Edgar Filing: TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

1934 Act Registration No. 1-14700

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

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

For the month of October 2005

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, Ltd.

Financial Statements for the
Nine Months Ended September 30, 2005 and 2004 and
Independent Accountants’ Review Report

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

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

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company, Ltd. as of September 30, 2005 and 2004, 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 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 Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

October 12, 2005

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’ 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’ report and financial statements shall prevail.

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

BALANCE SHEETS
SEPTEMBER 30, 2005 AND 2004
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)


	2005						2004
	Amount			%			Amount			%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2, 3 and 4)	$	58,467,326			12		$	70,371,977			15
Short-term investments, net (Notes 2 and 4)		48,821,970			10			46,128,381			10
Receivables from related parties (Note 18)		23,036,804			5			19,894,936			4
Notes and accounts receivable		18,605,971			4			17,765,694			4
Allowance for doubtful receivables (Note 2)		(977,365	)		—			(983,077	)		—
Allowance for sales returns and others (Note 2)		(3,417,328	)		—			(3,342,566	)		(1	)
Other receivables from related parties (Note 18)		1,650,678			—			3,083,984			1
Other financial assets (Notes 2 and 22)		1,190,963			—			792,139			—
Inventories, net (Notes 2 and 5)		15,070,064			3			12,628,465			3
Deferred income taxes assets (Notes 2 and 12)		1,781,000			—			2,471,000			—
Prepaid expenses and other current assets		823,972			—			953,069			—


Total current assets		165,054,055			34			169,764,002			36


LONG-TERM INVESTMENTS (Notes 2, 6, 16 and 21)
Equity method		50,235,546			10			45,792,238			10
Cost method		774,373			—			717,299			—
Long-term bonds		19,647,173			4			11,676,396			3
Other investments		8,301,360			2			7,917,920			2


Total long-term investments		78,958,452			16			66,103,853			15


PROPERTY, PLANT AND EQUIPMENT (Notes 2, 7 and 18)
Cost
Buildings		89,619,890			19			82,012,404			18
Machinery and equipment		453,130,574			94			374,207,513			81
Office equipment		7,726,708			1			6,853,204			1

		550,477,172			114			463,073,121			100
Accumulated depreciation		(346,517,367	)		(72	)		(285,808,476	)		(61	)
Advance payments and construction in progress		14,949,566			3			29,891,273			6


Net property, plant and equipment		218,909,371			45			207,155,918			45


GOODWILL (Note 2)		1,654,853			—			2,003,244			—


OTHER ASSETS
Deferred income taxes assets (Notes 2 and 12)		11,042,079			3			7,796,174			2
Deferred charges, net (Notes 2, 8 and 21)		7,322,444			2			9,520,310			2
Refundable deposits		83,642			—			29,353			—
Assets leased to others, net (Note 2)		74,312			—			80,047			—
Idle assets, net (Note 2)		6,789			—			54,791			—


Total other assets		18,529,266			5			17,480,675			4


TOTAL	$	483,105,997			100		$	462,507,692			100


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	6,691,135			1		$	7,357,718			2
Payables to related parties (Notes 18 and 21)		3,350,905			1			5,639,023			1
Income tax payable		1,364,915			—			245,103			—
Accrued expenses and other current liabilities (Notes 2, 10, 21 and 22)		10,182,159			2			10,729,638			2
Payables to contractors and equipment suppliers		10,814,978			3			15,260,860			3
Current portion of long-term bonds payable (Note 9)		10,500,000			2			5,000,000			1


Total current liabilities		42,904,092			9			44,232,342			9


LONG-TERM LIABILITIES
Bonds payable (Note 9)		19,500,000			4			30,000,000			6
Other long-term payable (Notes 10 and 21)		1,526,648			1			2,446,848			1
Other payables to related parties (Notes 18 and 21)		1,111,798			—			2,468,088			1


Total long-term liabilities		22,138,446			5			34,914,936			8


OTHER LIABILITIES
Accrued pension cost (Notes 2 and 11)		3,451,671			1			2,975,006			1
Guarantee deposits (Note 21)		2,363,889			—			524,268			—
Deferred credits (Notes 2 and 18)		1,136,767			—			598,350			—


Total other liabilities		6,952,327			1			4,097,624			1


Total liabilities		71,994,865			15			83,244,902			18


SHAREHOLDERS’ EQUITY (Notes 2, 14, 15 and 16)
Capital stock — $10 par value
Authorized: 27,050,000 thousand shares in 2005, 24,600,000 thousand shares in 2004
Issued: 24,727,348 thousand shares in 2005, 23,251,877 thousand shares in 2004		247,273,476			51			232,518,770			50
Capital surplus		56,777,040			12			56,529,100			12
Retained earnings
Appropriated as legal capital reserve		34,348,208			7			25,528,007			6
Appropriated as special capital reserve		2,226,427			—			—			—
Unappropriated earnings		72,296,264			15			66,007,204			14
Others
Unrealized loss on long-term investments		—			—			(3,967	)		—
Cumulative translation adjustments		(260,171	)		—			300,345			—
Treasury stock (at cost) - 46,808 thousand shares in 2005 and 45,970 thousand shares in 2004		(1,550,112	)		—			(1,616,669	)		—


Total shareholders’ equity		411,111,132			85			379,262,790			82


TOTAL	$	483,105,997			100		$	462,507,692			100

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

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)


	2005				2004
	Amount		%		Amount		%
GROSS SALES (Notes 2 and 18)	$	187,279,666			$	195,779,620

SALES RETURNS AND ALLOWANCES (Note 2)		3,852,617				3,662,137


NET SALES		183,427,049		100		192,117,483		100

COST OF SALES (Notes 13 and 18)		108,047,657		59		109,109,645		57


GROSS PROFIT		75,379,392		41		83,007,838		43


OPERATING EXPENSES (Notes 13 and 18)
Research and development		9,972,853		5		8,947,939		4
General and administrative		5,625,306		3		7,214,420		4
Marketing		991,423		1		1,050,619		1


Total operating expenses		16,589,582		9		17,212,978		9


INCOME FROM OPERATIONS		58,789,810		32		65,794,860		34


NON-OPERATING INCOME AND GAINS
Interest (Notes 2 and 22)		2,446,385		1		1,060,412		1
Settlement income (Note 20)		711,324		1		—		—
Technical service income (Notes 18 and 21)		322,976		—		327,583		—
Gain on disposal of property, plant and equipment (Notes 2 and 18)		149,014		—		144,899		—
Investment income recognized by equity method, net (Notes 2 and 6)		—		—		3,431,747		2
Gain on sales of investments (Note 2)		—		—		111,771		—
Others (Note 18)		248,776		—		322,958		—


Total non-operating income and gains		3,878,475		2		5,399,370		3


NON-OPERATING EXPENSES AND LOSSES
Interest (Notes 2, 7, 9 and 22)		2,248,150		1		877,772		1
Investment loss recognized by equity method, net (Notes 2 and 6)		1,277,187		1		—		—
Unrealized valuation loss on short-term investments (Notes 2 and 4)		264,068		—		—		—
Loss on sales of investment, net (Note 2)		134,440		—		—		—
Foreign exchange loss, net (Notes 2 and 22)		117,301		—		538,765		—
Others (Note 2)		208,949		—		92,738		—


Total non-operating expenses and losses		4,250,095		2		1,509,275		1

(Continued)


	2005				2004
	Amount		%		Amount		%
INCOME BEFORE INCOME TAX	$	58,418,190		32	$	69,684,955		36

INCOME TAX BENEFIT (Notes 2 and 12)		1,256,710		1		447,026		—


NET INCOME	$	59,674,900		33	$	70,131,981		36


	2005				2004
	Before		After		Before		After
	Income		Income		Income		Income
	Tax		Tax		Tax		Tax
EARNINGS PER SHARE (NT$, Note 17)
Basic earnings per share	$	2.37	$	2.42	$	2.82	$	2.84

Diluted earnings per share	$	2.37	$	2.42	$	2.82	$	2.83

The pro forma net income and earnings per share (after income tax) are shown as follows, based on the assumption that the parent company stock held by its subsidiaries is treated as an investment instead of the treasury stock (Notes 2 and 16):


	2005		2004
NET INCOME	$	59,766,385	$	70,145,749


EARNINGS PER SHARE (NT$)
Basic earnings per share	$	2.42	$	2.83

Diluted earnings per share	$	2.42	$	2.83


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

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)


	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	59,674,900		$	70,131,981
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		51,437,043			46,456,739
Deferred income taxes		(2,329,076	)		(874,578	)
Investment loss (income) recognized by equity method, net		1,277,187			(3,431,747	)
Gain on sales of long-term investments, net		(2,810	)		(2,150	)
Amortization of premium/discount from long-term bond investments		91,155			3,347
Gain on disposal of property, plant and equipment and idle assets, net		(88,449	)		(81,423	)
Loss on idle assets		106,964			—
Donation of idle assets		7,207			—
Accrued pension cost		350,475			374,755
Dividends received from equity method investee		668,464			—
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables from related parties		(6,850,721	)		(5,027,274	)
Notes and accounts receivable		(3,279,090	)		(3,847,887	)
Allowance for doubtful receivables		(3,096	)		(32,945	)
Allowance for sales returns and others		89,414			1,216,541
Other receivables from related parties		(1,426,377	)		(144,559	)
Other financial assets		1,114,112			289,603
Inventories, net		(898,119	)		(1,721,307	)
Prepaid expenses and other current assets		409,527			638,897
Increase (decrease) in:
Accounts payable		202,518			1,273,842
Payables to related parties		(1,115,663	)		(224,782	)
Income tax payable		985,012			118,000
Accrued expenses and other current liabilities		1,083,540			1,831,179
Deferred credits		119,681			—


Net cash provided by operating activities		101,623,798			106,946,232


CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in short-term investments, net		4,157,125			(36,971,775	)
Acquisitions of:
Long-term investments		(10,101,540	)		(21,199,764	)
Property, plant and equipment		(60,336,499	)		(55,650,076	)
Proceeds from disposal of:
Long-term investments		4,528,858			7,552
Property, plant and equipment and idle assets		1,502,142			310,038
Increase in deferred charges		(735,673	)		(1,053,342	)
Decrease in refundable deposits		1,771			148,026


Net cash used in investing activities		(60,983,816	)		(114,409,341	)

(Continued)


	2005			2004
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid for common stock	$	(46,504,097	)	$	(12,159,971	)
Cash bonus paid to employees		(3,086,215	)		(681,628	)
Increase (decrease) in guarantee deposits		1,951,496			(239,221	)
Bonus to directors and supervisors		(231,466	)		(127,805	)
Proceeds from exercise of stock options		165,808			—
Repurchase of treasury stock		—			(7,059,798	)
Cash dividends paid for preferred stock		—			(184,493	)


Net cash used in financing activities		(47,704,474	)		(20,452,916	)


NET DECREASE IN CASH AND CASH EQUIVALENTS		(7,064,492	)		(27,916,025	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		65,531,818			98,288,002


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	58,467,326		$	70,371,977


SUPPLEMENTAL INFORMATION
Interest paid (excluding the amount capitalized of NT$262,109 thousand for the nine months ended September 30, 2004)	$	1,643,874		$	169,670

Income tax paid	$	87,315		$	309,552


NON-CASH INVESTING AND FINANCING ACTIVITIES
Current portion of long-term bonds payable	$	10,500,000		$	5,000,000

Current portion of other payables to related parties (under payables to related parties)	$	701,096		$	1,914,915

Current portion of other long-term payable (under accrued expenses and other current liabilities)	$	1,516,436		$	1,817,542

Reclassification of short-term investments to long-term investments	$	—		$	3,402,413


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

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)

1. GENERAL

Taiwan Semiconductor Manufacturing Company, Ltd. (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. 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, 2005 and 2004, the Company had 19,475 and 19,089 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements are presented in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.

