YAGEO - Capital/Financing Update 2014

Offering Circular dated June 4, 2007

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(incorporated as a company limited by shares in Taiwan, the Republic of China)

US$230,000,000 Zero Coupon Convertible Instruments Due 2014

The US$230,000,000 Zero Coupon Convertible Instruments Due 2014 (the “Instruments”) will be issued by Yageo Corporation (the “Company” or “Yageo”), a company limited by shares incorporated in Taiwan, the Republic of China (“ROC”). Except during certain closed periods, the Instruments may be converted into the common shares, par value of NT$10 per share, of the Company (the “Shares”) at any time on or after July 12, 2007 and prior to the close of business on May 31, 2014. Subject to compliance with the Indenture under which the Instruments will be issued, applicable laws and the relevant deposit agreement, holders of the Instruments may also elect to direct that the Shares issued upon conversion of the Instruments be deposited with the custodian for Citibank, N.A., as depositary for issuance of global depositary receipts, each representing 5 Shares (the “GDRs”). The Conversion Price will initially be NT$16.15 per Share (equivalent to approximately US$0.49 per GDR based on an exchange rate of NT$33.01 = US$1) and will be subject to adjustment in the manner provided herein. A fixed rate of exchange of NT$33.01 = US$1.00 (the “Fixed Exchange Rate”) will apply upon conversion of the Instruments. The Shares are listed on the Taiwan Stock Exchange. The closing price of the Shares on June 1, 2007 was NT$14.8 per share. Application will be made to list the Shares issuable upon conversion of the Instruments on the Taiwan Stock Exchange. The Regulation S GDRs (as defined herein) issuable upon conversion of the Instruments are quoted on the Luxemburg Stock Exchange and are quoted on the CLOB International of Singapore and the Rule 144A GDRs (as defined herein), have been designated for trading in the PORTAL Market of the United States National Association of Securities Dealers, Inc.

Unless previously redeemed, repurchased and cancelled, or converted, the Instruments will be redeemed at 100% of their principal amount in US dollars on June 11, 2014. Prior to June 11, 2011, the Company may redeem an amount of Instruments at 100% of their principal amount from each holder up to (x) 50% of the difference between the original principal amount of the Instruments held by such holder less the principal amount of the Instruments previously sold by such holder less (y) the principal amount of the Instruments that have been converted by the holder and that have been required to be redeemed by the Company, if the Closing Price (as defined herein) of the Shares, translated into US dollars at the prevailing exchange rate, for a period of 14 consecutive Trading Days (as defined herein) is at least 145% of the Conversion Price then in effect (translated into US dollars at the Fixed Exchange Rate). Subsequent to June 12, 2011 until May 31, 2014, the Company may redeem an amount of Instruments at 100% of their principal amount from each holder up to (x) (aa) 33.3%, (bb) 66.6% or (cc) 100% of the difference between the original principal amount of the Instruments held by such holder less the amount of the Instruments previously sold by such holder, in each case less (y) the principal amount of the Instruments that have been converted by the holder and that have been required to be redeemed by the Company, if the Closing Price of the Shares, translated into US dollars at the prevailing exchange rate, for a period of 14 consecutive Trading Days is at least 120% (in the case of (aa) above), 130% (in the case of (bb) above) or 140% (in the case of (cc) above) of the Conversion Price then in effect (translated into US dollars at the Fixed Exchange Rate). If the Company exercises its right to redeem the Instruments, Holders may elect convert the Instruments into Shares or GDRs during the thirty days following the issuance of the notice of redemption by the Company.

Issue Price 100%

The Instruments, the Shares to be issued upon conversion of the Instruments and the GDRs representing such Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws and may not be offered or sold in the United States or to or for the account of U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Instruments are being offered and sold (i) outside the United States and the Republic of China to non-U.S. persons in accordance with Regulation S under the Securities Act and (ii) in the United States under the exemption provided by Section 4(2) of the Securities Act. For a description of restrictions on transfer of the Instruments, see “Transfer Restrictions”.

The Instruments will be represented by beneficial interests in one or more global Instruments in registered form, deposited with a common depositary for, and registered in the name of a nominee of Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream”). Beneficial interests in a global Instrument will be shown on, and transfer thereof will be effected only through, the records maintained by Euroclear and Clearstream and their respective participants. The Instruments have been accepted for clearance through Euroclear and Clearstream.

This Offering Circular has been prepared by the Company for reference purposes only and accordingly the Company does not represent, warrant or give any assurance in respect of the information contained herein. Persons intending to purchase the Instruments shall make their investment decisions based on their own independent research and information, and not in reliance on this Offering Circular.

THE OFFERING..........................................................................................................................................3 USE OF PROCEEDS...................................................................................................................................6 BUSINESS...................................................................................................................................................7 TERMS AND CONDITIONS OF THE INSTRUMENTS ..........................................................................9 CONVERSION INTO GDRs.....................................................................................................................20 TERMS AND CONDITIONS OF THE GDRs ..........................................................................................25 TRANSFER RESTRICTIONS ..................................................................................................................44

APPENDIX 1 Yageo Corporation Financial Statements for the Years Ended December 31, 2006 and 2005

THE OFFERING

Terms used in this section and not otherwise defined shall have the meanings given to them in “Terms and Conditions of the Instruments.”

Issuer	Yageo Corporation.
Instruments	US$230,000,000 Zero Coupon Convertible Instruments due 2014.
Issue Price	100% of the principal amount of the Instruments.
Interest	The Instruments will not bear interest.
Conversion Right	Subject to prior permitted redemption and subject as otherwise provided
	herein, the Instruments are convertible at any time on or after July 12, 2007
	and prior to the close of business (at the place the Instrument is deposited for
	conversion) on May 31, 2014, except during any “Closed Period” (being any
	period during which under the laws of the ROC the Company shall close its
	shareholder register, which period currently includes 60 days prior to the
	date of the annual general meeting of shareholders, 30 days prior to a special
	shareholders’ meeting, five days prior to a record date or such other periods
	determined by ROC law applicable from time to time; and the period from
	the date three Taiwan business days prior to the Company’s notification to
	the Taiwan Stock Exchange (the “TSE”) (and public announcement) in
	respect of a record date (and the relevant closure of the shareholders’
	register) for determining the identity of shareholders entitled to receive
	annual dividend distribution or other rights or benefits in any one year to the
	date of such record date for that year, into newly issued Shares at a
	conversion price per Share (subject to adjustment as described herein) of
	NT$16.15, determined on the basis of a fixed exchange rate of NT$33.01 =
	US$1.00. See “Terms and Conditions of the Instruments - Conversion”.

In addition, subject to compliance with the terms and conditions of the relevant Deposit Agreement (as defined in “Conversion into GDRs”), a holder may elect to direct the Company to procure that Shares issued upon conversion of the Instruments be deposited with the custodian for Citibank, N.A., as depositary for the issuance of GDRs; provided, however, that no holder may elect to receive GDRs upon the conversion of any Instruments prior to the Unrestricted Date (defined in the Indenture as the 41st day after the later of (i) the commencement of the offering of the Instruments and (ii) the Closing Date), and Holder who elects to convert Instruments prior to such date shall be required to agree not to deposit Shares received upon conversion in the depositary receipt facilities of the Company until after such date. See “Conversion into GDRs”. Each GDR represents five Shares. Any Holder who elects to convert Instruments into GDRs shall pay the applicable fees of the GDR Depositary in connection with the issuance of such GDRs directly to the GDR Depositary in accordance with the terms and conditions of the applicable Deposit Agreement.

Conversion Price Reset The Conversion Price will be adjusted in accordance with Condition 5(C) on the reset dates described herein if the average Trading Price falls below certain thresholds. See “Terms and conditions of the Instruments - Conversion – Adjustment to Conversion Price”.

Final Redemption Unless previously redeemed, converted or purchased and cancelled, the Company will redeem each Instrument at 100% of its principal amount in US dollars on June 11, 2014. See “Terms and conditions of the Instruments - Redemption, Repurchase and Cancellation”.

Redemption at the Option of The Company may redeem the Instruments at 100% of their principal the Company amount from each holder of the Instruments during the periods, in the

amounts and subject to certain Closing Price thresholds of the Shares described in the terms and conditions of the Indenture. See “Terms and conditions of the Instruments - Redemption, Repurchase and Cancellation - Redemption at the option of the Company”.

	If the Company exercises its right to redeem the Instruments, Holders may
	elect convert the Instruments into Shares or GDRs during the thirty days
	following the issuance of the notice of redemption by the Company.
Form and Denomination of	The Instruments shall be issued in registered form, without coupons, in the
the Instruments	denomination of US$100,000 each. The Instruments shall be offered, sold
	and transferred in the principal amount of US$100,000 or an integral
	multiple thereof. The Instruments are offered and sold in reliance on
	Regulation S under the Securities Act (“Regulation S”) and will be
	represented by beneficial interests in a single Global Certificate, deposited
	on or before the Closing Date with a common depositary for and registered
	in the name of a nominee of Euroclear. Except under limited circumstances
	described in the Indenture, certificates for Instruments will not be issued in
	exchange for beneficial interests in the Global Certificate.
Status	The Instruments will constitute direct, unconditional, unsubordinated and
	unsecured obligations of the Company and will rank pari passu among
	themselves and shall at all times rank at least equally with all other present
	and future direct, unconditional, unsubordinated and unsecured obligations
	of the Company.
	The Shares issuable upon conversion of the Instruments will rank pari passu
	among themselves and shall at all times be fungible with the then
	outstanding Shares.
Negative Pledge	The Company shall not, and shall not permit any of its Principal
	Subsidiaries (as defined in the Indenture) to, create or permit to subsist
	security, present or future, to secure for the benefit of the holders of any
	securities any payment of any sum due in respect of or under any guarantee
	of or payment under any indemnity or other like obligation relating to any
	such securities without granting equivalent security for the Instruments. See
	“Terms and Conditions of the Instruments - Negative Pledge”.
Governing Law	The Indenture and the Instruments will be governed by the laws of the State
	of New York.
Trustee	Citibank, N.A.
Depositary	Citibank, N.A.
Placement Agent	Capital Securities (Hong Kong) Ltd.
Listing	The Shares are listed on the Taiwan Stock Exchange and application will be
	made for the Shares issuable upon conversion of the Instruments to be listed
	on the TSE.
	The Company had 28,129,005 GDRs outstanding on May 31, 2007
	representing 140,645,051 Shares. Each GDR represents five Shares. The
	Regulation S GDRs are listed on the Luxembourg Stock Exchange and are
	quoted on CLOB International in Singapore, and the outstanding 144A
	GDRs (as defined in “Terms and conditions of the GDRs”) have been
	designated for trading in the PORTAL Market of the United States National
	Association of Securities Dealers, Inc. (“PORTAL”).

Placement of the Instruments 99% of the Instruments will be placed to and purchased by Components Investment Holdings Limited. Components Investment Holdings Limited

proposes to subscribe for up to US$227,700,000 principal amount of the Instruments at par.

USE OF PROCEEDS

The net proceeds of the issue of the Instruments are estimated to amount to approximately US$230,000,000. The Company will use the net proceeds for the purchase of raw materials, machinery, equipment and factory facilities overseas and the repayment of outstanding foreign currency loans.

BUSINESS

Overview

The Company and its consolidated subsidiaries (the “Group”) is one of the world’s leading manufacturers of passive components, with production and sales operations in Asia, Europe and the Americas. The Group currently manufactures three principal types of passive components: resistors, capacitors and ferrites/inductors. Passive components are used in a wide range of electronic devices and their main function is to regulate, store or alter the electrical voltage or current that flows through such devices.

The principal types of resistors produced by the Group are chip resistors, chip arrays and leaded resistors. The principal types of capacitors produced by the Group are MLCCs. The principal types of ferrite products produced by the Group are ferrite cores, coils, chip beads and inductive electromagnetic interference components. The Group also produces specialty ceramic and high frequency antennas used in cellular phones and wireless LAN applications for personal computers. The Group's resistor and capacitor products are principally marketed under the “Yageo” and “Phycomp” brands and its ferrite and inductor products are principally marketed under the “Ferroxcube” brand. The Company believes the Group is one of the few passive component players in the world that provides a comprehensive range of resistors, capacitors and ferrites/inductors.

The Group’s principal customers comprise some of the world’s leading technology and consumer electronics original equipment manufacturers (“OEM”), component distributors, original design manufacturers (“ODM”) and electronics manufacturing services (“EMS”) providers. The Group’s principal OEM customers include major Electronic Device Peripheral manufacturers, consumer electronics and telecommunication equipment manufacturers, such as Acer, Alcatel, Apple, Cisco, Dell, Echostar, Ericsson, IBM, Intel, HPQ, Lucent, Motorola, Nokia, Nortel, Philips, Quanta, Sagem, Siemens and Sony. The Group's principal distributors include Arrow, Avnet, Eurodis, Rutronik and TTI. The Group’s principal EMS customers include Celestica, Flextronics, Jabil Circuit, SCI and Solectron.

The Group had consolidated net sales of NT$20, 791 million and consolidated net profits of NT$1,978 million for the year ended December 31, 2006. As of December 31, 2006, the Group had total assets of NT$46,337 million on a consolidated basis.

The Company was founded by Mr. M.Y. Chen and was incorporated on July 10, 1977 under the name Yageo Company Limited (“YCL”) under the Company Law of the Republic of China. YCL manufactured leaded resistors under contract for resistor producers and designed and built resistor factories for third parties on a turnkey basis. YCL merged with Taiwan Resistance Corporation, a manufacturer of leaded resistors in Kaohsiung, Southern Taiwan in 1989 and adopted the name “Yageo Corporation”.

The registered office and head office of the Company is 3F, No. 233-1, Baoqiao Road, Xindian, Taipei 231, Taiwan, ROC. The uniform registration number of the Company is 22636630.

The Company's Shares were listed on the TSE in October 1993 and the existing GDRs were listed on the Luxembourg Stock Exchange in September 1994. As at the close of business on May 2, 2007, the Company had an equity market capitalization of approximately NT$31.98 billion based on the stock price of NT$13.20 per share.

Competitive Strengths

The Group is one of the world's leading passive component manufacturers in terms of its combined market share in the chip resistor, capacitor and ferrite/inductor markets. The Company believes that it possesses the following key strengths:

� Global manufacturing facilities - The Group has manufacturing facilities in Taiwan, the People’s Republic of China (“PRC”), Portugal, Spain and Poland, as well as 24 branch offices across three continents. These facilities allow the Group to capitalize on growth in the ODM and EMS markets. In particular, the Group’s capacity expansion in the PRC makes the Group well positioned to service those customers who have expanded their operations in the Great China region. The Group’s global infrastructure offers a logistical advantage over its competitors in providing timely customer service and delivering products on a just-in-time basis.

� Technology and co-design capability - The Group has over 30 years experience in the passive components industry. This provides the Group with a depth of expertise in technical and scientific development in materials research and production processes for passive components. This also enables the Group to offer customers a diversified range of co-design and application services, as well as innovative and cost effective products in accordance with its customers’ technical and application specifications.

� Comprehensive product range - The Group is one of the few passive components players with the ability to provide a comprehensive range of resistor, capacitor, ferrite/inductor and high frequency antenna products on a global basis. All of these products are essential components in all electronic devices, allowing customers to benefit from the advantages of purchasing from a single supplier.

� Cost control - The Group's size, technologies such as base metal electrode and experience in mass production, allows it to take advantage of economies of scale and synergies in procurement, production, marketing and distribution. The Group’s significant operations in the PRC enhance its ability to provide competitive and cost effective solutions.

TERMS AND CONDITIONS OF THE INSTRUMENTS

The following terms and conditions (subject to amendment and except for the sentences in italics) will be endorsed on the Certificates issued in respect of the Instruments:

The issue of US$230,000,000 Zero Coupon Convertible Instruments due 2014 (the “Instruments”) of Yageo Corporation was authorized by a resolution of the Board of Directors of the Company adopted on April 20, 2007. The Instruments are constituted by a trust indenture dated June 11 , 2007 (the “Indenture”) between the Company and Citibank, N.A. as the trustee (the “Trustee”, which term includes all persons for the time being the trustee or trustees under the Indenture) for the holders of the Instruments (the “Holders”). Citibank, N.A. will act as registrar, principal paying, conversion and transfer agent and are, together with the other paying, conversion and transfer agents appointed thereunder, referred to as the “Agents” in relation to the Instruments. The registrar, principal paying and conversion agent, paying agents, conversion agents and transfer agents for the time being are referred to below as the “Registrar”, the “Principal Agent”, the “Paying Agents” (which expression shall include the Principal Agent), the “Conversion Agents” (which expression shall include the Principal Agent) and the “Transfer Agents” (which expression shall include the Registrar), respectively. The statements in these Terms and Conditions include summaries of, and are subject to, the detailed provisions of the Indenture. Copies of the Indenture are available for inspection at the registered office of the Trustee being at the date hereof at Citigroup Centre, 21th Floor, Canada Square, Canary Wharf, London E14 5LB, United Kingdom and at the specified offices of each of the Agents. The Holders are entitled to the benefit of the Indenture and are bound by, and are deemed to have notice of, all the provisions of the Indenture.

1. STATUS

The Instruments constitute direct, unconditional, unsubordinated and, subject to the provisions of Condition 3(A), unsecured obligations of the Company and shall at all times rank pari passu and without any preference or priority among themselves and, subject to the provisions of Condition 3(A), with all other present and future direct, unconditional, unsubordinated and unsecured obligations of the Company, except any obligation preferred by mandatory provisions of law.

2. FORM, DENOMINATION AND TITLE

(A) Form and Denomination

The Instruments shall be issued in registered form, without coupons, in the denomination of US$100,000 each. The Instruments shall be offered, sold and transferred in the principal amount of US$100,000 or an integral multiple thereof. The Instruments shall initially be represented by the Global Certificate, and only under the limited circumstances described in the Global Certificate and the Indenture shall a Definitive Certificate be issued to Holders in the form of a Definitive Certificate. Each Definitive Certificate, if issued, shall be serially numbered and shall have an identifying number which shall be recorded on the relevant Certificate and in the register of holders of the Instruments, which the Company shall procure to be kept by the Registrar. The Instruments are not issuable in bearer form.

(B) Title

The Instruments shall be registered instruments, and title to the Instruments shall pass only by transfer and registration of title in the register of holders of the Instruments. The Holder shall, except as otherwise required by law, be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the Definitive Certificate issued in respect of it), and no person shall be liable for so treating the Holder.

3. NEGATIVE PLEDGE

So long as any of the Instruments remains outstanding (as defined in the Indenture), the Company shall not, and shall not permit any of its Principal Subsidiaries (as defined in the Indenture) to, create or permit to subsist security upon the whole or any part of the undertaking, property, assets or revenues of the Company or such Principal Subsidiary, as the

case may be, present or future, to secure for the benefit of the holders of any securities any payment of any sum due in respect of or under any guarantee of or payment under any indemnity or other like obligation relating to any such securities, unless, in any such case, at the same time or prior thereto, either (i) the same security is granted to the holders of the Instruments equally and ratably or (ii) effective provision is made to secure the Instruments with a guarantee, indemnity or other like obligation or such other security as shall be approved by holders of not less than a majority of the principal amount of the Instruments then outstanding.

4. TRANSFERS OF INSTRUMENTS; ISSUE OF CERTIFICATES

(A) Transfers

Subject to Condition 4(D), an Instrument may be transferred as follows: (i) in the case of an Instrument represented by a Definitive Certificate, by depositing such certificate at the specified office of any Transfer Agent, with the form of transfer on the back of such certificate duly completed and signed, and (ii) in the case of an Instrument represented by the Global Certificate, by depositing a form of transfer obtainable from any Transfer Agent, duly completed and executed, at such office. In each case, such deposit shall be accompanied by any other evidence that such Transfer Agent may require.

(B) Delivery of New Definitive Certificates

Each new Definitive Certificate to be issued upon transfer of the Instruments shall, within five Transfer Business Days (as defined in the Indenture) of receipt by the relevant Transfer Agent of the duly completed and signed form of transfer, be mailed by uninsured mail at the risk of the holder entitled to the Instruments to the address specified in the form of transfer.

Where some but not all the Instruments in respect of which a Definitive Certificate is issued are to be transferred, converted or redeemed, a new Definitive Certificate in respect of the Instruments not so transferred, converted or redeemed shall, within five Transfer Business Days of deposit or surrender of the original certificate with or to the relevant Agent, be mailed by uninsured mail at the risk of the holder of the Instruments not so transferred, converted or redeemed to the address of such holder appearing on the Instrument Register.

(C) Formalities Free of Charge

Registration of transfer of the Instruments shall be effected without charge by or on behalf of the Company or any of the Agents, subject to payment (or the giving of such indemnity as the Company or any of the Agents may require) in respect of any tax or other governmental charges which may be imposed in relation to it.

(D) Restricted Transfer Period

No Holder may require the transfer of an Instrument to be registered (i) during the period of 11 days ending on the due date for any payment in respect of the Instrument pursuant to Condition 7(A), or (ii) following exercise by the holder of its option to convert its Instruments pursuant to Condition 5(A).

(E) Provisions on Transfer

All transfers of the Instruments and entries on the Instrument Register shall be made subject to the Transfer Regulations (as defined in the Indenture). The Transfer Regulations may be changed by the Company, with the prior written approval of the Trustee and the Registrar. A copy of the current Transfer Regulations shall be mailed at the Company’s expense by the Registrar to any holder of the Instruments upon written request.

5. CONVERSION

(A) Conversion Right

(i) Conversion Period

Subject to the terms set forth herein and in the Indenture, each holder has a Conversion Right (as defined in the Indenture). Subject to and upon compliance with the provisions of this Condition 5, the Conversion Right attaching to any Instrument may be exercised, at the option of the Holder and to the extent provided herein, at any time during the Conversion Period (as defined in the Indenture); provided, however, that the Conversion Right during any Closed Period (as defined below) shall be suspended only if the laws and regulations in the ROC so require. The Company shall give 3 days’ prior notice of the commencement of any Closed Period to Holders in accordance with Condition 14 and to the Trustee and all Conversion Agents in accordance with the provisions of the Indenture; and provided further that no Holder may elect to receive GDRs upon the conversion of any Instruments prior to the Unrestricted Date (as defined in the Indenture and each Holder that elects to receive Shares upon conversion of Instruments prior to the Unrestricted Date will agree not to deposit such Shares with the Depositary pursuant to the Deposit Agreements prior to the Unrestricted Date).

(ii) Number of Shares or GDRs issuable on Conversion

The number of Shares issuable upon conversion of any Instrument shall be determined by dividing the principal amount of the Instrument (translated into New Taiwan Dollars at the Fixed Exchange Rate (as defined in the Indenture)) by the Conversion Price (as defined in the Indenture) in effect on the Conversion Date(as defined in the Indenture) , which number, if a Holder elects to receive GDRs, shall be divided by the number of Shares represented by one GDR. If more than one Instrument shall be deposited for conversion at any one time by the same holder of the Instruments, the number of Shares or GDRs to be issued upon conversion thereof shall be calculated on the basis of the aggregate principal amount of the Instruments so deposited. Calculations of the number of Shares or GDRs to be delivered to a converting Holder shall be made on a per-Holder, per-conversion basis and not on the basis of the $100,000 denomination of each Instrument. If, following the calculation the number of Shares or GDRs to be delivered to a Holder upon such Holder’s election to convert Instruments on an aggregated basis, fractions of Shares or GDRs are left, (i) fractions of Shares or GDRs will not be issued on conversion (fractions being rounded down to the nearest whole number of Shares ), and no cash adjustments will be made in respect thereof and (ii) fractions of GDRs (and the Shares underlying such fractions of GDRs) will not be issued on conversion and no cash adjustments will be made in respect thereof. As of May 31, 2007, the Company had 2,422,371,451 Shares issued and outstanding and 28,129,005 GDRs (representing 140,645,051 Shares) issued and outstanding.

(iii) Initial Conversion Price

The price at which Shares shall be issued upon conversion (as adjusted from time to time, the “Conversion Price”) shall initially be NT$ 16.15 per Share, but shall be subject to adjustment in the manner provided in Conditions 5(C) and 5(D).

(iv) Survival on default

Notwithstanding the provisions of Condition 5(A)(i), if an Event of Default (as defined in Condition 9) occurs, the Conversion Right attaching to an Instrument shall continue to be exercisable up to and including the close of business (at the place where the relevant Conversion Notice (as defined in the Indenture) is deposited for conversion) on the date upon which (a) the full amount of the monies payable in respect of such Instrument has been duly received by the Trustee or the Principal Paying Agent and (b) notice of such receipt has been duly given to the holders of the Instruments.

(B) Conversion Procedures

(i) Exercise procedures; Conversion Notice; Deposit Date; Conversion Date

To exercise the Conversion Right attaching to any Instrument, a Holder shall deposit the following at its own expense during normal business hours (local time at the specified office referred to below) on any Conversion Business Day during the Conversion Period at the specified office of a Conversion Agent outside the ROC:

(a) a Conversion Notice (as defined in the Indenture) by fax, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the relevant Definitive Certificate, if issued, in respect of the relevant Instrument;
(b) any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent shall be located; and
(c) any amount required to be paid by the holder of the Instrument referred to in Condition 5(B)(ii) below.

Any of the above items deposited after normal business hours as specified above or on a day that is not a Conversion Business Day shall for all purposes be deemed to have been deposited with that Conversion Agent on the immediately succeeding Conversion Business Day. Any of the above items deposited on the day immediately prior to a Closed Period or during the Closed Period shall for all purposes be deemed to have been deposited with that Conversion Agent on the first Conversion Business Day immediately after the end of the Closed Period. The Conversion Notice shall contain, among other things: (1) contact information of the local agent appointed by the converting holder; (2) an irrevocable instruction to convert the Instruments into Shares, Rule 144A GDRs or Regulation S GDRs; and (3) other information required by ROC laws and regulations. Once deposited, the Conversion Notice may not be withdrawn without the Company’s written consent. The price at which such Instrument shall be converted shall be the Conversion Price in effect on the Conversion Date (as defined in the Indenture).

All costs and expenses incurred or caused by an incomplete or incorrect Conversion Notice shall be for the account of the relevant Holder.

(ii) Taxes and expenses

As conditions precedent to the exercise of the Conversion Right attaching to any Instrument, together with the delivery of the Conversion Notice, the Holder must pay directly to the relevant taxing authority all stamp, issue, registration, excise and similar taxes, duties and transfer costs, if any, arising on conversion in the country in which the Instrument is deposited for conversion or payable in any jurisdiction upon the issue or delivery of Shares or GDRs or any other property or cash upon conversion to or to the order of a person other than the converting holder of the Instrument. Except as aforesaid, the Company shall pay the expenses arising in the ROC on the issue of Shares or GDRs upon conversion of the Instrument and all charges of the Conversion Agents in connection therewith. If a Holder elects to receive GDRs upon conversion of Instruments, such holder shall pay the applicable fees of the Depositary in connection with the issuance of such GDRs directly to the Depositary in accordance with the terms and conditions of the applicable Deposit Agreement.

(iii) Transfer of Shares or GDRs

Subject to the Conditions and subject further to any applicable limitations then imposed by ROC laws and regulations and the obtaining of TSE approval, if required, the Company shall procure that the Shares, which are or will be listed on the TSE, shall be transferred to the local agent appointed by the holder of Instruments or any person designated by the holder of Instruments or, in the case of conversion into GDRs, deposited with the custodian for the Depositary, as soon as practicable and in any event on a date not later than five Trading Days (or such number of Trading Days as stipulated by relevant laws and regulations applicable from time to time) after the relevant Conversion Date, together with any other property required to be delivered upon exchange and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

(iv) Holder of record

With effect from the opening of business in the ROC on the Conversion Date, the Company shall deem the converting holder of an Instrument as indicated in the Conversion Notice, or its designee or, in the case of conversion into GDRs, the Depositary to have become the holder of record of the number of Shares to be issued upon such conversion (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective). At such time, subject to Condition 5(B)(v), the rights of such converting Holder with respect to the Instrument deposited for conversion shall cease, except rights arising under Condition 5(B)(vi).

(v) Delivery of Shares or GDRs

On the Conversion Date, the Company shall register the converting Holder or its designee, or in the case of conversion into GDRs, the Depositary, in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 5(B)(iv) upon conversion of the Instruments deposited by such Holder. Subject as set forth below and subject further to any applicable limitations then imposed by ROC laws and regulations (including any limitation on foreign ownership of Shares or GDRs) and the obtaining of TSE approval, if any, in accordance with the request made in the relevant Conversion Notice, the Company shall deliver as soon as practicable, and in any event within five Trading Days after the Conversion Date, for the benefit of the converting holder, the following:

(a) the relevant Shares, through book-entry transfer to an account registered in the name of the converting holder or its designee, or in the case of conversion into GDRs, the Depositary, at Taiwan Depositary & Clearing Corporation, or its successor;
(b) any other property or cash (including, without limitation, cash payable pursuant to Condition 5(A)(ii)) required to be delivered upon conversion; and
(c) such documents as may be required by law to effect the delivery thereof.

(vi) Retroactive Adjustment of Conversion Price

If (a) the Conversion Date in relation to any Instrument shall be on or after a date with effect from which an adjustment to the Conversion Price takes retroactive effect pursuant to any of the provisions referred to in Condition 5(C) and the Indenture and (b) the relevant Conversion Date falls on a date when the relevant adjustment has not been reflected in the Conversion Price, the Company shall, within five (5) days after the date of such adjustment of the Conversion Price, issue and deliver to the local agent appointed by the converting holder of the Instrument or the Depositary such number of Shares as is equal to the excess of (1) the number of Shares that would have been required to be issued on conversion of such Instrument if the relevant retroactive adjustment had been made as of the said Conversion Date over (2) the number of Shares previously issued pursuant to such conversion; and in such event and in respect of such number of Shares, references in Conditions 5(B)(iv) and 5(B)(v) to the Conversion Date shall be deemed to refer to the date upon which such retroactive adjustment becomes effective, disregarding the fact that it becomes effective retroactively.

(vii) Dividend and Other entitlement

Shares or GDRs issued on conversion of Instruments (if applicable) will in all respects rank pari passu with the Shares or GDRs in issue on the relevant Conversion Date (except for any right the record date for which precedes such Conversion Date and except for any other right excluded by mandatory provisions of applicable law).

Any dividend on the Shares or GDRs issued upon conversion of an Instrument or Instruments, with respect to the Dividend Accrual Period (as defined in the Indenture) during which the relevant Conversion Date falls will be paid (except as described above) with respect to the full Dividend Accrual Period as if the conversion took effect at the beginning of such Dividend Accrual Period.

(viii) Conversion Agents

The Company reserves the right, subject to the provisions of the Indenture, at any time, to vary or terminate the appointment of any Conversion Agent and to appoint other Conversion Agents; provided that the Company shall at all times maintain Conversion Agents having specified offices in London. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents shall be given promptly by the Company to the holders of the Instruments in accordance with Condition 14 and to the Trustee in accordance with the Indenture.

(ix) Satisfaction of the Company’s obligations

The Company’s delivery to the converting Holder of the number of Shares or GDRs into which such converting Holder’s Instruments are convertible will be deemed to satisfy the Company’s obligation to pay the principal and premium (if any) of the Instruments at maturity, upon redemption or acceleration in accordance with the Indenture.

(x) Compliance with the Deposit Agreements

Prior to delivery of GDRs to which a converting Holder may be entitled, the Holder and the Company shall comply with the terms and conditions of the applicable Deposit Agreement including the payment by the converting Holder of the fees of the Depositary directly to the Depositary and delivery of any required certifications.

(C) Adjustments to Conversion Price

The Conversion Price shall be subject to certain adjustment events as specified in the Indenture (each such adjustment, an “Anti-dilution Adjustment”), including, without limitation, (i) free distribution and bonus issue of Shares and declaration of dividend in Shares; (ii) division, consolidation and reclassification of Shares; (iii) rights issues to shareholders; (iv) warrants issued to shareholders of the Company; (v) issues of rights or warrants for equity-related securities to shareholders; (vi) Capital Distribution (as defined in the Indenture); (vii) issue of convertible or exchangeable securities other than to shareholders or on exercise of warrants; (viii) some other issues of Shares, and issue of equity related securities; (ix) tender or exchange offer; and (x) analogous events and modifications.

Conversion price is also subject to a price reset as and when provided in the Indenture

(D) Conversion Undertaking

(i) Listing of the Share and GDRs:

The Company will use its best efforts to ensure that it maintains a listing for all Shares, including the Shares issued upon conversion of the Instruments, on the TSE. The Company will use its best efforts to ensure that it maintains a listing for all GDRs, including GDRs issuable upon conversion, on the Luxembourg Stock Exchange.

(ii) Closed Periods:

The Company undertakes to ensure (to the extent of any discretion it has in respect of the length of any Closed Period) that any Closed Period is for as short a period as is practicable having regard to applicable laws, regulations and practices.

(iii) Notice:

In the event of an adjustment to the Conversion Price in accordance with this Condition 5, the holders of the Instruments will be notified in accordance with Condition 14.

6. PAYMENTS

(A) Manner of Payment

Payment in respect of an Instrument shall be made (i) by transfer to the registered account of the holder of the Instrument or (ii) if such holder does not have a registered account, by a US Dollar check drawn on a bank in New York City mailed to its registered address. Payments of principal, interest (if any) and premium (if any), however, under an Instrument represented by a Definitive Certificate shall only be made after surrender of the relevant certificate at the specified office of an Agent.

References in these Conditions and the Indenture to payment in respect of an Instrument shall, where the context so permits, be deemed to include not only a reference to the principal but also to any premium, interest, Additional Amounts (as defined in Condition 8) and other amounts payable thereon.

(B) Registered Account and Address

The registered account and address of a Holder means its US Dollar account maintained by or on behalf of it with a bank in New York City and address appearing on the Instrument Register at the close of business on the second Payment Business Day (as defined below) before the due date for payment.

