments, 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.

-26-


 

The appropriations of earnings for 2006 and 2005 had been approved in the shareholders’ meetings held on May 7, 2007 and May 16, 2006, respectively. The appropriations and dividends per share were as follows:
                                 
                    Dividends Per Share  
    Appropriation of Earnings     (NT$)  
    For Fiscal     For Fiscal     For Fiscal     For Fiscal  
    Year 2006     Year 2005     Year 2006     Year 2005  
Legal capital reserve
  $ 12,700,973     $ 9,357,503                  
Special capital reserve
    (11,192 )     (1,585,685 )                
Bonus to employees — in cash
    4,572,798       3,432,129                  
Bonus to employees — in stock
    4,572,798       3,432,129                  
Cash dividends to shareholders
    77,489,064       61,825,061     $ 3.00     $ 2.50  
Stock dividends to shareholders
    516,594       3,709,504       0.02       0.15  
Bonus to directors and supervisors
    285,800       257,410                  
 
                           
 
                               
 
  $ 100,126,835     $ 80,428,051                  
 
                           
The shareholders’ meeting held on May 7, 2007 also resolved to distribute stock dividends out of capital surplus in the amount of NT$774,891 thousand.
The amounts of the appropriations of earnings for 2006 and 2005 were consistent with the resolutions of the meetings of the Board of Directors held on February 6, 2007 and February 14, 2006, respectively. If the above bonus to employees, directors and supervisors had been paid entirely in cash and charged to earnings of 2006 and 2005, the basic earnings per share (after income tax) for the years ended December 31, 2006 and 2005 shown in the respective financial statements would have decreased from NT$4.93 to NT$4.56 and NT$3.79 to NT$3.50, respectively. The shares distributed as a bonus to employees represented 1.77% and 1.39% of the Company’s total outstanding common shares as of December 31, 2006 and 2005, respectively.
The information about appropriations of the 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, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998.
20. STOCK-BASED COMPENSATION PLANS
The Company’s Employee Stock Option Plans, consisting of 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.
Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of September 30, 2007.

-27-


 

Information about outstanding options for the nine months ended September 30, 2007 and 2006 was as follows:
                 
            Weighted-
            average
    Number of   Exercise
    Options   Price
    (in Thousands)   (NT$)
Nine months ended September 30, 2007
               
 
Balance, beginning of period
    52,814     $ 37.9  
Options granted
    1,094       37.9  
Options exercised
    (10,086 )     39.8  
Options canceled
    (781 )     45.4  
 
               
 
Balance, end of period
    43,041       37.5  
 
               
 
               
Nine months ended September 30, 2006
               
 
               
Balance, beginning of period
    67,758     $ 39.4  
Options granted
    2,758       40.1  
Options exercised
    (10,701 )     39.5  
Options canceled
    (3,020 )     44.0  
 
               
 
               
Balance, end of period
    56,795       39.6  
 
               
The number of outstanding options and exercise prices have been adjusted to reflect the distribution of dividends in accordance with the plans. The options granted were the result of the aforementioned adjustment.
As of September 30, 2007, information about outstanding and exercisable options was as follows:
                                         
    Options Outstanding   Options Exercisable
            Weighted-   Weighted-           Weighted-
            average   average           average
  Range of   Number of   Remaining   Exercise   Number of   Exercise
   Exercise   Options (in   Contractual   Price   Options (in   Price
 Price (NT$)   Thousands)   Life (Years)   (NT$)   Thousands)   (NT$)
$25.9-$36.4
    29,146       3.41     $ 33.1       29,146     $ 33.1  
$38.9-$51.3
    13,895       5.15       46.6       8,537       46.2  
 
                                       
 
                                       
 
    43,041               37.5       37,683       36.1  
 
                                       

-28-


 

No compensation cost was recognized under the intrinsic value method for the nine months ended September 30, 2007 and 2006. Had the Company used the fair value based method to evaluate the options granted after January 1, 2004 using the Black-Scholes model, the assumptions and pro forma results of the Company would have been as follows:
         
    Nine Months Ended
    September 30
    2007   2006
Assumptions:
       
Expected dividend yield
  1.00%-3.44%   1.00%-3.44%
Expected volatility
  43.77%-46.15%   43.77%-46.15%
Risk free interest rate
  3.07%-3.85%   3.07%-3.85%
Expected life
  5 years   5 years
 
       
Net income:
       
Net income as reported
  $74,692,316   $99,098,039
Pro forma net income
  74,655,212   99,010,630
 
       
Earnings per share (EPS) — after income tax (NT$):
       
Basic EPS as reported
  $2.83   $3.76
Pro forma basic EPS
  2.83   3.75
Diluted EPS as reported
  2.83   3.75
Pro forma diluted EPS
  2.83   3.75
21. TREASURY STOCK
                                 
                    (Shares in Thousands)
    Beginning   Stock           Ending
    Shares   Dividends   Disposal   Shares
Nine months ended September 30, 2007
                               
 
                               
Parent company stock held by subsidiaries
    33,926       170             34,096  
 
                               
 
Nine months ended September 30, 2006
                               
 
                               
Parent company stock held by subsidiaries
    32,938       988             33,926  
 
                               
As of September 30, 2007 and 2006, the book value of the treasury stock was NT$918,075 thousand each; the market value was NT$2,158,271 thousand and NT$2,025,401 thousand, respectively. The Company’s common shares held by subsidiaries were treated as treasury stock and the holders are entitled to the rights of shareholders, with the exception of voting rights.