For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.

Significant accounting policies are summarized as follows:

Use of Estimates

The preparation of financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

Classification of Current and Non-current Assets and Liabilities

Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations due on demand within one year from the balance sheet date. Assets and liabilities that are not classified as current are non-current assets and liabilities, respectively.

Cash Equivalents

Government bonds under repurchase agreements, treasury bills, notes, and commercial papers acquired with maturities less than three months from the date of purchase are classified as cash equivalents.

Short-term Investments

Short-term investments primarily consist of corporate bonds, agency bonds, asset-backed securities, bond funds, government bonds and others.

Short-term investments are recorded at historical cost and are carried at the lower of cost or market value as of the balance sheet date. An allowance for decline in value is provided and is charged to current income when the aggregate carrying amount of the investments exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the market value.

The costs of funds and listed stocks sold are accounted for using the weighted-average method; whereas other securities sold are accounted for using the specific identification method.

The market value of funds is determined using the net asset value of the funds at the end of the period, and the market value of listed stocks is determined using the average-closing price of the listed stocks for the last month of the period. The market value of other short-term investments is determined using the average of bid and ask prices as of the balance sheet date.

Cash dividends are recorded as investment income in the current period.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivables. The Company determines the amount of allowance for doubtful receivables by examining the historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the shipment is made, price is fixed or determinable, and the 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 our customers. The Company records a provision for estimated future returns and other allowances in the period the related revenue is recorded. Provisions for estimated sales returns and other allowances are generally made at a specific percentage based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales are determined using the fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which the sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash 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 end of the period. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for finished goods and work in process. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Ending 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.

Long-term Investments

Investments in companies wherein the Company exercises significant influence on the operating and financial policy decisions are accounted for using the equity method of accounting. The Company’s proportionate share in the net income or net loss of investee companies is recognized in the “investment income/loss recognized by equity method, net” account. When equity investments are made, the difference, if any, between the cost of investment and the Company’s proportionate share of the investee’s net equity is amortized using the straight-line method over five years and is also recorded in the “investment income/loss recognized by equity method, net” account.

When the Company subscribes to additional investee shares at a percentage different from its existing equity interest, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s proportionate share in the investee’s net equity. The Company records such difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.

Investments in companies wherein the Company does not exercise significant influence are recorded at historical cost. Cash dividends are recognized as investment income in the year received but are accounted for as reductions in the carrying amount of the investments if the dividends are received in the year of acquisition. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income or the carrying amount of the investment.

Investments in mutual funds are stated at the lower of aggregate cost or net asset value. An allowance is recognized when the net asset value of the funds is lower than their cost, with the corresponding amount recorded as a reduction to shareholders’ equity. A reversal of the allowance will result from a subsequent recovery of the net asset value.

When an indication of significant impairment is identified in an investee company, the carrying amount of this investment is reduced to reflect an other-than-temporary decline, with the related impairment loss charged to current income.

The costs of stocks and mutual funds sold are determined using the weighted-average method.

Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to interest income.

When investments in publicly-traded stocks are reclassified from short-term investments to long-term investments or from long-term investments to short-term investments, the Company recognizes a loss to the extent, if any, that the market value of such investments is lower than the carrying amount, and the market value becomes the new basis.

If an investee company recognizes an unrealized loss on its long-term investments using the lower-of-cost-or-market method, the Company also recognizes a corresponding unrealized loss in proportion to its ownership percentage in the investee company and records the amount as a component of its shareholders’ equity.

Gains or losses on sales from the Company to investee companies accounted for using the equity method are deferred in proportion to the Company’s ownership percentages in the investee companies until realized through transactions with third parties. The entire amount of the gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sales of the related products to third parties. Gains or losses on sales from investee companies to the Company are deferred in proportion to the Company’s ownership percentages in the investee companies until realized through transactions with third parties. Gains or losses on sales between investee companies accounted for using the equity method are deferred in proportion to the Company’s weighted-average ownership percentages in the investee companies which record such gains or losses until realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, translation adjustments will result from the process of translating the investee’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of significant 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 future 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. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed in the period incurred. Interest expense incurred during the purchase and construction period is also capitalized.

Depreciation is computed using the straight-line method over the following estimated service lives: buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.

Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged to non-operating gains or losses in the period of sale or disposal.

Goodwill

Goodwill represents the excess of the consideration paid for acquisition over the fair market value of identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line method over the estimated life of 10 years. If an event occurs or circumstances change that more likely than not reduce the fair value of goodwill below its carrying amount, an impairment loss is charged to current income. Subsequent recovery in the fair value of the goodwill may not be recorded such as to reverse the impairment loss previously recorded.

Deferred Charges

Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized as follows: Technology license fees — the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges — 3 years. When an indication of significant 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 future 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 amortization, as if no impairment loss had been recognized.

Pension Costs

Starting from July 1, 2005, employees are required to choose between the two pension plans available to them. For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts. For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in 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 the purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method.

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

Income tax on unappropriated earnings of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

Stock-based Compensation

Employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for by the interpretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is charged to expense over the employee vesting period.

Treasury Stock

When the Company repurchases its outstanding common stock, the cost of the reacquired stock is recorded as treasury stock as a reduction to shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus — additional paid-in capital are reversed in proportionate to the equity percentage of the retirement. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus — treasury stock transactions and to retained earnings for any remaining amount. The Company’s stock held by its subsidiaries is also treated as treasury stock and reclassified from long-term investments to treasury stock. The gains resulted from the disposal of the treasury stock held by the subsidiaries and cash dividends received by the 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 current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income.

Derivative Financial Instruments

The Company enters into foreign currency forward contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts are recorded in New Taiwan dollars at the current rate of exchange of the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted forward rates on the contract date are amortized over the terms of the forward contracts using the straight-line method. At the end of each period, the receivables or payables arising from forward contracts are restated using the prevailing exchange rates at the balance sheet date with the resulting differences credited or charged to

income. In addition, the receivables and payables related to the forward contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement is credited or charged to income in the period of settlement.

The Company enters into cross-currency swap contracts to manage currency exposures on foreign-currency-denominated assets and liabilities. The principal amount is recorded using the current rate at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted rates on the contract dates are amortized over the terms of the contracts using the straight-line method. At the end of each period, the receivables or payables arising from cross-currency swap contracts are restated using the prevailing exchange rate with the resulting differences credited or charged to income. In addition, the receivables and payables related to the contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date is recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement is credited or charged to income in the period of settlement.

The Company enters into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. The cash settlement receivable or payable computed pursuant to the contracts on each settlement date or the balance sheet date is recorded as an adjustment to interest income or expense associated with the hedged items.

The notional amounts of foreign currency option contracts entered into for hedging purposes are not recognized as an asset or liability on the contract dates. The premiums paid or received for the options bought or written are amortized and charged to income on a straight-line basis over the term of the related contract. Any resulting gains or losses upon settlement are charged to current income in the period of settlement.

Reclassifications

Certain accounts in the financial statements as of and for the nine months ended September 30, 2004 have been reclassified to conform to the financial statements as of and for the nine months ended September 30, 2005.

3. CASH AND CASH EQUIVALENTS


	September 30
	2005		2004
Government bonds acquired under repurchase agreements	$	29,924,288	$	11,534,485
Cash and bank deposits		27,906,434		58,638,781
Commercial papers		321,757		—
Corporate issued notes		314,090		112,077
Treasury bills		757		—
Agency notes		—		86,634


	$	58,467,326	$	70,371,977

4. SHORT-TERM INVESTMENTS


	September 30
	2005			2004
Corporate bonds	$	12,908,090		$	11,237,187
Agency bonds		12,545,700			6,170,661
Corporate issued asset-backed securities		12,174,184			10,398,842
Bond funds		8,032,153			10,407,891
Government bonds		3,170,453			5,160,321
Corporate issued notes		265,958			67,927
Money market funds		58,184			—
Listed stocks		6,528			6,528
Government bonds acquired under repurchase agreements		—			2,577,163
Commercial papers		—			101,861

		49,161,250			46,128,381
Allowance for valuation losses		(339,280	)		—


	$	48,821,970		$	46,128,381


Market value	$	48,821,970		$	46,201,834

The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage investment portfolios for the Company. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of September 30, 2005, the Company had investment portfolios with these fund managers that aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as corporate bonds, agency bonds, asset-backed securities, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents.