(C) Fiscal Laws

All payments are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8. No commissions or expenses shall be charged to the holders of the Instruments in respect of such payments.

(D) Date of Payment

Where payment is to be made by transfer to a registered account, payment instructions for value on the due date (or, if that date is not a Payment Business Day (as defined in the Indenture), for value on the next Payment Business Day) shall be initiated. Where payment is to be made by check, the check shall be mailed on the Payment Business Day preceding the due date for payment. Notwithstanding the above, payment of principal of an Instrument represented by a Definitive Certificate shall not be made earlier than the Payment Business Day on which the relevant Definitive Certificate is surrendered at the specified office of an Agent.

(E) Payment Delay

A holder of the Instruments shall not be entitled to any penalty payment for any delay in receiving any amount due under the Conditions if (i) the due date thereof is not a Payment Business Day, (ii) the Instruments are represented by a Definitive Certificate and the holder is late in surrendering its Definitive Certificate (if required to do so) or (iii) a check mailed in accordance with this Condition 6 arrives after the due date for payment.

(F) Partial Payments

If the amount of principal and premium (if any) which is due on the Instruments is not paid in full, the Registrar will annotate the Instrument Register with a record of the amount of principal and/or premium, in fact paid.

7. REDEMPTION, REPURCHASE AND CANCELLATION

(A) Redemption at Maturity

Unless previously redeemed, repurchased and cancelled, or converted as herein provided, the Company shall redeem the Instruments at 100% of their principal amount in US Dollars on the Maturity Date, or if such day

is not a Payment Business Day, on the immediately preceding Payment Business Day. The Instruments may be redeemed prior to that date only as provided in Condition 7(B) below, but without prejudice to Condition 9.

(B) Redemption at the Option of the Company

At any time on or after July 12, 2007 until June 11, 2011, the Company may redeem an amount of Instruments from each holder of up to (x) 50% of the difference of the original principal amount of the Instruments held by such holder less the principal amount of the Instruments sold by such holder less (y) the principal amount of the Instruments that have been converted by the holder and that have been required to be redeemed by the Company, if the Closing Price of the Shares, translated into US dollars at the prevailing exchange rate, for each Trading Day during the relevant Determination Period is at least 145% of the Conversion Price then in effect (translated into US dollars at the Fixed Exchange Rate).

At any time on or after June 12, 2011 until May 31, 2014, the Company may redeem an amount of Instruments at 100% of their principal amount from each holder of up to (x) (aa) 33.3%, (bb) 66.6% or (cc) 100% of the difference of the original principal amount of the Instruments held by such holder less the amount of the Instruments sold by such holder, in each case less (y) the principal amount of the Instruments that have been converted by the holder and that have been required to be redeemed by the Company, if the Closing Price of the Shares, translated into US dollars at the prevailing exchange rate, for each Trading Day during the relevant Determination Period is at least 120% (in the case of (aa) above), 130% (in the case of (bb) above) or 140% (in the case of (cc) above) of the Conversion Price then in effect (translated into US dollars at the Fixed Exchange Rate).

If the Company exercises its right to redeem the Instruments, Holders may elect convert the Instruments into Shares or GDRs during the thirty days following the issuance of the notice of redemption by the Company.

(C) Cancellation

All Instruments that are redeemed, repurchased or converted and surrendered to any Agent shall forthwith be cancelled. In the case of Instruments represented by Definitive Certificates, certificates in respect of all Instruments cancelled shall be forwarded to or to the order of the Registrar. Instruments cancelled may not be reissued or resold.

(D) Redemption Notice

To exercise its right to redeem the Instruments in accordance with Condition 7(B), the Company shall provide irrevocable notice with relevant information to the Trustee pursuant to the requirements of the Indenture. Such notice shall be provided in accordance with Condition 14.

8. TAXATION

All payments in respect of the Instruments by the Company shall be made free and clear of, and without any deduction or withholding for or on account of Taxes (as defined in the Indenture) imposed, levied, collected, withheld or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax unless such withholding or deduction is required by law. If such deduction or withholding from any such payment is required by law, the Company shall pay Additional Amounts (as defined in the Indenture), except that no Additional Amounts shall be payable in respect of any Instrument under certain circumstances specified in the Indenture.

9. EVENTS OF DEFAULT

The Trustee shall notify all holders of the Instruments in accordance with Condition 14 of the occurrence of any Default or Event of Default (each as defined in the Indenture) as soon as reasonably practicable but in any event within 30 days of the date on which the Trustee shall have received written notice of such Default or Event of Default. If an

Event of Default occurs and is continuing, then and in every such case, the Trustee in its sole discretion may, and if so requested in writing by the Holders of not less than 25% in principal amount of the Instruments then outstanding shall, subject to the Trustee’s right to be indemnified or secured by the Holders to the Trustee’s satisfaction, declare all the Instruments then outstanding to be due and payable immediately by a notice in writing to the Company and also give notice of such acceleration to holders of the Instruments in accordance with Condition 14. Notwithstanding the foregoing, if any of the certain events specified in the Indenture shall have occurred, the Instruments shall forthwith become immediately due and payable at 100% of their principal amount, without regard to the giving of any such notice.

10. PRESCRIPTION

Claims against any payment in respect of the Instruments shall be prescribed unless made within six years from the relevant date of payment in respect thereof.

11. ENFORCEMENT

At any time after the Instruments shall have become due and payable, if so requested in writing by the Holders of at least 25% in principal amount of the Instruments then outstanding or by a resolution of a duly called meeting of the Holders by persons entitled to vote a majority in principal amount of the outstanding Instruments, the Trustee shall take such proceedings directed by such Holders against the Company to enforce payment in respect of the Instruments, including any premium and interest, and to enforce the provisions of the Indenture; provided, however, that the Trustee shall not be bound to take any such actions unless it shall have been indemnified and/or secured to its satisfaction. However, the Trustee may refuse to follow any direction that (i) conflicts with any law, the Indenture or these Conditions or (ii) it determines in good faith would involve the Trustee in personal liability against which such indemnity and/or security would not be satisfactory. The Trustee may take any other action it deems proper that is not inconsistent with any such direction received from holders of the Instruments. No Holder shall be entitled to proceed directly against the Company, unless (a) the Trustee, having become bound to take proceedings against the Company (as described in the Indenture), fails to do so and such failure shall have continued for a period of 60 days and (b) no direction inconsistent with the Trustee taking such proceedings has been given to the Trustee during such 60-day period by the holders of not less than a majority in principal amount of the Instruments then outstanding.

12. MEETINGS OF HOLDERS, MODIFICATION AND WAIVER

(A) Quorums for Meetings

The Indenture contains provisions for convening meetings of the holders to consider any matter affecting their interests, including quorum at any such meeting, the approval of certain amendments or modifications of the terms of the Instruments or the provisions of the Indenture, upon either the written consent of the holders of a majority in principal amount of the outstanding Instruments or the approval at a duly called meeting of the holders by persons entitled to vote a majority in principal amount of the outstanding Instruments.

(B) Modification with Consent of Holders

Modifications and amendments of the Indenture or the Instruments may be made by the Company and the Trustee with the written consent of the holders of not less than a majority in principal amount of the outstanding Instruments; provided that certain modifications and amendments specified in the Indenture shall require the consent of the Holders of the Instruments of not less than 75% of the principal amount of the Instruments outstanding.

The Trustee shall provide, at the Company’s expense, any notice of convocation for a meeting of holders of the Instruments in accordance with Condition 14.

The Indenture provides that, in determining whether the holders of the Instruments representing the requisite principal amount of Instruments then outstanding are present at a meeting of holders of the Instruments for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture, Instruments owned by the Company or any other obligor upon the Instruments or any affiliate of the Company or such

other obligor shall be disregarded and deemed not to be outstanding; provided that in the making of any such determination, the Trustee shall be fully protected if it disregards only such Instruments as to which the Trustee has received actual notice that such Instruments are owned by the Company or such other obligor or any affiliate of the Company or such other obligor.

(C) Modification of Conversion Right and Other Provisions

Notwithstanding Condition 12(B) above, the Trustee may agree to, without the consent of the holders of the Instruments, any modification to the Conversion Right that (i) is necessary or desirable to effect or facilitate conversion as contemplated in these Conditions and (ii) does not negatively affect the interests of the holders of the Instruments. Any such modification shall be notified by the Company to the holders of the Instruments as soon as practicable thereafter in accordance with Condition 14. The Trustee may also agree to, without the consent of the holders of the Instruments, among other things (i) any modification of, or the waiver or authorization of any breach or proposed breach of, the Instruments, the Indenture that is not, in the Trustee’s opinion, materially prejudicial to the interests of the holders of the Instruments or (ii) any modification of the Instruments or the Indenture that, in the Trustee’s opinion, is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law.

(D) Waiver of Default

The holders of the Instruments, through the written consent of not less than a majority in principal amount of the Instruments then outstanding (or such lesser principal amount of the Instruments then outstanding as shall have acted at a meeting pursuant to the provisions of the Indenture and shall have made the initial request for the acceleration, provided that such lesser amount, which shall not be less than 25% of the principal amount of the Instruments outstanding, is more than the principal amount of the Instruments held by holders that made such request), may, on behalf of the holders of all the Instruments, waive any existing Default and its consequences, except for (i) any Default in any payment on the Instruments, (ii) any Default with respect to the Conversion Rights or (iii) any Default with respect to certain covenants or provisions in the Indenture that may not be modified without the consent of the holder of each Instrument as described in Condition 12(B) above. When a Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.

The right of a holder (i) to receive payment in respect of its Instruments, (ii) to receive Shares or GDRs on or after any Conversion Date, (iii) to exercise its Conversion Right or (iv) to bring suit for the enforcement of any such right, shall not be impaired or adversely affected without such holder’s consent.

(E) Exercise of Trustee’s Functions

Where the Trustee is required in connection with the exercise of its powers, trusts, authorities, duties and discretions to have regard to the interests of the holders of the Instruments, it shall have regard to the interests of the holders of the Instruments as a class and, in particular but without prejudice to the generality of the foregoing, the Trustee shall not have regard to, or be in any way liable for, the consequences of such exercise for any individual holders of Instruments. In connection with any such exercise, the Trustee shall not be entitled to require, and no holder of Instruments shall be entitled to claim, from the Company, the Trustee or any other person any indemnification or payment in respect of any tax consequences of any such exercise upon individual holders of the Instruments.

13. REPLACEMENT OF CERTIFICATES

Any replacement of mutilated, defaced, destroyed, stolen or lost Definitive Certificates shall take place at the specified offices of the Registrar and Paying Agents in accordance with the provisions of the Indenture, which provisions include the following:

(i) replacement certificates shall only be issued upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company and the Registrar may require;

(ii) mutilated or defaced certificates must be surrendered before replacements will be issued; and
(iii) in the event any Instruments represented by a mutilated, destroyed, lost or stolen Definitive Certificate has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Definitive Certificate representing such Instruments, make payment as consideration for the cancellation of the Instruments represented thereby in accordance with the Indenture.

14. NOTICES

All notices to holders of the Instruments shall be validly given if made in writing in English and mailed to the business address of the Trustee with a copy given to and the receipt thereof is confirmed by the Holders of not less than 25% in aggregate of the Instruments then outstanding. Any such notice shall be deemed to have been given on the seventh day after being so mailed.

So long as any of the Instruments are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear or Clearstream, Luxembourg or the alternative clearing system notices to Holders may be given by delivery of the relevant notice to Euroclear or Clearstream, Luxembourg or the alternative clearing system, for communication by it to entitled accountholders in substitution for notification as required by the Conditions.

15. INDEMNIFICATION

The Indenture contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings to enforce any provisions of the Instruments or the Indenture unless indemnified to its satisfaction. The Trustee is entitled to enter into business transactions with the Company and any entity related to the Company without accounting for any profit. The Trustee will be under no obligation to exercise any rights or powers conferred under the Indenture for the benefit of the holders of the Instruments unless such holders have offered to the Trustee indemnity and/or security satisfactory to it against any loss, liability or expense.

16. GOVERNING LAW AND JURISDICTION; THIRD PARTY RIGHTS

(A) Governing Law

The Indenture and the Instruments are governed by and shall be construed in accordance with the laws of the State of New York.

(B) Jurisdiction

The courts of the State of New York sitting in the Borough of Manhattan, The City of New York, and the federal courts of the United States sitting in the Borough of Manhattan, The City of New York are to have non-exclusive jurisdiction to settle any disputes that may arise out of or in connection with the Instruments and accordingly any legal action or proceedings arising out of or in connection with the Instruments (“Proceedings”) may be brought in any such court. The Company has in the Indenture irrevocably submitted to the non-exclusive jurisdiction of such courts.

CONVERSION INTO GDRs

The Depositary Facilities

The Company has made the following arrangements (as permitted under Condition 6(A)(i) of the Instruments) under which Holders may elect to direct the Company to deposit Shares issued on conversion of the Instruments with the Depositary for issuance of GDRs.

The Company entered into a Regulation S deposit agreement with the Depositary dated 26 September 1994, as amended and supplemented (the “Regulation S Deposit Agreement”) pursuant to which the Regulation S depositary facility (the “Regulation S Depositary Facility”) was established and certain international global depositary receipts were issued. Pursuant to a Rule 144A Deposit Agreement dated 26 September 1994, as amended and supplemented (the “Rule 144A Deposit Agreement”, together with the Regulation S Deposit Agreement, the “Deposit Agreements”) the Company established the Rule 144A depositary facility (the “Rule 144A Depositary Facility”, together with the Regulation S Depositary Facility, the “Depositary Facilities”). The Company will, if so directed by a converting Holder, deposit the Shares issuable on conversion into an applicable Depositary Facility upon the making by such converting Holder of the required certifications described in the applicable Deposit Agreement and the payment of the fees and expenses of the Depositary by such converting Holder.

Delivery of GDRs on conversion of Instruments

Commencing no earlier than the Unrestricted Date (as defined in the Indenture), a Holder may elect, in the Conversion Notice, to direct the Company to deposit the Shares issued on conversion of Instruments into an applicable Depositary Facility, subject to the conditions, and on the terms, set out in the Indenture and the Deposit Agreements.

Where a Holder has elected to receive GDRs upon conversion, subject to (i) compliance with the terms and conditions of the applicable Deposit Agreement or such other depositary facility which may be established from time to time and (ii) in accordance with applicable law (including, without limitation, payment of the fees and expenses of the Depositary), the Shares issuable upon conversion shall be deposited by the Company on behalf of the converting Holder with the custodian for the Depositary against issuance of GDRs.

The number of GDRs to be issued upon conversion to converting Holders who elect to receive GDRs will be determined by dividing the aggregate principal amount of all the Instruments to be converted by such Holder (translated into NT dollars at the Exchange Rate) by the Conversion Price in effect on the Conversion Date, and dividing such quotient by the number of Shares represented by each GDR at the time of deposit of such Shares with the Depositary. If more than one Instrument shall be deposited for conversion at any one time by the same Holder, the number of GDRs to be issued upon conversion thereof shall be calculated on the basis of the aggregate principal amount of the Instruments so deposited. Calculations of the number of GDRs to be delivered to a converting Holder shall be made on a per-Holder, per-conversion basis and not on the basis of the $100,000 denomination of each Instrument. If, following the calculation, the number of GDRs to be delivered to a Holder upon such Holder’s election to convert Instruments on an aggregated basis, fractions of GDRs are left, (i) fractions of GDRs will not be issued on conversion (fractions being rounded down to the nearest whole number of Shares), and no cash adjustments will be made in respect thereof and (ii) fractions of GDRs (and the Shares underlying such fractions of GDRs) will not be issued on conversion and no cash adjustments will be made in respect thereof. As of the date of this Offering Circular, each GDR represents five Shares.

Delivery of GDRs

The Company will deliver to and deposit with the Custodian under the applicable Deposit Agreement the number of Shares which such Holder is entitled to receive upon a Holder exercising its Conversion Right. Such Shares will be registered in the name of the Depositary, the Custodian or a nominee of either and deposited in accordance with the terms of the applicable Deposit Agreement.

ROC regulatory approval has been received for GDRs to be issued upon deposit of Shares issuable upon conversion of the Instruments.

Converting Holders who receive Regulation S GDRs following exercise of their Conversion Right are also hereby notified that under the terms and conditions of the Regulation S Deposit Agreement, the converting Holder will be required, prior to the issue of the Regulation S GDRs, to provide certain written acknowledgments, certifications and agreements to the Company and the Depositary, including acknowledgments, certifications and agreements to the effect that:

(a) The Regulation S GDRs and the Shares represented thereby have not been and will not be registered under the Securities Act;

(b) it is not a US person (within the meaning of Regulation S) and is located outside the United States (within the meaning of Regulation S) and has agreed to acquire and will acquire, the Shares to be deposited outside the United States;

(d) it is not in the business of buying or selling securities or, if in such business, did not acquire the securities to be deposited from the Company or any affiliate thereof in the initial offering and placement of the Regulation S GDRs and Shares.

Converting Holders who receive Rule 144A GDRs following exercise of their Conversion Right are also hereby notified that under the terms and conditions of the Rule 144A Deposit Agreement, the converting Holder will be required, prior to the issue of the Rule 144A GDRs, to provide certain written acknowledgments, certifications and agreements to the Company and the Depositary, including acknowledgments, certifications and agreements to the effect that:

(a) the Rule 144A GDRs and the Shares represented thereby have not been and will not be registered under the Securities Act;

(b) it is, or is acting on behalf of, a Qualified Institutional Buyer; and

(c) it agrees, as the owner of the Rule 144A GDRs, to offer, sell, pledge and otherwise transfer the Shares or the Rule 144A GDRs represented by the Rule 144A GDRs in accordance with the applicable U.S. state securities laws and only: (i) to a person it reasonably believes is a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A; or (ii) in an offshore transaction in accordance with Regulation S; or (iii) in accordance with Rule 144 under the Securities Act, if available.

Converting Holders that are unable to make either the representations with respect to the Regulation S Depositary Facility or the Rule 144A Depositary Facility will not be able to deposit their Shares and receive GDRs.

Upon delivery to and deposit with the Custodian of a sufficient number of Shares to which such Holder is entitled upon conversion, and receipt by the Depositary of the applicable fees and written acknowledgments, certifications and agreements, the Depositary shall, pursuant to the terms of the applicable Deposit Agreement, deliver the GDRs to or to the order of the converting Holder.

Procedures; Conversion Notice; Taxes and Duties

The provisions of the Conditions relating to conversion of Instruments apply. The following summary sets out certain further modifications applicable to delivery of GDRs on conversion of Instruments.

In order to effect a conversion into GDRs, each Holder must complete, execute and deliver at such Holder’s expense during the Conversion Period at the office of any Conversion Agent a Conversion Notice, in the form then obtainable from the office of any Conversion Agent and specify in the Conversion Notice its election to convert into either Rule 144A or Regulation S GDRs, together, if Instrument certificates have been issued with the certificate representing the Instruments to be converted,

and any certificates and other documents as may be required under applicable law or the relevant Deposit Agreement (if applicable) and any expenses or other payments required to be paid by the Holder pursuant to the terms of the Indenture. The converting Holder must deliver directly to the depositary the certificates and other documents required by the applicable Deposit Agreement and the fees payable by the person depositing securities pursuant to the terms of the applicable Deposit Agreement.

As conditions precedent to conversion, the Holder must pay to the applicable Conversion Agent all stamp, issue, registration and similar taxes and duties (if any) arising on conversion in the country in which the Instruments are deposited for conversion, or payable in any jurisdiction consequent upon the issue and delivery of Shares, GDRs or any other property or cash upon conversion to or to the order of a person other than the converting Holder. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares on conversion of Instruments and all charges of the Conversion Agents in connection therewith as provided in the Indenture. The Depositary will require the converting Holder to pay its fees and expenses upon deposit of Shares for issuances of GDRs in accordance with the terms and conditions of the applicable Deposit Agreement. The date on which any Instrument and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law, are deposited with a Conversion Agent and the payments, if any, required to be paid by the Holder are made is hereinafter referred to as the “Deposit Date”. The “Conversion Date” applicable to an Instrument shall mean the day next following the Deposit Date, which day must be a Trading Day with respect to the Shares and must fall within the Conversion Period. The Holder must therefore satisfy all such conditions on or before the Business Day prior to the end of the Conversion Period.

In the event the converting Holder elects to receive GDRs, with effect from the opening of business in the ROC on the Conversion Date, the Company will deem the Depositary, the Custodian, or a nominee of either as the person in whose name the Shares represented by such GDRs to be issued upon such conversion are to be registered, as the holder of record of the number of Shares (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective), and at such time the rights of such converting Holder as a holder with respect to the Instruments deposited for conversion shall cease.

On the Conversion Date, the Company will register the Depositary, the Custodian, or a nominee of either, in the Company’s register of shareholders as the record owner of the number of Shares to be issued upon conversion of such Instruments and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days with respect to the Shares after the Conversion Date, there be delivered to the Custodian under the relevant Deposit Agreement a certificate or certificates for the relevant Shares, registered in the name of the Depositary’s nominee, together with any other property or cash required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

Termination or Substitution of Arrangements for Delivery of GDRs

Each of the Company and the Depositary has the right under the relevant Deposit Agreement to terminate the Depositary Facilities at any time by giving notice in accordance with their terms. The Company has covenanted in the Trust Deed that it will give notice to Holders of any such termination at the same time as notice is given to holders of GDRs under the relevant Deposit Agreement. The notice to Holders may also state that the arrangements for delivery of GDRs on conversion of Instruments will be withdrawn from a date specified in the notice.

The Company may make further or other arrangements available to Holders pursuant to Condition 5(B)(v) of the Instruments in addition to, or in substitution for, the arrangements described herein relating to delivery of GDRs.

Transfer Restrictions

The GDRs may be resold, pledged or otherwise transferred only in compliance with the U.S. securities laws and are subject to the following restrictions:

Restrictions upon the transfer

Regulation S GDRs

Rule 144A GDRs

The Rule 144A GDRs may be resold, pledged or otherwise transferred only:

The Regulation S GDRs will be freely transferable following the Unrestricted Date (being the day forty days after the issuance of the Instruments).

(i) in an offshore transaction in accordance with Regulation S; or

(ii) to a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A; or

(iii) pursuant to Rule 144 under the Securities Act, if available.

Restrictions upon deposit of Shares

Regulation S GDRs

Rule 144A GDRs

Shares will be accepted for deposit under the Rule 144A Deposit Agreement only if delivered by, or on behalf of, a person that is:

Shares will be accepted for deposit under the Regulation S Deposit Agreement only if delivered by, or on behalf of, a person that is:

(a) not the Company or an affiliate of the Company or a person acting on behalf of the Company or an affiliate of the Company, and

(a) not the Company or an affiliate of the Company or a person acting on behalf of the Company or an affiliate of the Company,

(b) a Qualified Institutional Buyer.

(b) a person other than a U.S. Person (as defined in Regulation S), located outside the United States (within the meaning of Regulation S) that acquired the Shares to be deposited outside the United States (within the meaning of Regulation S); and (c) not in the business of buying and selling securities, or if in such business, did not acquire the Shares to be deposited from the Company or an affiliate thereof in the initial distribution of Regulation S GDRs or Shares.

Restrictions upon the withdrawal of Shares

Rule 144A GDRs Regulation S GDRs Shares may be withdrawn from the Rule 144A Deposit Shares may be withdrawn by any person and are Agreement only by: freely transferable. (i) a person located outside the United States (within the meaning of Regulation S) who acquired the Rule 144A GDRs or the Shares outside the United States (within the meaning of Regulation S) and who will be the beneficial owner of the Shares upon withdrawal; or

(ii) a Qualified Institutional Buyer who: (x) has sold the Rule 144A GDRs or the Shares (a) to another Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A, or (b) in accordance with Regulation S, or (y) will be the beneficial owner of the Shares and agrees

to observe the transfer restrictions applicable to Rule 144A GDRs in respect of the Shares so withdrawn.

Information relating to the Depositary

Citibank, N.A. (“Citibank”) has been appointed as Depositary pursuant to the Deposit Agreements. Citibank is an indirect wholly owned subsidiary of Citigroup Inc., a Delaware corporation. Citibank is a commercial bank that, along with its subsidiaries and affiliates, offers a wide range of banking and trust services to its customers throughout the United States and the world.

Citibank was originally organized on June 16, 1812, and is now a national banking association organized under the National Bank Act of 1864 of the United States of America. Citibank is primarily regulated by the United States Office of the Comptroller of the Currency. Its principal office is at 399 Park Avenue, New York, NY 10043.

The audited Consolidated Balance Sheets of Citibank as of December 31, 2006 and December 31, 2005 are set forth in Citigroup’s 2006 Annual Report on Form 10-K, and its unaudited Consolidated Balance Sheet as of March 31, 2007 is set forth in Citigroup’s Quarterly Report on Form 10-Q for the three months ended March 31, 2007. The Annual Report and Quarterly Report are on file with the United States Securities and Exchange Commission.

Citibank’s Articles of Association and By-laws, each as currently in effect, together with Citigroup’s 2006 Annual Report on Form 10-K and Quarterly Report on Form 10-Q are available for inspection at the Depositary Receipt office of Citibank, 338 Greenwich Street, New York, New York 10013.

TERMS AND CONDITIONS OF THE GDRs

Two tranches of GDRs are currently outstanding, the “Regulation S GDRs” issued pursuant to the Regulation S Deposit Agreement (as defined below) and the “Rule 144A GDRs” issued pursuant to the Rule 144A Deposit Agreement (as defined below). The following terms and conditions (except the sentences in italics) apply to the Regulation S GDRs deliverable on the deposit of Shares issued pursuant to conversion of the Instruments and shall be endorsed in substantially the form presented herein on each certificate evidencing the Regulation S GDRs, together with the relevant legend as may from time to time be considered necessary by the Depositary. Except as otherwise indicated, capitalized terms not defined herein (save for terms in the italicised text) are defined in the Regulation S Deposit Agreement.

The following description sets out the provisions of the Regulation S Deposit Agreement applicable to the holders of Regulation S GDRs deliverable on conversion of Instruments. It omits the provisions of the Rule 144A Deposit Agreement applicable to the holders of Rule 144A GDRs deliverable on conversion of the Instruments. Copies of the Rule 144A Deposit Agreement are available for inspection at the registered office of the Depositary being at the date hereof at 338 Greenwich Street, New York, NY 10013, United States.

The Global Depositary Receipts (the “Regulation S GDRs”) are each issued in respect of five shares of common stock of par value NT$10 each (the “Shares”) in Yageo Corporation (the “Company”) pursuant to and subject to an agreement dated 26 September 1994, made between the Company and Citibank, N.A., New York, New York, as depositary (the “Regulation S Deposit Agreement” as amended and supplemented from time to time). Pursuant to the provisions of the Regulation S Deposit Agreement, Citibank, N.A. as depositary has appointed Citibank, N.A., Taipei Branch, as custodian (the “Custodian”) to receive and hold on its behalf the share certificates in respect of certain Shares (the “Deposited Shares”) and all rights, securities, property and cash deposited with the Custodian which are attributable to the Deposited Shares (together with the Deposited Shares, the “Deposited Property”). The Depositary shall hold the Deposited Property for the benefit of the Holders (as defined below) in proportion to the number of Shares in respect of which the Regulation S GDRs held by them are issued. In these terms and conditions (the “Conditions”), references to the “Depositary” are to Citibank, N.A., New York, New York, and/or any other depositary which may from time to time be appointed under the Regulation S Deposit Agreement, references to the “Custodian” are to Citibank, N.A., Taipei Branch or any other custodian from time to time appointed under the Regulation S Deposit Agreement and references to the “Principal Office” mean, in relation to the Custodian, its office at, No. 16, Nanking E. Road, Section 4, Taipei, Taiwan, Republic of China (or such other office as from time to time may be designated by the Custodian with the approval of the Depositary).

The Regulation S GDRs are evidenced by a European Master GDR (the “European Master GDR”) held by a common depositary (the “Common Depositary”) for and registered in the name of a nominee of, Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme, (“Clearstream, International”), and held for the account of holders in Clearstream, International or Euroclear, as the case may be, exchangeable, in the circumstances referred to below, for a certificate in definitive registered form in respect of Regulation S GDRs representing all or part of the interest of such person in the European Master GDR.

Subject to the provision of and upon compliance with, the conditions of the Regulation S Deposit Agreement, and the Rule 144A Deposit Agreement (which include the requirement to withdraw the relevant Deposited Property from deposit and redeposit it in accordance with the terms of the relevant Deposit Agreement) an interest in the European Master GDR may be exchanged on behalf of permitted transferee of the Regulation S GDRs for a corresponding interest in an American Master GDR (the “American Master GDR”) issued pursuant to the Rule 144A Deposit Agreement, and vice versa. In such case, entries in the Register against the European Master GDR and the American Master GDR will be made accordingly to show the relative increase or decrease, as the case may be, in the number of Deposited Shares represented thereby.

If (i) the Common Depositary notifies the Depositary that it is unwilling or unable to continue as depositary for the European Master GDR and a successor depositary is not appointed within 90 calendar days; (ii) Clearstream, International or Euroclear is closed for business for a continuous period of 14

days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business and no alternative clearing system satisfactory to the Depositary is available within 45 days; or (iii) the Depositary has determined that, on the occurrence of the next payment in respect of the Regulation S GDRs, it would be required to make any deduction or withholding from any payment in respect of the Regulation S GDRs, which would not be required were the Regulation S GDRs represented by certificates in definitive registered form, the Depositary will deliver certificates in definitive registered form in exchange for the European Master GDR. The cost of doing so will be at the expense of the Company.

GDR Holders and GDR Owners are not parties to the Regulation S Deposit Agreement and thus, under English law, have no contractual rights against, or obligations to, the Company. They do however, have certain rights pursuant to a Deed Poll made by the Company on 26 September 1994 to ensure compliance with the requirements of Rule 144A(d)(4) under the Securities Act with respect to the availability of information to GDR Holders, GDR Owners and prospective purchasers.

The Regulation S Deposit Agreement defines “GDR Owners” as such person whose name appears in the records of Clearstream, International or Euroclear as the owner of a particular amount of Regulation S GDRs and, in respect of any European Master GDR, the GDR Holder thereof.

Upon any exchange of a part of the European Master GDR for certificates in definitive registered form, any distribution of Regulation S GDRs pursuant to Condition 5, 6, 7 or 10 or any reduction in the number of Regulation S GDRs represented by the European Master GDR following a sale or withdrawal of Deposited Property pursuant to Condition 2, the relevant details shall be entered by the Depositary on the Register maintained by the Depositary, whereupon the number of Deposited Shares represented by the European Master GDR shall be reduced or increased, as the case may be, accordingly.

The European Master GDR and any Regulation S GDRs or temporary GDRs, as the case may be, delivered in definitive form will bear a legend with respect to transfer restrictions pursuant to US securities laws.

The Central Depositary Pte. Ltd. (“CDP”) is an account holder in Clearstream, International. Investors who wish to hold the Regulation S GDRs through CDP should have regard to the CDP Terms and Conditions for Operation of Securities Accounts and the Terms and Conditions for CDP to act as depositary of depositary receipts traded on CLOB International.

References in these Conditions to the “Holder” of any Regulation S GDR shall mean the person registered on the books of the Depositary maintained for such purpose as holder. These Conditions include summaries of, and are subject to, the detailed provisions of the Regulation S Deposit Agreement, which include the form of the certificate in respect of the Regulation S GDRs. Copies of the Regulation S Deposit Agreement are available for inspection at the specified office of the Depositary and each Agent (as defined in Condition 17 hereof). Holders are deemed to have notice of and be bound by all of the provisions of the Regulation S Deposit Agreement. Terms used in these Conditions and not defined herein but which are defined in the Regulation S Deposit Agreement have the meanings ascribed to them in the Regulation S Deposit Agreement.

1. Deposit of Shares and Other Securities

(A) After the initial deposit of Shares in connection with the initial offering, unless otherwise agreed by the Depositary and the Company and permitted by applicable law, only the following may be deposited under the Regulation S Deposit Agreement:

(i) Shares issued as a dividend or free distribution of Deposited Shares pursuant to Condition 5;

(ii) Shares subscribed or acquired by Holders from the Company through the exercise of rights distributed by the Company to such persons in respect of Deposited Shares pursuant to Condition 7;

(iii) securities issued by the Company to the Holders in respect of Deposited Shares as a result of any change in the par value, sub-division, consolidation or other reclassification of Deposited Shares or

otherwise pursuant to Condition 10. References in these Conditions to “Deposited Shares” or “Shares” shall include any such securities, where the context permits;

(iv) Shares deposited in connection with an exchange of an interest in global depositary receipts held under a deposit agreement dated 26 September 1994 (the “Rule 144A GDRs”) and also made between the Company and the Depositary (the “Rule 144A Deposit Agreement”) for Regulation S GDRs;

(v) Shares deposited by any person pursuant to the purchase by such person of Shares for deposit in order to replace previously issued Regulation S GDRs which have been cancelled as a result of the withdrawal, provided that such Deposited Shares do not cause the total number of outstanding Rule 144A GDRs and Regulation S GDRs to exceed the total number of global depositary receipts approved by the ROC Securities and Futures Commission (excluding any additional Rule 144A GDRs and Regulation S GDRs issued pursuant to paragraphs (i), (ii), (iii) and (vi)); and

(vi) Shares issued in exchange for Entitlement Certificates which have been deposited into the global depositary receipt facility created pursuant to an EC Deposit Agreement dated 8 March 2001 between the Company and Citibank, N.A. as depositary (the “EC Deposit Agreement”).