-29-


 

22. EARNINGS PER SHARE
                                 
    Nine Months Ended September 30  
    2007     2006  
    Before     After     Before     After  
    Income     Income     Income     Income  
    Tax     Tax     Tax     Tax  
Basic EPS (NT$)
                               
Income before cumulative effect of changes in accounting principles
  $ 3.10     $ 2.83     $ 4.00     $ 3.77  
Cumulative effect of changes in accounting principles
                (0.01 )     (0.01 )
 
                       
 
                               
Income for the period
  $ 3.10     $ 2.83     $ 3.99     $ 3.76  
 
                       
 
Diluted EPS (NT$)
                               
Income before cumulative effect of changes in accounting principles
  $ 3.09     $ 2.83     $ 3.99     $ 3.76  
Cumulative effect of changes in accounting principles
                (0.01 )     (0.01 )
 
                       
 
                               
Income for the period
  $ 3.09     $ 2.83     $ 3.98     $ 3.75  
 
                       
EPS is computed as follows:
                                         
                    Number of     EPS (NT$)  
    Amounts (Numerator)     Shares     Before     After  
    Before     After     (Denominator)     Income     Income  
    Income Tax     Income Tax     (in Thousands)     Tax     Tax  
Nine months ended September 30, 2007
                                       
 
                                       
Basic EPS
                                       
Income available to shareholders
  $ 81,688,386     $ 74,692,316       26,387,270     $ 3.10     $ 2.83  
 
                                   
Effect of dilutive potential common shares - stock options
                22,882                  
 
                                 
 
                                       
Diluted EPS
                                       
Income available to shareholders (including effect of dilutive potential common shares)
  $ 81,688,386     $ 74,692,316       26,410,152     $ 3.09     $ 2.83  
 
                             
 
                                       
Nine months ended September 30, 2006
                                       
 
                                       
Basic EPS
                                       
Income available to shareholders
  $ 105,167,280     $ 99,098,039       26,372,979     $ 3.99     $ 3.76  
 
                                   
Effect of dilutive potential common shares - stock options
                22,289                  
 
                                 
 
                                       
Diluted EPS
                                       
Income available to shareholders (including effect of dilutive potential common shares)
  $ 105,167,280     $ 99,098,039       26,395,268     $ 3.98     $ 3.75  
 
                             

-30-


 

23. DISCLOSURES FOR FINANCIAL INSTRUMENTS
a.   Fair values of financial instruments were as follows:
                                 
    September 30
    2007   2006
    Carrying           Carrying    
    Amount   Fair Value   Amount   Fair Value
Assets
                               
 
                               
Financial assets at fair value through profit or loss
  $ 366,445     $ 366,445     $ 45,295     $ 45,295  
Available-for-sale financial assets
    24,080,804       24,080,804       40,643,264       40,643,264  
Held-to-maturity financial assets
    28,335,644       28,218,688       36,967,859       36,799,837  
Investments accounted for using equity method (with market price)
    11,511,085       29,157,704       5,359,803       9,375,950  
 
                               
Liabilities
                               
 
                               
Financial liabilities at fair value through profit or loss
    130,828       130,828       458,808       458,808  
Bonds payable (including current portion)
    17,000,000       17,202,682       19,500,000       19,851,716  
Other long-term payables (including current portion)
    2,510,684       2,510,684       3,371,863       3,371,863  
b.   Methods and assumptions used in estimating 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 due to their short maturities.
 
  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.
 
  3)   Fair values of available-for-sale and held-to-maturity financial assets were based on their quoted market prices, except for structured time deposits of which the fair values were estimated using valuation techniques.
 
  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.   The changes in fair value during the nine months ended September 30, 2007 and 2006 of derivatives estimated using valuation techniques were recognized as gains of NT$201,767 thousand and losses of NT$413,514 thousand, respectively.
d.   As of September 30, 2007 and 2006, financial assets exposed to fair value interest rate risk were NT$52,782,893 thousand and NT$77,656,418 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$130,828 thousand and NT$458,808 thousand, respectively, and financial assets exposed to cash flow interest rate risk were NT$5,226,720 thousand and NT$7,281,560 thousand, respectively.

-31-


 

e.   Movements of the unrealized gain on financial instruments for the nine months ended September 30, 2007 and 2006 were as follows:
                         
    Nine Months Ended September 30, 2007  
            Equity in        
    Valuation     Valuation        
    Gain     Gain on        
    on Available-     Available-for-        
    for-sale     sale Financial        
    Financial     Assets Held by        
    Assets     Investees     Total  
Balance, beginning of period
  $ 242,248     $ 319,367     $ 561,615  
Recognized directly in shareholders’ equity
    224,877       1,899       226,776  
Removed from shareholders’ equity and recognized in earnings
    (260,367 )           (260,367 )
 
                 
 
                       
Balance, end of period
  $ 206,758     $ 321,266     $ 528,024  
 
                 
                         
    Nine Months Ended September 30, 2006  
            Equity in        
    Valuation     Valuation        
    Gain     Gain on        
    on Available-     Available-for-        
    for-sale     sale Financial        
    Financial     Assets Held by        
    Assets     Investees     Total  
Balance, beginning of period
  $     $     $  
Recognized directly in shareholders’ equity
    149,691       341,243       490,934  
Removed from shareholders’ equity and recognized in losses
    11,258             11,258  
 
                 
Balance, end of period
  $ 160,949     $ 341,243     $ 502,192  
 
                 
f.   Information about financial risks
  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 assets and liabilities; therefore, the market risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets held by the Company are mainly fixed-interest-rate debt securities; therefore, the fluctuations in market interest rates will 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)   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.

-32-


 

  4)   Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates.
24. RELATED PARTY TRANSACTIONS
The Company engages in business transactions with the following related parties:
  a.   Philips, a major shareholder of the Company, which became a non-related party since March 2007.
 
  b.   Subsidiaries
 
      TSMC-North America
TSMC-Europe
TSMC-Japan
TSMC-Shanghai
TSMC-Korea
  c.   Investees
 
      GUC (with a controlling interest)
VIS (accounted for using equity method)
SSMC (accounted for using equity method)
 
  d.   Indirect subsidiaries
 
      WaferTech, LLC (WaferTech)
TSMC Technology, Inc. (TSMC Technology)
TSMC Design Technology Canada, Inc. (TSMC Canada)
  e.   Indirect investee
 
      VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method
 
  f.   Others
 
      Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions.
Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:
                                 
    2007     2006  
    Amount     %     Amount     %  
Nine months ended September 30
                               
 
                               
Sales
                               
TSMC-North America
  $ 134,957,821       60     $ 144,616,913       59  
Philips
                3,225,151       1  
Others
    783,463             583,671        
 
                       
 
                               
 
  $ 135,741,284       60     $ 148,425,735       60  
 
                       

-33-


 

                                 
    2007     2006  
    Amount     %     Amount     %  
Purchases
                               
WaferTech
  $ 7,419,547       21     $ 9,695,565       27  
SSMC
    3,971,517       11       5,555,044       16  
TSMC-Shanghai
    3,947,089       11       3,099,850       9  
VIS
    2,956,489       8       2,818,795       8  
Others
    990                    
 
                       
 