5. INVENTORIES, NET


	September 30
	2005			2004
Finished goods	$	2,018,670		$	2,463,121
Work in process		12,481,841			10,324,213
Raw materials		1,200,996			721,880
Supplies and spare parts		712,116			851,071

		16,413,623			14,360,285
Allowance for losses		(1,343,559	)		(1,731,820	)


	$	15,070,064		$	12,628,465

6. LONG-TERM INVESTMENTS


	September 30
	2005				2004
			% of				% of
	Carrying		Owner-		Carrying		Owner-
	Amount		ship		Amount		ship
Equity method
TSMC International Investment Ltd. (TSMC International)	$	24,186,711		100	$	24,904,849		100
TSMC (Shanghai) Company Limited (TSMC—Shanghai)		9,888,482		100		5,947,953		100
Vanguard International Semiconductor Corporation (VIS)		5,209,161		27		4,993,394		28
TSMC Partners, Ltd. (TSMC Partners)		4,084,085		100		4,150,226		100
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)		3,906,083		32		3,469,018		32
Emerging Alliance Fund, L.P. (Emerging Alliance)		853,754		99		865,937		99
TSMC North America (TSMC—North America)		846,477		100		473,629		100
VentureTech Alliance Fund II, L.P. (VTAF II)		488,940		98		327,876		98
Global Unichip Corporation (GUC)		429,936		46		375,466		47
TSMC Japan K. K. (TSMC—Japan)		99,061		100		100,901		100
Chi Cherng Investment Co., Ltd. (Chi Cherng)		78,068		36		51,314		36
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)		77,348		36		50,999		36
VisEra Technologies Company, Ltd. (VisEra)		63,858		25		56,212		25
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC—Europe)		23,582		100		24,464		100

		50,235,546				45,792,238

Cost method
Non-publicly traded stocks		472,500		—		432,500		—
Funds		301,873		—		284,799		—

		774,373				717,299

Long-term bonds
Government bonds		13,163,500				9,662,243
Corporate bonds
China Steel Corporation		2,915,834				1,095,503
Taiwan Power Company		2,005,495				918,650
Nan Ya Plastics Corporation		1,157,394				—
Formosa Plastics Corporation		270,021				—
Formosa Chemical & Fiber Corporation		134,929				—

		19,647,173				11,676,396

Other investments		8,301,360				7,917,920


	$	78,958,452			$	66,103,853

For the nine months ended September 30, 2005 and 2004, net investment loss and income recognized from the equity method investees was NT$1,277,187 thousand and NT$3,431,747 thousand, respectively. The carrying amounts of investments accounted for under the equity method and the related investment loss or income were determined based on the reviewed financial statements of the investees as of and for the same periods as the Company.

Other investments consisted of the following structured time-deposits:


	Principal		Interest		Range of
	Amount		Receivable		Interest Rates			Maturity Date
September 30, 2005
Step-up callable deposits
Foreign bank	$	1,000,000	$	422		1.40%-1.50	%	Jun. 2007
Callable range accrual deposits
Foreign bank		7,301,360		27,871	(see below)			Sep. 2009-Jan. 2010


	$	8,301,360	$	28,293

September 30, 2004
Step-up callable deposits
Domestic bank	$	2,000,000	$	9,655		2.05%-2.20	%	Jul. 2007-Aug. 2007
Foreign bank		5,238,240		29,716		1.44%-7.00	%	Jul. 2006-Jun. 2009
Callable range accrual deposits
Foreign bank		679,680		385	(see below)			Sep. 2009


	$	7,917,920	$	39,756

The interest rate of the step-up callable deposits is determined by the Company and the related banks. The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the term of the contracts, the bank has the right to cancel the contracts prior to the maturity date.

As of September 30, 2005 and 2004, deposits that resided in banks located in Hong Kong amounted to NT$2,655,040 thousand and NT$2,378,880 thousand, respectively; those that resided in banks located in Singapore amounted to NT$663,760 thousand and zero, respectively.

7. PROPERTY, PLANT AND EQUIPMENT

Accumulated depreciation consisted of the following:


	September 30
	2005		2004
Buildings	$	41,091,353	$	33,972,806
Machinery and equipment		300,003,419		247,397,596
Office equipment		5,422,595		4,438,074


	$	346,517,367	$	285,808,476

There was no capitalized interest for the nine months ended September 30, 2005. Interest expense for the nine months ended September 30, 2004 was NT$1,139,881 thousand (before deducting the amount capitalized of NT$262,109 thousand for the nine months ended September 30, 2004). The interest rate used for the purpose of calculating the capitalized amount was 2.80% for the nine months ended September 30, 2004.

8. DEFERRED CHARGES, NET


	September 30
	2005		2004
Technology license fees	$	5,410,933	$	7,024,803
Software and system design costs		1,828,117		2,248,598
Other		83,394		246,909


	$	7,322,444	$	9,520,310

9. BONDS PAYABLE


	September 30
	2005		2004
Domestic unsecured bonds:
Issued in October 1999 and repayable in October 2004, 5.95% interest payable annually	$	—	$	5,000,000
Issued in December 2000 and repayable in December 2005 and 2007 in two payments, 5.25% and 5.36% interest payable annually, respectively		15,000,000		15,000,000
Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three payments, 2.6%, 2.75% and 3% interest payable annually, respectively		15,000,000		15,000,000


	$	30,000,000	$	35,000,000

As of September 30, 2005, future principal repayments for the Company’s bonds were as follows:


Year of Repayment	Amount
2005 4^th quarter	$	10,500,000
2007		7,000,000
2009		8,000,000
2010 and thereafter		4,500,000

		30,000,000
Current portion		(10,500,000	)


	$	19,500,000

10. OTHER LONG-TERM PAYABLES

Most of the payables resulted from license arrangements related to semiconductor-related patents. Future payments for other long-term payables as of September 30, 2005 were as follows:


Year of Repayment	Amount
2005 (4^th quarter)	$	1,031,062
2006		485,374
2007		464,632

(Continued)


Year of Repayment	Amount
2008	$	265,504
2009		265,504
2010 and thereafter		531,008

		3,043,084
Current portion (under accrued expenses and other current liabilities)		(1,516,436	)


	$	1,526,648

11. PENSION PLANS

The Labor Pension Act became effective on July 1, 2005 and this pension mechanism is deemed a defined contribution plan. The employees who were subject to the Labor Standards Law prior to the enforcement of this Act may choose to be subject to the pension mechanism under this Act or may continue to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law prior to July 1, 2005 and still work for the same company after July 1, 2005 and choose to be subject to the pension mechanism under this Act, their seniority as of July 1, 2005 shall be maintained. The Act prescribe that the rate of contribution by an employer to employees’ pension accounts per month shall not be less than 6% of each employee’s monthly salary or wage. The Company has made monthly contributions based on each employee’ salary or wage to employees’ pension accounts starting from July 1, 2005, and recognized pension costs of NT$127,170 thousand for the third quarter of 2005.

The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary or wage for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries and wages paid each month to a pension fund (the Fund). The Fund is administered by a pension fund monitoring committee (the Committee) and deposited in the Committee’s name in the Central Trust of China.

For the nine months ended September 30, 2005 and 2004, changes in the Fund and accrued pension cost under the defined benefit plan are summarized as follows:


	Nine Months Ended
	September 30
	2005			2004
The Fund
Balance, beginning of period	$	1,428,001		$	1,191,702
Contribution		168,958			170,709
Interest		15,629			15,562
Payment		(8,419	)		(1,446	)


Balance, end of period	$	1,604,169		$	1,376,527


Accrued pension cost
Balance, beginning of period	$	3,101,196		$	2,600,251
Accruals		350,475			374,755


Balance, end of period	$	3,451,671		$	2,975,006

12. INCOME TAX

a. A reconciliation of income tax expense based on “income before income tax” at statutory rate and current income tax expense before income tax credits was as follows:


	Nine Months Ended
	September 30
	2005			2004
Income tax expense based on “income before income tax” at statutory rate (25%)	$	(14,604,548	)	$	(17,421,239	)
Tax-exempt income		8,120,128			10,261,110
Temporary and permanent differences		(909,174	)		83,509


Current income tax expense before income tax credits	$	(7,393,594	)	$	(7,076,620	)


b. Income tax benefit consisted of the following:

Current income tax expense before income tax credits	$	(7,393,594	)	$	(7,076,620	)
Additional tax at 10% on unappropriated earnings		(1,489,709	)		(821,767	)
Income tax credits		7,771,188			7,898,387
Other income tax adjustments		39,749			(427,552	)
Net change in deferred income tax assets and liabilities
Investment tax credits		2,297,281			266,173
Temporary differences		1,530,726			755,306
Adjustments in valuation allowances		(1,498,931	)		(146,901	)


Income tax benefit	$	1,256,710		$	447,026

c. Net deferred income tax assets consisted of the following:


	September 30
	2005			2004
Current deferred income tax assets
Investment tax credits	$	1,781,000		$	2,471,000


Non-current deferred income tax assets, net
Investment tax credits	$	26,400,865		$	23,445,067
Temporary differences		(919,809	)		(2,730,145	)
Valuation allowances		(14,438,977	)		(12,918,748	)


	$	11,042,079		$	7,796,174

d. Integrated income tax information:

The balance of the imputation credit account as of September 30, 2005 and 2004 was NT$20,087 thousand and zero, respectively.

The expected and actual creditable ratios for distribution of earnings of 2004 and 2003 were 0.11% and 0.03%, respectively.

The imputation credit allocated to the shareholders is based on its balance as of the date of dividend distribution. The expected creditable ratio may be adjusted when the actual distribution of the imputation credits is made.

e.		All earnings generated prior to December 31, 1997 have been appropriated.

f.		As of September 30, 2005, investment tax credits consisted of the following:


		Total		Remaining
		Creditable		Creditable		Expiry
Regulation	Item	Amount		Amount		Year
Statute for Upgrading Industries	Purchase of machinery and equipment	$	134,467	$	—	2005
			4,886,421		444,770	2006
			4,139,292		4,139,292	2007
			11,007,504		11,007,504	2008
			3,361,988		3,361,988	2009


		$	23,529,672	$	18,953,554


Statute for Upgrading Industries	Research and development expenditures	$	3,127,586	$	—	2005
			3,346,930		3,346,930	2006
			1,976,913		1,976,913	2007
			2,332,557		2,332,557	2008
			1,480,613		1,480,613	2009


		$	12,264,599	$	9,137,013


Statute for Upgrading Industries	Personnel training	$	29,448	$	—	2005
			27,311		27,311	2006
			26,780		26,780	2007
			37,207		37,207	2008


		$	120,746	$	91,298


Statute for Upgrading Industries	Investments in important technology-based enterprises	$	38,036	$	—	2005

The profits generated from the following expansion and construction of the Company’s manufacturing plants are exempt from income tax:


		Tax-Exemption Period
Construction of Fab 8 — module B		2002 to 2005
Expansion of Fab 2 — modules A and B, Fab 3, Fab 4, Fab 5 and Fab 6		2003 to 2006
Construction of Fab 12		2004 to 2007

The tax authorities have examined income tax returns of the Company through 2001.