In accordance with the terms of the Rule 144A Deposit Agreement (including the delivery of any withdrawal certifications required thereunder) Deposited Shares may be delivered by physical delivery or electronic transfer thereof if permissible under ROC laws and regulations to the Custodian for the account of the Depositary upon payment of any fees provided for in the Rule 144A Deposit Agreement. In such event, the Depositary will adjust its records to increase the number of Regulation S GDRs but shall not be obliged to accept any Deposited Shares withdrawn from the Rule 144A Deposit Agreement (or issue Regulation S GDRs in respect thereof) unless the instructions for delivery of the Regulation S GDRs are accompanied, prior to the time when a registration statement relating to the Regulation S GDRs is declared effective by the United States Securities and Exchange Commission, by the written certification and agreement required under the Regulation S Deposit Agreement by or on behalf of the person acquiring beneficial ownership of such Regulation S GDRs, representing, among other things, that such Regulation S GDRs (and the Shares represented thereby) have been purchased in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act.

(B) Except for additional Regulation S GDRs to be issued in connection with (i) dividends in or free distributions of Shares, (ii) the exercise by existing Holders of their pre-emptive rights in the event of capital increases for cash or (iii) GDRs issued as contemplated by paragraph (A) (iv), (v) and (vi) of this Condition, no additional Regulation S GDRs may be issued by the Depositary after the closing of the initial offering unless all governmental or administrative authorisations, consents, approvals, registrations or permits required under applicable law in the Republic of China (“ROC”) have been obtained or made.

There can be no assurance that such ROC regulatory approvals can be obtained to permit the issue of additional Regulation S GDRs.

Subject to the receipt of all ROC regulatory approvals for the issue of additional Regulation S GDRs as described above and the terms and conditions of the Regulation S Deposit Agreement, the Depositary will issue Regulation S GDRs in respect of Shares accepted for deposit under this Condition. Under the Regulation S Deposit Agreement, the Company must inform the Depositary if any Shares issued by it which may be deposited under this Condition do not, by reason of the date of issue or otherwise, rank pari passu in all respects with the other Deposited Shares. Subject to the provisions of Conditions 5, 7 and 10, if the Depositary accepts such Shares for deposit it will arrange for the issue of temporary Regulation S GDRs in respect of such Shares which will form a different class of Regulation S GDRs from the other Regulation S GDRs until such time as the Shares which they represent become fully fungible with the other Deposited Shares.

Subject to the terms and conditions of the Regulation S Deposit Agreement, upon (i) physical delivery to the Custodian of certificates in respect of Shares registered in the name of the Depositary or its nominee, (ii) payment of necessary taxes, governmental charges (including transfer taxes) and other charges as set forth in the Regulation S Deposit Agreement, including the charges and expenses of the Depositary and (iii) delivery to the Depositary of a certificate substantially in the form set out in Schedule 4 of the

Regulation S Deposit Agreement by or on behalf of the person who will be the beneficial owner of the Regulation S GDRs to be issued in respect of the relevant Shares, the Depositary will adjust its records for the number of Regulation S GDRs issued in respect of the Shares so deposited and will notify Clearstream, International and Euroclear as to the increase in the number of Regulation S GDRs represented by the European Master GDR.

(C) The Depositary will refuse to accept Shares for deposit whenever it is notified in writing that the Company has restricted the transfer of such Shares to comply with ownership restrictions under applicable laws or that such deposit would result in any violation of applicable laws. The Depositary may also refuse to accept Shares for deposit if such action is deemed necessary or advisable by the Depositary, in good faith, at any time or from time to time because of any requirement of law or of any government or governmental authority, body or commission, or under any provision of the Regulation S Deposit Agreement or for any other reason.

2. Sale or Withdrawal of Deposited Property

(A) Any Holder may request that the Deposited Property attributable to any Regulation S GDR be sold on such Holder's behalf by the Depositary through a licensed securities broker in the ROC upon production of such evidence that such Holder is the Holder of, and entitled to, the relevant Regulation S GDR as the Depositary may reasonably require at the specified office of the Depositary or any Agent accompanied by:

(i) a duly executed order (in a form approved by the Depositary) requesting the Depositary to cause the Deposited Property to be sold and requesting the proceeds thereof (after deducting such fees, taxes, duties, charges, costs and expenses as may be required under the Regulation S Deposit Agreement or these Conditions and not paid pursuant to paragraph (ii) below) to be credited to a specified cash account of the Holder with Euroclear or Clearstream, International (as the case may be); and

(ii) payment of such fees, taxes, duties, charges and expenses as may be required under the Regulation S Deposit Agreement or these Conditions.

Any such sale of Deposited Property will be conducted in accordance with the applicable laws of the ROC through a licensed securities broker in the ROC on the Taiwan Stock Exchange (“TSE”) or in such other manner as may be permitted under the laws of the ROC. Any such sale will be at the risk and expense of the Holder requesting such sale. No assurance is given by the Depositary that the sale will be effected, nor as to the timing or price of any sale, particularly during periods of illiquidity or volatility with respect of the Shares. Upon receipt of any proceeds from any such sale, the Depositary will, subject to the Regulation S Deposit Agreement and applicable ROC law and regulations, convert or cause the conversion of any such proceeds into US dollars, as promptly as practicable, and distribute, as promptly as practicable, any such proceeds to the Holder entitled thereto after deduction or payment of all fees, taxes, duties, charges, costs and expenses applicable or incurred in connection with such sale and conversion, as provided in the Regulation S Deposit Agreement and these Conditions.

Subject to applicable ROC laws and regulations and the restrictions on transfer set out in the Regulation S Deposit Agreement, a GDR Holder or GDR Owner may withdraw Deposited Shares upon surrender of Regulation S GDRs for deposit under the Rule 144A Deposit Agreement for the account of a qualified institutional buyer, as such term is defined in Rule 144A (“Rule 144A”) under the United States Securities Act of 1933, as amended (the “Securities Act”) subject to such GDR Holder or GDR Owner or a person on its behalf instructing the Depositary to deliver the relevant Deposited Shares to the custodian under the Rule 144A Deposit Agreement and paying any fee provided for in the Regulation S Deposit Agreement and, prior to the expiration of 40 days after the later of the commencement of the offering of the GDRs and the completion of the distribution of the GDRs (the “restricted period”), delivering to the Depositary a written certification and agreement required under the Regulation S Deposit Agreement by or on behalf of such GDR Holder or GDR Owner representing, among other things, that it has sold (or will sell) the Regulation S GDRs or Deposited Shares in accordance with Rule 144A. The issue of global depositary receipts under the Rule 144A Deposit Agreement shall be subject to applicable ROC laws and regulations and to the terms and conditions of the Rule 144A Deposit Agreement, including the payment of the fees, charges and taxes provided for therein and the delivery of any deposit certifications required thereunder.

Under laws of the ROC in effect on the date of the Regulation S Deposit Agreement, the Deposited Shares represented by Regulation S GDRs may not be withdrawn by Holders. In the event that these laws are changed to permit such withdrawal the following paragraphs of this Condition (as may be amended to ensure compliance with ROC law and as notified to Holders) shall apply in addition to this paragraph (A). There can be no assurance that these laws will be amended to permit such withdrawals. ROC law currently permits withdrawal of Deposited Shares subject to certain conditions and requirements summarized below.

(B) After the Depositary has received from the Company and found satisfactory a legal opinion from a firm of ROC lawyers approved by the Depositary confirming that withdrawal of Deposited Shares by Holders is permitted by ROC law, any Holder may request withdrawal of, and the Depositary shall thereupon relinquish, the Deposited Property attributable to any Regulation S GDR upon production of such evidence that such person is the Holder of, and entitled to, the relevant Regulation S GDR as the Depositary may reasonably require at the specified office of the Depositary or any Agent accompanied by:

(i) a duly executed order (in a form approved by the Depositary) requesting the Depositary to cause the Deposited Property being withdrawn to be delivered at the Principal Office of the Custodian, or (at the request, risk and expense of the Holder) at the specified office from time to time of the Depositary or any Agent (located in the ROC or such other place as permitted under applicable law from time to time) to, or to the order in writing of, the person or persons designated in such order and a certificate substantially in the form set out in the Regulation S Deposit Agreement and available from the Depositary or the Custodian;

(ii) the payment of such fees, taxes, duties, charges and expenses as may be required under these Conditions or the Regulation S Deposit Agreement; and

(iii) the surrender (if appropriate) of Regulation S GDR certificates in definitive registered form (if any) to which the Deposited Property being withdrawn is attributable.

(C) Certificates for withdrawn Deposited Shares will contain such legends, and withdrawals of Deposited Shares may be subject to such transfer restrictions or certifications, as the Company or the Depositary may from time to time determine to be necessary for compliance with applicable laws.

(D) Upon production of such documentation and the making of such payment in accordance with paragraph (B) of this Condition, the Depositary will direct the Custodian within a reasonable time after receiving such direction from such Holder, to deliver at its Principal Office to, or to the order in writing of, the person or persons designated in the accompanying order:

(i) a certificate for, or other appropriate Instrument of title to, the relevant Deposited Shares, registered in the name of the Depositary or its nominee and accompanied by such Instruments of transfer in blank or to the person or persons specified in the order for withdrawal and such other documents, if any, as are required by law for the transfer thereof; and

(ii) all other property forming part of the Deposited Property attributable to such Regulation S GDR, accompanied, if required by law, by one or more duly executed endorsements or Instruments of transfer in respect thereof as aforesaid;

provided that the Depositary will (at the request, risk and expense of any Holder so surrendering a Regulation S GDR):

(a) direct the Custodian to deliver the certificates for, or other Instruments of title to, the relevant Deposited Shares and any document relative thereto and any other documents referred to in sub-paragraph (D) (i) of this Condition (together with any other property forming part of the Deposited Property which may be held by the Custodian or its agent and is attributable to such Deposited Shares); and/or

(b) deliver any other property forming part of the Deposited Property which may be held by the Depositary and is attributable to such Regulation S GDR (accompanied by such Instruments of transfer in blank or to the person or persons specified in such order and such other documents, if any, as are required by law for the transfer thereto);

in each case to the specified office from time to time of the Depositary or any Agent (located in the ROC or such other place as is permitted under applicable law from time to time) as designated by the surrendering Holder in such accompanying order as aforesaid.

(E) Delivery by the Depositary, any Agent and the Custodian of all certificates, Instruments, dividends or other property forming part of the Deposited Property as specified in this Condition will be made subject to any laws or regulations applicable thereto.

(F) The Depositary may at any time and from time to time suspend the withdrawal of all or any category of Deposited Property during any period when the register of shareholders or other relevant holders of the Company is closed or may refuse to deliver Deposited Property generally, in one or more localities, if such suspension or refusal is deemed necessary or desirable by the Depositary, in good faith, because of any requirement of law or of any government or governmental authority, body or commission, or under any provision of the Regulation S Deposit Agreement or for any other reason.

(G) The Depositary and its agents, on their own behalf, may own and deal in any class of securities of the Company and its affiliates and in Regulation S GDRs. In its capacity as Depositary, the Depositary shall not lend Deposited Shares or Regulation S GDRs. However, to the extent permitted by applicable laws in the ROC, the Depositary may, when a Holder requests that the Depositary cancel the Regulation S GDRs and sell the related Deposited Shares on its behalf, cause the Deposited Shares to be sold and deliver the proceeds of the sale prior to the receipt and cancellation of Regulation S GDRs (each such transaction a “Pre-Cancellation Deposited Shares Sale”). Each such Pre-Cancellation Deposited Shares Sale will be:

(a) accompanied by or subject to a written agreement whereby the person or entity (the “Applicant”) to whom the proceeds of the sale of Deposited Shares are to be delivered (w) represents that at the time of the Pre-Cancellation Deposited Shares Sale, the Applicant or its customer owns the Regulation S GDRs that are to be delivered by the Applicant under such Pre-Cancellation Deposited Shares Sale, (x) agrees to indicate the Depositary as owner of such Regulation S GDRs in its records and to hold such Regulation S GDRs in trust for the Depositary until such Regulation S GDRs are delivered to the Depositary, (y) unconditionally guarantees to deliver to the Depositary such Regulation S GDRs, and (z) agrees to any additional restrictions or requirements that the Depositary may deem appropriate;

(b) at all times fully collateralised with cash, United States government securities or such other collateral as the Depositary may deem appropriate;

(d) subject to such further indemnities and credit regulations as the Depositary may deem appropriate.

The Depositary will normally limit the number of Deposited Shares involved in such Pre-Cancellation Deposited Shares Sales (together with Deposited Shares involved in Pre-Release Deposited Shares Transactions (as defined below)) at any one time to 30% of the Deposited Shares outstanding, provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate.

At such time as and to the extent permitted by applicable laws in the ROC, the Depositary may, when a Holder (the “Applicant”) requests that the Depositary cancel Regulation S GDRs and deliver Deposited Shares, deliver Deposited Shares prior to the receipt and cancellation of Regulation S GDRs (each such transaction a “Pre-Release Deposited Shares Transaction”). Each such Pre-Release Deposited Shares Transaction shall be:

(aa) accompanied by or subject to a written agreement whereby the Applicant to whom Deposited Shares are to be delivered (i) represents that at the time of the Pre-Release Deposited Shares Transaction, the Applicant or its customer owns the Regulation S GDRs that are to be delivered by the Applicant under such Pre-Release Deposited Shares Transaction, (ii) agrees to indicate the Depositary as owner of such Regulation S GDRs in its records and to hold such Regulation S GDRs in trust for the Depositary until such Regulation S GDRs are delivered to the Depositary, (iii) unconditionally guarantees to deliver to the Depositary such Regulation S GDRs, and (iv) agrees to any additional restrictions or requirements that the Depositary may deem appropriate;

(bb) at all times fully collateralised with cash, United States government securities or such other collateral as the Depositary may deem appropriate;

(cc) terminable by the Depositary on not more than five Business Days' notice; and

(dd) subject to such further indemnities and credit regulations as the Depositary may deem appropriate.

The Depositary will normally limit the number of Deposited Shares involved in such Pre-Release Deposited Shares Transactions (together with Deposited Shares involved in Pre-Cancellation Deposited Shares Sales) at any one time to 30% of the Deposited Shares outstanding, provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate.

At such time as and to the extent permitted by applicable laws in the ROC, the Depositary may issue Regulation S GDRs against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares. Such evidence of rights shall consist of written blanket or specific guarantees of ownership of Shares furnished on behalf of the holder thereof. In addition, at such time as and to the extent permitted by applicable laws in the ROC, the Depositary may issue Regulation S GDRs prior to the receipt of Shares (each such transaction, a “Pre-Release GDR Transaction”) and the Depositary may receive Regulation S GDRs in lieu of Shares in satisfaction thereof. Each such Pre-Release GDR Transaction shall be:

(aaa) accompanied by or subject to a written agreement whereby the person or entity (the “Applicant”) to whom Regulation S GDRs are to be delivered (i) represents that at the time of the Pre-Release GDR Transaction, the Applicant or its customer owns the Shares or Regulation S GDRs that are to be delivered by the Applicant under such Pre-Release GDR Transaction, (ii) agrees to indicate the Depositary as owner of such Shares or Regulation S GDRs in its records and to hold such Shares or Regulation S GDRs in trust for the Depositary until such Shares or Regulation S GDRs are delivered to the Custodian or the Depositary, as applicable, (iii) unconditionally guarantees to deliver to the Custodian or the Depositary, as applicable, such Shares or Regulation S GDRs, and (iv) agrees to any additional restrictions or requirements that the Depositary may deem appropriate;

(bbb) at all times fully collateralised with cash, United States government securities or such other collateral as the Depositary may deem appropriate;

(ccc) terminable by the Depositary on not more than five Business Days' notice; and

(ddd) subject to such further indemnities and credit regulations as the Depositary may deem appropriate.

The Depositary will normally limit the number of Regulation S GDRs involved in such Pre-Release GDR Transactions at any one time to 30% of the Regulation S GDRs outstanding (without giving effect to Regulation S GDRs outstanding through other Pre-Release GDR Transactions), provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The Depositary may also set limits with respect to the number of Regulation S GDRs involved in Pre-Release GDR Transactions, Pre-Release Deposited Shares Transactions or Pre-Cancellation Deposited Shares Sales with any one person on a case-by-case basis as it deems appropriate.

The Depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided pursuant to the paragraph above, but not the earnings thereon, shall be held for the benefit of the Holders.

Holders of Regulation S GDRs withdrawing Shares are required under current ROC law and regulations to appoint an agent in the ROC for filing tax returns and making tax payments. Such agent must meet certain qualifications set by the ROC Ministry of Finance and, upon appointment, becomes a guarantor of such withdrawing Holder's ROC tax obligations. Evidence of the appointment of such agent and the approval of such appointment by the ROC tax authorities may be required as conditions to such withdrawing Holder's repatriation of the profit derived from the sale of withdrawn Shares. There can be no assurance that such withdrawing Holder of Regulation S GDRs will be able to appoint and obtain approval for such agent in a timely manner.

In addition, under current ROC law, Holders of Regulation S GDRs withdrawing Shares are required to appoint a local agent with such qualifications as are set by the ROC SFC in the ROC to, among other things, open a securities trading account with a local securities brokerage firm and a NT dollar bank account, remit funds, exercise a shareholder’s right and perform such other functions as may be designated by such withdrawing Holder. Further, such withdrawing Holder must appoint a local bank to act as custodian for confirmation and settlement of trades, safekeeping of securities and cash proceeds, payment of taxes and reporting and declaration of information. Without opening a securities trading account and a NT dollar account, Holders of GDRs that withdraw and hold Shares represented thereby, will not be able to receive and hold or otherwise transfer such Shares on the TSE.

Under current ROC law, regulation and policy, PRC persons are not permitted to hold the GDRs or to register as a shareholder of the Company. Under current ROC law, “PRC person” means an individual holding a passport issued by the PRC, a resident of any area of China under the effective control or jurisdiction of PRC (but not including a special administrative region of the PRC such as Hong Kong, Macau or other jurisdictions, if so excluded by applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership or other entity organised under the laws of any such area or controlled or beneficially owned by any such person, resident, agency or instrumentality.

The Company may have various ROC government disclosure obligations and reporting obligations upon the withdrawal of Deposited Shares if:

(i) the person to be registered as shareholder is a “related party” of the Company under Statement of Financial Accounting Standard No.6 of the ROC and beneficially owns Shares withdrawn from the Depositary Facility; or

(ii) the person to be registered as shareholder owns Shares withdrawn from the Depositary Facility and the Shares withdrawn exceed 10% of the Shares in the Depositary Facility.

Because of these obligations, the Depositary may ask the withdrawing Holder to disclose the name of the beneficial owner of the Regulation S GDRs delivered for cancellation and provide proof of identity and genuineness of any signature and other documents before the withdrawing Holder may cancel its Regulation S GDRs. The withdrawal of Shares may be delayed until the Depositary receives the information and proof so requested and satisfactory evidence of the withdrawing Holder's compliance with all laws and regulations. The information that the withdrawing Holder is required to provide may include the name and nationality of the beneficial owner and the number of Shares the beneficial owner is withdrawing or has withdrawn in the past.

3. Form of Transfer and Ownership of Regulation S GDRs

Regulation S GDRs are in registered form each issued in respect of five Shares. Title to the Regulation S GDRs passes by registration in the records of the Depositary. The Holder of any Regulation S GDR will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not any payment or other distribution in respect of such Regulation S GDR is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of any certificate issued in

respect of it) and no person will be liable for so treating the Holder.

4. Cash Distributions

Whenever the Depositary shall receive from the Company any cash dividend or other cash distribution on or in respect of the Deposited Shares (including any amounts received in the liquidation of the Company) or otherwise in connection with the Deposited Property, the Depositary shall as soon as practicable convert the same into United States dollars in accordance with Condition 8. The Depositary shall as soon as practicable distribute any such amounts to the Holders in proportion to the number of Deposited Shares represented by the Regulation S GDRs so held by them respectively, subject to and in accordance with the provisions of Conditions 9 and 11; provided that:

(a) in the event that the Depositary has been notified that any Deposited Shares shall not be entitled, by reason of the date of issue or transfer or otherwise, to such full proportionate amount, the amount so distributed to the relative Holders shall be adjusted accordingly;

(b) the Depositary will distribute only such amounts of cash dividends and other distributions as may be distributed without attributing to any Regulation S GDR a fraction of the lowest integral unit of currency in which the distribution is made by the Depositary, and any balance remaining shall be retained by the Depositary beneficially as an additional fee under Condition 16 (A) (iii).

5. Distributions of Shares

If and whenever the Depositary (or its nominee) shall receive from the Company any distribution in respect of Deposited Shares which consists of a dividend in, or free distribution of, Shares, the Depositary shall, subject to ROC law, cause to be distributed to the Holders entitled thereto, in proportion to the number of Deposited Shares represented by the Regulation S GDRs held by them respectively, additional Regulation S GDRs evidencing the aggregate number of Shares received pursuant to such dividend or distribution, effected by an issue of certificates in definitive registered form in respect of Regulation S GDRs; provided that, if and in so far as the Depositary in its discretion deems any such distribution to all or any Holders not to be practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary shall sell such Shares so received in accordance with Condition 2 (A) and distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto. If, notwithstanding the foregoing, the number of Shares to which any Holder is entitled is not 1,000 or an integral multiple thereof, the Depositary shall endeavour to arrange for the sale in accordance with Condition 2 (A) of such Shares (or, where the entitlement exceeds 1,000 Shares, the excess over 1,000 Shares or the nearest integral multiple thereof) and the net proceeds of sale shall be distributed to the Holders entitled thereto as a cash distribution pursuant to Condition 4. Any Shares or Regulation S GDRs so distributed shall be subject to the same restrictions applicable to the Shares or Regulation S GDRs generally.

6. Distributions other than in Cash or Shares

Whenever the Depositary shall receive from the Company any dividend or distribution in securities (other than Shares) or in other property (other than cash) on or in respect of the Deposited Property, the Depositary shall distribute or cause to be distributed such securities or other property to the Holders entitled thereto, in proportion to the number of Deposited Shares represented by the Regulation S GDRs held by them respectively, in any manner that the Depositary may deem equitable and practicable for effecting such distribution; provided that, if and in so far as the Depositary in its discretion deems any such distribution to all or any Holders not to be practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary shall sell the securities or property so received, or any part thereof in such manner as may be permitted under ROC law and distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto. Any securities so distributed shall, where applicable, be subject to the same restrictions applicable to the Shares or Regulation S GDRs generally.

7. Rights Issues

If and whenever the Company shall announce its intention to make any offer or invitation to the holders of Shares to subscribe for or to acquire Shares, securities or other assets by way of rights, the Depositary shall as soon as practicable give notice of the same to the Holders in accordance with Condition 23 specifying, if applicable, the last date for acceptance thereof and the manner by which and the time during which Holders may request the Depositary to exercise such rights. The Depositary shall take action in the manner described below:

(i) if at the time of offering of any rights the Depositary is satisfied that it is lawful and practicable, the Depositary shall notify the Holders and make arrangements whereby the Holders may, after deduction or upon payment of the subscription price in New Taiwan dollars or other currency (where appropriate) together with such fees, taxes, duties, charges, costs and expenses as may be required under the Regulation S Deposit Agreement and completion of such undertakings, declarations, certifications and other documents as the Depositary may reasonably require, request the Depositary to exercise such rights on their behalf with respect to the Shares and to distribute the Shares so subscribed or acquired to the Holders entitled thereto (by (if permitted under ROC law) an issue of certificates in definitive form in respect of Regulation S GDRs, according to the manner in which the Holders hold their Regulation S GDRs); or

(ii) if at the time of offering of any rights the Depositary is satisfied that it is lawful and reasonably practicable, the Depositary shall distribute such rights to the Holders entitled thereto in such manner as the Depositary may at its discretion determine; or

(iii) if and in so far as the Depositary is not satisfied that any such arrangement and distribution to all or any Holders is lawful and practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges), the Depositary will use reasonable endeavours to sell such rights in such manner as may be permitted under ROC law and distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto; or

(iv) if at the time of offering of any rights the Depositary is not satisfied that it is lawful or practicable to dispose of the rights as provided in paragraph (i), (ii) or (iii) above, the Depositary shall permit the rights to lapse.

The Company has agreed in the Regulation S Deposit Agreement that it will, unless prohibited by applicable law, give its consent to, and, if requested, use all reasonable endeavours (subject to the following paragraph) to facilitate any such distribution, sale or subscription by the Depositary or the Holders, as the case may be, pursuant to Conditions 4, 5, 6, 7 or 10.

In the absence of its own negligence or bad faith, the Depositary will not be responsible for any failure to determine that it may be lawful or practicable to make such rights available to Holders or owners of Regulation S GDRs in general or to any Holder(s) or owner(s) of any Regulation S GDR in particular.

If the Company notifies the Depositary that registration is required in any jurisdiction under any applicable law of the rights, securities or other property to be distributed under Condition 4, 5, 6, 7 or 10 or the securities to which such rights relate in order for the Depositary to offer such rights or distribute such securities or other property to the Holders or owners of Regulation S GDRs and to sell the securities represented by such rights, the Depositary will not offer such rights or distribute such securities or other property to Holders of Regulation S GDRs or sell such securities or other property unless and until the Company notifies the Depositary that the necessary registration has been effected or an exemption from such registration requirements has been obtained. Neither the Company nor the Depositary shall be liable to register such rights, securities or other property or the securities to which such rights relate and they shall not be liable for any losses, damages or expenses resulting from any failure to do so.

8. Conversion of Foreign Currency

Whenever the Depositary shall receive any currency other than United States dollars by way of dividend

or other distribution or as the net proceeds from the sale of Shares, securities, other property or rights, and if at the time of the receipt thereof the currency so received can in the judgment of the Depositary be converted on a reasonable basis into United States dollars and distributed to the Holders entitled thereto, the Depositary shall promptly convert or cause to be converted by another bank, by sale or in any other manner that it may determine, the currency so received into United States dollars. If such conversion or distribution can be effected only with the approval or license of any government or agency thereof, the Depositary shall make reasonable efforts to apply, or procure that an application be made, for such approval or license, if any, as it may deem desirable. If at any time the Depositary shall determine that in its judgment any currency other than United States dollars is not convertible on a reasonable basis into United States dollars and distributable to the Holders entitled thereto, or if any approval or license of any government or agency thereof which is required for such conversion is denied or, in the opinion of the Depositary, is not obtainable, or if any such approval or license is not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute such other currency received by it (or an appropriate document evidencing the right to receive such other currency) to the Holders entitled thereto to the extent permitted under applicable law, or the Depositary may in its discretion hold such other currency for the benefit of the Holders entitled thereto. If any conversion of any such currency can be effected in whole or in part for distribution to some (but not all) Holders entitled thereto, the Depositary may at its discretion make such conversion and distribution in United States dollars to the extent possible to the Holders entitled thereto and may distribute the balance of such other currency received by the Depositary to, or hold such balance (without liability for interest) for the account of, the Holders entitled thereto, and notify the Holders accordingly.

9. Distribution of Payments

(A) Any distribution under Conditions 4, 5, 6, 7 or 10 will be made by the Depositary to Holders of record on the record date established by the Depositary for that purpose (which shall be the same date as the corresponding record date set by the Company, or if different from such record date, shall be set after consultation with the Company and shall be as near as practicable to such record date) and, if the same is practicable in the opinion of the Depositary, notice shall be given promptly to Holders in accordance with Condition 23, in each case subject to any laws or regulations applicable thereto and (subject to the provisions of Condition 8) distributions will be made in United States dollars by check drawn upon a bank in New York City. The Depositary or the Agent, as the case may be, may deduct and retain from all moneys due in respect of such Regulation S GDR in accordance with the Regulation S Deposit Agreement all fees, taxes, duties, charges, costs and expenses which may become and have become payable under the Regulation S Deposit Agreement or under applicable law in respect of such Regulation S GDR or the relevant Deposited Property.

(B) Delivery of any securities or other property or rights other than cash shall be made as soon as practicable to the entitled Holder, subject to any laws or regulations applicable thereto. If any distribution made by the Company with respect to the Deposited Property and received by the Depositary shall remain unclaimed at the end of six years from the first date upon which such distribution is made available to Holders in accordance with the Regulation S Deposit Agreement, all rights of the Holders to such distribution or the proceeds of the sale thereof shall be extinguished and the Depositary shall (except for any distribution upon the liquidation of the Company when the Depositary shall retain the same) return the same to the Company for its own use and benefit subject, in all cases, to the provisions of applicable law.

10. Capital Reorganization

Upon any change in the par value, sub-division, consolidation or other reclassification of Deposited Shares or any other part of the Deposited Property or upon any reduction of capital, or upon any reorganization, merger or consolidation of the Company or to which it is a party (except where the Company is the continuing corporation) or the compulsory acquisition of Deposited Shares, the Depositary shall as soon as practicable give notice of such event to the Holders in accordance with Condition 23 and may at its discretion treat such event as a distribution and comply with the relevant provisions of Conditions 4, 5, 6 and/or 9 (as appropriate) with respect thereto, or may execute and deliver additional Regulation S GDRs in respect of Shares or may require the exchange of existing Regulation S GDRs for new Regulation S GDRs which reflect the effect of such change.

11. Withholding Taxes and Applicable Laws

(A) Payments to Holders of dividends or other distributions made to Holders on or in respect of the Deposited Shares will be subject to deduction of ROC and other withholding taxes, if any, at the applicable rates in effect from time to time.

(B) If any governmental or administrative authorization, consent, registration or permit or any report to governmental authorities is required under any applicable law in the ROC, in order for the Depositary to receive Shares or other securities from the Company to be deposited under the Conditions, or in order for Shares or other securities or property to be distributed under Condition 5 or 6, or to be subscribed under Condition 7, or to offer any rights or sell any securities represented by such rights relevant to any Deposited Shares, the Depositary shall request that the Company apply for such authorization, consent, registration or permit or file such report on behalf of the Holders within the time required under such laws. In this connection, the Company has undertaken in the Regulation S Deposit Agreement, to the extent reasonably practicable and that it does not involve any unreasonable burden or expense on behalf of the Company, to take such action as may be required in obtaining or filing the same. The Depositary shall not distribute Regulation S GDRs, Shares, securities or other property deposited under these Conditions or make any offer of any such rights or sell any securities represented by any such rights with respect to which such authorization, consent, registration or permit or such report has not been obtained or filed, as the case may be, and shall have no duties to obtain any such authorization, consent, registration or permit, or to file any such report except in circumstances where the same may only be obtained or filed by the Depositary without unreasonable burden or expense.

12. Voting Rights

(A) Holders will not themselves be able to exercise the voting rights with respect to the Deposited Shares, but may direct the exercise of voting rights in accordance with paragraphs (B) and (C) below. The Depositary shall notify Holders of meetings of the shareholders of the Company and the agenda therefor as soon as practicable after receipt of the same by the Depositary.

(B) Subject to paragraph (D) below, the Depositary shall, at the same time as notifying Holders of the meeting, issue a voting instruction form to each Holder by which each Holder may give instructions to the Depositary to vote for or against each and any resolution specified in the agenda for the meeting. In order for such voting instructions to be valid, the voting instruction form must be completed and duly signed by the Holder and returned to the Depositary by such record date as the Depositary may specify in the voting instruction form. If a Holder or Holders together holding a clear majority of the Regulation S GDRs outstanding at the relevant record date shall instruct the Depositary to vote in the same direction in respect of one or more resolutions to be proposed at the meeting, the Depositary shall notify the instruction to the Chief Executive Officer of the Company or such other person as he may designate with the prior approval of the Depositary (whose approval shall not be unreasonably withheld or delayed), and appoint the Chief Executive Officer of the Company or that other person designated by him as the proxy of the Depositary and the Holders to attend such meeting and vote all the Deposited Shares represented by Regulation S GDRs in the direction so instructed by such GDR Holders in relation to such resolution or resolutions.

(C) Subject to paragraph (D) below, if, for whatever reason, the Depositary has not by the record date specified by it received instructions from Holders together holding a majority of all the Regulation S GDRs outstanding at the relevant record date to vote in the same direction in respect of any resolution, the Depositary shall appoint the Chief Executive Officer of the Company or such other person as he may designate with the prior approval of the Depositary (whose approval shall not be unreasonably withheld or delayed) as the proxy of the Depositary and the Holders to attend and vote at such meeting. In such circumstances, the Chief Executive Officer of the Company or that other person designated by him shall be free to exercise the votes attaching to the Deposited Shares in any manner he wishes which may not be in the interests of Holders.

(D) If the Depositary determines that it is not permitted by applicable law to vote the Deposited Shares

represented by the Regulation S GDRs at the relevant shareholders' meeting in the manner provided for in this Condition, the Depositary shall promptly advise the Company of the same and the Depositary shall not vote at the relevant meeting. The Company and the Depositary shall take such actions, including the amendment of Condition 12, as they shall deem appropriate to endeavor to provide for the exercise of voting rights attached to the Deposited Shares at future shareholders' meetings of the Company in a manner consistent with applicable ROC law.

Shares which have been withdrawn from the Depositary Facility and transferred on the Company's register of members to a person other than the Depositary or its nominee may be voted by the Holders thereof. However, Holders may not receive sufficient advance notice of shareholder meetings to enable them to withdraw the Shares, if permitted, and vote at such meetings.

13. Documents to be Furnished, Recovery of Taxes, Duties and Other Charges

The Depositary shall not be liable for any taxes, duties, charges, costs or expenses which may become payable in respect of the Deposited Shares or other Deposited Property or the Regulation S GDRs, whether under any present or future fiscal or other laws or regulations, and such part thereof as is proportionate or referable to a Regulation S GDR shall be payable by the Holder thereof to the Depositary at any time on request or may be deducted from any amount due or becoming due on such Regulation S GDR in respect of any dividend or other distribution. In default thereof, the Depositary may for the account of the Holder discharge the same out of the proceeds of sale on the TSE or otherwise, and subject to ROC law and regulation, of an appropriate number of Deposited Shares (being an integral multiple of the number of Shares in respect of which a single Regulation S GDR is issued) or other Deposited Property and subsequently pay any surplus to the Holder. Any such request shall be made by giving notice in accordance with Condition 23.