                               
 
  $ 18,295,632       51     $ 21,169,254       60  
 
                       
 
                               
Manufacturing expenses
                               
VisEra
  $ 28,496           $        
Philips
                566,928       1  
 
                       
 
                               
 
  $ 28,496           $ 566,928       1  
 
                       
 
                               
Marketing expenses — commissions
                               
TSMC-Europe
  $ 216,545       24     $ 184,306       14  
TSMC-Japan
    166,971       18       204,592       15  
TSMC-Korea
    16,251       2       5,903        
 
                       
 
                               
 
  $ 399,767       44     $ 394,801       29  
 
                       
 
                               
General and administrative expenses — rental
                               
GUC
  $ 6,451           $ 11,133        
 
                       
 
                               
Research and development expenses
                               
TSMC Technology (primarily consulting fees)
  $ 264,868       2     $        
TSMC Canada (primarily consulting fees)
    56,623       1              
GUC
    49,519       1       37,142        
Others
    36,828                    
 
                       
 
                               
 
  $ 407,838       4     $ 37,142        
 
                       
 
                               
Sales of property, plant and equipment
                               
TSMC-Shanghai
  $ 2,378       11     $ 401,332       48  
 
                       
 
                               
Non-operating income and gains VIS (primarily technical service income, see Note 26h)
  $ 270,794       3     $ 176,084       2  
VisEra (primarily rental income)
    254,125       3       187,189       2  
TSMC-Shanghai (primarily technical service income)
    251,421       3       197,400       2  
SSMC (primarily technical service income, see Note 26e)
    180,692       2       268,298       3  
 
                       
 
                               
 
  $ 957,032       11     $ 828,971       9  
 
                       

-34-


 

                                 
    2007     2006  
    Amount     %     Amount     %  
As of September 30
                               
 
Receivables
                               
TSMC-North America
  $ 23,713,567       100     $ 21,680,057       98  
Philips
                224,516       1  
Others
    119,784             125,847       1  
 
                       
 
                               
 
  $ 23,833,351       100     $ 22,030,420       100  
 
                       
 
                               
Other receivables
                               
VIS
  $ 126,319       25     $ 88,717       9  
VisEra
    98,418       19              
TSMC-North America
    91,029       18       228,451       22  
SSMC
    88,372       18       142,521       14  
TSMC-Shanghai
    81,808       16       482,542       46  
Others
    19,968       4       99,992       9  
 
                       
 
                               
 
  $ 505,914       100     $ 1,042,223       100  
 
                       
 
                               
Payables
                               
VIS
  $ 904,635       27     $ 806,789       21  
WaferTech
    779,480       24       1,045,183       27  
TSMC-Shanghai
    733,801       22       545,706       14  
SSMC
    639,524       19       636,181       16  
TSMC Technology
    136,607       4       5,099        
Philips
                699,195       18  
Others
    114,595       4       156,335       4  
 
                       
 
                               
 
  $ 3,308,642       100     $ 3,894,488       100  
 
                       
 
                               
Other long-term payables
                               
Philips (Note 26a)
  $           $ 409,588       100  
 
                       
 
                               
Deferred credits
                               
TSMC-Shanghai
  $ 563,839       56     $ 776,935       61  
VisEra
    77,718       8       139,893       11  
 
                       
 
                               
 
  $ 641,557       64     $ 916,828       72  
 
                       
The terms of sales to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices were determined in accordance with mutual 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 non-operating income and gains) over the depreciable lives of the disposed assets.
The Company leased part of its office space from GUC and also leased certain buildings and facilities to VisEra. The related rental expense and rental income were classified under non-operating expenses and income, respectively. The lease terms and prices were determined in accordance with mutual agreements.

-35-


 

25.   SIGNIFICANT LONG-TERM LEASES
 
    The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2007 to December 2026 and can be renewed upon expiration.
 
    As of September 30, 2007, future lease payments were as follows:
         
Year   Amount  
2007 (4th quarter)
  $ 85,359  
2008
    301,926  
2009
    292,960  
2010
    243,762  
2011
    242,180  
2012 and thereafter
    1,820,594  
 
     
 
       
 
  $ 2,986,781  
 
     
26.   SIGNIFICANT COMMITMENTS AND CONTINGENCIES
 
    The significant commitments and contingencies of the Company as of September 30, 2007, except those disclosed in other notes, were as follows:
  a.   On June 20, 2004, the Company and Philips (Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006) 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 (now NXP B.V.) will survive the expiration of the amended Technical Cooperation Agreement. Under this amended Technical Cooperation Agreement, the Company will pay Philips (now NXP B.V.) royalties based on a fixed amount mutually agreed-on, rather than under a certain percentage of the Company’s annual net sales. The Company and Philips (now NXP B.V.) agreed to cross license the patents owned by each party. The Company also obtained through Philips (now NXP B.V.) a number of cross patent licenses.
 
  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.
 
  c.   Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of September 30, 2007, the Company had a total of US$76,933 thousand of guarantee deposits.

-36-


 

  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 in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. 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, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. The Company and Philips (now NXP B.V.) committed to buy specific percentages of the production capacity of SSMC. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase up to 70% of SSMC’s capacity, but the Company 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 falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.
 
  e.   The Company provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. The Company receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions.
 
  f.   Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be 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 intellectual properties arising out of the co-development project shall be jointly owned by the parties. In accordance with the agreement, the Company will pay royalties to Freescale Semiconductor, Inc. and will share a portion of the costs associated with the joint development project.
 