13. LABOR COST, DEPRECIATION AND AMORTIZATION


	Nine Months Ended September 30, 2005
			Classified as
	Classified as		Operating
	Cost of Sales		Expenses		Total
Labor cost
Salary	$	6,530,511	$	2,667,263	$	9,197,774
Labor and health insurance		459,934		219,072		679,006
Pension		440,897		210,015		650,912
Meal		316,142		103,687		419,829
Welfare benefit		114,926		67,142		182,068
Other		103,464		44,331		147,795


	$	7,965,874	$	3,311,510	$	11,277,384


Depreciation	$	46,636,159	$	2,254,165	$	48,890,324

Amortization	$	1,284,868	$	1,249,154	$	2,534,022


	Nine Months Ended September 30, 2004
			Classified as
	Classified as		Operating
	Cost of Sales		Expenses		Total
Labor cost
Salary	$	6,387,517	$	3,080,175	$	9,467,692
Labor and health insurance		418,441		230,945		649,386
Pension		353,123		194,811		547,934
Meal		280,127		108,133		388,260
Welfare benefit		111,854		67,835		179,689
Other		101,865		194,589		296,454


	$	7,652,927	$	3,876,488	$	11,529,415


Depreciation	$	41,070,901	$	1,823,129	$	42,894,030

Amortization	$	1,904,560	$	1,653,849	$	3,558,409

14. SHAREHOLDERS’ EQUITY

The Company has issued a total of 864,211 thousand ADSs which are traded on the NYSE as of September 30, 2005. The number of common shares represented by the ADSs is 4,321,053 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 issue price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which is restricted to a certain percentage of the paid-in common stock of the Company.

As of September 30, 2005 and 2004, capital surplus consisted of the following:


	September 30
	2005		2004
From merger	$	24,003,546	$	24,003,546
Additional paid-in capital		23,175,884		23,048,918
From convertible bonds		9,360,424		9,360,424
From long-term investments		145,441		116,157
From treasury stock transactions		91,690		—
Donations		55		55


	$	56,777,040	$	56,529,100

The Company’s Articles of Incorporation as revised on May 10, 2005 provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly:

	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 supervisors and bonus to employees of the Company equal to not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors and supervisors. The Company may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

	d.		Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.

The Company’s Articles of Incorporation also stipulate that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided, however, the ratio for stock dividend shall not exceed 50% of total distribution.

Any appropriations of net income are recorded in the financial statement in the year of shareholder approval.

The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve can be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Company’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Company’s paid-in capital, only 50% of the reserve may be transferred to capital.

A special capital reserve equivalent to the net debit balance of the other components of shareholder’s equity (for example, unrealized loss on long-term investments and cumulative translation adjustments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2004 and 2003 had been approved in the shareholders’ meetings held on May 10, 2005 and May 11, 2004, respectively. The appropriations and dividends per share are as follows:


						Dividends Per Share
	Appropriation of Earnings					(NT$)
	For Fiscal		For Fiscal			For Fiscal		For Fiscal
	Year 2004		Year 2003			Year 2004		Year 2003
Legal capital reserve	$	8,820,201	$	4,725,870
Special capital reserve		2,226,427		(68,945	)
Employees’ profit sharing — in cash		3,086,215		681,628
Employees’ profit sharing — in stock		3,086,215		2,726,514
Cash dividends to preferred shareholders		—		184,493		$	—	$	0.35
Cash dividends to common shareholders		46,504,097		12,159,971			2.00		0.60
Stock dividends to common shareholders		11,626,024		28,373,267			0.50		1.41
Bonus to directors and supervisors		231,466		127,805


	$	75,580,645	$	48,910,603

The amounts of the above appropriations of earnings for 2004 and 2003 are consistent with the resolutions of the meetings of the Board of Directors held on February 22, 2005 and February 17, 2004, respectively. However, the Company Law prescribes that TSMC, as a holder of treasury stock, shall not participate in the appropriation of earnings. Therefore, the actual cash dividend per share and stock dividend per share are slightly more than those in the aforementioned resolutions. If the above bonus to employees, directors and supervisors had been paid entirely in cash and charged against earnings for 2004 and 2003, the after income tax basic earnings per share for the years ended December 31, 2004 and 2003 would have decreased from NT$3.97 to NT$3.70 and NT$2.33 to NT$2.15, respectively. The shares distributed as a bonus to employees represented 1.33% and 1.35% of the Company’s total outstanding common shares as of December 31, 2004 and 2003, respectively.

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

Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. 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.

15. STOCK-BASED COMPENSATION PLANS

The Company’s Employee Stock Option Plans under the 2005 Plan, 2003 Plan and 2002 Plan were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of units authorized to be granted under the 2005 Plan, the 2003 Plan and the 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each unit eligible to subscribe to 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.

Units that had never been granted or had been granted and subsequently cancelled under the 2003 Plan and the 2002 Plan were expired as of September 30, 2005.

Information about outstanding stock options for the nine months ended September 30, 2005 and 2004 was as follows:


				Weighted-
				Average
	Number of			Exercise
	Options			Price
	(in Thousands)			(NT$)
Nine months ended September 30, 2005

Balance, beginning of period		64,367		$	40.5
Options granted		14,864			48.4
Options exercised		(4,160	)		39.9
Options cancelled		(3,777	)		43.5


Balance, end of period		71,294			42.1


Nine months ended September 30, 2004

Balance, beginning of period		49,357		$	43.0
Options granted		20,399			47.3
Options cancelled		(4,255	)		45.9


Balance, end of period		65,501			44.1

The numbers of outstanding options and exercise prices have been adjusted to reflect the appropriations of dividends in accordance with the plans.

As of September 30, 2005, information about outstanding and exercisable options was as follows:

Options Outstanding

Options Exercisable

Weighted-

average

Range of

Number of

Remaining

Exercise

Number of

Exercise

Options (in

Contractual

Price

Options (in

Price

Price (NT$)

Thousands)

Life (Years)

(NT$)

Thousands)

(NT$)

29.9-42.1

48,690

7.34

38.8

28,743

38.6

47.0-54.5

22,604

9.07

49.2

—

71,294

28,743

No compensation cost was recognized under the intrinsic value method for the nine months ended September 30, 2005 and 2004. Had the Company used the fair value based method (based on the Black-Scholes model) to evaluate the options granted after January 1, 2004, the assumptions and pro forma results of the Company for the nine months ended September 30, 2005 and 2004 would have been as follows:


	Nine Months Ended
	September 30
	2005			2004
Assumptions:
Expected dividend yield		1.00%-3.44	%		1.00 %
Expected volatility		43.77%-46.15	%		43.19%-43.25	%
Risk free interest rate		3.07%-3.85	%		3.07%-3.85	%
Expected life	5 years			5 years

Net income:
Net income as reported	$	59,674,900		$	70,131,981
Pro forma net income		59,591,795			70,092,754

Earnings per share (EPS) — after income tax (NT$):
Basic EPS as reported	$	2.42		$	2.84
Pro forma basic EPS		2.41			2.83
Diluted EPS as reported		2.42			2.83
Pro forma diluted EPS		2.41			2.83

The estimated weighted average fair value per unit for the options granted during the nine months ended September 30, 2005 and 2004 was NT$ 17.69 and NT$19.73, respectively.

16.

TREASURY STOCK


					(Shares in Thousands)
	Beginning		Increase/				Ending
	Shares		Distribute		Decrease		Shares
Nine months ended September 30, 2005

Reclassification of parent company stock held by subsidiaries from long-term investments		45,521		2,242		955		46,808


Nine months ended September 30, 2004

Reclassification of parent company stock held by subsidiaries from long-term investments		40,597		5,676		303		45,970
Repurchase under share buyback plan		—		124,720		124,720		—


		40,597		130,396		125,023		45,970

Proceeds from the sales of treasury stock for the nine months ended September 30, 2005 and 2004 were NT$52,273 thousand and NT$18,218 thousand, respectively. As of September 30, 2005 and 2004, the book value of the treasury stock was NT$1,550,112 thousand and NT$1,616,669 thousand, respectively; the market value was NT$2,456,486 thousand and NT$2,056,707 thousand, respectively. The Company’s stock held by its subsidiaries are treated as treasury stock and the holders are entitled to the rights of shareholders. However, starting from June 24, 2005, pursuant to the revised Company Law, the holders are no longer entitled to the right to vote.

The Company held a special meeting of the Board of Directors and approved a share buyback plan to repurchase the Company’s common shares listed on the TSE during the period from March 24, 2004 to May 23, 2004. The Company repurchased 124,720 thousand common shares for a total cost of NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on August 16, 2004.

17.

EARNINGS PER SHARE

EPS is computed as follows:


					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, 2005

Basic EPS
Income available to common shareholders	$	58,418,190	$	59,674,900		24,677,788	$	2.37	$	2.42

Effect of dilutive potential common stock — stock options		—		—		12,110


Diluted EPS
Income available to common shareholders (including effect of dilutive potential common stock)	$	58,418,190	$	59,674,900		24,689,898	$	2.37	$	2.42


Nine months ended September 30, 2004

Basic EPS
Income available to common shareholders	$	69,684,955	$	70,131,981		24,731,837	$	2.82	$	2.84

Effect of dilutive potential common stock — stock options		—		—		7,172


Diluted EPS
Income available to common shareholders (including effect of dilutive potential common stock)	$	69,684,955	$	70,131,981		24,739,009	$	2.82	$	2.83

18.

RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

	a.		Industrial Technology Research Institute (ITRI), the chairman of the Company is one of its directors.

	b.		Philips, a major shareholder of the Company.

	c.		Subsidiaries

			TSMC — Shanghai TSMC — North America TSMC — Europe TSMC — Japan

	d.		Investees

			GUC (with controlling financial interest) VisEra (with controlling financial interest) VIS (accounted for using equity method) SSMC (accounted for using equity method)

	e.		Indirect subsidiaries

			WaferTech, LLC (WaferTech) TSMC Technology, Inc. (TSMC Technology)

The transactions with the aforementioned parties, except for those disclosed in other notes, are summarized as follows:


	2005				2004
	Amount		%		Amount		%
For the nine months ended September 30

Sales
TSMC — North America	$	106,026,297		57	$	107,409,697		55
Philips		2,145,073		1		3,980,051		2
Others		486,276		—		325,335		—


	$	108,657,646		58	$	111,715,083		57


Purchases
WaferTech	$	7,860,055		29	$	11,576,543		34
SSMC		3,611,658		14		4,604,370		14
VIS		3,300,928		12		6,912,218		21
TSMC — Shanghai		586,889		2		—		—


	$	15,359,530		57	$	23,093,131		69


Manufacturing expenses — technical assistance fees Philips (Note 21a)	$	392,083		—	$	1,022,446		1


Marketing expenses — commission
TSMC — Japan	$	185,295		19	$	193,748		18
TSMC — Europe		167,142		17		157,833		15


	$	352,437		36	$	351,581		33


General and administrative expenses — rental expense
GUC	$	12,348		—	$	—		—


Proceeds from disposal of property, plant and equipment
TSMC — Shanghai	$	125,381		43	$	2,806,462		90
VIS		—		—		32,960		1