14. Liability

(A) In acting hereunder the Depositary shall have only those duties, obligations and responsibilities expressly specified in the Regulation S Deposit Agreement and these Conditions. Other than holding the Deposited Property for the benefit of Holders as bare trustee, the Depositary does not assume any relationship of trust for or with Holders or owners of Regulation S GDRs.

(B) Neither the Depositary, the Custodian, the Company, any Agent nor any of their agents, officers, directors or employees shall incur any liability to any other of them or to any Holder or owner of a Regulation S GDR if, by reason of any provision of any present or future law or regulation of the ROC or any other country or of any relevant governmental authority, or by reason of the interpretation or application of any such present or future law or regulation or any change therein, or by reason of any other circumstances beyond their control, or in the case of the Depositary, the Custodian, any Agent or any of their agents, officers, directors or employees by reason of any provision, present or future, of the Articles of Incorporation of the Company, any of them shall be prevented, delayed or forbidden from doing or performing any act or thing which the terms of the Regulation S Deposit Agreement or these Conditions provide shall or may be done or performed. Nor shall any of them incur any liability to any Holder or person with an interest in any Regulation S GDR by reason of any non-performance or delay, caused as aforesaid, in performance of any act or thing which the terms of the Regulation S Deposit Agreement or these Conditions provide shall or may be done or performed, or by reason of any exercise of, or failure to exercise, caused as aforesaid, any voting rights attached to the Deposited Shares or any of them or any other discretion or power provided for in the Regulation S Deposit Agreement. Any such party may rely on, and shall be protected in acting upon, any written notice, request, direction or other document believed by it to be genuine and to have been duly signed or presented (including a translation which is made by a translator believed by it to be competent or which appears to be authentic).

(C) Neither the Depositary nor any Agent shall be liable (except for its own negligence or bad faith or that of its agents, officers, directors or employees) to the Company or any Holder or owner of a Regulation S GDR, by reason of having accepted as valid or not having rejected any certificate for Shares or Regulation S GDRs purporting to be such and subsequently found to be forged or not authentic.

(D) The Depositary and its Agents may engage or be interested in any financial or other business transactions with the Company or any of its subsidiaries or affiliates, or in relation to the Deposited Property (including, without prejudice to the generality of the foregoing, the conversion of any part of the Deposited Property from one currency to another) may at any time hold Regulation S GDRs for its own account, and shall be entitled to charge and be paid all usual fees, commissions and other charges for business transacted and acts done by it as a bank, and not in the capacity of Depositary, in relation to matters arising under the Regulation S Deposit Agreement (including, without prejudice to the generality of the foregoing, charges on the conversion of any part of the Deposited Property from one currency to another and any sales of property) without accounting to Holders or any other person for any profit arising therefrom.

(E) The Depositary shall endeavor to effect any such sale as is referred to or contemplated in Conditions 2, 5, 6, 7, 10, 13 or 21 or any such conversion as is referred to in Condition 8 in accordance with the Depositary's normal practices and procedures but shall have no liability (in the absence of its own negligence or bad faith or that of its agents, officers, directors or employees) with respect to the terms of such sale or conversion or if such sale or conversion shall not be possible.

(F) The Depositary shall not be required or obliged to monitor, supervise or enforce the observance and performance by the Company of its obligations under or in connection with the Regulation S Deposit Agreement.

(G) The Depositary shall have no responsibility whatsoever to the Company or any owner of Regulation S GDRs as regards any deficiency which might arise because the Depositary is subject to any tax in respect of the Deposited Property or any part thereof or any income therefrom or any proceeds thereof.

(H) In connection with any proposed modification, waiver, authorization or determination permitted by the terms of the Regulation S Deposit Agreement, the Depositary shall not, except as otherwise expressly provided in Condition 22, be obliged to have regard to the consequence thereof for the Holders.

(I) Notwithstanding anything else contained in the Regulation S Deposit Agreement or these Conditions, the Depositary may refrain from doing anything which could or might, in its reasonable opinion, be contrary to any law of any jurisdiction or any directive or regulation of any agency or state or which would or might otherwise render it liable to any person and the Depositary may do anything which is, in its reasonable opinion, necessary to comply with any such law, directive or regulation.

(J) Notwithstanding anything to the contrary contained in the Regulation S Deposit Agreement, the Depositary shall not be liable in respect of any loss or damage which arises out of or in connection with the exercise or attempted exercise of, or the failure to exercise any of, its powers or discretions under the Regulation S Deposit Agreement in the absence of its own negligence or bad faith or that of its agents, officers, directors and employees.

(K) No provision of the Regulation S Deposit Agreement or the Conditions shall require the Depositary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity and security against such risk of liability is not assured.

15. Issue and Delivery of Replacement Regulation S GDRs and Exchange of Regulation S GDRs

Subject to the payment of the relevant fees, taxes, duties, charges, costs and expenses and such terms as to evidence and indemnity as the Depositary may require, replacement Regulation S GDRs will be issued by the Depositary and will be delivered in exchange for or replacement of outstanding, lost, stolen, mutilated, defaced or destroyed Regulation S GDRs upon surrender thereof (except in the case of the destruction, loss or theft) at the specified office of the Depositary or (at the request, risk and expense of the Holder) at the specified office of any Agent.

16. Depositary's Fees, Costs and Expenses

(A) The Depositary shall be entitled to receive the applicable fees in connection with the issuance of Regulation S GDRs in accordance with the terms and conditions of the Regulation S Deposit Agreement.

(B) The Depositary is entitled to receive from the Company the fees, taxes, duties, charges, costs and expenses set out in the Regulation S Deposit Agreement.

17. Agents

(A) The Depositary shall be entitled, with the approval of the Company, to appoint one or more agents (the “Agents”) for the purpose, inter alia, of making distributions to the Holders.

(B) Notice of appointment or removal of any Agent or of any change in the specified office of the Depositary or any Agent will be duly given by the Depositary to the Holders in accordance with Condition 23.

18. Listing

The Company has undertaken in the Regulation S Deposit Agreement to use all reasonable endeavors to maintain, so long as any Regulation S GDR is outstanding, a listing for the Regulation S GDRs on the Luxembourg Stock Exchange so long as the requirements for such listing are not unduly onerous or burdensome and the cost of such listing is not unreasonable in each case when compared to other official stock exchanges based in Europe. For that purpose the Company will pay all fees and sign and deliver all undertakings required by the Luxembourg Stock Exchange in connection therewith. In the event that such listing is not maintained, the Company has undertaken in the Regulation S Deposit Agreement to use its best endeavours with the assistance of the Depositary to obtain and maintain a listing of the Regulation S GDRs on another stock exchange.

The Regulation S GDRs are listed on the Luxembourg Stock Exchange and are quoted on CLOB International of the Stock Exchange of Singapore. The Rule 144A GDRs are designated for trading in the PORTAL Market.

19. The Custodian

The Depositary has agreed with the Custodian that the Custodian will receive and hold (or appoint agents approved by the Depositary to receive and hold) all Deposited Property for the account and to the order of the Depositary in accordance with the applicable terms of the Regulation S Deposit Agreement and any custodian agreement between the Depositary and the Custodian which include a requirement to segregate the Deposited Property from the other property of, or held by, the Custodian provided that the Custodian shall not be obligated to segregate cash comprised in the Deposited Property from cash otherwise held by the Custodian. The Custodian shall be responsible solely to the Depositary, provided that, so long as the Depositary and the Custodian are the same legal entity, references to them separately in these Conditions and the Regulation S Deposit Agreement are for convenience only and that legal entity shall be responsible for discharging both functions directly to the Holders and the Company. Upon receiving notice of the resignation of the Custodian the Depositary shall promptly appoint a successor Custodian (approved by the Company), which shall upon acceptance of such appointment become the Custodian under the Regulation S Deposit Agreement. Whenever the Depositary in its discretion determines that it is in the best interests of the Holders to do so, it may, after prior consultation with the Company, terminate the appointment of the Custodian and, in the event of the termination of the appointment of the Custodian, the Depositary shall promptly appoint a successor Custodian (approved by the Company), which shall upon acceptance of such appointment become the Custodian under the Regulation S Deposit Agreement on the effective date of such termination and notify Holders of such change immediately upon such change taking effect in accordance with Condition 23. Notwithstanding the foregoing, the Depositary may temporarily deposit the Deposited Property in a manner or a place other than as herein specified; provided that in the case of such temporary deposit in another place the Company shall have consented to such deposit, and such consent of the Company shall have been delivered to the Custodian. In case of transportation of the Deposited Property under this Condition, the Depositary shall obtain appropriate insurance at the expense of the Company if and to the extent that the obtaining of such insurance is

reasonably practicable and the amount of premiums payable is reasonable.

20. Resignation and Termination of Appointment of the Depositary

(A) The Company may terminate the appointment of the Depositary under the Regulation S Deposit Agreement by giving at least 90 days' notice in writing to the Depositary and the Custodian, and the Depositary may resign as Depositary by giving at least 90 days' notice in writing to the Company and the Custodian. Within 30 days after the giving of such notice, notice thereof shall be duly given by the Depositary to the Holders.

Subject to Condition 21 (A), the termination of appointment or resignation of the Depositary shall take effect on the date specified in such notice provided that the Depositary shall procure that no such termination shall take effect until the appointment by the Company of a successor depositary under the Regulation S Deposit Agreement, and the acceptance of such appointment to act in accordance with the terms hereof by that successor depositary. The Company has undertaken in the Regulation S Deposit Agreement to use its best endeavors to procure the appointment of a successor depositary to take effect from the date of termination specified in such notice as soon as reasonably possible following notice of such termination or resignation. Upon any such appointment and acceptance notice thereof shall be duly given by the Depositary to the Holders.

(B) Upon the termination of appointment or resignation of the Depositary, the Depositary shall deliver to its successor as depositary sufficient information and records to enable such successor efficiently to perform its obligations under the Regulation S Deposit Agreement and shall deliver and pay to such successor depositary all property and cash held by it under the Regulation S Deposit Agreement. On the date, on which such termination of appointment or resignation takes effect, the Regulation S Deposit Agreement provides that the Custodian shall be deemed to be the Custodian thereunder for such successor depositary and shall hold the Deposited Property for such successor depositary.

21. Termination of Regulation S Deposit Agreement

(A) Either the Company or the Depositary but, in the case of the Depositary, only if the Company has failed to appoint a replacement Depositary within 60 days of the date on which the Depositary gives a notice of resignation under Condition 20, may terminate the Regulation S Deposit Agreement by giving 90 days' notice to the other and to the Custodian. Within 60 days after the giving of such notice, notice of such termination shall be given by the Depositary to Holders of all Regulation S GDRs then outstanding in accordance with Condition 23.

(B) During the period from the giving of such notice to the Holders until termination, each Holder shall be entitled to obtain delivery of the Deposited Property relative to each Regulation S GDR held by it, subject to the provisions of and upon compliance with Condition 2, free of charge for such delivery and surrender but otherwise in accordance with the Regulation S Deposit Agreement.

(C) If any Regulation S GDRs remain outstanding after the date of termination, the Depositary shall forthwith sell the Deposited Property then held by it under the Regulation S Deposit Agreement and thereafter deliver the net proceeds of any such sale, together with any other cash then held by it under the Regulation S Deposit Agreement, pro rata to Holders of Regulation S GDRs which have not previously been so surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Regulation S Deposit Agreement and these Conditions, except to account to Holders for such net proceeds and other cash.

22. Amendment of Regulation S Deposit Agreement and Conditions

All and any of the provisions of the Regulation S Deposit Agreement and these Conditions (other than this Condition 22) may at any time and from time to time be amended by agreement between the Company and the Depositary in any respect which they may deem necessary or desirable. Notice of any amendment of these Conditions (except to correct a manifest error) shall be duly given to the Holders by the

Depositary, and any amendment (except as aforesaid) which shall increase or impose fees or charges payable by Holders or which shall otherwise, in the opinion of the Depositary, be materially prejudicial to the interests of the Holders (as a class) shall not become effective as to the outstanding Regulation S GDRs until the expiration of three months after such notice shall have been given. During such period of three months, each Holder shall be entitled to obtain subject to and upon compliance with Condition 2, delivery of the Deposited Property relative to each Regulation S GDR held by it upon surrender thereof free of charge for such delivery and surrender but otherwise in accordance with the Regulation S Deposit Agreement. Each Holder at the time when any such amendment so becomes effective shall be deemed, by continuing to hold a Regulation S GDR, to approve such amendment and to be bound by the terms thereof in so far as they affect the rights of the Holders. In no event shall any amendment impair the right of any Holder to receive, subject to and upon compliance with Condition 2, the Deposited Property attributable to the relevant Regulation S GDR.

For the purposes of this Condition 22, an amendment shall not be regarded as being materially prejudicial to the interests of Holders if its principal effect is to permit the issue of Regulation S GDRs in respect of additional Shares to be held by the Depositary which are or will become fully consolidated as a single series with the other Deposited Shares, provided that temporary Regulation S GDRs will represent such Shares until they are so consolidated.

23. Notices

(A) Any and all notices to be given to any Holder shall be deemed to have been duly given if personally delivered, or sent by mail (if domestic, first class; if overseas, first class airmail) or air courier, or by telex or facsimile transmission confirmed by letter sent by mail or air courier, addressed to such Holder at the address of such Holder as it appears on the Register maintained by the Depositary, or, if such Holder shall have filed with the Depositary a written request that notices intended for such Holder be mailed to some other address, at the address specified in such request.

(B) Delivery of a notice sent by mail or air courier shall be deemed to be effective three days (in the case of domestic mail or air courier) or seven days (in the case of overseas mail) after despatch, and any notice sent by telex transmission, as provided in this Condition, shall be deemed to be effective when the sender receives the answerback from the addressee at the end of the telex and any notice sent by facsimile transmission, as provided in this Condition, shall be deemed to be effective when the intended recipient has confirmed by telephone to the transmitter thereof that the recipient has received such facsimile in complete and legible form.

For so long as the European Master GDR is registered in the name of a nominee for Clearstream, International and Euroclear, notices to Holders may be given by the Depositary by delivery of the relevant notice to such nominee, for communication to Holders in substitution for publication as required by the Conditions, except that so long as the Regulation S GDRs are listed on the Luxembourg Stock Exchange, notices to Holders of the Regulation S GDRs shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort), and in the Financial Times in London, and so long as the Regulation S GDRs are quoted on CLOB International, notices to Holders of the Regulation S GDRs shall be published in a leading newspaper having general circulation in Singapore (which is expected to be the Straits Times).

24. Reports of and Information on the Company

(A) The Company has undertaken in the Regulation S Deposit Agreement (so long as any Regulation S GDR is outstanding) to furnish the Depositary with six copies in the English language (and to make available to the Depositary, the Custodian and each Agent as many further copies as they may reasonably require to satisfy requests from Holders) of:

(i) in respect of the financial year ending on 31 December 1994 and in respect of each financial year thereafter and each period of 6 months ending 30 June, the non-consolidated (or, if published for holders of Shares, consolidated) balance sheets as at the end of such financial year or period (as the case may be)

and the non-consolidated (or, if published for holders of Shares, consolidated) statements of income for such financial year or period (as the case may be) in respect of the Company, prepared in conformity with generally accepted accounting principles in the ROC and reported upon by independent public accountants selected by the Company, as soon as practicable (and in any event within 150 days) after the end of such year or period (as the case may be); and

(ii) the Company's published quarterly results for holders of Shares, comprising the unaudited non consolidated balance sheet as at the end of, and the unaudited non-consolidated statement of income in respect of, the immediately preceding quarterly period, as soon as practicable after the same are published.

(B) The Depositary shall upon receipt thereof give due notice to the Holders that such copies are available upon request at its specified office and the specified office of any Agent.

25. Copies of Company Notices

On or before the day when the Company first gives notice, by mail, publication or otherwise, to holders of any Shares or other Deposited Property, whether in relation to the taking of any action in respect thereof or in respect of any dividend or other distribution thereon or of any meeting or adjourned meeting of such holders or otherwise, the Company has undertaken in the Regulation S Deposit Agreement to transmit to the Custodian and the Depositary such number of copies of such notice and any other material (which contains information having a material bearing on the interests of the Holders) furnished to such holders by the Company in connection therewith as the Depositary may reasonably request. If such notice is not furnished to the Depositary in English, either by the Company or the Custodian, the Depositary shall, at the Company's expense, arrange for an English translation thereof (which may be in such summarized form as the Depositary may deem adequate to provide sufficient information). Except as provided below, the Depositary shall, as soon as practicable after receiving notice of such transmission or (where appropriate) upon completion of translation thereof, give due notice to the Holders which notice may be given together with a notice pursuant to Condition 9(A), and shall make the same available to Holders in such manner as it may determine.

26. Moneys Held by the Depositary

The Depositary shall be entitled to deal with moneys paid to it by the Company for the purposes of the Regulation S Deposit Agreement in the same manner as other moneys paid to it as a banker by its customers and shall not be liable to account to the Company or any Holder or any other person for any interest thereon, except as otherwise agreed.

27. Severability

If at any time any provision contained in the Regulation S Deposit Agreement or in these Conditions is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the same shall not effect or impair (i) the legality, validity or enforceability in that jurisdiction of any other provision therein or herein, or (ii) the legality, validity or enforceability under the law of any other jurisdiction of that or any provision therein or herein.

28. Governing Law

(A) The Regulation S Deposit Agreement and the Regulation S GDRs are governed by and shall be construed in accordance with English law. The rights and obligations attaching to the Deposited Shares will be governed by ROC law. The Company and the Depositary have submitted in respect of the Regulation S Deposit Agreement and the Depositary has submitted in respect of these Conditions to the jurisdiction of the English courts. Without prejudice to the foregoing the Company has also submitted in respect of the Regulation S Deposit Agreement to the non-exclusive jurisdiction of the New York State Courts and the United States Federal Courts sitting in New York.

(B) The courts of England are to have jurisdiction to settle any disputes which may arise out of or in

connection with the Regulation S GDRs and accordingly any legal action or proceedings arising out of or in connection with the Regulation S GDRs (“Proceedings”) may be brought in such courts. The Depositary irrevocably submits to the jurisdiction of such courts and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the benefit of each of the Holders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).

(C) The Company irrevocably appoints Law Debenture Corporate Services Limited of 5th Floor, 100 Wood Street, London EC2V 7EX, England, as its agent in England and CT Corporation System, 111 Eighth Avenue, New York, New York 10011, United States of America, as its agent in New York to receive service of process in any Proceedings in England and New York, respectively, based on any of the Regulation S GDRs in accordance with the procedure set out in the Regulation S Deposit Agreement. If for any reason the Company does not have such an agent in England and New York, it will promptly appoint a substitute process agent and notify the Holders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law.

(D) The Depositary irrevocably appoints Citibank, N.A. at its London branch located at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, England, as its agent in England to receive service of process in any Proceedings in England based on any of the Regulation S GDRs. If for any reason the Depositary does not have such an agent in England, it will promptly appoint a substitute process agent and notify the Holders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law.

(E) No person shall have any right to enforce any term or condition of the Regulation S GDRs under the Contracts (Rights of Third Parties) Act 1999.

TRANSFER RESTRICTIONS

Because of the following restrictions, purchasers are advised to consult with legal counsel prior to making any resale, pledge or transfer of the Instruments or the Company’s shares.

The Instruments and the Shares or GDRs issuable upon conversion thereof have not been registered under the Securities Act or with any securities regulatory authority of any state in the United States or other jurisdiction and may not be offered or sold in the United States or to or for the account of U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Instruments are being offered and sold (i) outside the United States and the Republic of China to non-U.S. persons in accordance with Regulation S under the Securities Act and (ii) in the United States under the exemption provided by Section 4(2) of the Securities Act.

The Instruments may only be offered, sold, delivered or otherwise transferred (1) inside the United States to a person whom the holder reasonably believes is a qualified institutional buyer (“QIB”) as defined in Rule 144A of the Securities Act pursuant to an exemption from the registration requirements of the Securities Act, (2) outside the United States to a non-U.S. person in compliance with Regulation S of the Securities Act, (3) pursuant to Rule 144 under the Securities Act (if available), (4) pursuant to another exemption from registration under the Securities Act (if available) or (4) pursuant to an effective registration statement under the Securities Act, in each case, and in accordance with any other applicable law.

Except in certain limited circumstances, interests in the Instruments may only be held through owning beneficial interests in the Global Certificate. Such interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream and their respective direct and indirect participants. See “Description of the Instruments — Transfers of Instruments; Issue of Certificates.”

(I) Every person purchasing Instruments and each purchaser of such Instruments in subsequent resales, by accepting delivery of this offering circular and the Instruments, will be deemed to have represented, agreed and acknowledged that Instruments represented by the Global Certificate and any physical certificate evidencing the Instruments may be restricted under the Indenture, and, unless otherwise determined by the Company, will bear a legend to the following effect:

THE INSTRUMENTS EVIDENCED HEREBY (THE “INSTRUMENTS”) AND THE SHARES (THE “SHARES”) AND GLOBAL DEPOSITARY RECEIPTS (“GDRs”) OF YAGEO CORPORATION ISSUABLE UPON CONVERSION OF THE INSTRUMENTS EVIDENCED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, SUCH INSTRUMENTS MAY ONLY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED (1) INSIDE THE UNITED STATES TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A OF THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN COMPLIANCE WITH REGULATION S OF THE SECURITIES ACT, (3) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (4) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ANY OTHER APPLICABLE LAW. EACH HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THE INSTRUMENTS EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING AND FOLLOWING RESTRICTIONS.

IN THE CASE OF INSTRUMENTS AND SHARES OR GDRs ISSUABLE UPON CONVERSION OF INSTRUMENTS BEING PURCHASED PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, THIS LEGEND WILL BE REMOVED AT THE

EXPIRATION OF 40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING OF INSTRUMENTS AND THE LATEST CLOSING DATE, AND IN THE CASE OF INSTRUMENTS AND SHARES OR GDRs ISSUABLE UPON CONVERSION OF INSTRUMENTS BEING PURCHASED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT, THIS LEGEND MAY BE REMOVED AT SUCH TIME AS SUCH SECURITIES ARE NOT RESTRICTED UNDER THE SECURITIES ACT. AFTER WHICH TIME IN EACH CASE THE INSTRUMENTS EVIDENCED HEREBY AND THE SHARES OR GDRs ISSUABLE UPON CONVERSION OF THE INSTRUMENTS SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED IN THIS LEGEND, PROVIDED THAT AT SUCH TIME AND THEREAFTER THE OFFER OR SALE OF THE INSTRUMENTS EVIDENCED HEREBY AND THE SHARES OR GDRs ISSUABLE UPON CONVERSION OF THE INSTRUMENTS WOULD NOT BE RESTRICTED UNDER ANY APPLICABLE SECURITIES LAWS OF THE UNITED STATES OR OF THE STATES OR TERRITORIES OF THE UNITED STATES.

(II) In addition:

(a) Every person purchasing Instruments outside the United States and the ROC pursuant to Regulation S, and each purchaser of such Instruments in subsequent resales, by accepting delivery of this offering circular and the Instruments will be deemed to have represented, agreed and acknowledged that:

it understands that such Instrument and the Shares or GDRs to be delivered upon conversion of the Instruments have not been and will not be registered under the Securities Act and, prior to the expiration of 40 days after the later of the commencement of the offering and completion of the distribution of the Instruments, may not be offered, sold, pledged or otherwise transferred except in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S;
it is:
the beneficial owner of such Instruments,
not a U.S. person and it is located outside the United States (in each case, as such terms are defined in Regulation S), and
not affiliate of the Company or a person acting on behalf of such an affiliate;
it agrees (or if it is a broker-dealer, its customer has confirmed to it that such customer agrees) that prior to the end of the 40-day restricted period referred to above, it (or such customer) will not offer, sell, pledge or otherwise transfer such Instruments except in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, in each case in accordance with any applicable securities laws of any state of the United States;
it agrees it will not offer, sell, pledge or otherwise transfer any interest in the Instruments except as permitted by the legend set out in paragraph (I) above;
it agrees (or if it is a broker-dealer, its customer has confirmed to it that such customer agrees) that, prior to the end of the 40-day restricted period referred to above, it (or such customer) may not elect to receive GDRs, and it acknowledges that the Trustee and the Company shall reject any Conversion Notice that elects to receive GDRs submitted to them prior to the end of the 40-day restricted period referred to above; it further agrees that the Shares received upon conversion of the Instruments prior to the expiration of such 40-day period may not be deposited in the depositary receipt facilities of the Company until after such date and it will inform any subsequent purchaser of the Shares of such restriction.
it understands that, prior to the end of the 40-day restricted period referred to above, to exercise its conversion rights it must make the representations, warranties and undertakings, including, among other things, that it is a non-U.S. person outside the United States (in each case, as such terms are defined in Regulation S) and with respect to certain restrictions on transfer that may apply to the Shares received upon conversion, contained in the conversion notice described under “Description of the Instruments — Conversion”; and

the Company, the Trustee, the initial purchasers of the Instruments and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements, and

(b) Every person purchasing Instruments within the United States pursuant to Section 4(2) of the Securities Act, and each purchaser of such Instruments in subsequent resales, by accepting delivery of this offering circular and the Instruments, will be deemed to have represented, agreed and acknowledged that:

it is purchasing Instruments for its own account and not with a view to any distribution thereof;
it acknowledges, and each beneficial owner of the Instruments has been advised, that any sale to it is being made in reliance on an exemption from the registration requirements of the Securities Act;
it agrees it will not offer, sell, pledge or otherwise transfer the Instruments or any interest therein except as permitted by the legend set out in paragraph (I) above;
it will give each person to whom it sells or transfers any Instruments notice of such restrictions on offer, sale, pledge or other transfer of such Instruments; and
the Company, the Trustee, the initial purchasers of the Instruments, their affiliates, their advisors, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements,

REGISTERED AND HEAD OFFICE OF THE COMPANY

Yageo Corporation

3F. No. 233-1. Pao Chiao Road Hsin Tien Taipei, Taiwan ROC

PRINCIPAL PAYING, CONVERSION TRUSTEE AND TRANSFER AGENT AND REGISTRAR

Citigroup N.A., London Branch Citibank N.A. 14th Floor, Citigroup Centre Citibank, N.A., London Branch Canada Square, Canary Wharf 21st Floor, Citigroup Centre London E14 5LB Canada Square, Canary Wharf United Kingdom London E14 5LB United Kingdom

DEPOSITARY

CUSTODIAN

Citibank, N.A. Citibank, N.A., Taipei Branch 338 Greenwich Street B1, No. 16, Nanking E. Road New York, NY 10013 Section 4 United States Taipei, Taiwan ROC

INDEPENDENT AUDITOR OF THE COMPANY

Deloitte & Touche

12th Floor, 156 Min Sheng E. Road, Section 3 Taipei, Taiwan ROC

APPENDIX 1

YAGEO CORPORATION Financial Statement for the Years Ended December 31, 2006 and 2005

Yageo Corporation and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2005 and 2006 and Independent Auditors’ Report

Deloitte

Deloitte & Touche 12[th] Floor, Hong-Tai Plaza 156 Min Sheng East Road, Sec. 3 Taipei 105 Taiwan, ROC Tel: +886 (2) 2545-9988 Fax: +886 (2) 2545-9966 www.deloitte.com.tw

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Yageo Corporation

We have audited the accompanying consolidated balance sheets of Yageo Corporation (the “Corporation”) and subsidiaries as of December 31, 2005 and 2006, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended, all expressed in New Taiwan dollars. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. However, we did not audit the financial statements of Phycomp Holding B.V. (Phycomp) and Ferroxcube International Holding B.V. (Ferroxcube) as of and for the years ended December 31, 2005 and 2006 (together, the “consolidated subsidiaries”). The total assets of these consolidated subsidiaries were 15.68% (NT$7,243,137 thousand) and 15.42% (NT$7,147,422 thousand) of the related consolidated totals as of December 31, 2005 and 2006, respectively, and the total revenues of these consolidated subsidiaries were 25.11% (NT$4,160,783 thousand) and 24.29% (NT$4,951,114 thousand), respectively, of the related consolidated totals in 2005 and 2006, respectively. The financial statements of the consolidated subsidiaries as of and for the years ended December 31, 2005 and 2006 were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these consolidated subsidiaries, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the consolidated financial

statements referred to in the first paragraph present fairly, in all material respects, the financial position of Yageo Corporation and subsidiaries as of December 31, 2005 and 2006, and the results of their operations and their cash flows for the years then ended, in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.

As disclosed in Note 3 to the consolidated financial statements, on January 1, 2006, the Corporation and subsidiaries adopted the newly released Statements of Financial Accounting Standards No. 34, “Accounting for Financial Instruments,” and No. 36, “Disclosure and Presentation of Financial Instruments” and newly revised No. 5, “Long-term Investments in Equity Securities” and No. 25, “Business Combinations - Accounting Treatment under Purchase Method.” Since January 1, 2006, amortization of goodwill ceased but will be tested for impairment regularly.

Our audits also comprehended the translation of the 2006 New Taiwan dollars amounts into U.S. dollar amounts and, in our opinion, this translation has been made in conformity with the basis stated in Note 4. Such U.S. dollar amounts are presented solely for the convenience of readers.