  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 technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for the Company certain products at prices as agreed by the parties.
 
  i.   TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referring to as “SMIC”). The lawsuits alleged that SMIC infringed multiple TSMC, TSMC-North America and WaferTech patents and misappropriated TSMC, TSMC-North America and WaferTech’s trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, Semiconductor Manufacturing International Corporation shall pay US$175 million over six years to resolve TSMC, TSMC-North America and WaferTech’s claims. As of September 30, 2007, SMIC had paid US$75 million 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 breach of aforementioned settlement agreement, breach of promissory notes and trade secret misappropriation, seeking injunctive relief and monetary damages. In

-37-


 

      September 2006, SMIC filed a cross-complaint against TSMC, TSMC-North Amercia and WaferTech in the same court, alleging TSMC, TSMC-North America and WaferTech of breach of the settlement agreement and implied covenant of good faith and fair dealing, in response to TSMC, TSMC-North America and WaferTech’s August complaint. In November 2006, SMIC filed a complaint with Beijing People’s High Court against TSMC, TSMC-North America and WaferTech, alleging defamation and breach of good faith. The California State Superior Court of Alameda County issued an Order on TSMC, TSMC-North America and WaferTech’s pre-trial motion for a preliminary injunction against SMIC on September 7, 2007. In the Order, the Court found “TSMC has demonstrated a significant likelihood that it will ultimately prevail on the merits of its claim for breach of certain paragraphs of the (2005) Settlement Agreement” with SMIC. The Court also found “TSMC has demonstrated a significant probability of establishing that SMIC retains and is using TSMC Information in SMIC’s 0.13um and smaller technologies, and there is significant threat of serious irreparable harm to TSMC if SMIC were to disclose or transfer that information before final resolution of the case.” Therefore, the Court ordered that, effective immediately, SMIC must provide advance notice and an opportunity for TSMC, TSMC-North America and WaferTech to object before disclosing items enumerated in the Court Order to SMIC’s third party partners. The Court, however, did not grant a preliminary injunction as requested by TSMC, TSMC-North America and WaferTech. The result of the above-mentioned litigation cannot be determined at this time.
 
  j.   In April 2004, UniRAM Technology, Inc. filed an action with the US District Court in the Northern District of California against TSMC and TSMC North America, alleging patent infringement and trade secret misappropriation and seeking injunctive relief and damages. A jury in the District Court made a verdict in September 2007, awarding US$30.5 million to the plaintiff. TSMC intends to pursue remedies against this verdict.
 
  k.   Amounts available under unused letters of credit as of September 30, 2007 were NT$6,480 thousand.
27.   ADDITIONAL DISCLOSURES
 
    Following are the additional disclosures required by the SFB for the Company and its investees:
  a.   Financing provided: None;
 
  b.   Endorsement/guarantee provided: None;
 
  c.   Marketable securities held: Please see Table 1 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 2 attached;
 
  e.   Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached;
 
  f.   Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;
 
  g.   Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;
 
  h.   Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;
 
  i.   Names, locations, and related information of investees on which the Company exercises significant

-38-


 

      influence: Please see Table 6 attached;
 
  j.   Information about derivatives of investees over which the Company has a controlling interest:
 
      TSMC-Shanghai entered into forward exchange contracts during the nine months ended September 30, 2007 to manage exposures due to foreign exchange rate fluctuations.
 
      Outstanding forward exchange contracts as of September 30, 2007:
                 
            Contract
            Amount
    Maturity Date   (in Thousands)
Sell US$/buy JPY
  October 2007   JPY 12,000
      For the nine months ended September 30, 2007, net gains arising from forward exchange contracts of TSMC-Shanghai were NT$1,572 thousand (including realized settlement gains of NT$1,458 thousand and valuation gains of NT$114 thousand).
 
      Xintec entered into forward exchange contracts during the nine months ended September 30, 2007 to manage exposures due to foreign exchange rate fluctuations.
 
      Outstanding forward exchange contracts as of September 30, 2007:
                 
            Contract
            Amount
    Maturity Date   (in Thousands)
Sell US$/buy NT$
  October 2007   US$ 2,000  
      For the nine months ended September 30, 2007, net losses arising from forward exchange contracts of Xintec were NT$1,064 thousand (including realized settlement losses of NT$1,820 thousand and valuation gains of NT$756 thousand).
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 7 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 24.

-39-


 

TABLE 1
Taiwan Semiconductor Manufacturing Company Limited and Investees
MARKETABLE SECURITIES HELD
SEPTEMBER 30, 2007
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)
                                                                 
                            September 30, 2007    
                                                    Market Value or        
                            Shares/Units   Carrying Value   Percentage of   Net Asset Value        
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
The Company  
Open-end mutual funds
                                                       
       
NITC Bond Fund
        Available-for-sale financial assets     12,239     $ 2,037,514       N/A     $ 2,037,514          
 
       
Fuh Hwa Bond
                144,073       1,943,446       N/A       1,943,446          
       
 
                                                       
       
NITC Taiwan Bond
                103,016       1,468,675       N/A       1,468,675          
       
 
                                                       
       
ING Taiwan Bond Fund
                85,581       1,304,561       N/A       1,304,561          
       
 
                                                       
       
Prudential Financial Bond Fund
                83,306       1,231,721       N/A       1,231,721          
       
 
                                                       
       
President James Bond
                77,128       1,203,732       N/A       1,203,732          
       
 
                                                       
       
ING Taiwan Income Fund
                63,947       1,024,476       N/A       1,024,476          
       
 
                                                       
       
JF Taiwan Bond Fund
                59,049       911,461       N/A       911,461          
       
 
                                                       
       
Dresdner Bond DAM Fund
                71,368       836,828       N/A       836,828          
       
 
                                                       
       
Taishin Lucky Fund
                68,945       715,509       N/A       715,509          
       
 
                                                       
       
AIG Taiwan Bond Fund
                54,469       702,353       N/A       702,353          
       
 
                                                       
       
Cathay Bond
                60,126       701,010       N/A       701,010          
       
 
                                                       
       
JF Taiwan First Bond Fund
                35,324       502,101       N/A       502,101          
       
 
                                                       
       
HSBC Taiwan Money Management
                27,416       411,812       N/A       411,812          
       
 
                                                       
       
INVESCO Bond Fund
                27,176       408,423       N/A       408,423          
       
 
                                                       
       
Government bond
                                                       
       
2003 Government Bond Series B
        Available-for-sale financial assets           2,346,950       N/A       2,346,950          
 
       
2004 Government Bond Series B
                      1,194,550       N/A       1,194,550          
       
 
                                                       
       
2006 Government Bond Series D
                      399,200       N/A       399,200          
       
 
                                                       
       
2004 Government Bond Series G
                      198,854       N/A       198,854          
       
 
                                                       
       
2006 Government Bond Series D
        Held-to-maturity financial assets           3,653,229       N/A       3,642,704          
 
       
2003 Government Bond Series B
                      1,647,923       N/A       1,645,861          
       
 
                                                       
       
2003 Asian Development Bank Govt. Bond
                      850,276       N/A       875,103          
       
 
                                                       
       
2003 Government Bond Series F
                      798,605       N/A       795,194          
       
 
                                                       