	$	125,381		43	$	2,839,422		91


Non-operating income and gains
SSMC (primarily technical service income, see Note 21g)	$	226,738		6	$	293,727		5
VIS (primarily technical service income, see Note 21j)		140,086		4		111,983		2
TSMC — Shanghai (primarily from deferred gain realized for disposal of property, plant and equipment)		122,514		3		—		—

(Continued)


	2005				2004
	Amount		%		Amount		%
VisEra	$	16,387		—	$	22,876		1
WaferTech		—		—		2,901		—


	$	505,725		13	$	431,487		8

September 30

Receivables
TSMC — North America	$	22,728,468		99	$	19,404,280		98
Philips		308,335		1		432,040		2
Others		1		—		58,616		—


	$	23,036,804		100	$	19,894,936		100


Other receivables
TSMC Technology	$	717,685		43	$	3,039		—
TSMC — North America		445,856		27		77,277		3
SSMC		314,569		19		68,757		2
TSMC — Shanghai		104,705		6		2,807,784		91
VIS (Primarily resulted from technical service income, see Note 21j)		63,293		4		102,533		3
Others		4,570		1		24,594		1


	$	1,650,678		100	$	3,083,984		100


Payables
WaferTech	$	970,004		29	$	1,104,866		20
VIS		739,543		22		1,916,758		34
Philips		701,096		21		1,923,537		34
SSMC		596,493		18		637,115		11
TSMC — Shanghai		211,880		6		—		—
Others		131,889		4		56,747		1


	$	3,350,905		100	$	5,639,023		100


Other long-term payables
Philips (Note 21a)	$	1,111,798		100	$	2,468,088		100


Deferred credits
TSMC — Shanghai	$	681,978		60	$	598,350		100

The terms of sales to related parties are not significantly different from those to third parties. For other related party transactions, prices are determined in accordance with the related contractual agreements.

The Company deferred the gains derived from sales of property, plant and equipment to TSMC — Shanghai, and then recognized such gains over the depreciable lives of the disposed assets.

19.

SIGNIFICANT LONG-TERM LEASES

The Company leases land from the Science-Based Industrial Park Administration. These lease agreements expire on various dates from March 2008 to December 2020 and can be renewed upon their expiration.

As of September 30, 2005, future remaining lease payments were as follows:


Year	Amount
2005 (4^th quarter)	$	63,992
2006		251,415
2007		251,415
2008		233,250
2009		227,195
2010 and thereafter		1,292,511


	$	2,319,778

20.

SETTLEMENT INCOME

TSMC, TSMC — North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation (“SMIC”), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC’s trade secrets. These suits have been settled out of court on January 30, 2005. As part of the settlement, SMIC will pay TSMC US$175 million over six years to resolve TSMC’s claims.

21.

SIGNIFICANT COMMITMENTS AND CONTINGENCIES

The significant commitments and contingencies of the Company as of September 30, 2005 are as follows:

	a.		On June 20, 2004, the Company and Philips revised the Technical Cooperation Agreement, which was originally signed on May 12, 1997, with an effective date from January 1, 2004 for five years. Upon expiration, this amended Technical Cooperation Agreement will be terminated at the expiration date and will not be automatically renewed. Under this amended Technical Cooperation Agreement, the Company will pay Philips royalties based on a fixed amounts mutually agreed-on, rather than under certain percentage of the Company’s annual net sales. The Company and Philips agree to cross license the patents owned by each party. The Company also obtained through Philips a number of patent cross licenses.

	b.		Under a technical cooperation agreement with ITRI, the Company shall reserve and allocate up to 35% of certain of its production capacity for use by the Ministry of Economic Affairs (MOEA) or any other party designated by the MOEA. The term of this agreement is for five years beginning 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 and 1997 and on January 1, 2002.

	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, 2005, the Company had a total of US$70,868 thousand of guarantee deposits.

	d.		Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, for the purpose of constructing an integrated circuit foundry in Singapore. As of September 30, 2005, the Company’s equity interest in SSMC was 32%. The Company and Philips committed to buy specific percentages of the production capacity of SSMC. The Company and Philips are required, in the aggregate, to purchase up to 70% of SSMC’s full capacity, but the Company along is not required to purchase more than 28% of the annual installed capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its total capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

	e.		The Company provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. The Company receives compensation for such services computed at a specific percentage of net selling price of certain products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions.

	f.		Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the Termination Agreement, the Company will be relieved of any further obligation to transfer any additional technology. In addition, the Company granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008.

	g.		Beginning in 2001, the Company entered into several licensing arrangements for certain semiconductor patents. The terms of the contracts range from five to ten years with payments to be made in the form of royalties over the term of the related contracts. The Company has recorded the related amounts as a liability with the corresponding amounts recorded as deferred charges which are amortized and charged to cost of sales on a straight-line basis over the estimated life of the technology or the term of the contract, whichever is shorter.

	h.		In November 2002, the Company entered into an Amended and Restated Joint Technology Cooperation Agreement with Philips, Freescale Semiconductor, Inc. and STMicroelectronics to jointly develop 90-nm to 65-nm advanced CMOS Logic and e-DRAM technologies. The Company also agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. The Company will contribute process technologies and share a portion of the costs associated with this joint development project.

	i.		In December 2003, the Company entered into a Technology Development and License Agreement with 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.

	j.		The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into in August 2004. The Company receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for the Company certain products at prices as agreed by the parties.

	k.		Amounts available under unused letters of credit as of September 30, 2005 were NT$6,480 thousand.

	l.		The Company provided guarantees on loans amounting to US$30,000 thousand and US$40,000 thousand for TSMC Development, Inc. (TSMC Development) and TSMC-North America, respectively.

22.

ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company and its investees:

Financing provided: Please see Table 1 attached;

	b.		Endorsement/guarantee provided: Please see Table 2 attached;

	c.		Marketable securities held: Please see Table 3 attached;

	d.		Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

	e.		Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: None;

	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 5 attached;

	h.		Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

	i.		Names, locations, and related information of investees on which the Company exercises significant influence: Please see Table 7 attached;

	j.		Financial instrument transactions:

Derivative financial instruments

The Company and TSMC-Shanghai entered into derivative financial instrument transactions during the nine months ended September 30, 2005 and 2004 to manage exposures related to foreign-exchange rate and interest rate fluctuations. Certain information on these contracts was as follows:

Outstanding forward exchange contracts as of September 30, 2005 and 2004

The Company

Notional

Financial

Amount

Instruments

Currency

Maturity

(in Thousands)

September 30, 2005

Sell

US$/NT$

Oct. 2005 to Dec. 2005

US$

680,000

September 30, 2004

Sell

US$/EUR

Oct. 2004

US$

33,723

Sell

US$/NT$

Oct. 2004 to Apr. 2005

US$

2,351,000

Sell

EUR/US$

Nov. 2004

EUR

58,500

As of September 30, 2005 and 2004, receivables resulted from forward exchange contracts (included in the “other financial assets” account) aggregated approximately NT$210 thousand and NT$27,881 thousand, respectively; payables resulted from forward exchange contracts (included in the “other current liabilities” account) aggregated approximately NT$277,384 thousand and NT$887,272 thousand, respectively.

ii)

As of September 30, 2005, TSMC— Shanghai did not have any outstanding forward exchange contracts. TSMC-Shanghai did not enter into any derivative financial instrument contracts during the nine months ended September 30, 2004.

	b)		Cross currency swap contracts

			Outstanding cross currency swap contracts as of September 30, 2005 were as follows:


	Notional		Range of
	Amount	Range of	Interest Rate
Maturity Date	(in Thousands)	Interest Rate Paid	Received
Oct. 2005 to Dec. 2005	US$1,574,000	3.65%-4.01%	1.17%-1.38%
	(US$/NT$)

As of September 30, 2005, payables resulted from cross currency swap contracts (included in the “other current liabilities” account) were NT$1,148,301 thousand.

The Company did not enter into any cross currency swap contracts during the nine months ended September 30, 2004.

	c)		Option contracts

			Outstanding option contracts as of September 30, 2005 were as follows:


			Notional
		Financial	Amount
Type	Buy/Sell	Instrument	(in Thousands)	Maturity
European	Sell	Call	US$10,000	Oct. 2005
European	Buy	Put	US$10,000	Oct. 2005

The Company did not entered into any foreign currency option contracts during the nine months ended September 30, 2004.

During the nine months ended September 30, 2005 and 2004, the net exchange gain or loss arising from forward exchange contracts, cross currency swap contracts and foreign currency option contracts was recognized in the “foreign exchange loss, net” account and the difference in interest was recorded in interest income or expense.

	d)		Interest rate swap contracts

			The Company rescinded all outstanding interest rate swap contracts in the first quarter of 2005 before their original maturities. The rescission loss of NT$28,295 thousand was recognized in the “interest expense” account. There were no outstanding contracts as of September 30, 2005.

Outstanding contracts as of September 30, 2004 were as follows:


		Notional
		Amount
Contract Date	Period	(in Thousands)
Sep. 2003	Sep. 2003 to Dec. 2005	NT$500,000
Oct. 2003	Oct. 2003 to Dec. 2005	NT$500,000
Oct. 2003	Oct. 2003 to Dec. 2005	NT$500,000
Oct. 2003	Oct. 2003 to Dec. 2005	NT$500,000
Oct. 2003	Oct. 2003 to Dec. 2005	NT$500,000
Nov. 2003	Nov. 2003 to Dec. 2005	NT$500,000

Transaction risk

	i)		Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss to be incurred by the Company if the counter-parties breached the contracts. The banks, which are the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Management believes its exposure related to the potential default by those counter-parties is low.

	ii)		Market price risk. All derivative financial instruments are intended as hedges for fluctuations in foreign exchange rates and interest rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Thus, market price risk is believed to be low.

	iii)		Cash flow risk and the amount and period of future cash needs.

			As of September 30, 2005, the Company’s future cash needs for outstanding forward exchange contracts and cross currency swap contracts were as follows:


	Inflow	Outflow
Term	(In Thousands)	(In Thousands)
Within one year	NT$73,480,726	US$	2,254,000

The Company has sufficient operating capital to meet the above cash needs. In addition, there will be corresponding cash inflow for the cash outflow. Therefore, cash flow risk is low.

Fair values of financial instruments were as follows:


	September 30, 2005				September 30, 2004
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Non-derivative financial instruments

Assets
Short-term investments	$	48,821,970	$	48,821,970	$	46,128,381	$	46,201,834
Long-term investments (securities with market price)		33,185,986		37,744,005		24,627,466		27,584,817

(Continued)


	September 30, 2005						September 30, 2004
	Carrying						Carrying
	Amount			Fair Value			Amount			Fair Value
Liabilities
Bonds payable (including current portion)	$	30,000,000		$	30,372,946		$	35,000,000		$	35,655,089

Derivative financial instruments

Assets (liabilities)
Forward exchange contracts (sell)		(285,258	)		(236,202	)		(787,029	)		(349,631	)
Cross currency swap contracts		(1,211,143	)		(872,372	)		—			—
Option contracts		—			115			—			—
Interest rate swap contracts		—			—			4,361			1,391

		The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of the aforementioned financial instruments reported in the balance sheet approximate their fair values.