/s/ Deloitte & Touche

April 16, 2007

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

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

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars, Except Number of Shares and Par Value)

YAGEO CORPORATION AND SUBSIDIARIES

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 5) Financial assets at fair value through profit or loss (Notes 2, 3 and 6) Available-for-sale financial assets (Notes 2, 3 and 7) Hedging derivative financial assets (Notes 2 and 32) Notes receivable (Note 2) Accounts receivable, net of allowance for doubtful receivables of NT$95,531 thousand in 2005 and NT$84,333 thousand (US$2,587 thousand) in 2006 (Notes 2 and 31) Accounts and notes receivables from related parties, net of allowance for doubtful receivables of NT$5,190 thousand in 2005 and NT$985 thousand (US$30 thousand) in 2006 (Notes 2 and 26) Income tax refund receivable (Notes 2 and 23) Other financial assets (Notes 8, 28 and 30) Inventories, net (Notes 2, 9 and 30) Deferred income tax assets (Notes 2 and 23) Other current assets (Notes 2 and 25) Total current assets LONG-TERM INVESTMENTS (Notes 2, 3, 7, 8, 10, 11, 12 and 28) Investments accounted for using equity method Real estate Other long-term investments Financial assets measured at holding cost Available-for-sale financial assets Bonds measured at amortized cost Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 13, 28 and 30) Cost Land Buildings Machinery and equipment Miscellaneous equipment Total cost Less - accumulated depreciation accumulated impairment Construction in progress and advances for acquisition of equipment Net property, plant and equipment INTANGIBLE ASSETS Deferred pension costs (Notes 2 and 25) Goodwill (Notes 2 and 27) Land use rights (Note 27) Total intangible assets OTHER ASSETS Loans receivable from related parties (Note 26) Properties leased to others, net (Notes 2, 13, 14, 28 and 31) Idle assets (Notes 2, 13 and 27) Refundable deposits Deferred income tax assets (Notes 2 and 23) Pledged assets (Notes 2, 15, 23, 28 and 29) Miscellaneous Total other assets TOTAL		New Taiw	an Dol	lars 2006 Amount % $ 1,801,071 4 3,176 - 278,613 1 290 - 135,664 - 5,432,463 12 238,401 - 22,673 - 931,757 2 4,468,051 10 185,292 - 464,365 1 13,961,816 30 2,363,027 5 167,273 - 58,531 - 1,038,878 2 749,845 2 50,000 - 4,427,554 9 822,011 2 6,131,296 13 17,248,519 37 1,553,700 4 25,755,526 56 9,673,686 21 303,977 1 15,777,863 34 1,684,376 4 17,462,239 38 3,857 - 2,678,387 6 93,157 - 2,775,401 6 46,456 - 4,342,672 10 576,461 1 97,092 - 2,017,177 4 198,744 1 431,447 1 7,710,049 17 $ 46,337,059 100	U.S	. Dollars (Note 4) 2006 Amount LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES $ 55,254 Short-term loans (Notes 16 and 28) Commercial paper issued, net (Note 17) 97 Notes payable 8,547 Accounts payable 9 Accounts and notes payable to related parties (Note 26) 4,162 Other payables (Note 29) Income tax payable (Notes 2 and 23) Accrued expenses 166,660 Financial liabilities at fair value through profit or loss (Notes 2, 3 and 6) Hedging derivative financial liabilities (Notes 2 and 32) 7,314 Current portion of long-term liabilities (Notes 2, 18 and 28) 696 Other current liabilities 28,585 137,074 Total current liabilities 5,685 14,246 LONG-TERM LIABILITIES, NET OF CURRENT PORTION (Notes 2, 18 and 28) 428,329 OTHER LIABILITIES Accrued pension costs (Notes 2 and 25) 72,494 Deposit received (Note 26) 5,132 Other liabilities 1,796 31,871 Total other liabilities 23,004 1,534 Total liabilities 135,831 STOCKHOLDERS’ EQUITY OWNED BY THE PARENT COMPANY Capital stock - NT$10 par value Authorized - 3,500,000 thousand shares Issued - 2406,469 thousand shares in 2005 and 2,423,025 thousand 25,218 shares in 2006 188,099 Capital stock - unregistered 529,161 Capital surplus: 47,665 Paid-in capital in excess of par value 790,143 Paid-in capital in excess of convertible bonds 296,775 Equity in capital surplus reported by equity-method investees 9,325 Total capital surplus 484,043 Retained earnings 51,674 Legal reserve Special reserve 535,717 Unappropriated earnings Total retained earnings Others: 119 Cumulative translation adjustments 82,169 Net loss not recognized as pension cost 2,858 Unrealized gain or loss on financial instrument Total others 85,146 Treasury stock - 2,193 thousand shares Total stockholders’ equity owned by the parent company 1,425 133,227 MINORITY INTEREST 17,685 2,979 Total stockholders’ equity 61,884 6,097 13,236 236,533 $ 1,421,556 TOTAL		New Taiw	an Dol	lars 2006 Amount % $ 3,951,373 9 827,962 2 79,318 - 3,078,795 7 243,223 - 275,326 1 97,553 - 1,506,112 3 10,207 - 9,281 - 1,104,196 2 78,813 - 11,262,159 24 5,100,842 11 310,639 1 159,113 - 8,279 - 478,031 1 16,841,032 36 24,230,255 52 13,820 - 1,077,267 3 3,972 - 501,643 1 1,582,882 4 30,058 - 270,519 1 1,975,340 4 2,275,917 5 286,103 - (52,079 ) - 323,193 1 557,217 1 (28,101 ) - 28,631,990 62 864,037 2 29,496,027 64 $ 46,337,059 100	U.S	. Dollars (Note 4)
		2005 Amount % $ 3,348,347 7 6,480 - 55,353 - - - 219,987 1 4,984,574 11 134,374 - 27,082 - 944,133 2 4,233,406 9 299,923 1 341,830 1 14,595,489 32 2,230,503 5 167,892 - 132,098 - 1,227,844 3 - - - - 3,758,337 8 801,096 2 5,722,178 12 15,820,495 34 1,575,186 4 23,918,955 52 8,054,181 18 - - 15,864,774 34 1,572,233 4 17,437,007 38 - - 2,368,515 5 92,967 - 2,461,482 5 - - 4,320,277 9 720,312 2 92,813 - 1,952,322 4 274,201 1 593,780 1 7,953,705 17 $ 46,206,020 100						2005 Amount % $ 3,452,631 8 848,575 2 66,280 - 2,382,494 5 72,730 - 102,945 - 32,699 - 1,073,659 2 5,349 - - - 3,169,183 7 153,391 1 11,359,936 25 8,402,183 18 213,425 1 141,667 - 16,364 - 371,456 1 20,133,575 44 24,064,694 52 - - 1,037,080 2 - - 458,433 1 1,495,513 3 - - - - 300,577 1 300,577 1 (489,068 ) (1 ) - - (39,509 ) - (528,577 ) (1 ) - - 25,332,207 55 740,238 1 26,072,445 56 $ 46,206,020 100				2006
												Amount $ 121,223 25,401 2,433 94,453 7,462 8,446 2,993 46,205 313 285 33,876 2,417 345,507 156,486 9,530 4,882 254 14,666 516,659 743,350 424 33,049 122 15,390 48,561 922 8,299 60,601 69,822 8,777 (1,597 ) 9,915 17,095 (862 ) 878,390 26,507 904,897 $ 1,421,556

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

(With Deloitte & Touche audit report dated April 16, 2007)

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars, Except Earnings Per Share)

GROSS SALES LESS: SALES RETURNS SALES ALLOWANCES NET SALES (Note 26) COST OF SALES (Note 26) GROSS PROFIT OPERATING EXPENSES (Note 26) Sales and marketing General and administrative Research and development OPERATING INCOME NONOPERATING INCOME AND GAINS Investment income, net Rental (Note 26) Interest (Note 26) Gain on insurance recoveries (Note 30) Financial asset revaluation gain Foreign exchange gains, net Other income Total nonoperating income and gains NONOPERATING EXPENSES AND LOSSES Interest Impairment loss on financial assets measured at holding cost and other long-term investments Inventory losses Impairment loss on idle assets (Note 27) Loss on disposal of property, plant and equipment Compensation expenses (Note 29) Losses on work stoppages (Note 30) Financial liability valuation loss Bond issue costs Reorganization cost, net		New Taiwan	New Taiwan	Dollars 2006 Amount % $ 20,790,682 102 177,302 1 227,101 1 20,386,279 100 14,391,156 71 5,995,123 29 1,648,204 8 1,130,570 5 322,150 2 3,100,924 15 2,894,199 14 600,695 3 194,429 1 102,601 1 6,750 - 3,176 - 2,595 - 90,455 - 1,000,701 5 407,073 2 218,042 1 215,265 1 205,988 1 140,199 1 104,212 1 56,598 - 10,207 - 183 - - -	U.S. Dollars (Note 4)	U.S. Dollars (Note 4)
		2005 Amount % $ 16,923,034 102 169,456 1 180,273 1 16,573,305 100 12,549,149 76 4,024,156 24 1,490,222 9 989,057 6 405,845 2 2,885,124 17 1,139,032 7 369,086 2 188,655 1 173,718 1 - - - - 62,464 1 223,460 1 1,017,383 6 498,680 3 - - 284,525 2 - - 159,426 1 59,795 1 - - 5,349 - 26,286 - 174,847 1				2006
						Amount $ 637,829 5,439 6,967 625,423 441,501 183,922 50,565 34,684 9,883 95,132 88,790 18,428 5,965 3,148 207 97 80 2,775 30,700 12,489 6,689 6,604 6,320 4,301 3,197 1,736 313 6 -

(Continued)

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars, Except Earnings Per Share)

Financial asset valuation loss Other expenses (Note 26) Total nonoperating expenses and losses INCOME BEFORE INCOME TAX EXPENSE INCOME TAX EXPENSE (Notes 2 and 23) CONSOLIDATED NET INCOME ATTRIBUTE TO: Parent company’s stockholders Minority interest NET EARNINGS PER SHARE Basic Diluted		New Taiwan	New Taiwan	New Taiwan



			2005 Income Before Income Tax Net Expense Income $ 0.15 $ 0.13 $ 0.11 $ 0.10

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

(With Deloitte & Touche audit report dated April 16, 2007)

(Concluded)

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of New Taiwan Dollars, Except Issuing Price Per Share)

BALANCE, JANUARY 1, 2005 Offset of deficit against capital surplus Increase in minority interest Consolidation net income for the year ended December 31, 2005 Effect of changes in percentage of ownership of investees Equity in the changes in capital surplus reported by equity-method investees Equity in the changes of unrealized gain or loss on financial instrument reported by equity-method investees Issue of new stocks to acquire other company's shares - NT$10.48 per share Changes in translation adjustments BALANCE, DECEMBER 31, 2005 Effect of adopting the newly released SFAS No. 34 Appropriation of 2005 earnings Legal reserve Special reserve Increase in minority interest Consolidation net income for the year ended December 31, 2006 Purchase of treasury stock - common stock 2,193 thousand shares Exercise of employee stock options Conversion of foreign convertible bonds into common stock Changes in unrealized gain or loss on available-for-sale financial assets Changes in unrealized gain or loss on cash flow hedging Net loss not recognized as pension cost Effect of changes in percentages of ownership of investees Equity in the changes in capital surplus reported by equity-method investees Equity in the changes of unrealized gain or loss on available-for-sale financial assets reported by equity-method investees Equity in net loss not recognized as pension cost reported by equity-method investees Issue of new stocks to acquire other company's shares - $12.40 per share Changes in translation adjustments BALANCE, DECEMBER 31, 2006	Capital St Issued (Notes 1	ock Unregisterd 8 and 19) Capital stock (Notes 18 Amount and 20) $ 22,748,635 $ - - - - - - - - - - - - - 1,316,059 - - - 24,064,694 - - - - - - - - - - - - - - 1,408 - 12,412 - - - - - - - - - - - - - - 165,561 - - - $ 24,230,255 $ 13,820		Capital Surplus (Notes 2, 18, 19, 20 and 21) Equity in Premium from Capital Surplus aid-in Capital Conversion of Reported by in Excess of Convertible Treasury Stock Equity-method Par Value Bonds Transaction Investees $ 11,041,834 $ 135,260 $ 1,650 $ 473,376 (10,067,615 ) (135,260 ) (1,650 ) - - - - - - - - - - - - (68,526 ) - - - 53,583 - - - - 62,861 - - - - - - - 1,037,080 - - 458,433 - - - - - - - - - - - - - - - - - - - - - - - - 507 - - - - 3,972 - - - - - - - - - - - - - - - - - 41,213 - - - 1,997 - - - - - - - - 39,680 - - - - - - - $ 1,077,267 $ 3,972 $ - $ 501,643	Retained Earnings (Accumulated Deficit) Unrealized (Notes 2, 19 and 23) Cumulative Net Loss Not Gain or Loss Unappropriated Translation Recognized as on Financial Earnings Adjustments Pension Cost Instrument Treasury Stock (Accumulated (Notes 2 (Notes 2, 19 (Notes 2, 19 (Notes 2 Legal Reserve Special Reserve Deficit) and 19) and 25) and 32) and 21) $ - $ - $ (10,204,525 ) $ (111,178 ) $ - $ (39,204 ) $ - - - 10,204,525 - - - - - - - - - - - - - 300,577 - - - - - - - - - - - - - - - - - - - - - - - (305 ) - - - - - - - - - - - (377,890 ) - - - - - 300,577 (489,068 ) - (39,509 ) - - - - - - 47,753 - 30,058 - (30,058 ) - - - - - 270,519 (270,519 ) - - - - - - - - - - - - - 1,978,100 - - - - - - - - - - (28,101 ) - - - - - - - - - - - - - - - - - - - 249,448 - - - - - - (8,950 ) - - - - - (46,037 ) - - - - (2,760 ) (10,407 ) - (42,904 ) - - - - - - - - - - - - - 117,355 - - - - - (6,042 ) - - - - - - - - - - - - 785,578 - - - $ 30,058 $ 270,519 $ 1,975,340 $ 286,103 $ (52,079 ) $ 323,193 $ (28,101 )	Minority Interest $ - - 680,656 59,582 - - - - - 740,238 - - - 23,696 100,103 - - - - - - - - - - - - $ 864,037	Total Stockholders' Equity $ 24,045,848 - 680,656 360,159 (68,526 ) 53,583 (305 ) 1,378,920 (377,890 ) 26,072,445 47,753 - - 23,696 2,078,203 (28,101 ) 1,915 16,384 249,448 (8,950 ) (46,037 ) (14,858 ) 1,997 117,355 (6,042 ) 205,241 785,578 $ 29,496,027
			P	Pr aid-in Capital C in Excess of C Par Value $ 11,041,834 (10,067,615 ) - - - - - 62,861 - 1,037,080 - - - - - - 507 - - - - - - - - 39,680 - $ 1,077,267
	Shares (Thousands) 2,274,863 - - - - - - 131,606 - 2,406,469 - - - - - - - - - - - - - - - 16,556 - 2,423,025

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

(With Deloitte & Touche audit report dated April 16, 2007)

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2006 (In Thousands of U.S. Dollars, Except Issuing Price Per Share - Note 4)

BALANCE, JANUARY 1, 2006 Translation adjustment (Note 4) Effect of adopting the newly released SFAS No. 34 Appropriation of 2005 earnings Legal reserve Special reserve Increase in minority interest Consolidation net income for the year ended December 31, 2006 Purchase of treasury stock - common stock 2,193 thousand shares Exercise of employee stock options Conversion of foreign convertible bonds into common stock Changes in unrealized gain or loss on available-for-sale financial assets Changes in unrealized gain or loss on cash flow hedging Net loss not recognized as pension cost Effect of changes in percentages of ownership of investees Equity in the changes in capital surplus reported by equity-method investees Equity in the changes of unrealized gain or loss on available-for-sale financial assets reported by equity-method investees Equity in net loss not recognized as pension cost reported by equity-method investees Issue of new stocks to acquire other company's shares - $12.40 per share Changes in translation adjustments BALANCE, DECEMBER 31, 2006	Capital Sto Issued(Notes 18	ck Unregistered and 19) Capital Stock (Notes 18 Amount and 20) $ 732,563 $ - 5,708 - - - - - - - - - - - - - - 43 - 381 - - - - - - - - - - - - - - 5,079 - - - $ 743,350 $ 424		Capital Surplus (Notes 2, 18, 19, 20 and 21) Equity in Premium from Capital Surplus d-in Capital Conversion of Reported by Excess of Convertible Equity-method Par Value Bonds Investees $ 31,570 $ - $ 13,956 246 - 108 - - - - - - - - - - - - - - - - - - 16 - - - 122 - - - - - - - - - - - - 1,264 - - 62 - - - - - - 1,217 - - - - - $ 33,049 $ 122 $ 15,390	Unrealized Cumulative Net Loss Not Gain or Loss Translation Recognized as on Financial Retained Earnings (Notes 2, 19 and 23) Adjustments Pension Cost Instrument Treasury Stock Unappropriated (Notes 2 (Notes 2, 19 (Notes 2, 19 (Notes 2 Minority St Legal Reserve Special Reserve Earnings and 19) and 25) and 32) and 21) Interest $ - $ - $ 9,150 $(14,888) $ - $ (1,203 ) $ - $ 22,534 - - 72 (117 ) - (9 ) - 175 - - - - - 1,465 - - 922 - (922 ) - - - - - - 8,299 (8,299 ) - - - - - - - - - - - - 727 - - 60,685 - - - - 3,071 - - - - - - (862 ) - - - - - - - - - - - - - - - - - - - - - - 7,653 - - - - - - - (275 ) - - - - - - (1,412 ) - - - - - (85 ) (319 ) - (1,316 ) - - - - - - - - - - - - - - - 3,600 - - - - - - (185 ) - - - - - - - - - - - - - - 24,101 - - - - $ 922 $ 8,299 $ 60,601 $ 8,777 $ (1,597 ) $ 9,915 $ (862 ) $ 26,507	Total ockholders' Equity $ 793,682 6,183 1,465 - - 727 63,756 (862 ) 59 503 7,653 (275 ) (1,412 ) (456 ) 62 3,600 (185 ) 6,296 24,101 $ 904,897
			Pai in
	Shares (Thousands) 2,406,469 - - - - - - - - - - - - - - - - 16,556 - 2,423,025

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

(With Deloitte & Touche audit report dated April 16, 2007)

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income Adjustments to reconcile net income to net cash provided by operating activities: Net gain on disposal of investments Depreciation and amortization Gain on insurance recoveries Losses on work stoppages Financial instrument revaluation loss, net Provision (reversal of allowance) for decline in value of inventories Impairment loss on financial assets measured at holding cost and other long-term investments Equity in net income of investees, net Cash dividends from equity method investees Impairment loss on idle assets Net loss on disposal of property, plant and equipment Deferred income taxes Valuation loss on other financial assets Net changes in operating assets and liabilities: Financial assets at fair value through profit or loss Financial liabilities at fair value through profit or loss Notes receivable Accounts receivable Accounts and notes receivable from related parties Inventories Income tax refund receivable Other financial assets Other current assets Notes payable Accounts payable Accounts and notes payable to related parties Income tax payable Accrued expenses Other payables Other current liabilities Accrued pension costs Net cash provided by operating activities		New Taiwan Dollars 2005 2006 $ 360,159 $ 2,078,203 (184,281 ) (375,714 ) 2,663,455 2,572,194 - (6,750 ) - 56,598 175,145 7,031 (47,518 ) 99,596 - 218,042 (184,805 ) (162,442 ) 26,818 38,963 - 205,988 159,426 140,199 475 49,776 44,681 - (4,609 ) 6,480 (24 ) (5,349 ) (9,442 ) 96,601 (383,575 ) (479,056 ) (31,154 ) (115,379 ) 1,534,535 (411,117 ) 44,905 4,409 (27,105 ) (62,759 ) 224,873 (136,482 ) (222,320 ) 5,727 242,045 692,922 (89,391 ) 249,832 6,259 64,854 (101,183 ) 389,669 26,530 171,719 (952,087 ) (55,357 ) 28,144 47,320 3,299,956 5,385,718	U.S. Dollars (Note 4)	U.S. Dollars (Note 4)
		2005 $ 360,159 (184,281 ) 2,663,455 - - 175,145 (47,518 ) - (184,805 ) 26,818 - 159,426 475 44,681 (4,609 ) (24 ) (9,442 ) (383,575 ) (31,154 ) 1,534,535 44,905 (27,105 ) 224,873 (222,320 ) 242,045 (89,391 ) 6,259 (101,183 ) 26,530 (952,087 ) 28,144 3,299,956		2006 $ 63,756 (11,526 ) 78,911 (207 ) 1,736 216 3,055 6,689 (4,983 ) 1,195 6,320 4,301 1,527 - 199 (164 ) 2,964 (14,697 ) (3,540 ) (12,612 ) 135 (1,925 ) (4,187 ) 176 21,258 7,664 1,990 11,954 5,268 (1,698 ) 1,451 165,226

(Continued)

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of financial assets measured at holding cost and other financial assets Proceeds from disposal of other long-term investments Proceeds from disposal of long-term investments accounted for using equity method Proceeds from disposal of subsidiaries Proceeds from disposal of available-for-sale financial assets Acquisition of long-term investments accounted for using equity method Acquisition of available-for-sale financial assets Acquisition of bonds measured at amortized cost Acquisition of other long-term investments Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (increase) in pledged time deposits Decrease (increase) in refundable deposits Increase in other assets Increase in loans receivable from related parties Proceeds from acquisition of subsidiaries Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Net increase in short-term loans Net increase (decrease) in commercial paper Increase in long-term liabilities Decrease in long-term liabilities Increase (decrease) in deposits received Increase (decrease) in other liabilities Proceeds from acquisition of treasury stock Proceeds from exercise of stock options by employees Net cash used in financing activities		New Taiwan Dollars 2005 2006 $ 90,525 $ 677,317 21,119 14,990 90,000 285,578 - 29,844 155,268 428,709 - (171,494 ) - (608,509 ) - (50,000 ) (1,642 ) - (868,816 ) (2,285,610 ) 125,576 7,426 56,056 (34,934 ) 16,115 (4,163 ) (91,193 ) (124,205 ) - (518 ) - (32,435 ) (406,992 ) (1,868,004 ) 1,490,587 477,123 848,575 (20,613 ) 723,804 4,337,364 (7,529,273 ) (9,712,313 ) (11,403 ) 30,344 (42,639 ) 1,764 - (28,101 ) - 1,915 (4,520,349 ) (4,912,517 )	U.S. Dollars (Note 4)	U.S. Dollars (Note 4)
		2005 $ 90,525 21,119 90,000 - 155,268 - - - (1,642 ) (868,816 ) 125,576 56,056 16,115 (91,193 ) - - (406,992 ) 1,490,587 848,575 723,804 (7,529,273 ) (11,403 ) (42,639 ) - - (4,520,349 )		2006 $ 20,779 460 8,761 916 13,152 (5,261 ) (18,668 ) (1,534 ) - (70,119 ) 228 (1,072 ) (128 ) (3,811 ) (16 ) (995 ) (57,308 ) 14,637 (632 ) 133,064 (297,960 ) 931 54 (862 ) 59 (150,709 ) (Continued)

10 -

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS EFFECTS OF CHANGES IN CONSOLIDATED SUBSIDIARIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid Less - amounts capitalized Net interest paid Income tax paid Cash received from disposal of long-term investments accounted for using equity method Proceeds from disposal of long-term investments accounted for using equity method Less: Increase in other financial assets - other receivables Cash received NONCASH INVESTING AND FINANCING ACTIVITIES: Current portion of long-term liabilities Pledged assets - listed domestic common stock transferred to available-for-sale financial assets Long-term investments accounted for using equity method transferred to financial assets measured at holding cost Property, plant and equipment transferred to idle assets Long-term investments transferred to other financial assets		New Taiwan Dollars 2005 2006 $ (181,884 ) $ (91,940 ) 81,212 (60,533 ) (1,728,057 ) (1,547,276 ) 5,076,404 3,348,347 $ 3,348,347 $ 1,801,071 $ 499,111 $ 448,724 10,948 37,295 $ 488,163 $ 411,429 $ 43,144 $ 71,941 $ 90,000 $ 345,356 - 59,778 $ 90,000 $ 285,578 $ 3,169,183 $ 1,104,196 $ - $ 258,920 $ - $ 39,208 $ 720,312 $ - $ 612,319 $ -	U.S. Dollars (Note 4)	U.S. Dollars (Note 4)
		2005 $ (181,884 ) 81,212 (1,728,057 ) 5,076,404 $ 3,348,347 $ 499,111 10,948 $ 488,163 $ 43,144 $ 90,000 - $ 90,000 $ 3,169,183 $ - $ - $ 720,312 $ 612,319		2006 $ (2,820 ) (1,857 ) (47,468 ) 102,722 $ 55,254 $ 13,766 1,144 $ 12,622 $ 2,207 $ 10,595 1,834 $ 8,761 $ 33,875 $ 7,943 $ 1,203 $ - $ - (Continued)

11 -

YAGEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars)

Conversion of unsecured foreign convertible bonds into common stock of the Corporation Unregistered capital stock Capital surplus - premium from conversion of convertible bonds		New Taiwan Dollars 2005 2006 $ - $ 12,412 - 3,972 $ - $ 16,384	U.S. Dollars (Note 4)	U.S. Dollars (Note 4)
		2005 $ - - $ -		2006 $ 381 122 $ 503

The Group acquired 84.9% equity interest in Chipcera Technology Co., Ltd. (“Chipcera”) in 2006 with the fair value of its assets and liabilities were summarized as follows:

New Taiwan
Dollars

Cash
$ 7,595

Inventories
51,599
Accounts receivable
64,712
Property, plant and equipment
132,968
Other net assets
3,322
Accounts payable
(32,565 )
Short and long-term liabilities

(34,516
)

193,115
Percentage of ownership acquired

84.9%

163,955
Goodwill

88,244

Total proceeds form acquisition of Chipcera
252,199
Less: Issue of new common shares by the Corporation for equity
interest acquisition

205,241

Cash paid by the Group for the acquisition of Chipcera
$ 46,958

U.S. Dollars
(Note 4)
$ 233
1,583
1,985
4,079
102
(999 )
(1,059
)
5,924
84.9%
5,030
2,707
7,737
6,296
$ 1,441

The Group acquired 67.9% equity interest in Compostar Technology Co., Ltd. (“Compostar”) in 2005 with the fair value of its assets and liabilities were summarized as follows:

	New Taiwan	U.S. Dollars	U.S. Dollars
	Dollars		(Note 4)
Cash	$ 124,480	$	3,818
Inventories	502,193		15,407
Accounts receivable	927,130		28,443
Long-term investments	259,174		7,951
Property, plant and equipment	2,231,978		68,474
Other net assets	55,719		1,709
			(Continued)

12 -

New Taiwan Dollars Accounts payable $ (428,218 ) Short and long-term liabilities (1,577,923 ) 2,094,533 Percentage of ownership acquired 67.9% Total proceeds from acquisition of Compostar 1,422,188 Less: Issue of new common shares by the Corporation for equity interest acquisition 1,378,920 Cash paid by the Group for the acquisition of Compostar $ 43,268	U.S. Dollars (Note 4) $ (13,137 ) (48,408 ) 64,257 67.9% 43,631 42,303 $ 1,328

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated April 16, 2007) (Concluded)

13 -

YAGEO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of Dollars, Except Exchange Rate and Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS

Yageo Corporation (the “Corporation”) was incorporated in 1987 in the Republic of China (ROC). The Corporation’s shares are traded on the Taiwan Stock Exchange.

The Corporation manufactures and sells passive components. It also produces and sells equipment used to manufacture passive components.

The Corporation and the consolidated subsidiaries had 8,670 and 9,054 employees as of December 31, 2005 and 2006, respectively.

The Corporation’s subsidiaries were as follows:

a. Subsidiaries that manufacture and market passive components - Ferroxcube Taiwan, Ltd., Yageo Electronics (Dongguan) Co., Ltd., Yageo Electronics (China) Co., Ltd., Phycomp Electronics (Su Zhou) Co., Ltd. (eliminated after being merged into Yageo Electronics (China) Co., Ltd. in 2005), Ferroxcube Electronics (Dongguan) Co., Ltd., Guo Chuang Electronics (Dongguan) Co., Ltd., Yageo Components (Su Zhou) Co., Ltd., Yageo USA (H.K.) Limited, Compostar Technology Co., Ltd., Compostar Technology (Dongguan) Co., Ltd., Compostar Technology (Su Zhou) Co., Ltd., Compostar Technology (Shanghai) Co., Ltd., Chipcera Technology Co., Ltd., Dongguan Chang An Wusha Chipcera, Dongguan Chen An Trading Co., Ltd., Ko-E Corp., Ko-E (H.K.) Limited, Ko-E Technology (Shenzhen) Co., Ltd., Yageo Europe GmbH (eliminated after being merged into Vitrohm Holding GmbH in 2006), Vitrohm Portuguesa LDA, Paracatu Gestao E Investimentos (liquidated in 2006), Phycomp Holding B.V., Ferroxcube International Holding B.V., Yageo Korea, Yageo Japan, Yageo America Corporation, Phycomp Singapore PTE. LTD., Phycomp Malaysia SDN. BHD. and Steller, Inc.
b. Investment holding subsidiaries - Yageo Holding (Bermuda) Limited, Ko-E Holding (Cayman Islands), Ltd., Chipcera Holding B.V., Vitrohm Holding GmbH, Kuo Shin Investment Limited, Lee Tai Investment Limited (eliminated after being merged into Kuo Shin Investment Limited in 2005), Kuo Chung Development Limited, Kuo Ding Venture Capital Limited, Ferroxcube Holding (Samoa), Ltd., Hsu Tai International (H.K.), Compostar Technology (Cayman), Ltd., Rancher International Limited (B.V.I.) (eliminated after being merged into Yageo Holding (Bermuda) Limited in 2006), Luminary International Limited (B.V.I.) (eliminated after being merged into Yageo Holding (Bermuda) Limited in 2006) and Yageo Holding International Limited.

The organization chart of the Corporation and the consolidated subsidiaries (collectively, the “Group”) as of December 31, 2006 is shown as Table 12.

14 -

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the ROC. In preparing financial statements in conformity with these guidelines and principles, the Group is required to make certain estimates and assumptions that could affect the amounts of allowance for decline in market value of inventories, allowance for doubtful accounts, depreciation, amortization and impairment of tangible assets, impairment of intangible assets and pension expenses. Actual results could differ from these estimates because of the uncertainty of circumstances.

For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. 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.

The Group’s significant accounting policies are summarized as follows:

Current/Noncurrent Assets and Liabilities

Unrestricted cash and cash equivalents, assets held for trading and other assets to be converted to cash, used up or consumed within twelve months are classified as current. Liabilities generated from trading and those to be redeemed, paid or settled within twelve months are classified as current. All other assets and liabilities are classified as noncurrent.

Basis of Consolidated Financial Statements

The consolidated financial statements include the accounts of the Corporation and its direct and indirect subsidiaries.

Significant transactions between the Corporation and the consolidated subsidiaries are eliminated. When a subsidiary was acquired, the difference, if any, between the acquisition cost of the investment and the Group’s proportionate equity in the fair value of the subsidiary’s net assets was recognized as goodwill and was previously amortized over 20 years.

Effective January 1, 2006, amortization of goodwill ceased but will be tested for impairment at least on an annual basis. If an event occurs or circumstances change that more likely than not goodwill is impaired, an impairment test is implemented.

The Corporation and its subsidiaries incorporated in the ROC (hereinafter collectively referred to as “Taiwan Entities”) maintain their accounts and prepare their financial statements in New Taiwan dollars. The accounts of consolidated foreign subsidiaries are maintained and their separate financial statements are prepared using their respective functional currencies. Those financial statements are translated into New Taiwan dollars, for consolidation purposes, at the following foreign exchange rates: (a) assets and liabilities - prevailing exchange rates on the balance sheet dates, (b) stockholders’ equity - historical rates, and (c) profit and loss accounts - weighted average rates of the year.

15 -

The consolidated financial statements as of and for the year ended December 31, 2005 include the accounts of the Corporation and its subsidiaries-Ferroxcube Taiwan, Ltd., Yageo Electronics (Dongguan) Co., Ltd., Yageo Electronics (China) Co., Ltd., Phycomp Electronics (Su Zhou) Co., Ltd., Ferroxcube Electronics (Dongguan) Co., Ltd., Guo Chuang Electronics (Dongguan) Co., Ltd., Yageo Components (Su Zhou) Co., Ltd, Yageo USA (H.K.) Limited, Yageo Europe GmbH, Vitrohm Portuguesa LDA, Paracatu Gestao E Investimentos, Phycomp Holding B.V., Ferroxcube International Holding B.V., Yageo Korea, Yageo Japan, Yageo America Corporation, Phycomp Singapore PTE. LTD., Phycomp Malaysia SDN. BHD., Steller, Inc., Yageo Holding (Bermuda) Limited, Vitrohm Holding GmbH, Kuo Shin Investment Limited, Lee Tai Investment Limited, Kuo Chung Development Limited, Kuo Ding Venture Capital Limited, Ferroxcube Holding (Samoa), Ltd., Hsu Tai International (H.K.), Rancher International Limited (B.V.I.), Luminary International Limited (B.V.I.), and Yageo Holding International Limited.

The consolidated financial statements as of and for the year ended December 31, 2005 included the accounts for the period July 1, 2005 to December 31, 2005 of Compostar Technology Co., Ltd. (“Compostar”) and its subsidiaries since the equity interest of Compostar owned by the Corporation and subsidiaries was more than 50% of its outstanding common stock on July 1, 2005.

Please refer to the following descriptions for the changes of the consolidated entities in connection with the aforementioned accounts of Corporation's consolidated financial statements for the year ended December 31, 2006:

a. The consolidated financial statements as of and for the year ended December 31, 2006 included the accounts for the period July 1, 2006 to December 31, 2006 of Chipcera Technology Co., Ltd. (“Chipcera”) and its subsidiaries since the equity interest of Chipcera owned by the Corporation and subsidiaries was more than 50% of its outstanding common stock on July 1, 2006.
b. During 2006, Ko-E Holding, Ltd. (Cayman Islands) was incorporated by Yageo Holding (Bermuda) Limited. As a result of this incorporation, Yageo Holding (Bermuda) Limited became a 90% equity owner of Ko-E Holding, Ltd. and the accounts of financial statements of Ko-E Holding, Ltd. and its subsidiaries, including Ko-E Corp., Ko-E (H.K.) Limited, Ko-E Technology (Shenzhen) Co., Ltd., were consolidated into the Corporation's consolidated financial statements for the year ended December 31, 2006.
c. Yageo Holding (Bermuda) Limited was a 100% equity owner of Guo Chuang Electronics (Dongguan) Co., Ltd. To gain the Corporation's competitive position of passive components in the marketplace, the Corporation is proactively seeking opportunities with other players in the same market for collaboration. Yagelo Holding (Bermuda) Limited subsequently disposed 65% ownership of Guo Chuang Electronics (Dongguan) Co., Ltd. to Laser Tek Taiwan Co., Ltd. As a result of this disposal, Yageo Holding (Bermuda) Limited's percentage of ownership in Guo Chuang Electronics (Dongguan) Co., Ltd. was reduced to 35% and lost its controls over Guo Chuang Electronics (Dongguan) Co., Ltd. as a majority shareholder. Beginning in October of 2006, the accounts of the financial statements of Guo Chuang Electronics (Dongguan) Co., Ltd. will not be consolidated into the consolidated financial statements of the Corporation but due to the Corporation still has significant influence over Guo Chuang Electronics (Dongguan) Co., Ltd., Guo Chuang Electronics (Dongguan) Co., Ltd. was accounted for as an equity-method investment in the Corporation's consolidated financial statements as of December 31, 2006.

To simplify structure, the Group adjusted its organization in 2005 and 2006 as follows:

a. Phycomp Electronics (Su Zhou) Co., Ltd. was merged into Yageo Electronics (China) Co., Ltd. in 2005, with Yageo Electronics (China) Co., Ltd as the survivor entity.
b. Lee Tai Investment Limited was merged into Kuo Shin Investment Limited in 2005, with Kuo Shin Investment Limited as the survivor entity.
16 -
c. Rancher International Limited (B.V.I.) and Luminary International Limited (B.V.I.) were merged into Yageo Holding (Bermuda) Limited in 2006, with Yageo Holding (Bermuda) Limited as the survivor entity.
d. Yageo Europe GmbH was merged into Vitrohm Holding GmbH in 2006, with Vitrohm Holding GmbH as the survivor entity.
e. Paracatu was liquidated in 2006.

Cash Equivalents

Commercial paper with maturities of up to three months from the date of purchase are classified as cash equivalents.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Financial assets/liabilities at fair value through profit or loss are financial assets/liabilities held for trading. These financial assets/liabilities are initially recognized at fair value subsequently, measured at fair value and the changes in fair value are charged to current income. A regular way purchase or sale of financial assets is accounted for based on the trade date accounting.

Derivatives that do not meet the criteria for hedge accounting are classified as financial assets/liabilities at fair value through profit or loss.

For derivatives with no active market, its fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset. When the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value. The fair value of listed common stocks is determined at the closing price on the balance sheet date. The changes in fair value from subsequent remeasurement are reported as a separate component of stockholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. When the stocks are used to secure long-term loans, they will be reclassified as other assets - pledged assets. A regular way purchase or sale of financial assets is accounted for based on the trade date accounting.

Cash dividends are recognized as investment income upon resolution of the shareholders of an investee but are accounted for as reductions to the original cost of investment if such dividends are declared on the earnings of the investees attributable to periods prior to the purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new number of shares.

If there is objective evidence that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss can be reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Inventories

Inventories are stated at the lower of aggregate weighted-average cost or market (net realizable value or replacement cost). These are also evaluated for any loss on slow-moving items.

Investments Accounted for Using Equity Method

17 -

The following investments in shares of stock are accounted for by the equity method if: (a) the combined equity of the Group is at least 20% of the investees’ outstanding common shares, or (b) the Group have a combined equity of less than 20% of their outstanding shares but exercises significant influence over the investee’s financial and operating policy decisions. Under the equity method, the Group’s investment is stated at cost on the acquisition date and subsequently adjusted for the proportionate share of the Group in the net income or net loss of the investees. Any cash dividends received from the investees are accounted for as a reduction of the carrying value of the investments.