       
2003 Government Bond Series H
                      400,927       N/A       399,782          
       
 
                                                       
       
European Investment Bank Bonds
                      377,938       N/A       400,000          
       
 
                                                       
       
2004 Kaohsiung Municipal Series B
                      249,998       N/A       250,004          
       
 
                                                       
       
2003European Bank for Reconstruction and Development Govt. Bond Series A
                      89,522       N/A       90,000          
       
 
                                                       
       
Corporate bond
                                                       

-40-


 

                                                                 
                            September 30, 2007    
                                                    Market Value or        
                            Shares/Units   Carrying Value   Percentage of   Net Asset Value        
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
       
Hua Nan Bank
        Available-for-sale financial assets           1,566,347       N/A       1,566,347          
 
       
Cathay Bank
                      1,175,130       N/A       1,175,130          
       
 
                                                       
 
       
Taiwan Power Company
                      898,630       N/A       898,630          
       
 
                                                       
       
Formosa Petrochemical Corporation
                      398,934       N/A       398,934          
       
 
                                                       
       
Formosa Petrochemical Corporation
        Held-to-maturity financial assets           3,577,937       N/A       3,542,148          
       
Taiwan Power Company
                      3,078,978       N/A       3,078,790          
       
 
                                                       
       
Nan Ya Plastics Corporation
                      2,003,029       N/A       1,994,730          
       
 
                                                       
       
CPC Corporation, Taiwan
                      1,200,368       N/A       1,199,372          
(Continued)

-41-


 

                                                         
                    September 30, 2007    
                                            Market Value or    
                    Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  China Steel Corporation     Held-to-maturity financial assets         $ 1,000,000       N/A     $ 986,583          
 
  Formosa Plastic Corporation                   389,056       N/A       388,927          
 
                                                       
 
  Shanghai commercial & Saving Bank                   291,138       N/A       291,067          
 
                                                       
 
  Stocks                                                    
 
  TSMC Global   Subsidiary   Investment accounted for using equity method     1       44,234,333       100       44,234,333          
 
                                                       
 
  TSMC International   Subsidiary           987,968       27,553,919       100       27,553,919          
 
                                                       
 
  SSMC   Investee accounted for using equity method           463       8,674,862       39       7,656,468          
 
                                                       
 
  VIS   Investee accounted for using equity method           616,240       10,760,885       36       18,025,034          
 
                                                       
 
  TSMC Partners   Subsidiary           300       4,667,437       100       4,667,437          
 
                                                       
 
  TSMC-North America   Subsidiary           11,000       2,227,896       100       2,227,896          
 
                                                       
 
  Xintec   Investee with a controlling financial interest           91,703       1,429,804       43       1,339,493          
 
                                                       
 
  GUC   Investee with a controlling financial interest           42,572       750,200       37       11,132,670          
 
                                                       
 
  TSMC-Japan   Subsidiary           6       102,257       100       102,257          
 
                                                       
 
  TSMC-Europe   Subsidiary                 74,994       100       74,994          
 
                                                       
 
  TSMC-Korea   Subsidiary           80       16,014       100       16,014          
 
                                                       
 
  United Industrial Gases Co., Ltd.     Financial assets carried at cost     16,783       193,584       10       282,525          
 
 
  Shin-Etsu Handotai Taiwan Co., Ltd.             10,500       105,000       7       292,174          
 
                                                       
 
  W.K. Technology Fund IV             4,000       40,000       2       56,641          
 
                                                       
 
  Hontung Venture Capital Co., Ltd.             2,633       26,329       10       24,196          
 
                                                       
 
  Fund                                                    
 
  Horizon Ventures Fund     Financial assets carried at cost           312,950       12       312,950          
 
 
  Crimson Asia Capital                   69,344       1       69,344          
 
                                                       
 
  Capital                                                    
 
  TSMC-Shanghai   Subsidiary   Investment accounted for using equity method           8,567,668       100       8,565,232          
 
                                                       
 
  VTAF II   Subsidiary                 1,026,700       98       1,022,244          
 
                                                       
 
  VTAF III   Subsidiary                 786,064       98       777,625          
 
                                                       
 
  Emerging Alliance   Subsidiary                 683,002       99       683,002          
 
                                                       
 
  Chi Cheng   Subsidiary                 170,542       36       629,106     Treasury stock of NT$458,564 thousand is deducted from the carrying value
 
                                                       
 
  Hsin Ruey   Subsidiary                 168,918       36       628,429     Treasury stock of NT$459,511 thousand is deducted from the carrying value
 
                                                       
Chi Cherng
  Stocks                                                    
 
                                                       
 
  TSMC   Parent Company   Available-for-sale financial assets     17,032       1,078,125             1,078,125          
 
                                                       
 
  VIS   Investments accounted for using equity method   Investee accounted for using equity method     5,082       106,841             148,646          
(Continued)

-42-


 

                                                     
                September 30, 2007    
                                        Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
Hsin Ruey
  Stocks                                                
 
  TSMC   Parent Company   Available-for-sale financial assets     17,064     $ 1,080,146           $ 1,080,146          
 
  VIS   Investee accounted for using equity method   Investments accounted for using equity method     3,748       83,524             109,617          
 
                                                   
TSMC International
  Stocks                                                
 
  InveStar   Subsidiary   Investments accounted for using equity method     9,207     US$ 46,802       97     US$ 46,802          
 
                                                   
 
  InveStar II   Subsidiary       51,300     US$ 60,456       97     US$ 60,456          
 
 
  TSMC Development   Subsidiary       1     US$ 668,997       100     US$ 668,997          
 
 
  TSMC Technology   Subsidiary       1     US$ 6,444       100     US$ 6,444          
 
                                                   
TSMC Development
  WaferTech   Subsidiary   Investments accounted for using equity method         US$ 264,777       100     US$ 264,777          
 
                                                   
TSMC Partners
  Common stock                                                
 
  VisEra Holding Company   Investee accounted for using equity method   Investments accounted for using equity method     43,000     US$ 65,629       49     US$ 65,629          
 
                                                   
 
  TSMC Canada   Investee accounted for using equity method       2,300     US$ 2,622       100     US$ 2,622          
 
                                                   
Emerging Alliance
  Common stock                                                
 
  NetLogic Microsystems, Inc.     Financial assets at fair value through profit or loss     18     US$ 650           US$ 650          
 