		The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quoted market prices as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair values. Some of long-term investments do not have quoted market prices; therefore, fair values for those long-term investments are not shown above. The fair value of other long-term payables is determined using the discounted value of expected cash flows, which approximates their carrying amount.

		Fair values of financial instruments were determined as follows:

	a)		Fair value of short-term and publicly traded long-term investments is based on quoted market prices.

	b)		Fair value of bonds payable is based on their quoted market price.

	c)		Fair value of derivative financial instruments is the amount receivable from or payable to the counter-party if the contracts were terminated on the balance sheet date.

The fair values of some financial and non-financial instruments were not included in the fair values disclosed above. Accordingly, the sum of the fair values of the financial instruments listed above does not represent the fair value of the Company as a whole.

Information on investment in Mainland China

	1)		The name of the investee company in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, ratio of ownership, equity in the net gain or net loss, ending balance, amount received as earnings distributions from the investment, and the limitation on investment: Please see Table 8 attached.

	2)		Significant direct or indirect transactions with the investee company, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial reports: Please see Note 18.

TABLE 1

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES

FINANCING PROVIDED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

Financing Company’s

Maximum Balance for

Reasons for

Financing Limit for

Financing Amount

Financial Statement

the Period

Ending Balance

Type of Financing

Short-term

Collateral

Each Borrowing

Limits

No.

Financing Name

Counter-party

Account

(US$ in Thousands)

Interest Rate

(Note 1)

Transaction Amounts

Financing

Allowance for Bad Debt

Item

Value

Company

(US$ in Thousands)

TSMC International

TSMC Development

Other receivables

$1,991,280
( US$ 60,000)

1.50

$—

Operating capital

$—

—

$—

N/A

$32,788,690
( US$ 987,968)
(Note 2)

TSMC Partners

TSMC Development

Other receivables

2,655,040
( US$ 80,000)

995,640
( US$ 30,000)

1.50

—

Operating capital

—

N/A

(Note 3)

Note 1: The type No. 2 represents necessary for short-term financing.

Note 2: Not exceeding the issued capital of the Company.

Note 3: Generally not exceeding the issued capital of the Company, unless approved by all members of the board.

TABLE 2

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES

ENDORSEMENT/GUARANTEE PROVIDED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

Ratio of

Accumulated Amount

Counter-party

Limits on Each

of Collateral to

Maximum

Nature of

Counter-party’s

Maximum

Value of Collateral

Net Equity of the

Collateral/Guarantee

Endorsement/

Relationship

Endorsement/

Balance for the Period

Ending Balance

Property, Plant and

Latest Financial

Amounts Allowable

No.

Guarantee Provider

Name

(Note 2)

Guarantee Amounts

(US$ in Thousands)

Equipment

Statement

(Note 1)

The Company

TSMC Development

Not exceed 10% of the net worth of

$1,991,280
(US$ 60,000

)

$995,640
(US$ 30,000

)

$—

0.24

102,777,783

TSMC-North America

the Company, and be also limited to the paid-in capital of the endorsement/guarante e company, unless otherwise approved by Board of Directors.

1,327,520
(US$ 40,000)

—

0.32

Note 1: 25% of the net worth of the Company as of September 30, 2005.

Note 2: The No. 2 represents a subsidiary in which the Company holds directly over 50% of the equity interest.

The No. 3 represents an investee in which the Company holds directly and indirectly over 50% of the equity interest.

TABLE 3

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES

MARKETABLE SECURITIES HELD
SEPTEMBER 30, 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)


				September 30, 2005
									Market Value or
		Relationship with	Financial Statement	Shares/Units		Carrying Value		Percentage of	Net Asset Value		Note
Held Company Name	Marketable Securities Type and Name	the Company	Account	(In Thousand)		(US$ in Thousands)		Ownership	(US$ in Thousands)

The Company	Government bonds
	United States Treas NTS	—	Short-term investment			US$	79,596	N/A	US$	79,036
	Kreditanstalt Fur Wiederaufbau	—	Short-term investment			US$	6,881	N/A	US$	6,842
	2004 Government Bond Series E	—	Short-term investment		—		300,472	N/A		300,327
	2002 Government Bond Series B	—	Long-term investment		—		357,312	N/A		356,855
	2003 Government Bond Series I	—	Long-term investment		—		3,390,177	N/A		3,389,075
	2004 Government Bond Series A	—	Long-term investment		—		2,349,870	N/A		2,349,084
	2004 Government Bond Series E	—	Long-term investment		—		3,897,408	N/A		3,893,678
	2004 Kaohsiung Municipal Bond Series A	—	Long-term investment		—		620,000	N/A		620,000
	2005 Government Bond Series A	—	Long-term investment		—		2,548,733	N/A		2,545,963

	Bond funds
	JF Taiwan First Bond Fund	—	Short-term investment		63,131		856,359	N/A		872,537
	ABN AMRO Bond Fund	—	Short-term investment		134,906		1,956,175	N/A		1,998,144
	JF Taiwan Bond Fund	—	Short-term investment		62,009		908,656	N/A		929,995
	Invesco R.O.C. Bond Fund	—	Short-term investment		47,945		688,755	N/A		701,606
	Dresdner Bond DAM Fund	—	Short-term investment		69,303		771,617	N/A		789,206
	Shinkong Chi Shin Bond Fund	—	Short-term investment		104,715		1,450,592	N/A		1,475,703
	NITC Bond Fund	—	Short-term investment		3,764		600,000	N/A		608,756
	ABN AMRO Select Bond Fund	—	Short-term investment		18,235		200,000	N/A		203,178
	HSBC Taiwan Money Management Fund	—	Short-term investment		41,568		600,000	N/A		607,561

	Stock
	Taiwan Mask Corp.	—	Short-term investment		1,787		6,528	—		25,479
	TSMC-North America	Subsidiary	Long-term investment		11,000		846,477	100		1,478,514		Treasury stock of NT$632,037 thousand is deducted from the carrying value.
	TSMC-Europe	Subsidiary	Long-term investment		—		23,582	100		23,582
	TSMC-Japan	Subsidiary	Long-term investment		6		99,061	100		99,061
	VIS	Investee accounted for using equity method	Long-term investment		437,891		5,209,161	27		10,071,493

	TSMC International	Subsidiary	Long-term investment		987,968		24,186,711	100		24,186,711
	TSMC Partners	Subsidiary	Long-term investment		300		4,084,085	100		4,084,085
	SSMC	Investee accounted for using equity method	Long-term investment		382		3,906,083	32		3,906,083
	GUC	Investee with controlling financial interest	Long-term investment		40,172		429,936	46		453,957

(Continued)


				September 30, 2005
										Market Value or Net
		Relationship with	Financial Statement	Shares/Units		Carrying Value		Percentage of		Asset Value
Held Company Name	Marketable Securities Type and Name	the Company	Account	(In Thousand)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note

	VisEra	Investee with controlling financial interest	Long-term investment		5,100	$	63,858		25	$	65,096

	United Industrial Gases Co., Ltd.	—	Long-term investment		16,783		193,584		10		280,687
	Shin-Etsu Handotai Taiwan Co., Ltd.	—	Long-term investment		10,500		105,000		7		181,929
	W.K. Technology Fund IV	—	Long-term investment		4,000		40,000		2		45,419
	Hontung Venture Capital Co., Ltd.	—	Long-term investment		8,392		83,916		10		51,239
	Gobaltop Partner I Venture Capital Corp.	—	Long-term investment		5,000		50,000		1		49,601

	Corporate bonds
	Formosa Petrochemical Corporation	—	Short-term investment		—		311,568		N/A		304,783
	Abbott Labs	—	Short-term investment		—	US$	1,581		N/A	US$	1,534
	Abbott Labs	—	Short-term investment		—	US$	2,732		N/A	US$	2,612
	Ace Ltd.	—	Short-term investment		—	US$	1,046		N/A	US$	1,017
	AIG Sunamerica Global Fing Ix	—	Short-term investment		—	US$	1,032		N/A	US$	1,004
	Allstate Life Global Fdg Secd	—	Short-term investment		—	US$	2,998		N/A	US$	2,954
	Alltel Corp.	—	Short-term investment		—	US$	609		N/A	US$	602
	American Express Co.	—	Short-term investment		—	US$	3,550		N/A	US$	3,441
	American Gen Fin Corp.	—	Short-term investment		—	US$	1,768		N/A	US$	1,695
	American Gen Fin Corp. Mtn	—	Short-term investment		—	US$	1,058		N/A	US$	1,016
	American Gen Fin Corp. Mtn	—	Short-term investment		—	US$	3,130		N/A	US$	3,014
	American Honda Fin Corp. Mtn	—	Short-term investment		—	US$	3,800		N/A	US$	3,804
	American Intl Group Inc. Mtnf	—	Short-term investment		—	US$	3,795		N/A	US$	3,794
	Ameritech Capital Funding Co.	—	Short-term investment		—	US$	510		N/A	US$	496
	Amgen Inc.	—	Short-term investment		—	US$	3,005		N/A	US$	2,923
	Amsouth Bk Birmingham Ala	—	Short-term investment		—	US$	1,972		N/A	US$	1,964
	Anz Cap Tr I	—	Short-term investment		—	US$	1,012		N/A	US$	978
	Associates Corp. North Amer	—	Short-term investment		—	US$	2,700		N/A	US$	2,601
	Bank New York Inc.	—	Short-term investment		—	US$	1,972		N/A	US$	1,975
	Bank New York Inc.	—	Short-term investment		—	US$	1,525		N/A	US$	1,488
	Bank Scotland Treas Svcs Plc	—	Short-term investment		—	US$	2,715		N/A	US$	2,718
	Bank Utd Houston Tx Mtbn	—	Short-term investment		—	US$	580		N/A	US$	550
	Bear Stearns Cos Inc.	—	Short-term investment		—	US$	3,518		N/A	US$	3,478
	Bear Stearns Cos Inc.	—	Short-term investment		—	US$	3,757		N/A	US$	3,699
	Beneficial Corp. Mtn Bk Entry	—	Short-term investment		—	US$	2,434		N/A	US$	2,360
	Berkshire Hathaway Fin Corp.	—	Short-term investment		—	US$	1,498		N/A	US$	1,473
	British Telecommunications Plc	—	Short-term investment		—	US$	2,104		N/A	US$	2,017
	Cargill Inc.	—	Short-term investment		—	US$	2,120		N/A	US$	2,023
	Caterpillar Finl Svcs Mtn	—	Short-term investment		—	US$	5,721		N/A	US$	5,717
	Chase Manhattan Corp. New	—	Short-term investment		—	US$	1,628		N/A	US$	1,561
	Chase Manhattan Corp. New	—	Short-term investment		—	US$	2,246		N/A	US$	2,177
	Chubb Corp.	—	Short-term investment		—	US$	2,138		N/A	US$	2,135
	Cit Group Hldgs Inc.	—	Short-term investment		—	US$	3,203		N/A	US$	3,093
	Citicorp	—	Short-term investment		—	US$	1,473		N/A	US$	1,421
	Cogentrix Energy Inc.	—	Short-term investment		—	US$	2,885		N/A	US$	2,772
	Colonial Pipeline Co.	—	Short-term investment		—	US$	1,625		N/A	US$	1,551
	Consolidated Edison Co. Ny Inc.	—	Short-term investment		—	US$	3,688		N/A	US$	3,522