The differences between the acquisition cost of the investments and the Group’s equity in the fair value of the investees’ net assets when the investments are acquired or when the equity method is first adopted, are amortized over 5 to 20 years. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standards No. 5 “Long-term Investments in Equity Securities” (“SFAS No. 5”), the cost of acquisition is subjected to initial analysis; the investment cost in excess of the fair value of identifiable net assets is accounted for as goodwill, ceased to be amortized but instead tested for impairment on an annual basis. An impairment test is also required when there is evidence indicating that goodwill is more likely than not impaired due to an event or a change in economic environment. Effective January 1, 2006, the unamortized balance of the investment cost in excess of the equity in the investee’s fair value of identifiable net assets ceased to be amortized but instead subject to the same accounting treatment as that for goodwill. If the fair value of identifiable net assets acquired exceeds the cost of investments, the excess should be assigned to noncurrent assets proportionately to their respective fair values (except for financial assets not under the equity method and deferred income tax assets). If these assets are all reduced to zero, the remaining excess should be recognized as extraordinary gain.

If an investee issues additional shares and the Group subscribes for these shares at a rate not equal to its current equity in the investee, the increase in the Group’s equity in the investee’s net assets is credited to a capital surplus account. Any decrease in the Group’s equity in the investee’s net assets is debited to the balance of the capital surplus account arising from similar transactions. If the capital surplus account is not enough for debiting purposes, any remaining decrease is debited to unappropriated retained earnings.

On the balance sheet date, investments are subjected to an impairment test. If there is objective evidence indicating that an impairment is occurred, the impairment loss shall be charged to current income.

Stock dividends received are recorded only as an increase in the number of shares held and not as investment income. The investment carrying value per share is recalculated on the basis of the increased number of shares. Costs of investments sold are determined using the weighted-moving-average method.

Real Estate

The real estate are carried at the lower of recoverable or carrying value.

Financial Assets Measured at Holding Cost

Investments in equity investments without quoted market prices in an active market and reliably-measured fair value, including investments in unlisted stocks and emerging stocks are carried at cost upon initial recognition. If there is objective evidence that a financial asset is impaired, an impairment loss should be recognized. A subsequent reversal of such impairment is prohibited.

The accounting treatment for cash and stock dividends arising from financial assets measured at holding cost is the same as cash and stock dividends arising from available-for-sale financial assets.

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Bond Measured at Amortized Cost

Bonds with fixed or determinable payments that are not quoted in an active market are measured at amortized cost. Bonds should be measured at original cost plus transaction cost on initial recognition. Gains or losses are recognized when de-recognition, impairment loss or amortization occurs. Purchase or sale of bonds under customary transactions is recognized and derecognized using trade date accounting.

An impairment loss should be recognized if there is objective evidence that a financial asset is impaired. If later on an indication suggest that the impairment may no longer exist or may have diminished, the impairment loss can be reversed to the extend that would otherwise result had no impairment loss been recognized for the assets in prior years.

Other Long-term Investments

Investments in foreign funds with no objective fair value are measured at cost upon initial recognition. If there is objective evidence that the foreign fund is impaired, an impairment loss should be recognized. A subsequent reversal of such impairment is prohibited.

Property, Plant and Equipment and Properties Leased to Others

These assets are carried at cost, net of accumulated depreciation and accumulated impairment loss. Major improvements or renewals are capitalized, while maintenance and repairs are charged to current expense.

Depreciation is calculated using the straight-line method over service lives initially estimated as follows: buildings, 3 to 55 years; and machinery and miscellaneous equipment, 1 to 15 years. Properties still in use beyond their originally estimated service life are depreciated over their newly estimated service lives.

An impairment loss should be recognized whenever the carrying amount of properties leased to others exceeds their recoverable amount, and this impairment loss should be charged to current income. An impairment loss recognized in prior years could be reversed if there is a recovery in the estimates used to determine recoverable amount since the last impairment loss was recognized. However, an impairment loss is reversed only to the extent that it does not increase the carrying amount of an asset above the carrying amount that would have been determined for the asset (net of depreciation) had no impairment loss been recognized in prior years. A reversal of an impairment loss should be recognized in the income statement for assets carried at cost and treated as a revaluation increase for assets carried at the revalued amount.

Upon sale or other disposal of assets, the related cost, accumulated depreciation and accumulated impairment are removed from the accounts, and any gain or loss is accounted as nonoperating income or loss.

Idle Assets

These assets are stated at the lower of recoverable amount or carrying value.

Assets Impairment

The Group determine the cash-generating unit to which tangible and intangible asset belong in accordance with Statement of Financial Accounting Standards No. 35, “Accounting for Asset Impairment,” before the impairment test is done. An impairment loss should be recognized whenever the aggregate carrying amount of specific cash-generating units exceeds their recoverable amount, and this impairment loss should be charged to current income. For the reduction of the carrying amounts of the assets of cash-generating units, the impairment loss should be allocated in the following order:

a. Unidentifiable intangible assets (goodwill) should be allocated to the cash-generating unit if any; and
b. The identifiable intangible and tangible assets of the unit should be allocated pro rata based on the carrying amount of each asset in the unit.
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An impairment loss recognized in prior years may be reversed if there is a recovery in the estimates used to determine the recoverable amount since the last impairment loss was recognized. However, an impairment loss is reversed only to the extent that it does not increase the carrying amount of an asset above the carrying amount that would have been determined for the asset (net of depreciation) had no impairment loss been recognized in prior years. Reversal of a previously recognized impairment loss on goodwill is prohibited.

The estimated loss on fixed assets arising from accidents is recognized as assets impairment. Subsequent major improvements or renewals are capitalized.

Foreign Convertible Bonds

Foreign convertible bonds issued prior to December 31, 2005 are carried at their issue price. The premium, which is the difference between the specified redemption price and the face value, is accrued from the bond issuance date to the contracted redemption date using the effective interest rate method. Direct and necessary convertible bond issue cost is classified as a deferred charge (included in other assets - other). This cost is amortized as bond issue expense from the bond issuance date to the contracted redemption date.

The book value approach is used to account for bond conversion by bondholders. Under this method, convertible bonds and related accounts are transferred to capital and capital surplus without recording gain or loss. Also, the unamortized bond issue costs are debited to capital surplus.

Pension Costs

The Group recognizes its pension cost in accordance with the statement of Financial Accounting Standards No. 18 “Accounting for Pension”. The gain or loss generated from plan curtailments or settlements is recorded as part of net pension cost as they occur.

Income Tax

Deferred tax assets are recognized for the tax effects of deductible temporary difference, unused operating loss carryforwards, unused income tax credits, and deferred tax liabilities are recognized for the tax effects of taxable temporary differences. A valuation allowance is recognized for deferred income tax assets when it is more than 50% probable that these assets will not be realized. Deferred tax assets or liabilities are classified as current or noncurrent on the basis of the classification of the related assets or liabilities for financial reporting. A deferred tax liability or asset that cannot be related to an asset or liability for financial reporting, including deferred tax assets related to net loss carryforwards, is classified on the basis of the expected realization date of the temporary difference.

The Group uses the flow-through method to recognize income tax credits for certain purchases of eligible equipment, research and development expenditures, personnel training expenditures and investments in shares of stock.

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

Income taxes of 10% on undistributed earnings generated starting January 1, 1998 are recorded as expenses in the year the stockholders approve the retention of the earnings.

Revenue Recognition, Account Receivable and Allowance for Doubtful Accounts

Sales are recognized when titles to products and risks of ownerships are transferred to customers, primarily upon shipment.

Sales are measured at fair value based on the price, including commercial discount and quantity discount, negotiated with the buyer. However, for frequent sales transactions, selling price is considered a short-term account receivable discounted at an imputed rate when the variance between the fair value and the amount due

20 -

from the buyer is small.

The allowances are provided on the basis of a review of the collectibility of individual receivables. The Group periodically evaluates the collectibility of receivables in consideration of client’s receivable aging analysis credit worthiness and economic environment.

Treasury Stock

If the Corporation buys back issued stocks, the reacquisition cost will be debited to the account “treasury stock.”

Upon disposal of the treasury stock, if disposal price is higher than carrying value, the difference will be recorded as capital surplus - trading of treasury stock. Otherwise, the difference is debited to capital surplus - trading of treasury stock. If capital surplus is not enough for debiting purposes, the difference is debited to unappropriated retained earnings.

Compensatory Stock Option Plan

If the Group decides that the grant date or amendment date of the compensatory stock option plan is after January 1, 2004, it will adopt the intrinsic value method to recognize its compensation cost, which will be recognized as expense under the plan.

Foreign-currency Transactions

Foreign currency transactions (except derivative transactions) are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Upon settlement of foreign-currency assets and liabilities at prevailing rates, differences between the transaction rates and settlement rates are credited or charged to current income. Period-end balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates, and the resulting differences are credited or charged to current income.

On the balance sheet date, nonmonetary foreign-currency-dominated assets or liabilities measured at fair value, such as equity instruments, are restated at the prevailing exchange rates, and the resulting differences are accounted for as follows:

a. Assets and liabilities at fair value through adjustments to stockholders’ equity- as adjustments to stockholders’ equity.
b. Assets and liabilities at fair value through profit or loss - as credits or charges to current income.
c. Assets and liabilities measured at holding cost - stated at historical rates of transaction date.
d. Foreign-currency long-term investments accounted for using the equity method are recorded according to the results of its translated financial statements. The exchange difference is reported as cumulative translation adjustments under stockholders’ equity.

Hedging Derivative Financial Instruments

Hedging derivative financial instruments are stated at fair value. The changes of fair value of these instruments are either charged to current income or stockholders’ equity, depending on the hedged items.

21 -

Cash Flow Hedge Accounting

Derivatives that meet all criteria for hedge accounting are recognized as the offsetting effects on profit or loss of changes in fair value of hedging instruments and hedged items.

The gain or loss of hedging instruments is reported in stockholders’ equity until the hedged forecast transaction affects net income or loss. If the hedged forecast transaction is recognized as assets or liabilities, the gain or loss is charged to current income in the year that the recognized assets or liabilities affect net income or loss. If the hedge of forecast transaction would result in the recognition of non-financial assets and liabilities, the gain or loss is recognized as an adjustment to the initial cost or carrying value of those assets or liabilities. If recognized adjustments to stockholder’s equity result in irreversible losses, these losses should be immediately charged to current income.

3. ACCOUNTING CHANGES

a. On January 1, 2006, the Group adopted the newly released Statements of Financial Accounting Standards No. 34 “Accounting for Financial Instruments” (“SFAS No. 34”) and No. 36 “Disclosure and Presentation for Financial Instruments” (“SFAS No. 36”) and related revisions of previously released SFASs.
1) Effect of adopting the newly released SFASs and related revisions of previously released SFASs

The Group reclassified its financial assets and liabilities upon initial adoption of the newly released SFASs. The cumulative effect of changes in accounting principle should be recognized in the current period for adjustments to the carrying values of the financial assets or liabilities at fair value through profit or loss. Because the carrying values of those financial assets and financial liabilities were the same as their fair values, no cumulative effect was recognized. Available-for-sale financial instruments measured at fair value were recognized as adjustments to stockholders’ equity. The adjustment is NT$47,753 thousand (US$1,465 thousand) in credit balance.

The adoption of the newly released SFASs resulted in a decrease in consolidated net income attribute to parent company’s stockholders of NT$190,046 thousand (US$5,830 thousand), and a decrease in after tax basic and diluted earnings per share of NT$0.08 (in dollar) for the year ended December 31, 2006.

2) Reclassifications

Upon the adoption of SFAS No. 34, certain accounts in the financial statements as of and for the year ended December 31, 2005 were reclassified to conform with the financial statements as of and for the year ended December 31, 2006. The previous issued financial statements as of and for the year ended December 31, 2005 need not be restated.

The Group adopted different policies on valuation techniques for financial instruments in 2005 and 2006. The accounting policies in 2006 are shown in Note 2. The related accounting policies prior to the adoption of the newly released SFASs are summarized as follows:

a) Short-term investments

These investments are carried at the lower of aggregate cost or market value. When the aggregate carrying value of the investments exceeds the total market value of the portfolio, an allowance for losses is recognized and charged to income in the current period. Any recovery in the market value (up to cost) is recognized as income in the year of recovery. Costs of investments sold are determined using the weighted-average method. When the stocks are used to secure long-term loans, they will be reclassified as other assets - pledged assets.

b) Long-term investments accounted for using cost method
22 -

Stock investments accounted for cost method are carried at costs of the investments. For the stocks with quoted market prices, if the costs of the investments exceed their market value, an allowance for decline in market value is recognized and debited to stockholders’ equity if the decline is considered temporary. Subsequent recoveries of market values (up to cost or adjusted cost if there has been a permanent impairment of value) are credited to stockholders’ equity. If decline in market value of shares is other than temporary, the related allowance is charged to current income.

c) Forward exchange contracts

Forward exchange contracts, which are used to hedge liabilities or assets, are recorded in New Taiwan dollars as receivables and/or payables using the spot rates on the starting dates of the contracts. The premium or discount, computed using the foreign-currency amount of the contract multiplied by the difference between the contracted forward rate and the contract starting date rate, is also recognized. The premiums or discounts are amortized using the straight-line method over the term of the contract, with the amortization charged to income. On the balance sheet date, the gains or losses on the contracts, computed by multiplying the foreign-currency amount of the contracts by the difference between the contract starting date rates and the spot rates on the balance sheet date (or the spot rates last used to measure a gain or loss on that contract for an earlier period) are charged to income.

For forward contracts open as of the balance sheet date, receivables and payables are offsetting against each other. The difference between them is recognized as an asset or liability.

Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2005 have been reclassified to conform to the classifications prescribed by the newly released and revised SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows:

Consolidated balance sheet Short-term investments Long-term investments accounted for using cost method Long-term investments - foreign funds Other current liabilities - forward exchange payable, net Unrealized loss on investments in shares of stock Available-for-sale financial assets - current Financial assets measured at holding cost - noncurrent Other long-term investments - noncurrent Financial assets at fair value through profit or loss - current Financial liabilities at fair value through profit or loss - current Unrealized loss on financial instrument	December 31, 2005 Before Reclassification After Reclassification $ 57,200 $ - 1,231,997 - 132,098 - (4,869 ) - 39,509 - - 55,353 - 1,227,844 - 132,098 - 6,480 - (5,349 ) - 39,509 $ 1,455,935 $ 1,455,935
	Before Reclassification $ 57,200 1,231,997 132,098 (4,869 ) 39,509 - - - - - - $ 1,455,935

Consolidated balance sheet
Short-term investments

Long-term investments accounted for using cost method
Long-term investments - foreign funds
Other current liabilities - forward exchange payable, net
Unrealized loss on investments in shares of stock
Available-for-sale financial assets - current
Financial assets measured at holding cost - noncurrent
Other long-term investments - noncurrent
Financial assets at fair value through profit or loss - current
Financial liabilities at fair value through profit or loss - current
Unrealized loss on financial instrument

December 31, 2005
Before
Reclassification
After
Reclassification
$ 57,200 $ -
1,231,997
-
132,098
-
(4,869 )
-
39,509
-
-
55,353
-
1,227,844
-
132,098
-
6,480
-
(5,349 )

-

39,509
$ 1,455,935
$ 1,455,935

Before
Reclassification
$ 57,200
1,231,997
132,098
(4,869 )
39,509
-
-
-
-
-

-

$ 1,455,935

23 -

Consolidated statement of income Unrealized valuation loss on short-term investments Exchange gain, net Financial asset valuation loss Financial liability valuation loss Consolidated statement of cash flow Cash flows from operating activities Valuation loss on short-term investments Cash dividends from equity-method investees Financial instruments valuation loss, net Increase in financial assets at fair value through profit or loss Decrease in financial liabilities at fair value through profit or loss Decrease in other financial assets and income tax refund receivable Decrease in other current liabilities Cash flows from investment activities Increase in short-term investments Decrease in long-term investments Acquisition of other long-term investments Proceeds from disposal of financial assets measured at holding cost and other financial assets Proceeds from disposal of other long-term investments Proceeds from disposal of long-term investments accounted for using equity method Proceeds from disposal of available-for-sale financial assets	2005 Before Reclassification $ (170,276 ) 57,595 - - $ (112,681 ) $ 170,276 - - - - 19,167 (947,218 ) (6,000 ) 382,088 - - - - - $ (381,687 )	After Reclassification $ - 62,464 (169,796 ) (5,349 ) $ (112,681 ) $ - 26,818 175,145 (4,609 ) (24 ) 17,800 (952,087 ) - - (1,642 ) 90,525 21,119 90,000 155,268 $ (381,687 )

b. On January 1, 2006, the Group adopted the newly released Statements of Financial Accounting Standards No. 5, “Long-term Investments in Equity Securities,” and No. 25, “Business Combinations - Accounting Treatments under Purchase Method.” These revisions stated that the difference between the cost of long-term equity investments and the amount underlying equity in net assets of an investee is subject to analysis. If the difference is goodwill, it should be tested for impairment periodically instead of being amortized.

The adoption of the newly released SFASs resulted in an increase in consolidated net income attribute to parent company’s stockholders of NT$196,909 thousand (US$6,041 thousand), and in increase in after income tax basic and diluted earnings per share of NT$0.08 (in dollar), but did not result in a cumulative effect of changes in accounting principles, for the year ended December 31, 2006.

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4. TRANSLATION INTO U.S. DOLLARS

The financial statements are stated in New Taiwan dollars. The translations of the 2006 New Taiwan dollar amounts into U.S. dollar amounts are included solely for the convenience of the readers using the rate of NT$32.596 to US$1.00 quoted by Reuters at the end of December 2006. This translation should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other exchange rate.

5. CASH AND CASH EQUIVALENTS

Cash Cash on hand Checking and demand deposits Time deposits - yield rate 1.20%-4.33% in 2005 and 1.20%-5.27% in 2006 Cash equivalents Short-term notes and bills - yield rate 1.56% to 1.72%	New Taiwan Dollars 2005 2006 $ 24,967 $ 3,258 1,808,595 990,395 1,514,785 622,489 - 184,929 $ 3,348,347 $ 1,801,071	U.S. Dollars (Note 4)
	2005 $ 24,967 1,808,595 1,514,785 - $ 3,348,347	2006 $ 100 30,384 19,097 5,673
		$ 55,254

6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Information about financial instruments categorized as trading financial assets and liabilities is shown as follows:

Trading financial assets Forward exchange contracts Domestic mutual funds Trading financial liabilities Forward exchange contracts	New Taiwan Dollars 2005 2006 $ 480 $ 3,176 6,000 - $ 6,480 $ 3,176 $ 5,349 $ 10,207	U.S. Dollars (Note 4)
	2005 $ 480 6,000 $ 6,480 $ 5,349	2006 $ 97 -
		$ 97
		$ 313

25 -

The Group are exposed to fair value risk and cash flow risk due to currency fluctuation. To manage these risks, the Group entered into forward exchange contracts. However, certain financial assets and liabilities are not qualified for hedge accounting and categorized as trading financial assets and liabilities. The fair values are estimated using valuation techniques and the changes in fair values are charged to current income. The open forward exchange contracts as of December 31, 2005 and 2006 are summarized as follows:

As of December 31, 2005 Financial assets Sale of forward exchange Financial liabilities Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange As of December 31, 2006 Financial assets Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Purchase of forward exchange Financial liabilities Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange	Currency USD to NTD JPY to USD JPY to USD JPY to USD	Maturity		Contract Amount US$ 2,000 JPY 185,000 JPY 180,000 JPY 120,000 Maturity	Carrying
		January 18, 2006 March 24, 2006 April 6, 2006 April 6, 2006 Currency EUR to NTD USD to NTD USD to NTD USD to NTD USD to NTD USD to NTD USD to NTD USD to NTD USD to NTD EUR to PLN USD to PLN EUR to PLN EUR to USD EUR to NTD EUR to NTD USD to NTD USD to NTD USD to NTD USD to NTD USD to NTD USD to PLN USD to RMB JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD

26 -

Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange	Currency JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD JPY to NTD EUR to NTD	Maturity February 27, 2007 February 27, 2007 January 31, 2007 April 26, 2007 May 30, 2007 January 31, 2007 January 5, 2007 January 5, 2007 January 29, 2007 February 5, 2007 January 29, 2007	Contract Amount JPY 16,000 JPY 43,800 JPY 81,500 JPY 230,000 JPY 107,000 JPY 22,000 JPY 159,000 JPY 7,232 JPY 73,500 JPY 8,543 EUR 300	Carrying Value/ Fair Value New Taiwan Dollars U.S. Dollars (Note 4) $ 80 $ 2 229 7 479 15 1,227 38 615 19 121 4 820 25 25 1 120 4 31 1 17 1 $ 10,207 $ 313 (Concluded)

Loss on trading financial instruments were NT$26,830 thousand and NT$44,416 thousand (US$1,363 thousand) for the years ended December 31, 2005 and 2006, respectively.

7. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Domestic common stock with quoted market price TA-I Technology Co., Ltd. Tait Marketing & Distribution Co., Ltd. Far Eastern Air Transport Corp. Taiwan Mobile Co., Ltd. Foreign convertible bonds Less: Shown as current assets Tait Marketing & Distribution Co., Ltd. Far Eastern Air Transport Corp. Taiwan Mobile Co., Ltd. Foreign convertible bonds Less: Shown as pledged assets Tait Marketing & Distribution Co., Ltd.	New Taiwan Dollars 2005 2006 $ - $ 749,845 245,652 235,937 37,193 42,676 4,153 - 286,998 1,028,458 9,853 - 296,851 1,028,458 4,154 235,937 37,193 42,676 4,153 - 9,853 - 55,353 278,613 241,498 - $ - $ 749,845	U.S. Dollars (Note 4)
	2005 $ - 245,652 37,193 4,153 286,998 9,853 296,851 4,154 37,193 4,153 9,853 55,353 241,498 $ -	2006 $ 23,004 7,238 1,309 -
		31,551 -
		31,551
		7,238 1,309 - -
		8,547
		-
		$ 23,004

As of December 31, 2005, the common stock of Tait Marketing & Distribution Co., Ltd. was reclassified to pledge assets since it was pledged as collaterals for long-term loans.

To focus on the development of passive component industry, the Group was aggressively selling the assets which are not relevant to the core business. As of December 31, 2006, the Group’s percentage of ownership in Tait Marketing & Distribution Co., Ltd. has declined to 19.4%.

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8. OTHER FINANCIAL ASSETS

a. Insurance recoveries receivables b. Imprest bank account c. Other receivables d. Pledged time deposit e. 5-year USD callable inverse floating rate deposits	New Taiwan Dollars 2005 2006 $ - $ 602,550 20,404 206,800 181,153 121,057 130,257 1,350 612,319 - $ 944,133 $ 931,757	U.S. Dollars (Note 4)
	2005 $ - 20,404 181,153 130,257 612,319 $ 944,133	2006 $ 18,485 6,344 3,714 42 -
		$ 28,585

a. Please refer to Note 30.
b. The balance of imprest bank account in use of payment of the principle and interest of the domestic unsecured bonds issued by the Corporation in 2001.
c. The majority is VAT refund receivables and proceeds receivable form disposal of securities.
d. The collateral for hiring foreign laborers and short-term loans.
e. The Corporation invested in Citibank 5-year USD callable inverse floating rate deposits (US$20,000 thousand). The interest is calculated quarterly at 7.1% less six-month LIBOR, and the minimum interest rate is zero. In 2005, quarterly interest rates were 4.26%, 3.72%, 3.37% and 2.80%. At the end of 2005, the Corporation planned to terminate this investment before its maturity. Thus, the Corporation reclassified this deposit from other long-term investments to other current financial assets, in its fair value of NT$612,319 thousand, and immediately recognized a valuation loss of US$1,342 thousand, included in nonoperating expenses and losses- other expenses. The contract had already been terminated in January of 2006 and the Citibank gave US$18,658 thousand back to the Corporation. The total interest income from the beginning date of investing (January 9, 2004) to the termination date was US$1,831 thousand.

9. INVENTORIES, NET

Finished goods Raw materials Work in process Supplies Goods in transit Less allowance for losses	New Taiwan Dollars 2005 2006 $ 2,895,351 $ 3,224,850 729,159 830,036 634,255 666,850 271,810 134,950 1,297 30,214 4,531,872 4,886,900 298,466 418,849 $ 4,233,406 $ 4,468,051	U.S. Dollars (Note 4)
	2005 $ 2,895,351 729,159 634,255 271,810 1,297 4,531,872 298,466 $ 4,233,406	2006 $ 98,934 25,464 20,458 4,140 927
		149,923 12,849
		$ 137,074

Inventory insurance as of December 31, 2005 and 2006 amounted to NT$4,489,386 thousand and NT$5,442,836 thousand (US$166,979 thousand), respectively.

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10. LONG-TERM INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Equity method (with quoted market prices): Global Testing Corporation Limited (GTCL) Teapo Electronics Corporation Chilisin Electronics Corporation Ralec Electronic Corp. Equity method (with no quoted market prices): Strong Components Co., Ltd. Fubon Venture Capital Corp. Greater China Disributors Ltd. (B.V.I.) Belkin International Guo Chuang Electronics (Dongguan) Co., Ltd. King Power International Co., Ltd.	New Taiwan Dollars 2005 2006 % of % of Carrying Owner- Carrying Owner- Value ship Value ship $ 1,112,070 27.2 $ 1,111,881 19.2 459,235 10.0 417,634 10.1 399,308 23.4 414,036 18.4 - - 126,836 7.0 115,594 31.4 111,660 31.4 103,192 20.0 66,425 20.0 18,290 48.0 66,335 26.7 - - 32,760 46.0 - - 15,460 35.0 22,814 18.0 - - $ 2,230,503 $ 2,363,027	U.S. Dollars (Note 4) 2006
	2005 % of Carrying Owner- Value ship $ 1,112,070 27.2 459,235 10.0 399,308 23.4 - - 115,594 31.4 103,192 20.0 18,290 48.0 - - - - 22,814 18.0 $ 2,230,503
		Carrying Value $ 34,111 12,812 12,702 3,891 3,426 2,038 2,035 1,005 474 - $ 72,494

The investments in Global Testing Corporation Limited, Teapo Electronics Corporation, Chilisin Electronics Corporation and Ralec Electronic Corp. in 2006, and the investments in Teapo Electronics Corporation and King Power International Co., Ltd. in 2005 were accounted for by the equity method since the Group had significant influence over them.

In an effort to gain the Group's competitive position in the marketplace, the Group is proactively seeking opportunities with other players in the same market for collaboration. In 2006, the Group acquired common stocks of Ralec Electronic Corp. and Belkin International. Through the investment of Belkin International, the Group invested manufacturer and distributor of electronic companies in China.

In June of 2006, King Power International Co., Ltd. ("King Power"), one of the Group's investees, increased its capital by issuing additional common stocks. Because the Group did not participate any additional common stock purchase from this transaction, the Group's ownership in King Power is now decreased from 18.0% to 16.6%. Furthermore, the Group is no longer taking seats on the board of directors for King Power. Subsequent to an evaluation process, the Group determined that investment in King Power should be reclassified as financial assets measured at holding cost as the Group does not have any significant influence over King Power's operation.

Yageo Holding (Bermuda) Limited was a 100% equity owner of Guo Chuang Electronics (Dongguan) Co., Ltd., and the accounts of financial statements of Guo Chuang Electronics (Dongguan) Co., Ltd. were consolidated into the consolidated financial statements of the Corporation. To gain the Group's competitive position of passive components in the marketplace, the Group is proactively seeking opportunities with other players in the same market for collaboration. In October 2006, Yagelo Holding (Bermuda) Limited subsequently disposed 65% ownership of Guo Chuang Electronics (Dongguan) Co., Ltd. to Laser Tek Taiwan Co., Ltd. As a result of this disposal, Yageo Holding (Bermuda) Limited's percentage of ownership in Guo Chuang Electronics (Dongguan) Co., Ltd. was reduced to 35% and lost its controls over Guo Chuang Electronics (Dongguan) Co., Ltd. as a majority shareholder. Beginning in October of 2006, the accounts of the financial statements of Guo Chuang Electronics (Dongguan) Co., Ltd. will not be consolidated into the consolidated financial statements of the Corporation but due to the Group still has significant influence over Guo Chuang Electronics (Dongguan) Co., Ltd., Guo Chuang Electronics (Dongguan) Co., Ltd. was accounted for as an equity-method investment in the Corporation's consolidated financial statements as of December 31, 2006.

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In addition, an equity-method investee, Global Testing Corporation (“GTC”), established Global Testing Corporation Private Limited (“GTCPL”) in Singapore upon the shareholders’ approval in their special meeting in August 2004 for purposes of trading GTCPL’s stock on the Singapore Exchange Limited (“SGX”), GTC’s shareholders swapped their GTC’s shares for GTCPL’s stock at a 5:1 ratio, with “5” referring to GTCPL. In March of 2005, Global Testing Corporation Private Limited changed its name to Global Testing Corporation Limited (“GTCL”). In April of 2005, the Group had completed the stock swap. The Group originally held 47,680 thousand shares of GTC before the stock swap and 238,397 thousand shares of GTCL after the swap. GTCL’s shares had been traded on the Singapore Exchange Limited (SGX) since August 24, 2005. As of December 31, 2006, the Group held 201,427 thousand shares after selling 36,970 thousand shares in 2006. In 2006, GTCL increased cash capital by issuing 175,000 thousand shares. The Group didn’t subscribe the new shares and therefore, the Group’s percentage of ownership in GTCL declined to 19.2%.

In addition, an equity-method investee, Teapo Electronics Corporation (“Teapo”) merged with Luxon Electronics Corporation (“Luxon”) on October 31, 2005, with Teapo as the survivor entity. Teapo and Luxon were doing business in the same field. Teapo issued 175,581 thousand common shares to acquire Luxon’s 295,855 outstanding shares. The Group’s percentage of ownership in Teapo thus declined from 18.9% to 10.0% as of December 31, 2005. In 2006, the Group acquired additional 430 thousand shares of Teapo, and therefore, the Group’s percentage of ownership in Teapo increased to 10.1%.

The carrying values of the equity method investments and the equity in their net income or net loss were based on audited financial statements.

The market values of shares with quoted market prices of equity-method investments as of December 31, 2005 and 2006 were NT$1,892,074 thousand and NT$1,964,231 thousand (US$60,260 thousand), respectively.

11. FINANCIAL ASSETS MEASURED AT HOLDING COST AND OTHER FINANCIAL ASSETS

Financial assets measured at holding cost - stock with no quoted market prices: Taiwan Fixed Network Co, Ltd. Taiwan High Speed Rail Corp. Grace T.H.W. Group Luminous Town Electric Co., Ltd. Parawin Venture Capital Corp. King Power International Co., Ltd. WK Technology Fund Corp. Apex Venture Capital Corp. FAT Venture Capital Corp Taishin Venture Capital Corp. Others Other long-term investments-foreign funds	New Taiwan Dollars 2005 2006 % of % of Carrying Owner- Carrying Owner- Value ship Value ship $ 382,095 0.6 $ 317,139 0.6 230,133 0.5 212,333 0.4 143,149 1.8 142,042 1.8 134,583 15.8 134,583 15.8 94,950 10.0 76,628 10.0 - - 39,208 16.6 60,640 2.9 37,986 2.9 68,983 9.4 36,088 9.4 81,632 12.0 30,389 12.0 10,692 3.3 - - 20,987 - 12,482 - 1,227,844 1,038,878 132,098 58,531 $ 1,359,942 $ 1,097,409	U.S. Dollars (Note 4) 2006
	2005 % of Carrying Owner- Value ship $ 382,095 0.6 230,133 0.5 143,149 1.8 134,583 15.8 94,950 10.0 - - 60,640 2.9 68,983 9.4 81,632 12.0 10,692 3.3 20,987 - 1,227,844 132,098 $ 1,359,942
		Carrying Value $ 9,729 6,514 4,358 4,129 2,351 1,203 1,165 1,107 932 - 383
		31,871 1,796
		$ 33,667

The equity securities and foreign funds with no quoted market prices and with fair values that could not be measured reliably were measured at holding cost.

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In 2005 and 2006, certain investees measured at holding cost reduced their capital, as follows:

		(In Thousands of	Dollars)
		Refunded
Investee	Time	Capital
Apex Venture Capital Corp.	March 2005	$	8,800
Taishin Venture Capital Corp.	June 2005		7,500
FAT Venture Capital Corp.	June 2005		36,000
WK Technology Fund Corp.	September 2005		14,360
Taishin Venture Capital Corp.	December 2005		4,950
Apex Venture Capital Corp.	March 2006		11,856
FAT Venture Capital Corp.	July 2006		18,000

Taishin Venture Capital Corp. finished liquidating in June of 2006 and distributed the residual amount of NT$7,222 thousand (US$222 thousand) to the Corporation. The carrying value was NT$10,692 thousand (US$328 thousand), and therefore the Corporation recognized liquidation loss of NT$3,470 thousand (US$106 thousand) (included in investment income, net).

In addition, on the basis of some objective evidence obtained in 2006, the Group recognized impairment loss on financial assets measured at holding cost and foreign funds, summarized as follows:

Investee Financial assets measured at holding cost - stock with no quoted market price Taiwan Fixed Network Co., Ltd. FAT Venture Capital Corp. WK Technology Fund Corp. Apex Venture Capital Corp. Parawin Venture Capital Corp. Other long-term investments - foreign funds	(In Thousands of Dollars) U.S. New Taiwan Dollars Dollars (Note 4) $ 64,956 $ 1,993 33,243 1,020 22,654 695 21,039 645 18,322 562 160,214 4,915 57,828 1,774 $ 218,042 $ 6,689

12. BONDS MEASURED AT AMORTIZED COST

In November of 2006, Kuo Shin Investment Limited purchased a subordinated bonds issued at par with an aggregate value of NT$50,000 thousand, which is equivalent to US$1,534 thousand. The subordinated bonds was issued by Ta Chong Bank with no maturity due date. The terms further states that Ta Chong Bank can exercise its right of redemption at the Bond's principal amount with interest payable since November 2016. The interest payable is calculated based on an interest rate set at 5.5% per annum in a period of ten years after the Bond's issuance. After ten years from the date of issuance, if Ta Chong Bank does not redeem the bonds, the coupon interest rate will raise to 6.5% per annum. If Ta Chong Bank is unable to make profits within a year as stated in the Bank's financial report and is unable to issue dividends associated with the Bank's common stocks, Ta Chong Bank can be exempted from paying interest payments as stated in the Bond's agreement. As a result of this, any interest payments not received by Kuo Shin Investment Limited were not accounted for by Kuo Shin Investment Limited.