                                                   
 
  Ikanos Communication, Inc.     Available-for-sale financial assets     280     US$ 1,568       1     US$ 1,568          
 
  Global Investment Holding, Inc.     Financial assets carried at cost     10,800     $ 100,000       6     $ 100,000          
 
  RichWave Technology Corp.         4,247     US$ 1,648       13     US$ 1,648          
 
                                                   
 
  Pixim, Inc.         1,036     US$ 275           US$ 275          
 
 
  SiRF Technology Holdings         93     US$ 1,743       3     US$ 1,743          
 
                                                   
 
  Preferred stock                                                
 
  Pixim, Inc.     Financial assets carried at cost     3,606     US$ 862       2     US$ 862          
 
  Mosaic Systems, Inc.         2,481     US$ 12       6     US$ 12          
 
  Miradia, Inc.         3,040     US$ 1,000       3     US$ 1,000          
 
  Axiom Microdevices, Inc.         1,000     US$ 1,000       1     US$ 1,000          
 
  Optichron, Inc.         714     US$ 1,000       4     US$ 1,000          
 
  NuCORE Technology Inc.         2,254     US$ 1,388       2     US$ 1,388          
 
  Next IO, Inc.         800     US$ 500       2     US$ 500          
 
  Audience, Inc.         1,654     US$ 250       1     US$ 250          
 
  Teknovus, Inc.         6,977     US$ 1,327       3     US$ 1,327          
 
  Optimal Corporation         583     US$ 600       4     US$ 600          
 
  Mobilygen         1,415     US$ 750       1     US$ 750          
 
                                                   
VTAF II
  Common stock                                                
 
  Yobon     Financial assets carried at cost     1,875     US$ 919       13     US$ 919          
 
  Sentelic         1,200     US$ 2,040       15     US$ 2,040          
 
  Leadtrend         1,265     US$ 660       5     US$ 660          
 
  RichWave Technology Corp.         500     US$ 231       2     US$ 231          
(Continued)

- 43 -


 

                                                     
                September 30, 2007    
                                        Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Preferred stock                                                
 
  Powerprecise Solutions, Inc.     Financial assets carried at cost     1,445     US$ 1,400       11     US$ 1,400          
 
  Tzero Technologies, Inc.         730     US$ 1,500       2     US$ 1,500          
 
  Miradia, Inc.         3,416     US$ 3,106       3     US$ 3,106          
 
  Axiom Microdevices, Inc.         5,044     US$ 2,088       4     US$ 2,088          
 
  Next IO, Inc.         216     US$ 182           US$ 182          
 
  Ageia Technologies, Inc.         2,030     US$ 2,074       2     US$ 2,074          
 
  Audience, Inc.         2,988     US$ 664       1     US$ 664          
 
  GemFire Corporation         600     US$ 68       1     US$ 68          
 
  Optichron, Inc.         1,050     US$ 1,844       2     US$ 1,844          
 
  Xceive         714     US$ 1,000       2     US$ 1,000          
 
  5V Technologies, Inc.         2,357     US$ 1,768       11     US$ 1,768          
 
  Power Analog Microelectronics         3,039     US$ 2,409       13     US$ 2,409          
 
  Impinj, Inc.         475     US$ 1,000           US$ 1,000          
 
  Beceem Communications         650     US$ 1,600       1     US$ 1,600          
 
  Teknovus, Inc.         1,599     US$ 454           US$ 454          
 
  Aquantia Corporation         1,786     US$ 2,273       5     US$ 2,273          
 
  Pixim, Inc.         3,279     US$ 641       2     US$ 641          
 
                                                   
VTAF III
  Common stock                                                
 
  Mutual-Pak, Technology Co. LTD     Investment accounted for using equity method     4,090     US$ 1,240       45     US$ 1,240          
 
                                                   
 
  Preferred stock                                                
 
  Quellan, Inc.     Financial assets carried at cost     2,991     US$ 3,498       7     US$ 3,498          
 
  M2000, Inc.         1,500     US$ 1,500       4     US$ 1,500          
 
  Exclara, Inc. (Formerly SynDiTec, Inc.)         14,477     US$ 2,412       19     US$ 2,412          
 
  Validity Sensors, Inc.         5,333     US$ 2,000       7     US$ 2,000          
 
  Silicon Technical Services, LLC.         915     US$ 1,000       2     US$ 1,000          
 
  Neoconix, Inc.         2,458     US$ 4,000       6     US$ 4,000          
 
  Advasense Sensors, Inc.         1,624     US$ 1,500       6     US$ 1,500          
 
  Tilera, Inc.         1,698     US$ 2,360       3     US$ 2,360          
 
  Auramicro, Inc.         2,500     US$ 750       17     US$ 750          
 
                                                   
 
  Convertible bond                                                
 
  GTBF, Inc.     Financial assets carried at cost         US$ 1,500       N/A     US$ 1,500          
 
                                                   
InveStar
  Common stock                                                
 
  Monolithic Power Systems, Inc.     Financial assets at fair value through profit or loss     1,352     US$ 34,337       4     US$ 34,337          
 
  Advanced Power Electronics Corp.     Available-for-sale financial assets     58     US$ 19           US$ 19          

- 44 -


 

                                                     
                September 30, 2007    
                                        Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Capella Microsystems (Taiwan), Inc.     Financial assets carried at cost     530     US$ 154       2     US$ 154          
 
                                                   
 
  Preferred stock                                                
 
  Integrated Memory Logic, Inc.     Financial assets carried at cost     2,872     US$ 1,221       9     US$ 1,221          
 
  IP Unity, Inc.         1,008     US$ 494       1     US$ 494          
 
  Sonics, Inc.         1,843     US$ 3,530       2     US$ 3,530          
 
  NanoAmp Solutions, Inc.         541     US$ 853       2     US$ 853          
 
  Memsic, Inc.         2,727     US$ 1,500       9     US$ 1,500          
(Continued)

- 45 -


 

                                                     
                September 30, 2007    
                                    Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
InveStar II
  Common stock                                                
 
  Monolithic Power Systems, Inc.     Financial assets at fair value through profit or loss     864     US$ 21,958       3     US$ 21,958          
 
                                                   
 
  Geo Vision, Inc.         6     US$ 55           US$ 55          
 
  Rich Tek Technology Corp.         152     US$ 1,819           US$ 1,819          
 
  Geo Vision, Inc.     Available-for-sale financial assets     15     US$ 127           US$ 127          
 