(Continued)


				September 30, 2005
									Market Value or
						Carrying Value			Net Asset Value
		Relationship with	Financial Statement	Shares/Units		(US$ in		Percentage of	(US$ in
Held Company Name	Marketable Securities Type and Name	the Company	Account	(In Thousand)		Thousands)		Ownership	Thousands)		Note

	Corestates Cap Corp.	—	Short-term investment		—	US$	1,062	N/A	US$	1,026
	Countrywide Fdg Corp. Mtn	—	Short-term investment		—	US$	3,500	N/A	US$	3,501
	Countrywide Fdg Corp. Mtn	—	Short-term investment		—	US$	2,100	N/A	US$	2,083
	Countrywide Finl Corp.	—	Short-term investment		—	US$	3,000	N/A	US$	3,001
	Countrywide Home Lns Inc.	—	Short-term investment		—	US$	5,210	N/A	US$	5,043
	Credit Suisse Fb USA Inc.	—	Short-term investment		—	US$	4,141	N/A	US$	4,052
	Credit Suisse Fincl Products	—	Short-term investment		—	US$	1,507	N/A	US$	1,507
	Credit Suisse First Boston	—	Short-term investment		—	US$	786	N/A	US$	754
	Credit Suisse First Boston USA	—	Short-term investment		—	US$	2,249	N/A	US$	2,191
	Daimlerchrysler North Amer	—	Short-term investment		—	US$	997	N/A	US$	971
	Daimlerchrysler North Amer Hld	—	Short-term investment		—	US$	749	N/A	US$	749
	Dayton Hudson Corp.	—	Short-term investment		—	US$	2,104	N/A	US$	2,071
	Deere John Cap Corp.	—	Short-term investment		—	US$	5,079	N/A	US$	5,042
	Dell Computer Corp.	—	Short-term investment		—	US$	3,054	N/A	US$	2,913
	Den Danske Bk Aktieselskab	—	Short-term investment		—	US$	2,192	N/A	US$	2,085
	Diageo Plc	—	Short-term investment		—	US$	3,459	N/A	US$	3,428
	Dow Chem Co.	—	Short-term investment		—	US$	921	N/A	US$	873
	European Invt Bk	—	Short-term investment		—	US$	3,918	N/A	US$	3,907
	European Invt Bk	—	Short-term investment		—	US$	8,315	N/A	US$	8,055
	Fifth Third Bk Cincinnati OH	—	Short-term investment		—	US$	2,419	N/A	US$	2,420
	First Data Corp.	—	Short-term investment		—	US$	3,013	N/A	US$	2,921
	Fleet Boston Corp.	—	Short-term investment		—	US$	2,850	N/A	US$	2,745
	Fleet Finl Group Inc. New	—	Short-term investment		—	US$	975	N/A	US$	930
	Fleet Finl Group Inc. New	—	Short-term investment		—	US$	494	N/A	US$	477
	Fpl Group Cap Inc.	—	Short-term investment		—	US$	1,001	N/A	US$	995
	Fpl Group Cap Inc.	—	Short-term investment		—	US$	860	N/A	US$	847
	Gannett Co Inc.	—	Short-term investment		—	US$	2,999	N/A	US$	2,960
	General Elec Cap Corp. Mtn	—	Short-term investment		—	US$	3,989	N/A	US$	3,915
	General Elec Cap Corp. Mtn	—	Short-term investment		—	US$	8,862	N/A	US$	8,790
	General Re Corp.	—	Short-term investment		—	US$	3,500	N/A	US$	3,475
	Genworth Finl Inc.	—	Short-term investment		—	US$	3,412	N/A	US$	3,415
	Goldman Sachs Group Inc.	—	Short-term investment		—	US$	3,477	N/A	US$	3,459
	Goldman Sachs Group LP	—	Short-term investment		—	US$	1,637	N/A	US$	1,543
	Greenpoint Finl Corp.	—	Short-term investment		—	US$	974	N/A	US$	959
	Gte Corp.	—	Short-term investment		—	US$	2,134	N/A	US$	2,053
	Hancock John Global Fdg II Mtn	—	Short-term investment		—	US$	3,566	N/A	US$	3,527
	Hancock John Global Fdg Mtn	—	Short-term investment		—	US$	1,003	N/A	US$	972
	Hartford Finl Svcs Group Inc.	—	Short-term investment		—	US$	296	N/A	US$	296
	Hartford Finl Svcs Group Inc.	—	Short-term investment		—	US$	1,435	N/A	US$	1,382
	Hbos Plc Medium Term Sr Nts	—	Short-term investment		—	US$	3,201	N/A	US$	3,184
	Hbos Plc Meduim Term Sr Nts	—	Short-term investment		—	US$	2,977	N/A	US$	2,946
	Heller Finl Inc.	—	Short-term investment		—	US$	2,071	N/A	US$	1,995
	Hershey Foods Corp.	—	Short-term investment		—	US$	1,627	N/A	US$	1,551
	Hewlett Packard Co.	—	Short-term investment		—	US$	3,373	N/A	US$	3,220
	Honeywell Inc.	—	Short-term investment		—	US$	3,284	N/A	US$	3,108
	Household Fin Corp.	—	Short-term investment		—	US$	2,993	N/A	US$	2,919

(Continued)


				September 30, 2005
									Market Value or
						Carrying Value			Net Asset Value
		Relationship with	Financial Statement	Shares/Units		(US$ in		Percentage of	(US$ in
Held Company Name	Marketable Securities Type and Name	the Company	Account	(In Thousand)		Thousands)		Ownership	Thousands)		Note

	Household Fin Corp.	—	Short-term investment		—	US$	532	N/A	US$	516
	Household Fin Corp. Mtn Bk Ent	—	Short-term investment		—	US$	3,542	N/A	US$	3,490
	HSBC USA Inc. New	—	Short-term investment		—	US$	1,154	N/A	US$	1,100
	Huntington Natl Bk	—	Short-term investment		—	US$	3,003	N/A	US$	3,001
	Huntington Natl Bk Columbus OH	—	Short-term investment		—	US$	2,954	N/A	US$	2,950
	ING Bank	—	Short-term investment		—	US$	2,114	N/A	US$	2,041
	ING Sec Life Instl Fdg	—	Short-term investment		—	US$	2,544	N/A	US$	2,496
	International Business Machs	—	Short-term investment		—	US$	2,249	N/A	US$	2,214
	International Lease Fin Corp.	—	Short-term investment		—	US$	2,031	N/A	US$	2,017
	International Lease Fin Corp.	—	Short-term investment		—	US$	2,455	N/A	US$	2,437
	Intl Lease Fin Corp. Mtn	—	Short-term investment		—	US$	3,028	N/A	US$	2,964
	JP Morgan Chase + Co.	—	Short-term investment		—	US$	3,406	N/A	US$	3,384
	Jackson Natl Life Global Fdg	—	Short-term investment		—	US$	1,036	N/A	US$	1,011
	Jackson Natl Life Global Fdg S	—	Short-term investment		—	US$	1,999	N/A	US$	2,003
	JP Morgan Chase + Co.	—	Short-term investment		—	US$	3,663	N/A	US$	3,539
	Key Bk Na Med Term Nts Bk Entr	—	Short-term investment		—	US$	4,450	N/A	US$	4,427
	Keycorp Mtn Book Entry	—	Short-term investment		—	US$	3,500	N/A	US$	3,509
	Kraft Foods Inc.	—	Short-term investment		—	US$	773	N/A	US$	752
	Kraft Foods Inc.	—	Short-term investment		—	US$	1,037	N/A	US$	1,012
	Lehman Brothers Hldgs Inc.	—	Short-term investment		—	US$	1,668	N/A	US$	1,639
	Lehman Brothers Hldgs Inc.	—	Short-term investment		—	US$	499	N/A	US$	493
	Lehman Brothers Hldgs Inc.	—	Short-term investment		—	US$	3,705	N/A	US$	3,532
	Lehman Brothers Hldgs Inc.	—	Short-term investment		—	US$	1,163	N/A	US$	1,117
	Lincoln Natl Corp. In	—	Short-term investment		—	US$	519	N/A	US$	505
	Merita Bk Ltd. Ny Brh	—	Short-term investment		—	US$	538	N/A	US$	517
	Merrill Lynch + Co. Inc.	—	Short-term investment		—	US$	3,486	N/A	US$	3,422
	Merrill Lynch + Co. Inc.	—	Short-term investment		—	US$	1,992	N/A	US$	1,988
	Metropolitan Life Global Mtn	—	Short-term investment		—	US$	1,907	N/A	US$	1,890
	Monumental Global Fdg II	—	Short-term investment		—	US$	1,534	N/A	US$	1,483
	Monumental Global Fdg II 2002A	—	Short-term investment		—	US$	1,045	N/A	US$	1,009
	Morgan Stanley	—	Short-term investment		—	US$	2,136	N/A	US$	2,083
	Morgan Stanley Group Inc.	—	Short-term investment		—	US$	4,507	N/A	US$	4,457
	National City Corp.	—	Short-term investment		—	US$	3,426	N/A	US$	3,383
	National Westminster Bk Plc	—	Short-term investment		—	US$	1,433	N/A	US$	1,372
	Nationwide Bldg Soc	—	Short-term investment		—	US$	3,457	N/A	US$	3,457
	Nationwide Bldg Soc Mtn	—	Short-term investment		—	US$	3,000	N/A	US$	2,998
	Nationwide Life Global Mtn	—	Short-term investment		—	US$	1,463	N/A	US$	1,456
	Northern Rock Plc Medium Term	—	Short-term investment		—	US$	2,002	N/A	US$	1,994
	Pepsico Inc. Mtn Book Entry	—	Short-term investment		—	US$	3,818	N/A	US$	3,702
	Pnc Fdg Corp.	—	Short-term investment		—	US$	1,080	N/A	US$	1,037
	Popular North Amer Inc. Mtn	—	Short-term investment		—	US$	3,042	N/A	US$	2,955
	Premark Intl Inc.	—	Short-term investment		—	US$	2,954	N/A	US$	2,818
	Pricoa Global Fdg 1 Mtn	—	Short-term investment		—	US$	3,500	N/A	US$	3,501
	Protective Life Secd Trs	—	Short-term investment		—	US$	2,920	N/A	US$	2,911
	Prudential Ins Co. Amer	—	Short-term investment		—	US$	2,648	N/A	US$	2,539
	Prudential Ins Co. Amer	—	Short-term investment		—	US$	2,774	N/A	US$	2,731