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13. PROPERTY, PLANT AND EQUIPMENT

Accumulated depreciation and accumulated impairment consisted of:

Accumulated depreciation Buildings Machinery and equipment Miscellaneous equipment Accumulated impairment Machinery and equipment Miscellaneous equipment	New Taiwan Dollars 2005 2006 $ 1,274,906 $ 1,491,129 5,793,570 7,178,281 985,705 1,004,276 $ 8,054,181 $ 9,673,686 $ - $ 302,891 - 1,086 $ - $ 303,977	U.S. Dollars (Note 4)
	2005 $ 1,274,906 5,793,570 985,705 $ 8,054,181 $ - - $ -	2006 $ 45,746 220,219 30,810
		$ 296,775
		$ 9,292 33
		$ 9,325

Depreciation expenses for property, plant and equipment and properties leased to others were NT$2,182,490 thousand and NT$2,340,526 thousand (US$71,804 thousand) for the years ended December 31, 2005 and 2006, respectively. Of the depreciation expenses for the year ended December 31, 2006, NT$49,764 thousand (US$1,527 thousand) was included in nonoperating expenses and losses - loss on work stoppages.

Insurance for property, plant and equipment and properties leased to others as of December 31, 2005 and 2006 amounted to NT$21,697,422 thousand and NT$21,701,433 thousand (US$665,770 thousand), respectively.

The interest expenses before interest rate capitalization were NT$509,628 thousand in 2005 and NT$444,368 thousand (US$13,633 thousand) in 2006. In 2005 and 2006, cost of properties included capitalized interest of NT$10,948 thousand and NT$37,295 thousand (US$1,144 thousand), respectively, and capitalization rates ranged from 2.16% to 2.76% and from 2.40% to 6.26%, respectively.

The loss of property, plant and equipment destruction due to the fire damage was amounted to NT$456,165 thousand (US$13,995 thousand). Of this amount, NT$148,370 thousand (US$4,551 thousand) was identified and recognized as the carrying value of the fully-destroyed fixed assets. Both the cost and the accumulated depreciation of the fully-destroyed fixed assets were removed from the Corporation’s account balances of property, plant, and equipment. The amount of loss recognized in connection with the partially-damaged fixed assets was estimated on the basis of expected repair and maintenance expenditure. This amount was estimated to be NT$307,795 thousand (US$9,443 thousand) and recognized as accumulated impairment on the Corporation’s account balances of property, plant, and equipment. In 2006, the Corporation disposed a portion of partially-damaged fixed assets and thus deducted the corresponding accumulated impairment of NT$3,818 thousand (US$118 thousand) from its account balances of property, plant, and equipment. As of December 31, 2006, the balance of accumulated impairment of property, plant and equipment was NT$303,977 thousand (US$9,325 thousand).

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14. PROPERTIES LEASED TO OTHERS

Land Buildings Less - accumulated depreciation accumulated impairment	New Taiwan Dollars 2005 2006 $ 3,646,997 $ 3,654,444 1,088,373 1,122,979 159,841 179,499 255,252 255,252 673,280 688,228 $ 4,320,277 $ 4,342,672	U.S. Dollars (Note 4)
	2005 $ 3,646,997 1,088,373 159,841 255,252 673,280 $ 4,320,277	2006 $ 112,113
		34,452 5,507 7,831
		21,114
		$ 133,227

15. PLEDGED ASSETS

Pledged time deposit Imprest bank account Listed domestic common stocks	New Taiwan Dollars 2005 2006 $ 32,703 $ 196,544 - 2,200 241,498 - $ 274,201 $ 198,744	U.S. Dollars (Note 4)
	2005 $ 32,703 - 241,498 $ 274,201	2006 $ 6,030 67 -
		$ 6,097

As of December 31, 2005, these listed domestic common stocks had fair market values of NT$241,498 thousand. These stocks were classified as available-for-sale financial assets originally but reclassified to pledged assets since they were pledged as collaterals for long-term loans.

16. SHORT-TERM LOANS

Unsecured loans. Interest bearing - from 1.70% to 5.41% in 2005 and from 1.83% to 5.92% in 2006 Letters of credit. Interest bearing - from 0.97% to 5.41% in 2005 and from 1.38% to 4.46% in 2006 Zero-interest government loans Secured loans. Interest bearing - from 3.10% to 5.24%	New Taiwan Dollars 2005 2006 $ 3,097,293 $ 3,911,414 77,679 33,391 17,142 6,568 260,517 - $ 3,452,631 $ 3,951,373	U.S. Dollars (Note 4)
	2005 $ 3,097,293 77,679 17,142 260,517 $ 3,452,631	2006 $ 119,997 1,024 202 -
		$ 121,223

17. COMMERCIAL PAPER ISSUED

Commercial paper with one-year maturities were issued at discount rates from 1.64% to 1.65% as of December 31, 2005 and from 1.86% to 2.05% as of December 31, 2006.

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As of December 31, 2005 and 2006, the carrying values of the commercial paper issued were net of unamortized discounts of NT$1,425 thousand and NT$2,038 thousand (US$63 thousand), respectively.

18. LONG-TERM LIABILITIES

Bank loans Bonds 5-year unsecured domestic bonds Unsecured zero-coupon foreign convertible bonds Less - current portion	New Taiwan Dollars 2005 2006 $ 9,569,695 $ 5,520,451 1,900,000 600,000 101,671 84,587 11,571,366 6,205,038 3,169,183 1,104,196 $ 8,402,183 $ 5,100,842	U.S. Dollars (Note 4)
	2005 $ 9,569,695 1,900,000 101,671 11,571,366 3,169,183 $ 8,402,183	2006 $ 169,360 18,407 2,595
		190,362 33,876
		$ 156,486

Bank Loans

To meet its working capital and capital expenditure requirements, the Group obtained loans from several banks. The terms of related loans are summarized as follows:

a. In December of 2005, the Corporation signed an NT$2,160,000 thousand syndicated loan agreement with SCSB and four other financial institutions. The terms and the amount drawn down as of December 31, 2006 are summarized as follows:

Credit Lines Drawn Amount Credit Period Interest Rate Repayment Agreement

NT$ 2,160,000 NT$ 2,160,000 Five years after Fixed rate based on a Six semiannual (US$ 66,266 ) the first specific average rate decreases in credit drawdown date of notes transacted lines starting from two in Taiwan and a half years after the first drawdown date

The agreement on this loan included the following terms:

1) Securing the loan by the main office building and a factory of the Corporation located in Hsin Tien in Taipei County, the coating factory located in Ying Ge in Taipei County and land, building, machinery and equipment in Kaohsiung I and II factories (“Kaohsiung Factories”);
2) Maintaining the Group’s semiannual and annual current, debt and interest coverage ratios at percentages specified in the agreement.
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b. On August 7, 2006, the Corporation signed an NT$3,500,000 thousand syndicated loan agreement with the Hsinchu International Bank (“HiBank”) and the Entie Commercial Bank. This loan was secured by an office building located in the Shin-Yi District in Taipei City. The terms and the balance of drawdown amounts as of December 31, 2006 are summarized as follows:

Balance of Credit Lines Drawn Amount Credit Period Interest Rate Repayment Agreement NT$ 3,500,000 NT$ 2,395,600 Fifteen years after Fixed rate based on a Sixty season installments (US$ 73,494 ) the first specific average rate starting from three drawdown date of notes transacted months after the first in Taiwan, adjusted drawdown date on a quarterly basis

Under the loan contract, the amount repayable by December 31, 2007 is NT$233,600 thousand (US$7,167 thousand), included in the current portion of long-term liabilities.

c. On November 16, 2004, an NT$2,500,000 thousand syndicated loan agreement was signed with Chiao Tung Bank (“CTB”) and nine other financial institutions. Interest on the loan is at a fixed rate based on a specific average rate of notes transacted in Taiwan. The loan is repayable in lump sum in four years after the first drawdown date. Chiao Tung Bank merged with International Commercial Bank of China in August of 2006 and was renamed as Mega International Commercial Bank. The Mega International Commercial Bank endorsed the original contact on the credit line of NT$2,500,000 thousand. However, the Corporation had totally repaid the drawn amount voluntarily in September of 2006 and canceled this credit line in December of 2006. The liens on stocks which the Group pledged for the loan are all lifted in March of 2007.
d. The loan agreement with Taiwan Cooperative Bank (TCB), amounting to NT$2,965,000 thousand, took effect in January of 2004. Credit period of this credit line is from January of 2004 to January of 2019. Interest is at a floating rate based on the index rate of TCB’s time deposit.

The agreement on the NT$2,965,000 thousand loan was a revision of an agreement on a NT$3,500,000 thousand loan obtained in 2001. The NT$3,500,000 thousand loan is secured by an office building located in the Shin-Yi District in Taipei City. The loan is repayable in 72 monthly installments starting one year after the drawdown date, at NT$48,611 thousand per installment. As of November 30, 2003, the Corporation had repaid NT$534,722 thousand of the loan. The balance of NT$2,965,278 thousand was charged in December of 2003 against the above NT$2,965,000 thousand loan agreement with TCB. However, the Corporation had totally repaid the drawn amount voluntarily and canceled this credit line in August of 2006.

e. On December 31, 2002, an NT$7,000,000 thousand syndicated loan agreement was signed with CTB and seven other financial institutions. This loan was secured by certain land, building, machinery and equipment in the Kaohsiung III factory and the Nan-Zi branch and land and building held by subsidiaries. The syndicated loan originally had two credit lines - NT$3,700,000 thousand and NT$3,300,000 thousand. The credit line of NT$3,300,000 thousand was canceled in October of 2004.

The Corporation drew down NT$3,650,000 thousand of the NT$3,700,000 thousand loan. Interest rate on the loan is at a floating rate based on the rate of the Chunghwa post office’s two-year time deposit. However, the Corporation had totally repaid the drawn amount voluntarily and canceled this credit line in July of 2006.

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f. On May 20, 2003, an NT$400,000 thousand loan agreement was signed with CTB, and had been totally drawn by the Corporation. This loan was secured by machinery in the Kaohsiung III factory and Nan-Zi branch. The proceeds of this loan were for the purchases of automated machinery and equipment. Interest on the loan is at a floating rate based on the rate of the Chunghwa post office’s two-year time deposit. However, the Corporation had totally repaid the drawn amount voluntarily and canceled this credit line in August of 2006.
g. In June of 2001, the Corporation signed an NT$1,500,000 thousand loan agreement with Taipei Bank. This loan was secured by land, building, and certain machinery and equipment in the Kaohsiung I and II factories (the “Kaohsiung factories”). Interest on the loan is at a floating rate based on the one-year time deposit rate of Taipei Bank. As of December 31, 2004, the Corporation had repaid NT$450,000 thousand of the loan. In December of 2004, the Corporation revised the loan agreement with Taipei Bank to have the balance of NT$1,050,000 thousand circularly drawn, with semiannual decreases of NT$150,000 thousand. The NT$900,000 thousand balance of this loan was repaid in July of 2005.

Taipei Bank merged with Fubon Bank in 2005, with the survivor entity, Fubon Bank, renamed as Taipei Fubon Bank. Taipei Fubon Bank endorsed the original contract on the credit line of NT$1,050,000 thousand. The Corporation, however, terminated this credit line voluntarily with Taipei Fubon Bank in December of 2005.

h. The Corporation obtained an NT$100,000 thousand unsecured loan from Industrial Bank of Taiwan (“IBT”) in July of 2004. Interest on the loan is at a floating rate based on IBT’s cost of capital. The loan is repayable in lump sum in two years after the first drawdown date (July 2, 2004). However, the drawn amount had been totally repaid in July of 2005.
i. The Corporation obtained an NT$750,000 thousand secured loan from International Commercial Bank of China (“ICBC”) in June of 2001. The loan is secured by the main office building of the Corporation located in Hsin Tien in Taipei County and the coating factory located in Ying Ge in Taipei County also. Interest on the loan is at a floating rate based on the one-year time deposit of ICBC. However, the Corporation had totally repaid the drawn amount voluntarily and canceled this credit line in January of 2006.
j. Yageo Europe GmbH (eliminated after being merged into Vitrohm Holding GmbH in 2006) obtained a loan of EUR9,800 thousand from the IKB Deutsche Industriebank based in Germany. As of December 31, 2005, the loan balances were EUR3,050 thousand (NT$118,825 thousand). Yageo Europe GmbH sold the collateral assets at the end of 2005 and the drawndown amount of EUR3,050 thousand was fully repaid in January of 2006.
k. On August 20, 2003, Phycomp Electronics (Su Zhou), Ltd. obtained a five-year loan of RMB250 million from the Industrial and Commercial Bank of China to buy fixed assets. Under the agreement, Phycomp Electronics (Su Zhou), Ltd. may use the U.S. dollar component of the loan up to US$15 million. The loan was originally guaranteed by Yageo Electronics (China), but after the liquidation of Phycomp Electronics (Su Zhou), Ltd. upon its merger with Yageo Electronics (China), the loan was incepted by Yageo Electronics (China) accordingly. The principal of this loan is repayable at maturity. As of December 31, 2005, the used credit line was US$15 million (NT$492,718 thousand), with annual floating interest rate based on one-year LIBOR. However, Yageo Electronics (China) had totally repaid the drawn amount voluntarily and canceled this credit line in October of 2006.
l. In March of 2006, Yageo Electronics (China) Co., Ltd., obtained a three-year credit line of US$9,000 thousand (NT$293,364 thousand) from China Construction Bank to buy fixed assets. The principal of this loan is repayable at maturity with annual floating rate based on one-year LIBOR.
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m. On June 23, 2004, Compostar Technology Co., Ltd. signed the NT$1,400,000 thousand and US$12,000 thousand loan agreements with China Trust Bank and 12 other financial institutions. The terms and drawdown amounts are summarized as follows:

Drawn Amount December 31, December 31, Credit Lines 2005 2006 Credit Period Interest Rate Repayment Agreement 1) NT$ 900,000 NT$ 630,000 NT$ 417,319 Five years after Floating rate based Ten semiannual the first on a specific installments starting six drawdown average rate of months after the first date notes transacted drawdown date in Taiwan 2) US$ 12,000 340,763 243,946 Five years after Floating rate based Nine semiannual thousand (US$ 10,373 ) (US$ 5,187 ) the first on the LIBOR installments starting or equivalent thousand thousand and drawdown from one year after the NT dollars NT$ 74,873 date first drawdown date thousand 3) NT$ 500,000 330,000 - Three years after Floating rate based Drawdown amounts the contract on a average rate repayable on each signing date of bank maturity. However, the Corporation can circularly draw on and repay all unpaid drawndown amounts on June 23, 2007.

NT$ 1,300,763 NT$ 661,265 (US$ 20,287 )

The agreements on the above loans included the following terms:

1) Securing the loan with certain land, building, machinery and equipment owned by Compostar;
2) Maintaining Compostar’s current, debt, interest coverage ratios and tangible equity, as shown in semiannual standalone financial statements and annual consolidated financial statements, at percentages specified in the agreements;

Under the above loan contracts, the amount repayable by December 31, 2007 is NT$180,000 thousand (US$5,522 thousand) for the NT$900,000 credit line and NT$84,776 thousand (US$2,601 thousand) for the US$12,000 thousand credit line, included in the current portion of long-term liabilities.

n. In May of 2006, Chipcera Technology Co., Ltd. signed an NT$4,400 thousand (US$135 thousand) loan agreement with Taiwan Business Bank (“TBB”) for the purpose of research and development expenditure. Interest rate on the loan is at a fixed rate of 1% per annum. The loan is repayable in five seasonal installments starting from October of 2006. As of December 31, 2006, Chipcera had repaid NT$880 thousand (US$27 thousand) of the loan. Under the loan contract, the amount repayable by December 31, 2007 is NT$3,520 thousand (US$108 thousand), included in the current portion of long-term liabilities.
o. Chipcera Technology Co., Ltd. signed the total amount of NT$11,502 thousand loan agreement with TBB in November of 2004 and TCB in January of 2005. The drawn amount is NT$6,702 thousand (US$205 thousand) as of December 31, 2006. Interest rate on the loan is at a fixed rate of 8.78% per annum. Under the loan contract, the amount repayable by December 31, 2007 is NT$1,193 thousand (US$37 thousand) for TBB and NT$1,107 thousand (US$34 thousand) for TCB, included in the current portion of long-term liabilities.
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Bonds

Five-year unsecured domestic bonds with an aggregate face value of NT$2,000,000 thousand were issued in November of 2001. Those bonds with aggregate values of NT$1,400,000 thousand and NT$600,000 thousand were transacted in December of 2001 and January of 2002, respectively. Interest on these bonds is 3.4% per annum. Under the related contract, the Corporation should repay those bonds with aggregate value of NT$1,400,000 thousand in December of 2006 and NT$600,000 thousand in January of 2007. In December of 2004, the Corporation repaid NT$100,000 thousand of the bonds with aggregate value of NT$1,400,000 thousand matured in December of 2006. The remainder with aggregate value of NT$1,300,000 thousand (US$39,882 thousand) are repaid in December of 2006 and the outstanding bonds of NT$600,000 thousand (US$18,407 thousand) are included in the current portion of long-term liabilities.

On December 30, 2003, the Corporation issued five-year unsecured zero coupon foreign convertible bonds with aggregate face value of US$150,000 thousand. The bondholders may convert them into capital stock at the fixed exchange rate of NT$34.028 (in dollars) to US$1 (in dollars), and the conversion price is NT$17.135 (in dollars) from January 30, 2004 to December 20, 2008. However, on June 30, 2005 and June 30, 2006, the conversion price was reset down to NT$15.55 (in dollars) and NT$13.708 (in dollars) based on the issue terms, respectively. Other bond redemption terms are as follows: (a) bondholders may request the Corporation to redeem the bonds on December 30, 2005 at 99% of face value (included in the current portion of long-term liabilities since December 30, 2004 to December 30, 2005); (b) the closing price of the shares for 20 consecutive trading days between June 30, 2004 and December 30, 2008 is at least 120% of the conversion price; or (c) at least 90% of the principal amount of the convertible bonds has already been converted, redeemed or purchased and canceled. The Corporation should redeem all the bonds at 97.53% of face value at maturity on December 30, 2008.

As of December 31, 2004, convertible bonds with aggregate face value of US$10,485 thousand had been converted into 208,220 thousand common shares of the Corporation, and the capital surplus - premium from conversion of convertible bonds was NT$135,260 thousand. Under a resolution approved at the stockholders’ meeting on June 20, 2005, the capital surplus generated from premium from conversion of convertible bonds would be used to offset deficit. No bond was converted in 2005. On December 30, 2005, the Corporation redeemed the bonds with aggregate face value of US$136,420 thousand at the bondholders’ request and bond redemption terms. In the year ended December 31, 2006, the convertible bonds with aggregate face value of US$500 thousand were converted into capital stock, shown as unregistered capital stock of NT$12,412 thousand (US$381 thousand) and capital surplus - premium from conversion of convertible bonds of NT$3,972 thousand (US$122 thousand). As of December 31, 2006, the foreign convertible bonds with aggregate face value of US$2,595 thousand were outstanding, included in the long-term liabilities, net of current portion.

19. STOCKHOLDERS’ EQUITY

On August 3, 2001, the Corporation issued 40,000 thousand global depositary receipts (GDRs) representing 200,000 thousand new common shares, with net proceeds of NT$4,573,292 thousand. As of December 31, 2006, there were 27,834 thousand units of GDRs outstanding.

In addition, on July 1, 2005 (stock issuance and exchange date), the Corporation acquired 136,238 thousand shares of Compostar’s outstanding shares by issuing 131,606 thousand common shares at NT$10.48 (in dollars) per share. Thus, the Corporation recognized the issue price in excess of par value of NT$63,171 thousand, net of the issue cost of NT$310 thousand, as capital surplus - paid-in capital in excess of par value of NT$62,861 thousand. On July 1, 2006 (stock issuance date), the Corporation acquired 25,047 thousand shares of Chipcera’s shares by issuing 16,556 thousand common shares at NT$12.40 (in dollars) per share. Thus, the Corporation recognized the issue price in excess of par value of NT$39,734 thousand (US$1,219 thousand), net of the issue cost of NT$54 thousand (US$2 thousand), as capital surplus - paid-in capital in excess of par value of NT$39,680 thousand (US$1,217 thousand).

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The Corporation’s Articles of Incorporation provide that prior years’ deficit should be deducted from annual net income. From the remainder, 10% should be appropriated as legal reserve. Under a resolution approved at the stockholders’ meeting, the rest of the total unappropriated earnings may be reserved for business operations or allocated as follows:

a. At least 2% as employees’ bonus;
b. Up to 2% as remuneration of directors and supervisors; and c. The remainder as dividends.

These appropriations and other distribution of earnings are approved by the stockholders in the following year and given effect to in the financial statements of that year.

The Corporation’s dividend policy takes into account the Corporation’s current and future competitiveness in the domestic and foreign markets, the investment environment and cash requirements. The policy provides that above 80% of any earnings distribution could be in the form of shares of stock if the Corporation needs to undertake a major expansion project; otherwise, earnings distribution may be in cash.

A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, unrealized loss on financial instrument, cumulative translation adjustments and net loss not recognized as pension cost), shall be made from unappropriated earnings pursuant to existing regulations. Any special capital reserve appropriated may be reserved to the extent that the net debit balance reserves.

As of April 16, 2007, the date of the accompanying independent auditors’ report, the Corporation’s appropriations and other distribution for earnings of 2006 had not yet been proposed by the board of directors. Information on earnings appropriation can be accessed online through the Market Observation Post System on the Web site of the Taiwan Stock Exchange Corporation. The Corporation did not distribute employee’s bonus and remuneration of directors and supervisors for earnings of 2005.

Under relevant regulations, all components of capital surplus, except capital surplus from equity-method investees, may be used to offset deficit. However, only paid-in capital from the issue of stock in excess of par value and donated surplus may be capitalized (distributed as stock dividends). Equity in the changes in capital surplus reported by equity-method investees should not be used in any way.

The Company Law provides that legal reserve should be appropriated until the reserve equals the Corporation’s paid-in capital. This reserve may only be used to offset a deficit. When the balance of the reserve exceeds 50% of the paid-in capital, 50% may be distributed as stock dividends.

Under the Integrated Income Tax System, which took effect on January 1, 1998, ROC resident stockholders are allowed a tax credit for their proportionate share of income tax paid by the Corporation on earnings generated since January 1, 1998. An imputation credit account is maintained by the Corporation to monitor income taxes paid and the tax credit allocated to each stockholder.

20. STOCK-BASED COMPENSATION PLAN

Upon the approval by the board of directors on August 18, 2003, the Corporation adopted a stock option plan (the “Plan”) to grant employees 150,000 thousand units of stock options. Each option represented one share of the Corporation’s common stock. The Plan was approved by the Securities and Futures Bureau, Ministry of Finance, R.O.C. On September 15, 2003 and March 31, 2004, stock options consisting of 100,000 thousand units and 50,000 thousand units, respectively, had been issued, with exercise prices of NT$13.8 (in dollars) and NT$17.9 (in dollars), respectively. However, the exercise prices of stock options had been revised to NT$13.6 (in dollars) and NT$17.5 (in dollars) in 2005, respectively. The term of these options is six years. Half of these options may be exercised after two years from the grant date or the options may all be exercised after three years from the issuance date. If the number of the Corporation’s common shares changes, the exercise price will be revised in terms of the Plan.

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As of December 31, 2006, in connection with the stock options issued on September 15, 2003, 141 thousand units of the stock options had been exercised and 16,262 thousand units of the stock options had been forfeited. The proceeds from the exercised options with an exercise price of NT$13.6 (in dollars) were accounted for as unregistered capital stock of NT$1,408 thousand (US$43 thousand) and capital surplus - paid-in capital of NT$507 thousand (US$16 thousand).

The Corporation’s stock options in 2005 and 2006 were as follows:

Stock Option Outstanding units - beginning of year Granted units Exercised units Eliminated units Forfeited units Outstanding units - end of year Exercisable units, end of year	2005 Weighted-average Thousand Exercise Price Unit (in Dollars) 150,000 NT$15.17 - - - - - - - - 150,000 NT$14.90 50,000	2006 Weighted-average Thousand Exercise Price Unit (in Dollars) 150,000 NT$14.90 - - (141 ) NT$13.60 - - (16,262 ) NT$13.60 133,597 NT$15.06 108,597

The Corporation calculated the fair value of the 50,000 thousand unit of the stock options granted in 2004 using the Black-Scholes model. The related assumptions were as follows:

Fair value:	NT$286,000 thousand
Exercise price:	NT$17.9 (in dollars) per share prior to amendment
Risk-free rate:	2.01%
Weighted average remaining life (in years):	4.25 years
Expected volatility of the Corporation’s stock price:	51.66%
Expected dividend yield:	5.15%

Stock options outstanding as of December 31, 2005 and 2006 are summarized as follows:

Exercise Price NT$13.60 (in dollars) and NT$17.50 (in dollars)	Outstanding Stock Options as of December 31, 2005 Anticipated Weighted- Weighted- average average Exercise Thousand Existence Price Units Years (in Dollars) 150,000 2.17 years NT$14.90	Exercisable Stock Options as of December 31, 2005
		Weighted- average Exercise Thousand Price Units (in Dollars) 50,000 $13.60

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Exercise Price NT$13.60 (in dollars) and NT$17.50 (in dollars)	Outstanding Stock Options as of December 31, 2006 Anticipated Weighted- Weighted- average average Exercise Thousand Existence Price Units Years (in Dollars) 133,597 1.19 years NT$15.06	Exercisable Stock Options as of December 31, 2006
		Weighted- average Exercise Thousand Price Units (in Dollars) 108,597 $14.50

There was no compensation cost based on the intrinsic value method in the 2005 and 2006. Had the Corporation used the fair value method, the pro forma net income and basic and diluted earnings per share (EPS) would have been as follows:

(In Thousands of Dollars, Except Per Share Information)

Consolidated net income attribute to parent company’s stockholders Actual Pro forma Earnings per share - basic (in dollar) Actual Pro forma Earnings per share - diluted (in dollar) Actual Pro forma TREASURY STOCK (COMMON STOCK) Reason for Purchase 2006 To maintain the Corporation’s credit and stockholders’ equity	2005 2006 New Taiwan New Taiwan U.S. Dollars Dollars Dollars (Note 4) $ 300,577 $ 1,978,100 $ 60,685 181,410 1,912,999 58,688 0.13 0.82 0.03 0.08 0.79 0.02 0.10 0.82 0.03 0.06 0.79 0.02 (In Thousand of Shares Beginning of Year Increase Decrease End of Year - 2,193 - 2,193	2006

21. TREASURY STOCK (COMMON STOCK)

(In Thousand of Shares)

Under the Securities and Exchange Law, the Corporation should not buy back more than 10% of its issued stock. In addition, the Corporation may not spend more than the sum of the balances of the retained earnings, additional paid-in capital from the issue of stock in excess of par value and realized capital surplus to repurchase its issued stock.

The Corporation may not pledge or hypothecate any treasury stock. In addition, the Corporation may not exercise any stockholders’ rights on the treasury stock.

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In 2006, the Corporation repurchased 2,193 thousand shares of common stocks amounted to NT$28,101 thousand (US$862 thousand) and subsequently in February of 2007, the treasury stocks were cancelled in conjunction with registered other common stocks converted from unsecured zero coupon foreign convertible bonds and employees’ stock options in a total amount of NT$13,820 thousand (US$424 thousand). The Corporation completed the change in capital structure by filing a registration in February of 2007.

The Corporation repurchased its issuance of common stock of 30,000 thousand shares in 2003. On February 18, 2004, the Corporation transferred the foregoing stocks to employees at NT$13.8 (in dollars) per share. After the deduction of any relevant tax, the transfer value in excess of the book value was $1,650 thousand, recognized in the account of capital surplus - treasury stock transactions. On June 20, 2005, the capital surplus was used for the sole purpose of offsetting the prior years’ deficit upon the stockholders’ approval in the proxy meeting.

22. EARNINGS PER SHARE

The data used in calculating earnings per share were as follows:

Year ended December 31, 2005 New Taiwan dollars Basic Consolidated net income attribute to parent company’s stockholders Diluted effect of common stock equivalent Zero coupon foreign convertible bonds Diluted	Income	Net Income $ 300,577 (34,818 ) $ 265,759	Weighted- average Number of Outstanding Shares (Thousands) 2,340,666 305,300 2,645,966	Per Share (in Dollars) Income Before Income Net Tax Income $ 0.15 $ 0.13 $ 0.11 $ 0.10
				Income Before Income Tax $ 0.15 $ 0.11
	Income Before Income Tax $ 342,812 (46,426 ) $ 296,386

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Year ended December 31, 2006 New Taiwan dollars Basic Consolidated net income attribute to parent company’s stockholders Diluted effect of common stock equivalent Zero coupon foreign convertible bonds Diluted U.S. dollars (Note 4) Basic Diluted	Income	Net Income $ 1,978,100 - $ 1,978,100 $ 60,685 $ 60,685	Weighted- average Number of Outstanding Shares (Thousands) 2,414,501 7,590 2,422,091 2,414,501 2,422,091	Per Share (in Dollars) Income Before Income Net Tax Income $ 0.90 $ 0.82 $ 0.90 $ 0.82 $ 0.03 $ 0.03 $ 0.03 $ 0.03
				Income Before Income Tax $ 0.90 $ 0.90 $ 0.03 $ 0.03
	Income Before Income Tax $ 2,182,772 - $ 2,182,772 $ 66,964 $ 66,964

The stock options in 2005 and 2006 in Note 20 are potential common stocks. But they were not included in the calculation of the diluted earnings per share because of the anti-dilutive effect of these stock options.

23. INCOME TAX

The Income Basic Tax Act in ROC took effective as of January 1, 2006. According to this Act, the amount of income taxes shall be the greater of a pre-determined income taxes under the Income Tax Law (the Law) or a multiplied amount using a income tax rate prescribed by the Executive Yuan (10%) on the sum of the taxable income and income tax benefits allowable under the Law. The Corporation and subsidiaries incorporated in ROC have adopted the effect of this new Act in the current year’s income tax expenses.

a. Income tax expense consisted of the following:

Income tax expense - current Income tax expense - deferred Adjustment of prior years’ income tax 10% tax on unappropriated retained earnings Income tax expense	New Taiwan Dollars 2005 2006 $ 44,257 $ 105,476 (4,819 ) 56,063 (5,448 ) 42,577 8,245 556 $ 42,235 $ 204,672	U.S. Dollars (Note 4) 2006 $ 3,236 1,720 1,306 17 $ 6,279
	2005 $ 44,257 (4,819 ) (5,448 ) 8,245 $ 42,235

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b. Current and noncurrent net deferred taxes assets (liabilities) comprise the following:

Deferred tax assets (liabilities) - current Loss carryforward Allowance for losses on inventories Investment tax credits Deferred income Unrealized foreign exchange gain Unrealized compensation expenses Allowance for doubtful accounts Unrealized reconstructive expenses for fire damage Valuation loss on financial instrument, net Other Less - allowance for valuation Deferred tax assets - noncurrent Impairment loss on assets Investment tax credits Loss carryforward Losses on investments Difference in book and tax depreciation and amortization Accrued pension costs Loss on disposal of property, plant and equipment Deferred income Other Less - allowance for valuation	New Taiwan Dollars 2005 2006 $ 220,501 $ 56,180 24,891 51,102 31,582 43,238 27,561 33,782 (5,538 ) (19,638 ) 8,327 7,622 4,638 7,342 - 5,446 11,170 1,896 8,979 13,305 332,111 200,275 32,188 14,983 $ 299,923 $ 185,292 $ 1,165,152 $ 1,074,373 390,377 449,327 457,842 428,406 433,903 385,453 16,434 28,302 21,029 24,042 - 23,569 20,310 19,014 11,455 8,314 2,516,502 2,440,800 564,180 423,623 $ 1,952,322 $ 2,017,177	U.S. Dollars (Note 4) 2006 $ 1,724 1,568 1,326 1,036 (602 ) 234 225 167 58 408 6,144 459 $ 5,685 $ 32,960 13,785 13,143 11,825 868 738 723 583 255 74,880 12,996 $ 61,884
	2005 $ 220,501 24,891 31,582 27,561 (5,538 ) 8,327 4,638 - 11,170 8,979 332,111 32,188 $ 299,923 $ 1,165,152 390,377 457,842 433,903 16,434 21,029 - 20,310 11,455 2,516,502 564,180 $ 1,952,322

As of December 31, 2006, the tax effect of unused investment tax credits and unused operating loss carryforward were as follows:

Regulatory Basis of Investment Entity Tax Credits Item The Corporation Statute for Upgrading Industries Machinery and equipment Machinery and equipment Machinery and equipment R&D and personnel training R&D and personnel training R&D and personnel training Kuo Ding Venture Capital Limited Statute for Upgrading Industries Investment	Tax Effect of Unused Investment Tax Credits New U.S. Taiwan Dollars Expiry Dollars (Note 4) Year $ 118,615 $ 3,639 2008 22,293 684 2009 51,081 1,567 2010 20,872 640 2008 66,890 2,052 2009 50,635 1,553 2010 1,775 54 2007

(Continued)

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					Tax Effect	Tax Effect	of
					Unused Investment
					Tax Credits
					New		U.S.
	Regulatory Basis of Investment				Taiwan Dollars				Expiry
Entity	Tax Credits		Item		Dollars (Note 4)				Year
Chipcera Technology	Statute for Upgrading Industries	Machinery and equipment $				948 $		29	2008
Co., Ltd.
Compostar Technology	Statute for Upgrading Industries	Machinery and equipment			35,455		1,088		2007
Co., Ltd.		Machinery and equipment			77,939		2,391		2008
		Machinery and equipment			9,701			298	2009
		Machinery and equipment			7,284			224	2010
		R&D and personnel training			6,008			184	2007
		R&D and personnel training			11,876			364	2008
		R&D and personnel training			9,443			290	2009
		R&D and personnel training			1,750			54	2010
				$	492,565 $ 15,111
								(C	oncluded)
			Tax Effect of			Unused
				Operating		Loss
				Carryforward
				New		U.S.
				Taiwan	Dollars
Entity		Year of Loss		Dollars	(Note 4)			Expiry Year
Kuo Shin Investment Limited		2005	$	938	$	29			2010
Kuo Chung Development Limited		2006		2,090		64			2011
Steller Inc.		2002		489		15			2022
		2003		3,390		104			2023
		2004		1,402		43			2024
		2005		2,673		82			2025
		2006		945		29			2026
Ferroxcube Taiwan Ltd.		2002		8,763		269			2007
		2003		20,833		639			2008
		2004		4,868		149			2009
Yageo America		2001		42,016		1,289			2021
Corporation		2002		89,509		2,746			2022
		2003		52,675		1,616			2023
		2004		37,714		1,157			2024
Composter Technology Co., Ltd.		2002		34,176		1,049			2007
Compostar Technology (Suzhou) Co., Ltd.		2004		30		1			2009
		2005		4,038		124			2010
Compostar Technology (Shanghai) Ltd.		2002		4,555		140			2007
		2003		1,698		52			2008
		2004		2,095		64			2009
		2005		3,258		100			2010
		2006		2,772		85			2011
Chipcera Technology Co., Ltd.		2002		8,686		266			2007
		2003		806		25			2008
		2004		4,604		141			2009
		2005		5,102		157			2010
		2006		2,538		78			2011
			$	342,663	$	10,513

(Concluded)

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The unused loss carryforward of Ferroxcube International Holding B.V. (Spain factory) amounted to NT$141,923 thousand (US$4,354 thousand), included in deferred income tax assets - noncurrent. And, their expiry year are 15 years starting from the year of loss.