  Rich Tek Technology Corp.         261     US$ 3,133           US$ 3,133          
 
  Ralink Technology (Taiwan), Inc.     Financial assets carried at cost     2,383     US$ 791       3     US$ 791          
 
  Capella Microsystems (Taiwan), Inc.         534     US$ 210       2     US$ 210          
 
  Auden Technology MFG. Co., Ltd.         1,049     US$ 223       4     US$ 223          
 
  EoNEX Technologies, Inc.         55     US$ 3,048       5     US$ 3,048          
 
  Goyatek Technology, Corp.         2,088     US$ 545       7     US$ 545          
 
  Trendchip Technologics Corp.         1,000     US$ 574       4     US$ 574          
 
  EON Technology, Corp.         4,243     US$ 1,175       6     US$ 1,175          
 
  eLCOS Microdisplay Technology, Ltd.         270     US$ 27       1     US$ 27          
 
  Epic Communication, Inc.         191     US$ 37       1     US$ 37          
 
  Sonics, Inc.         2,220     US$ 32       3     US$ 32          
 
                                                   
 
  Preferred stock                                                
 
  Memsic, Inc.     Financial assets carried at cost     2,289     US$ 1,560       7     US$ 1,560          
 
  NanoAmp Solutions, Inc.         375     US$ 1,500       1     US$ 1,500          
 
  Kilopass Technology, Inc.         3,887     US$ 2,000       6     US$ 2,000          
 
  FangTek, Inc.         6,931     US$ 3,250       16     US$ 3,250          
 
  Sonics, Inc.         2,115     US$ 3,082       3     US$ 3,082          
 
  eLCOS Microdisplay Technology, Ltd.         3,500     US$ 3,500       8     US$ 3,500          
 
  Alchip Technologies Limited         6,128     US$ 2,950       15     US$ 2,950          
 
                                                   
 
  Convertible bond                                                
 
  eLCOS Microdisplay Technology, Ltd.     Financial assets carried at cost         US$ 200       N/A     US$ 200          
 
                                                   
TSMC Global
  Agency bonds                                                
 
  Fed Hm Ln Pc Pool 1b1107     Available-for-sale financial assets         US$ 558       N/A     US$ 558          
 
  Fed Hm Ln Pc Pool 1b1150             US$ 1,043       N/A     US$ 1,043          
 
  Fed Hm Ln Pc Pool 1b1225             US$ 145       N/A     US$ 145          
 
  Fed Hm Ln Pc Pool 1b2566             US$ 170       N/A     US$ 170          
 
  Fed Hm Ln Pc Pool 1b2632             US$ 185       N/A     US$ 185          
 
  Fed Hm Ln Pc Pool 1b2642             US$ 249       N/A     US$ 249          
 
  Fed Hm Ln Pc Pool 1b2776             US$ 347       N/A     US$ 347          
 
  Fed Hm Ln Pc Pool 1b2792             US$ 234       N/A     US$ 234          
 
  Fed Hm Ln Pc Pool 1b2810             US$ 305       N/A     US$ 305          

- 46 -


 

                                                     
                September 30, 2007    
                                    Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Fed Hm Ln Pc Pool 1g0038             US$ 306       N/A     US$ 306          
 
  Fed Hm Ln Pc Pool 1g0053             US$ 381       N/A     US$ 381          
 
  Fed Hm Ln Pc Pool 1g0104             US$ 148       N/A     US$ 148          
 
  Fed Hm Ln Pc Pool 1g1282             US$ 4,199       N/A     US$ 4,199          
 
  Fed Hm Ln Pc Pool 1g1411             US$ 3,829       N/A     US$ 3,829          
 
  Fed Hm Ln Pc Pool 1g1616             US$ 4,451       N/A     US$ 4,451          
(Continued)

- 47 -


 

                                                 
                September 30, 2007    
                                    Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Fed Hm Ln Pc Pool 1g1921     Available-for-sale financial assets     US$ 4,353       N/A     US$ 4,353          
 