(Continued)


				September 30, 2005
									Market Value or
						Carrying Value			Net Asset Value
		Relationship with	Financial Statement	Shares/Units		(US$ in		Percentage of	(US$ in
Held Company Name	Marketable Securities Type and Name	the Company	Account	(In Thousand)		Thousands)		Ownership	Thousands)		Note

	Public Svc Elec Gas Co.	—	Short-term investment		—	US$	3,225	N/A	US$	3,212
	Regions Finl Corp New	—	Short-term investment		—	US$	2,397	N/A	US$	2,386
	Reinsurance Group Amer Inc.	—	Short-term investment		—	US$	2,091	N/A	US$	2,026
	Royal Bk Scotland Group Plc	—	Short-term investment		—	US$	1,563	N/A	US$	1,501
	Royal Bk Scotland Group Plc	—	Short-term investment		—	US$	369	N/A	US$	353
	Safeco Corp.	—	Short-term investment		—	US$	765	N/A	US$	736
	Sara Lee Corp.	—	Short-term investment		—	US$	1,596	N/A	US$	1,540
	Sbc Communications Inc.	—	Short-term investment		—	US$	1,776	N/A	US$	1,729
	Sbc Communications Inc.	—	Short-term investment		—	US$	3,681	N/A	US$	3,530
	Scotland Intl Fin B V 144a	—	Short-term investment		—	US$	1,533	N/A	US$	1,464
	Shell Finance (UK) Plc	—	Short-term investment		—	US$	3,604	N/A	US$	3,503
	Slm Corp.	—	Short-term investment		—	US$	500	N/A	US$	496
	Slm Corp. Medium Term Nts	—	Short-term investment		—	US$	2,950	N/A	US$	2,929
	Sp Powerassests Ltd. Global	—	Short-term investment		—	US$	991	N/A	US$	977
	St Paul Cos Inc. Mtn Bk Ent	—	Short-term investment		—	US$	2,661	N/A	US$	2,606
	Suntrust Bks Inc.	—	Short-term investment		—	US$	1,062	N/A	US$	1,023
	Swedbank Sparbanken Svenge Ab	—	Short-term investment		—	US$	1,084	N/A	US$	1,029
	Tiaa Global Mkts Inc.	—	Short-term investment		—	US$	519	N/A	US$	503
	Tribune Co. Med Trm Nts	—	Short-term investment		—	US$	2,943	N/A	US$	2,873
	Unitedhealth Group Inc.	—	Short-term investment		—	US$	3,119	N/A	US$	3,029
	US Bk Natl Assn Cincinnati Oh	—	Short-term investment		—	US$	2,669	N/A	US$	2,673
	Virginia Elec + Pwr Co.	—	Short-term investment		—	US$	2,884	N/A	US$	2,727
	Vodafone Group Plc New	—	Short-term investment		—	US$	2,559	N/A	US$	2,515
	Wal Mart Cda Venture Corp.	—	Short-term investment		—	US$	3,670	N/A	US$	3,523
	Washington Mut Fin Corp.	—	Short-term investment		—	US$	1,043	N/A	US$	1,012
	Washington Mut Inc.	—	Short-term investment		—	US$	4,735	N/A	US$	4,563
	Washington Post Co.	—	Short-term investment		—	US$	3,182	N/A	US$	3,073
	Wells Fargo + Co. New	—	Short-term investment		—	US$	3,697	N/A	US$	3,537
	Westfield Cap Corp. Ltd.	—	Short-term investment		—	US$	1,999	N/A	US$	2,007
	Wps Resources Corp.	—	Short-term investment		—	US$	1,107	N/A	US$	1,084
	China Steel Corporation	—	Long-term investment		—		2,915,834	N/A		2,915,588
	Taiwan Power Company	—	Long-term investment		—		2,005,495	N/A		2,005,575
	Nan Ya Plastics Corporation	—	Long-term investment		—		1,157,394	N/A		1,158,270
	Formosa Plastics Corporation	—	Long-term investment		—		270,021	N/A		270,836
	Formosa Chemicals & Fiber Corporation	—	Long-term investment		—		134,929	N/A		137,529

	Agency bonds
	Fed Hm Ln Pc Pool 1H2520	—	Short-term investment		—	US$	3,961	N/A	US$	3,964
	Fed Hm Ln Pc Pool 1H2524	—	Short-term investment		—	US$	2,992	N/A	US$	2,977
	Fed Hm Ln Pc Pool E89857	—	Short-term investment		—	US$	2,081	N/A	US$	2,040
	Fed Hm Ln Pc Pool G11295	—	Short-term investment		—	US$	1,861	N/A	US$	1,824
	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	1,544	N/A	US$	1,535
	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	3,735	N/A	US$	3,700
	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	3,954	N/A	US$	3,949
	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	6,096	N/A	US$	5,978
	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	3,558	N/A	US$	3,470

(Continued)


				September 30, 2005
									Market Value or
						Carrying Value			Net Asset Value
		Relationship with	Financial Statement	Shares/Units		(US$ in		Percentage of	(US$ in
Held Company Name	Marketable Securities Type and Name	the Company	Account	(In Thousand)		Thousands)		Ownership	Thousands)		Note

	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	5,142	N/A	US$	5,101
	Federal Home Ln Mtg Corp.	—	Short-term investment		—	US$	3,890	N/A	US$	3,877
	Federal Natl Mtg Assn	—	Short-term investment		—	US$	3,992	N/A	US$	3,976
	Federal Natl Mtg Assn	—	Short-term investment		—	US$	487	N/A	US$	480
	Federal Natl Mtg Assn	—	Short-term investment		—	US$	2,559	N/A	US$	2,502
	Federal Natl Mtg Assn	—	Short-term investment		—	US$	4,030	N/A	US$	4,006
	Federal Natl Mtg Assn	—	Short-term investment		—	US$	4,051	N/A	US$	4,017
	Federal Natl Mtg Assn	—	Short-term investment		—	US$	2,222	N/A	US$	2,168
	Federal Natl Mtg Assn Gtd	—	Short-term investment		—	US$	1,063	N/A	US$	1,033
	Fnma Pool 254507	—	Short-term investment		—	US$	2,485	N/A	US$	2,457
	Fnma Pool 254834	—	Short-term investment		—	US$	1,843	N/A	US$	1,832
	Fnma Pool 685116	—	Short-term investment		—	US$	877	N/A	US$	859
	Fnma Pool 725095	—	Short-term investment		—	US$	1,675	N/A	US$	1,639
	Fnma Pool 730033	—	Short-term investment		—	US$	1,864	N/A	US$	1,853
	Fnma Pool 740934	—	Short-term investment		—	US$	1,867	N/A	US$	1,857
	Fnma Pool 790828	—	Short-term investment		—	US$	3,811	N/A	US$	3,715
	Fnma Pool 793025	—	Short-term investment		—	US$	3,637	N/A	US$	3,580
	Fnma Pool 793932	—	Short-term investment		—	US$	813	N/A	US$	797
	Fnma Pool 794040	—	Short-term investment		—	US$	952	N/A	US$	932
	Fnma Pool 795548	—	Short-term investment		—	US$	690	N/A	US$	680
	Fnma Pool 806642	—	Short-term investment		—	US$	1,712	N/A	US$	1,692
	Fnma Pool 816594	—	Short-term investment		—	US$	2,811	N/A	US$	2,788
	Fnma Pool 825395	—	Short-term investment		—	US$	3,345	N/A	US$	3,316
	Fnma Pool 825398	—	Short-term investment		—	US$	5,007	N/A	US$	4,957
	Fnma Pool 841069	—	Short-term investment		—	US$	3,966	N/A	US$	3,942
	Gnma II Pool 081150	—	Short-term investment		—	US$	871	N/A	US$	853
	Gnma II Pool 081153	—	Short-term investment		—	US$	3,240	N/A	US$	3,165
	Fed Hm Ln Pc	—	Short-term investment		—	US$	3,466	N/A	US$	3,476
	Federal Farm Cr Bks	—	Short-term investment		—	US$	3,985	N/A	US$	3,949
	Federal Home Ln Bks	—	Short-term investment		—	US$	2,454	N/A	US$	2,477
	Federal Home Ln Bks	—	Short-term investment		—	US$	2,990	N/A	US$	2,982
	Federal Home Ln Bks	—	Short-term investment		—	US$	3,932	N/A	US$	3,936
	Federal Home Ln Bks	—	Short-term investment		—	US$	4,997	N/A	US$	4,956
	Federal Home Ln Bks	—	Short-term investment		—	US$	2,962	N/A	US$	2,947
	Federal Home Ln Bks	—	Short-term investment		—	US$	4,927	N/A	US$	4,898
	Federal Home Ln Bks	—	Short-term investment		—	US$	3,976	N/A	US$	3,950
	Federal Home Ln Bks	—	Short-term investment		—	US$	4,136	N/A	US$	4,104
	Federal Home Ln Bks	—	Short-term investment		—	US$	4,939	N/A	US$	4,897
	Federal Home Ln Bks	—	Short-term investment		—	US$	7,886	N/A	US$	7,886
	Federal Home Ln Bks	—	Short-term investment		—	US$	2,233	N/A	US$	2,226
	Federal Home Ln Bks	—	Short-term investment		—	US$	4,965	N/A	US$	4,949
	Federal Home Ln Bks	—	Short-term investment		—	US$	7,558	N/A	US$	7,517
	Federal Home Ln Bks	—	Short-term investment		—	US$	8,594	N/A	US$	8,538
	Federal Home Ln Bks	—	Short-term investment		—	US$	3,972	N/A	US$	3,969
	Federal Home Ln Bks	—	Short-term investment		—	US$	7,887	N/A	US$	7,780
	Federal Home Ln Bks	—	Short-term investment		—	US$	6,099	N/A	US$	5,931

(Continued)

September 30, 2005