  Fed Hm Ln Pc Pool 1g2162         US$ 5,787       N/A     US$ 5,787          
 
  Fed Hm Ln Pc Pool 1g2593         US$ 5,595       N/A     US$ 5,595          
 
  Fed Hm Ln Pc Pool 1h2520         US$ 2,753       N/A     US$ 2,753          
 
  Fed Hm Ln Pc Pool 1h2524         US$ 2,062       N/A     US$ 2,062          
 
  Fed Hm Ln Pc Pool 1j0410         US$ 5,881       N/A     US$ 5,881          
 
  Fed Hm Ln Pc Pool 780870         US$ 765       N/A     US$ 765          
 
  Fed Hm Ln Pc Pool 781959         US$ 4,264       N/A     US$ 4,264          
 
  Fed Hm Ln Pc Pool 782785         US$ 264       N/A     US$ 264          
 
  Fed Hm Ln Pc Pool 782837         US$ 518       N/A     US$ 518          
 
  Fed Hm Ln Pc Pool 782968         US$ 1,182       N/A     US$ 1,182          
 
  Fed Hm Ln Pc Pool 783022         US$ 551       N/A     US$ 551          
 
  Fed Hm Ln Pc Pool 783026         US$ 315       N/A     US$ 315          
 
  Fed Hm Ln Pc Pool 847628         US$ 3,299       N/A     US$ 3,299          
 
  Fed Hm Ln Pc Pool B19205         US$ 7,288       N/A     US$ 7,288          
 
  Fed Hm Ln Pc Pool E89857         US$ 1,361       N/A     US$ 1,361          
 
  Fed Hm Ln Pc Pool G11295         US$ 1,167       N/A     US$ 1,167          
 
  Fed Hm Ln Pc Pool G12009         US$ 3,760       N/A     US$ 3,760          
 
  Fed Hm Ln Pc Pool M80855         US$ 3,037       N/A     US$ 3,037          
 
  Fed Home Ln Bank         US$ 5,081       N/A     US$ 5,081          
 
  Federal Farm Cr Bks         US$ 3,446       N/A     US$ 3,446          
 
  Federal Home Ln Bks         US$ 8,928       N/A     US$ 8,928          
 
  Federal Home Ln Bks         US$ 8,891       N/A     US$ 8,891          
 
  Federal Home Ln Bks         US$ 4,938       N/A     US$ 4,938          
 
  Federal Home Ln Bks         US$ 5,939       N/A     US$ 5,939          
 
  Federal Home Ln Bks         US$ 4,956       N/A     US$ 4,956          
 
  Federal Home Ln Bks         US$ 3,029       N/A     US$ 3,029          
 
  Federal Home Ln Bks         US$ 6,183       N/A     US$ 6,183          
 
  Federal Home Ln Bks         US$ 5,450       N/A     US$ 5,450          
 
  Federal Home Ln Bks         US$ 5,982       N/A     US$ 5,982          
 
  Federal Home Ln Bks         US$ 4,552       N/A     US$ 4,552          
 
  Federal Home Ln Bks         US$ 9,008       N/A     US$ 9,008          
 
  Federal Home Ln Bks         US$ 8,205       N/A     US$ 8,205          
 
  Federal Home Ln Mtg         US$ 5,671       N/A     US$ 5,671          
 
  Federal Home Ln Mtg Corp.         US$ 1,380       N/A     US$ 1,380          
 
  Federal Home Ln Mtg Corp.         US$ 3,531       N/A     US$ 3,531          

- 48 -


 

                                                 
                September 30, 2007    
                                    Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Federal Home Ln Mtg Corp.         US$ 2,234       N/A     US$ 2,234          
 
  Federal Home Ln Mtg Corp.         US$ 856       N/A     US$ 856          
 
  Federal Home Ln Mtg Corp.         US$ 3,532       N/A     US$ 3,532          
 
  Federal Home Ln Mtg Corp.         US$ 76       N/A     US$ 76          
 
  Federal Home Ln Mtg Corp.         US$ 2,574       N/A     US$ 2,574          
 
  Federal Home Ln Mtg Corp.         US$ 2,992       N/A     US$ 2,992          
 
  Federal Home Ln Mtg Corp.         US$ 2,414       N/A     US$ 2,414          
 
  Federal Home Ln Mtg Corp.         US$ 1,183       N/A     US$ 1,183          
 
  Federal Home Ln Mtg Corp.         US$ 7,278       N/A     US$ 7,278          
(Continued)

- 49 -


 

                                                     
                September 30, 2007    
                                        Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Federal Home Ln Mtg Corp.     Available-for-sale financial assets         US$ 2,296       N/A     US$ 2,296          
 
  Federal Home Ln Mtg Corp.             US$ 3,953       N/A     US$ 3,953          
 
  Federal Home Ln Mtg Corp.             US$ 2,332       N/A     US$ 2,332          
 
  Federal Home Ln Mtg Corp.             US$ 3,589       N/A     US$ 3,589          
 
  Federal Home Ln Mtg Corp.             US$ 3,588       N/A     US$ 3,588          
 
  Federal Home Ln Mtg Corp.             US$ 3,500       N/A     US$ 3,500          
 
  Federal Home Ln Mtg Corp.             US$ 3,354       N/A     US$ 3,354          
 
  Federal Home Ln Mtg Corp.             US$ 3,900       N/A     US$ 3,900          
 
  Federal Home Ln Mtg Disc Nts             US$ 22,161       N/A     US$ 22,161          
 
  Federal Home Loan Bank             US$ 4,556       N/A     US$ 4,556          
 
  Federal Home Loan Bank             US$ 3,460       N/A     US$ 3,460          
 
  Federal Home Loan Bank             US$ 8,121       N/A     US$ 8,121          
 
  Federal National Mort Assoc             US$ 3,035       N/A     US$ 3,035          
 
  Federal Natl Mtg Assn             US$ 4,439       N/A     US$ 4,439          
 
  Federal Natl Mtg Assn             US$ 2,230       N/A     US$ 2,230          
 
  Federal Natl Mtg Assn             US$ 2,400       N/A     US$ 2,400          
 
  Federal Natl Mtg Assn             US$ 1,298       N/A     US$ 1,298          
 
  Federal Natl Mtg Assn             US$ 5,011       N/A     US$ 5,011          
 
  Federal Natl Mtg Assn             US$ 6,515       N/A     US$ 6,515          
 
  Federal Natl Mtg Assn             US$ 8,550       N/A     US$ 8,550          
 
  Federal Natl Mtg Assn             US$ 5,019       N/A     US$ 5,019          
 
  Federal Natl Mtg Assn             US$ 5,027       N/A     US$ 5,027          
 
  Federal Natl Mtg Assn             US$ 3,349       N/A     US$ 3,349          
 
  Federal Natl Mtg Assn             US$ 2,006       N/A     US$ 2,006          
 
  Federal Natl Mtg Assn             US$ 3,703       N/A     US$ 3,703          
 
  Federal Natl Mtg Assn             US$ 4,503       N/A     US$ 4,503          
 
  Federal Natl Mtg Assn             US$ 48       N/A     US$ 48          
 
  Federal Natl Mtg Assn Gtd             US$ 1,844       N/A     US$ 1,844          
 
  Federal Natl Mtg Assn Medium             US$ 3,473       N/A     US$ 3,473          
 
  Federal Natl Mtg Assn Mtn             US$ 2,962       N/A     US$ 2,962          
 
  Federal Natl Mtg Assn Mtn             US$ 3,152       N/A     US$ 3,152          
 
  Federal Natl Mtg Assn Mtn             US$ 5,383       N/A     US$ 5,383          
 
  Federal Natl Mtg Assn Mtn             US$ 3,766       N/A     US$ 3,766          
 
  Federal Natl Mtg Assn Mtn             US$ 3,027       N/A     US$ 3,027          
 
  Fnma Pool 254507             US$ 1,254       N/A     US$ 1,254          
 
  Fnma Pool 254834             US$ 1,236       N/A     US$ 1,236          

- 50 -


 

                                                     
                September 30, 2007    
                                        Market Value or    
                Shares/Units   Carrying Value   Percentage of   Net Asset Value    
Held Company Name   Marketable Securities Type and Name   Relationship with the Company   Financial Statement Account   (in Thousands)   (US$ in Thousands)   Ownership   (US$ in Thousands)   Note
 
  Fnma Pool 255883             US$ 3,189       N/A     US$ 3,189          
 
  Fnma Pool 555549             US$ 1,409       N/A     US$ 1,409          
 
  Fnma Pool 555715             US$ 176       N/A     US$ 176