The Corporation’s income tax returns through 2003 had been examined and cleared by the tax authorities.

Phycomp Taiwan, Ltd. was merged into the Corporation on May 31, 2003. The incomes tax returns of Phycomp Taiwan, Ltd. have been examined through 2002. Kaohsiung National Tax administration has examined the income tax returns of 2001 and 2002, and adjusted the calculation of tax-exempt income and creditable amount of investment tax credits. The amount of income tax adjustments and the Corporation’s actions were shown as follows:

a. The income tax return of 2001 has been examined in 2004: The adjusted tax effect of tax-exempt income and credits for investment taxes were NT$39,536 thousand (US$1,213 thousand) and NT$8,874 thousand (US$272 thousand), respectively. The adjustment for investment tax credits was booked in 2004. However, because the Corporation was unwilling to accept the results of the examination in connection with the tax-exempt income, in turn, a petition for review and administration was appealed according to the appropriate law proceedings in Taiwan. A guarantee deposit was recorded in an amount of NT$24,206 thousand (US$743 thousand), included in the account of pledged assets - pledged time deposit. The administration appeal was dismissed by Kaohsiung Administrative High Court on January 25, 2007. The Corporation undertook an administrative litigation procedure according to the law proceedings on March 20, 2007. The adjustment in the tax effect of NT$39,536 thousand (US$1,213 thousand) was recorded in 2006.
b. The income tax returns of 2002 has been examined in 2005: The result of the examination increased the income tax expense by NT$11,667 thousand (US$358 thousand). The major adjustment was the calculation of tax-exempt income. The Corporation was unwilling to accept the content of examination, petitioning for review according to law. As a result of this review, Kaohsiung National Tax administration reexamined the tax returns on December 4, 2006. The increase of income tax expense dropped from NT$11,667 thousand (US$358 thousand) to NT$10,161 thousand (US$312 thousand). The Corporation was also unwilling to accept the result of the reexamination, petitioning for administrative appeal on January 2, 2007. However, the administrative appeal has been dismissed by Kaohsiung Administrative High Court on March 21, 2007. The Corporation are prepared to undertake an administrative litigation procedure. The tax effect of the adjustment of NT$10,161 thousand (US$312 thousand) has been recorded in 2006.

The balances of the imputation credit account were NT$759,293 thousand and NT$674,116 thousand (US$20,681 thousand) as of December 31, 2005 and 2006, respectively.

The actual and expected imputed credit rate for earnings distribution were 33.33% for 2005 and 34.45% for 2006, respectively. Since the imputed credit allocated to the shareholders is based on the balance as of the date of the earnings distribution, the expected imputed credit rate may differ from the actual imputed credit rate. The Corporation may adjust the rate because of potential differences in conformity with the Income Tax Act.

As of December 31, 2005 and 2006, there were no unappropriated retained earnings generated before January 1, 1998.

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24. PERSONNEL EXPENSE, DEPRECIATION AND AMORTIZATION

2005	2005
New Taiwan Dollars
Cost of Good Sold $ 2,159,328 1,849,146 92,034 $ 4,100,508	Operating Expense $ 1,244,109 207,938 253,299 $ 1,705,346	Total $ 3,403,437 2,057,084 345,333
		$ 5,805,854

2006	2006
New Taiwan Dollars		Total $ 4,008,600 2,240,038 202,572 $ 6,451,210	U.S. Dollars (Note 4)
Cost of Good Sold $ 2,619,875 2,038,097 91,195 $ 4,749,167	Operating Expense $ 1,388,725 201,941 111,377 $ 1,702,043
			2006 $ 122,978 68,721 6,215
			$ 197,914

25. PENSION PLAN

The Labor Pension Act (the “Act”) in ROC took effect on July 1, 2005. Employees of the Corporation and subsidiaries incorporated in ROC subject to the Labor Standards Law (the “Law”) before the enforcement of the Act were allowed to choose to remain subject to the pension mechanism under the Law or to be subject to the pension mechanism under the Act, with their service years accumulated before the enforcement of this Act to be retained. Those hired on or after July 1, 2005 automatically become subject to the Act.

The Act provides for a defined contribution plan featuring a portable pension. Since July 1, 2005, the Corporation, subsidiaries - Ferroxcube Taiwan Ltd., Compostar Technology Co., Ltd., Chipcera Technology Co., Ltd. and Ko-E Corp. have made monthly contributions at 6% of monthly salaries and wages to the pension fund. The pension costs recognized by the Corporation, subsidiaries - Ferroxcube Taiwan Ltd., Compostar Technology Co., Ltd. and Ko-E Corp. in the second half of 2005 and full year of 2006 were NT$31,422 thousand and NT$66,823 (US$2,050 thousand).

Under the Law, the Corporation, subsidiaries - Ferroxcube Taiwan Ltd., Compostar Technology Co., Ltd. and Chipcera Technology Co., Ltd. have defined benefit plans. The benefits under the plan are based on length of service and average basic pay of the final six months of employment. The Corporation, subsidiaries - Ferroxcube Taiwan Ltd., Compostar Technology Co., Ltd. and Chipcera Technology Co., Ltd. make monthly contributions, to a pension fund. The fund is administered by the employees’ pension fund committee and deposited in the committee’s name in the Central Trust of China.

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a. The components of net pension costs under the defined benefit plan were as follows:

Service cost Interest cost Expected return on plan assets Amortization of unrecognized net transition obligation and unrecognized net actuarial losses	New Taiwan Dollars 2005 2006 $ 31,769 $ 15,689 11,056 11,186 (4,387 ) (4,918 ) 2,386 527 $ 40,824 $ 22,484	U.S. Dollars (Note 4) 2006 $ 482 343 (151 ) 16 $ 690
	2005 $ 31,769 11,056 (4,387 ) 2,386 $ 40,824

b. The reconciliation of the funded status of the defined benefit plan, the vested obligation, the actuarial assumptions used in determining net periodic pension costs and the changes in pension funds were as follows:

Benefit obligation Vested Non-vested Accumulated benefit obligation Additional benefits based on future salaries Projected benefit obligation Fair value of plan assets Funded status Unrecognized net: Transitional obligation Actuarial losses Accrued pension cost liabilities Other current assets - prepaid pension cost Accrued pension cost Vested obligation	New Taiwan Dollars 2005 2006 $ 11,598 $ 33,115 240,131 334,503 251,729 367,618 70,344 105,823 322,073 473,441 (188,071 )(200,695 ) 134,002 272,746 (3,797 ) (5,807 ) (20,878 ) (145,602 ) - 50,487 1,540 - $ 110,867 $ 171,824 $ 14,312 $ 40,313	U.S. Dollars (Note 4) 2006 $ 1,016 10,262 11,278 3,246 14,524 (6,157 ) 8,367 (178 ) (4,467 ) 1,549 - $ 5,271 $ 1,237
	2005 $ 11,598 240,131 251,729 70,344 322,073 (188,071 ) 134,002 (3,797 ) (20,878 ) - 1,540 $ 110,867 $ 14,312

The actuarial assumptions used in determining net periodic pension costs for the years presented were as follows:

	2005	2006
Discount rate	3.50%	2.25-3.50%
Future salary increase rate	2.00-5.00%	2.00-3.00%
Expected rate of return on plan assets	2.50%	2.50%

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The changes in pension funds were:

Contributions Payment of benefits	New Taiwan Dollars 2005 2006 $ 14,934 $ 10,475 $ 2,483 $ 4,697	U.S. Dollars (Note 4) 2006 $ 321
	2005 $ 14,934 $ 2,483
		$ 144

The Vitrohm Holding GmbH (Yageo Europe GmbH), Yageo Korea and a portion of eligible employees of Ferroxcube have defined benefit plans. As of December 31, 2005 and 2006, the pension liabilities amounted to NT$102,558 thousand and NT$138,815 thousand (US$4,259 thousand), shown as accrued pension costs.

Yageo Electronics (Dongguan) Co., Ltd., Yageo Electronics (China) Co., Ltd., Ferroxcube Electronics (Dongguan) Co., Ltd., Yageo Components (Su Zhou) Co., Ltd., Yageo USA (H.K.) Limited, Phycomp Holding B.V., Ferroxcube International Holding B.V. (except for the portion of eligible employees of

Ferroxcube as described above ） , Vitrohm Portuguesa LDA, Yageo Japan, Yageo America Corporation, Phycomp Singapore PTE. LTD., Phycomp Malaysia SDN. BHD., Steller Inc., Compostar Technology (Dongguan) Co., Ltd., Compostar Technology (Su Zhou) Co., Ltd., Compostar Technology (Shanghai) Co., Ltd., Ko-E (H.K.) Limited, Ko-E Technology (Shenzhen) Co., Ltd. have defined contribution plans and make contribution on a fixed rate of salaries. Yageo Holding (Bermuda) Limited, Ko Shin Investment Limited, Kuo Chung Development Limited, Kuo Ding Venture Capital Limited, Ferroxcube Holding (Samoa), Ltd., Compostar Technology (Cayman), Ltd., Hsu Tai International (H.K.), Ko-E Holding (Cayman Islands), Ltd., Chipcera Holding B.V., Chang An Wusha Chipcera, Chen An Trading Co., Ltd. and Yageo International Holding Limited do not have pension plan.

26. RELATED-PARTY TRANSACTIONS

The Group has transactions with related parties in the normal course of business. The relationships are summarized as follows:

Related Party Relationship with the Group Chilisin Electronics Corp. Equity-method investee Chilisin International Ltd. Subsidiary of Chilisin Electronics Corp. Teapo Electronics Corp. Equity-method investee Teapo Holding (Bermuda) Ltd. Subsidiary of Teapo Electronics Corp. Teapo Electronics (H.K.) Subsidiary of Teapo Electronics Corp. Teapo Electronics (Su Zhou) Subsidiary of Teapo Holding (Bermuda) Ltd. King Power International Co., Ltd. Equity-method investee of Kuo Shin Investment Limited prior to the end of 2006 Ralec Electronic Corp. An equity-method investee of Kuo Shin Investment Limited and Kuo Chung Development Limited since June of 2006 Juridieal Person, Yageo Foundation A nonprofit organization of which the funds donated by the Corporation exceeds one third of its total Fund Hua Jung Components Co., Ltd. Its general manager is the chairman of Compostar Technology Co., Ltd. Hwa Jung International Electronics Co., Ltd. Equity-method investee of Hua Jung Components Co., Ltd. Hua Jung Components (Shanghai) Subsidiary of Hua Jung Components Co., Ltd. Strong Components Co., Ltd. Equity-method investee of Compostar Technology Co., Ltd.

(Continued)

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Related Party Relationship with the Group Luminous Town Electric Co., Ltd. The Chairman of the Board of Directors at Luminous Town Electric Co., Ltd. is the same person at Compostar Technology Co., Ltd. Belkin International Equity-method investee of Yageo Holding (Bermuda) Limited Guo Chuang Electronics (Dongguan) Co., Ltd. Prior to October of 2006, the accounts of the financial statements of Guo Chuang Electronics (Dongguan) Co., Ltd. were consolidated into the consolidated financial statements of the Corporation, and significant transactions between Guo Chuang Electronics (Dongguan) Co., Ltd. and the Group are eliminated. Beginning in October of 2006, because the Group's percentage of ownership in Guo Chuang Electronics Co., Ltd. is reduced to 35% and lost its control over Guo Chuang Electronics (Dongguan) Co., Ltd. as a majority shareholder, the entity is accounted for using equity-method of accounting and the accounts of this entity is no longer consolidated into the consolidated financial statements of the Corporation.

(Concluded)

The transactions with the foregoing related parties are summarized as follows:

For the year Sales King Power International Co., Ltd. Chilisin International Ltd. Hua Jung Components Co., Ltd. Strong Components Co., Ltd. Hua Jung Components (Shanghai) Ralec Electronic Corp. Other Purchases King Power International Co., Ltd. Belkin International Teapo Electronics (H.K.) Teapo Electronics (Su Zhou) Chilisin Electronics Corp. Teapo Electronics Corp. Chilisin International Ltd. Hua Jung Components Co., Ltd.	New Taiwan Dollars	New Taiwan Dollars	New Taiwan Dollars	% 2 - - - - - - 2 1 1 1 - - - - -	U.S. Dollars (Note 4) 2006 Amount $ 8,857 1,216 1,062 236 37 15 6 $ 11,429 $ 5,491 1,812 1,615 1,307 1,007 579 91 66
	2005		2006
	Amount $ 252,939 - 4,848 4,362 - - - $ 262,149 $ 16,689 - 19,215 7,441 43,227 6,901 - -	% 2 - - - - - - 2 - - - - 1 - - -	Amount $ 288,693 39,621 34,623 7,690 1,211 487 204 $ 372,529 $ 178,982 59,062 52,655 42,586 32,820 18,888 2,960 2,154

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Strong Components Co., Ltd. Ralec Electronic Corp. Interest income Guo Chuang Electronics (Dongguan) Co., Ltd. Donation fees (shown as nonoperating expenses - others) Yageo Foundation Rental revenue Teapo Electronics (H.K.) Teapo Electronics Corp. Strong Components Co., Ltd. Hua Jung Components Co., Ltd. Luminous Town Electric Co., Ltd. Rental expenses (shown as manufacturing and marketing expenses) Hua Jung International Electronics Co., Ltd Guo Chuang Electronics (Dongguan) Co., Ltd Hua Jung Components Co., Ltd. As of December 31 Receivables from related parties Notes receivable King Power International Co., Ltd. Strong Components Co., Ltd. Ralec Electronic Corp. Accounts receivable Hua Jung Components Co., Ltd. Chilisin International Ltd. King Power International Co., Ltd. Strong Components Co., Ltd. Hua Jung Components (Shanghai) Ralec Electronic Corp. Other	New Taiwan Dollars	New Taiwan Dollars	New Taiwan Dollars	% - - 3 1 11 3 1 1 - - 5 - - - - 49 1 - 9 8 5 2 1 - -	U.S. Dollars (Note 4) 2006 Amount $ 40 29 $ 12,037 $ 16 $ 822 $ 203 49 26 16 2 $ 296 $ 41 8 7 $ 56 $ 3,599 42 6 651 618 399 145 68 16 - (Continued)
	2005		2006
	Amount $ 43,218 - $ 136,691 $ - $ - $ 6,259 - - - - $ 6,259 $ - - - $ - $ - - - 5,764 - 124,742 508 5,213 - 3,337	% - - 1 - - 3 - - - - 3 - - - - - - - 4 - 93 - 4 - 3	Amount $ 1,302 946 $ 392,355 $ 518 $ 26,810 $ 6,617 1,584 861 516 61 $ 9,639 $ 1,331 267 239 $ 1,837 $ 117,319 1,385 206 21,225 20,133 12,991 4,737 2,208 504 -

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Payment on behalf of others Guo Chuang Electronics (Dongguan) Co., Ltd. Allowance for doubtful accounts Loans receivables from related parties (including interest receivable of $518 thousand (US$16 thousand) at the end of year) Guo Chuang Electronics (Dongguan) Co., Ltd. Loans receivables from related parties - highest balance Guo Chuang Electronics (Dongguan) Co., Ltd. Payables to related parties Accounts payable King Power International Co., Ltd. Belkin International Teapo Electronics (H.K.) Chilisin Electronics Corp. Teapo Electronics (Su Zhou) Teapo Electronics Corp. Ralec Electronic Corp. Strong Components Co., Ltd. Other Donation payable Yageo Fundation Deposits received Teapo Holding (Bermuda) Ltd. - rent to Teapo Electronics (H.K.)	New Taiwan Dollars	New Taiwan Dollars	New Taiwan Dollars	% 25 - 100 100 53 14 10 7 7 4 - - - 5 100 63	U.S. Dollars (Note 4) 2006 Amount $ 1,800 (30 ) $ 7,314 $ 1,425 $ 2,562 $ 3,977 1,076 712 504 492 273 28 - 1 399 $ 7,462 $ 3,068
	2005		2006
	Amount $ - (5,190 ) $ 134,374 $ - $ - $ 9,735 - 3,176 32,650 257 1,519 - 16,741 8,652 - $ 72,730 $ 100,000	% - (4 ) 100 - 14 - 4 45 - 2 - 23 12 - 100 71	Amount $ 58,678 (985 ) $ 238,401 $ 46,456 $ 83,524 $ 129,623 35,053 23,213 16,431 16,048 8,890 910 1 38 13,016 $ 243,223 $ 100,000

The payment terms for the related receivables from (payables to) the affiliates were based on related contracts. The annual interest rate for the financing provided to Guo Chuang Electronics (Dongguan) Co., Ltd. was 6.12%. Other related-party transactions were conducted under normal terms.

27. REORGANIZATION AND ASSET IMPAIRMENT

To enhance the competitiveness of the production and selling costs of passive components, the Group prepared plans to reduce production of the European operating segment and transfer the main equipment to Asia to boost production. To implement this plan, the corporation and other subsidiaries started organization restructuring, for which total costs were NT$174,847 thousand in 2005, included in nonoperating expenses or losses - reorganization cost. Another result of the foregoing reorganization plan was that certain land and

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buildings in Europe became idle and were reclassified into idle assets, stated at the lower of recoverable amount or carrying value, thus recognized impairment loss of NT$205,988 thousand (US$6,320 thousand) as of December 31, 2006, included in nonoperating expenses or losses - impairment loss on idle assets.

The Group periodically evaluates the assets, including goodwill of the cash-generating unit and tests the assets for impairment. There was no impairment loss recognized for the years ended December 31, 2005 and 2006.

28. COLLATERAL ASSETS

As of December 31, 2005 and 2006, the following assets of the Group had been pledged as collateral for bank loans or for meeting the requirements to hire foreign laborers and as credit guarantees:

Properties leased to others, net Properties and idle assets, net Long-term investments Other financial assets - imprest bank account for payment of the principle and interest of unsecured domestic bonds Pledged assets Other financial assets - pledged time deposit Land use right	New Taiwan Dollars 2005 2006 $ 4,285,853 $ 4,199,403 6,495,279 3,226,012 1,386,296 971,197 20,404 206,800 274,201 198,744 130,257 1,350 2,085 - $ 12,594,375 $ 8,803,506	U.S. Dollars (Note 4)
	2005 $ 4,285,853 6,495,279 1,386,296 20,404 274,201 130,257 2,085 $ 12,594,375	2005 $ 128,832 98,969 29,795 6,344 6,097 42 -
		$ 270,079

29. COMMITMENTS AND CONTINGENT EVENTS

The commitments and contingent liabilities as of December 31, 2006 were as follows:

a. The Corporation furnished the court a time deposit of NT$141,320 thousand (US$4,336 thousand) (recorded as pledged assets - pledged time deposit) as collateral for petition of provisional attachments of properties of Advanced Connectek, Inc. and other joint defendants in an amount up to NT$423,943 thousand (US$13,006 thousand) in connection with the torts and infringement of the trade secrecy involved by Advanced Connectek, Inc. and other joint defendants. After the defendants provided a time deposit of NT$423,943 thousand as bailment, the court canceled the provisional attachments. On September 5, 2006, the Corporation filed a civil lawsuit against Advanced Connectek, Inc. claiming for compensation of damages in the amount of NT$423,943 thousand due to its torts and infringement of the trade secrecy of the Corporation. Furthermore, the Corporation reported to the Fair Trade Commission of Advanced Connectek, Inc.’s conduct of unfair competition. If the outcome of the lawsuit is favorable to the Corporation, the time deposit of NT$141,320 thousand will be returned to the Corporation; otherwise, the Corporation will be responsible for the substantial loss incurred by Advanced Connectek and others for providing the bailment of NT$423,943 thousand. As of December 31, 2006, the result of the lawsuit is unknown. The Corporation is unable to estimate the amount of gains or losses arising from the lawsuit at this time.
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b. One of the Group's customers, Johnson Control (or "Plaintiff"), filed a case to put Phycomp’s subsidiary (the “Defendant”) on trial for compensation due to quality of products produced by the Defendant. On February 22, 2007, the Versailles Court (“the Appeal Court”) brought a verdict determining that the defendant is liable to pay EUR$2,400 thousand (NT$98,032 thousand) to the plaintiff. After a deduction of the payment of EUR$550 thousand previously made to the Plaintiff, the remaining payable to the Plaintiff is calculated to be EUR$1,850 thousand (about NT$98,032 thousand). The aforementioned losses have been recorded in the consolidated financial statements for year 2006 as non-operating expenses or losses - compensation expenses and other payables. In the verdict, the Appeal Court also ruled that both parties may appeal the case to a higher court on or before May 8, 2007. After a thorough consideration, the Corporation plans to appeal and the current assessment is that an additional liability will not likely to incur in the appeal.
c. Contracts for purchase of machinery and equipment, buildings and computer hardware and software for about NT$859,148 thousand (US$26,357 thousand).
d. Unused letters of credit amounting to about NT$43,272 thousand (US$1,328 thousand).
e. Commitment to purchase materials for about NT$114,148 thousand (US$3,502 thousand).

30. SIGNIFICANT FIRE LOSS

The Corporation incurred loss in connection with a fire damage in the capacitor line factory in village of Dashe, Kaoshiung County, on September 25, 2006. The total amount of loss was estimated to be NT$564,971 thousand (US$17,332 thousand) for the damage of its building, machinery and inventories. The damage status and corresponding loss were as follows: a) NT$148,370 thousand (US$4,551 thousand) to the fully-destroyed property, plant and equipment. The cost and accumulated depreciation related to these fully-destroyed property, plant, and equipment of NT$228,645 thousand (US$7,014 thousand) and NT$80,275 thousand (US$2,463 thousand) were eliminated from the account balances; (b) impairment loss of NT$307,795 thousand (US$9,443 thousand) related to partially-damaged property, plant and equipment was recorded as accumulated impairment; and (c) NT$108,806 thousand (US$3,338 thousand) related to inventories were written off. Based on the relevant insurance coverage, the Corporation reached an agreement to the insurance recoveries with the insurance company. The final insurance proceeds were settled at NT$602,550 thousand (US$18,485 thousand). The insurance proceeds deducted by the aforementioned loss of NT$564,971 thousand (US$17,333 thousand) and future related repair and maintenance expenditure of NT$30,829 thousand (US$945 thousand) were recognized as a gain of NT$6,750 thousand (US$207 thousand) in the nonoperating income for the year of 2006. The depreciation and amortization expenses of the capacitor line factory amounted to NT$56,598 thousand (US$1,736 thousand) for the period which the business was interrupted and restored and were recorded in the account of nonoperating expenses and loss - loss on work stoppages for the year of 2006.

The insurance recoveries receivable of NT$602,550 thousand (US$18,485 thousand) recorded as of December 31, 2006 has been received on February 15, 2007.

31. SIGNIFICANT SUBSEQUENT EVENTS

a. To focus the Group’s efforts on its passive components business, the Corporation was aggressively selling its assets which are not relevant to the core business. The Corporation signed a real estate transaction contract with Sinyi Realty Inc. in February of 2007 to sell the building and land located on Sin-Yi Rd. (classified as properties leased to others) to Sinyi Realty Inc. for NT$4,995,000 thousand (US$153,240 thousand). The gain on sale will be approximately NT$691,179 thousand (US$21,204 thousand), which represents the selling price less its carrying value and related expenditure. The Corporation expects to complete the registration for real estate transfer in May of 2007.
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b. In the situation of default on the accounts receivable and financial insolvency at the Ya Hsin Industrial Co., Ltd. and its subsidiaries (collectively, the “Ya Hsin Group”), the amount that the Corporation and its subsidiaries due from Ya Hsin Group was amounted to NT$43,085 thousand (US$1,322 thousand) as of December 31, 2006, in which NT$30,947 thousand (US$949 thousand) was collected as of March 31, 2007. The uncollected receivables and the receivables from the first quarterly sales in 2007 was amounted to NT$21,457 thousand (US$658 thousand) as of March 31, 2007. The Corporation is currently running a negotiation process to actively pursue a method to collect the receivables from the Ya Hsin Group, and will take necessary legal actions to secure Ya Hsin Group’s indebtedness. In addition, the Corporation controls the delivery of inventories to the Ya Hsin Group. The Corporation and its subsidiaries assessed the collectibility of Ya Hsin’s accounts receivable and determined that the condition of uncollectibility is remote.

32. FINANCIAL INSTRUMENTS

a. The information of fair values of derivative and nonderivative financial instruments as of December 31, 2005 and 2006 are summarized as follows:

Nonderivative financial instruments Assets Cash and cash equivalents Financial assets and liabilities at fair value through profit or loss - domestic mutual funds Available for sale financial assets - current Notes receivable, net Accounts receivable, net Accounts and notes receivable from related parties Income tax refund receivable Other financial assets Investments accounted for using equity method Available-for-sale financial assets - noncurrent Financial assets measured at holding cost - noncurrent Bonds measured at amortized cost Other long-term investments Loans receivables from relates parties Refundable deposits Pledged assets Liabilities Short-term loans Commercial paper issued, net Notes payable Accounts payable Accounts and notes payable to related parties Others payables Current portion of long-term liabilities Long-term liabilities Deposits received	New Taiwan Dollars	2006 Carrying Fair Value Value $ 1,801,071 $ 1,801,071 - - 278,613 278,613 135,664 135,664 5,432,463 5,432,463 238,401 238,401 22,673 22,673 931,757 931,757 2,363,027 2,284,793 749,845 749,845 1,038,878 1,133,685 50,000 50,000 58,531 108,414 46,456 46,456 97,092 97,092 198,744 198,744 3,951,373 3,951,373 827,962 827,962 79,318 79,318 3,078,795 3,078,795 243,223 243,223 275,326 275,326 1,104,196 1,104,196 5,100,842 5,100,842 159,113 159,113	U.S. Dollars (Note 4)
	2005 Carrying Fair Value Value $ 3,348,347 $ 3,348,347 6,000 6,000 55,353 78,348 219,987 219,987 4,984,574 4,984,574 134,374 134,374 27,082 27,082 944,133 944,133 2,230,503 2,189,781 - - 1,227,844 1,185,964 - - 132,098 107,327 - - 92,813 92,813 274,201 274,201 3,452,631 3,452,631 848,575 848,575 66,280 66,280 2,382,494 2,382,494 72,730 72,730 102,945 102,945 3,169183 3,169183 8,402,183 8,412,332 141,667 141,667		2006
			Fair Value $ 55,254 - 8,547 4,162 166,660 7,314 696 28,585 70,094 23,004 34,780 1,534 3,326 1,425 2,979 6,097 121,223 25,401 2,433 94,453 7,462 8,446 33,876 156,486 4,882

(Continued)

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Derivative financial instruments Domestic Financial assets at fair value through profit or loss - forward exchange Financial liabilities at fair value through profit or loss - forward exchange Hedging derivative financial liabilities Foreign Financial assets at fair value through profit or loss - forward exchange Hedging derivative financial assets Financial liabilities at fair value through profit or loss - forward exchange Hedging derivative financial liabilities	New Taiwan Dollars	2006 Carrying Fair Value Value $ 351 $ 351 9,118 9,118 1,326 1,326 2,825 2,825 290 290 1,089 1,089 7,955 7,955	U.S. Dollars (Note 4)
	2005 Carrying Fair Value Value $ 480 $ 520 3,259 3,211 - - - - - - 2,090 2,159 - -		2006
			Fair Value $ 11 280 41 86 9 33 244

Effective January 1, 2006, the Group adopted the Statements of Financial Accounting Standards No. 34 “Accounting for Financial Instruments.” The cumulative effect of changes in accounting principles arising from the adoption of new SFAS was described in Note 3.

b. The methods and assumptions used in estimating fair values are as follows:
1) The fair values of the following short-term instruments approximate their carrying amounts because of their short maturities: Cash and cash equivalents, notes receivable, accounts receivable and payable, accounts and notes receivable from and payable to related parties, income tax refund receivable, other financial assets, pledged assets - pledged time deposits and imprest bank account, short-term loans, commercial paper issued and current portion of long-term loans.
2) The fair values of financial assets at fair value through profit or loss - domestic mutual funds, available-for-sale financial assets and pledged assets - listed domestic common stocks are based on their quoted market prices.
3) The fair values of current portion of bonds are estimated at the agreed redemption price.
4) The fair values of investments accounted for using equity method are based on their quoted market prices; or if quoted market prices are not available, on the Group’s equity in the investees’ net assets or carrying amounts.
5) The fair values of financial assets measured at holding cost and other long-term investments are based on the Group’s equity in the investees’ net assets or carrying amounts.
6) The fair value of bonds measured at amortized cost are based on the fair value provided by the issuing company.
7) The fair values of the following instruments approximate their carrying amounts because there are no definite receipt or payment terms: Refundable deposits, deposits received and loans receivable from related parties.
8) The fair values of the long-term liabilities are estimated using discounted cash flow analysis based on current interest rates for borrowings with similar maturities. If the interest rate is close to interest rate of long-term liabilities, the fair value is based on carrying amounts of liabilities.
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9) The fair value of derivatives which have quoted market prices in active markets are based on their quoted market prices, or if quoted market prices are not available, are determined using the valuation techniques. The estimations and assumptions incorporated in the valuation techniques by the Group are the same as those incorporated in participants in the market, which can be obtained by the Group. The Group computes the fair value of individual forward exchange contract by its forward rate of the maturity date according to the fair value information provided by the counter-parties (financial institutions) or the foreign exchange rate announced by Reuters price system.
c. The fair values of financial assets and financial liabilities based on quoted market prices in active markets or determined using valuation techniques, are as follows:

Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Hedging derivative financial assets Long-term investments accounted for using equity method Pledged assets - domestic listed common stocks Liabilities Financial liabilities at fair value through profit or loss Hedging derivative financial liabilities	Amount Based on Quoted Market Prices U.S. Dollars New Taiwan Dollars (Note 4) 2005 2006 2006 $ 6,000 $ - $ - 78,348 1,028,458 31,551 - - - 1,892,074 1,964,231 60,260 241,498 - - - - - - - -	Amount Determined Using Valuation Techniques	Amount Determined Using Valuation Techniques
	New Taiwan Dollars 2005 2006 $ 6,000 $ - 78,348 1,028,458 - - 1,892,074 1,964,231 241,498 - - - - -	New Taiwan Dollars 2005 2006 $ 520 $ 3,176 - - - 290 - - - - 5,370 10,207 - 9,281	U.S. Dollars (Note 4)
			2006 $ 97 - 9 - - 313 285

d. Net valuation loss recognized for the changes in fair value estimated using valuation techniques were NT$4,869 thousand and NT$7,031 thousand (US$216 thousand) for the years ended December 31, 2005 and 2006, respectively.
e. As of December 31, 2005 and 2006, the financial assets exposed to interest rate risks treated as in fair value were NT$1,677,745 thousand and NT$1,005,312 thousand (US$30,842 thousand), respectively, and the financial liabilities exposed to interest rate risks treated as in fair value were NT$6,771,206 thousand and NT$7,549,557 thousand (US$231,610 thousand), respectively. The financial assets exposed to cash flow interest rate risks were NT$2,441,318 thousand and NT$1,199,395 thousand (US$36,796 thousand), and the financial liabilities exposed to cash flow interest rate risks were NT$8,999,695 thousand and NT$3,350,229 thousand (US$102,780 thousand), respectively.
f. The Group recognized an unrealized gain of NT$506,863 thousand (US$15,550 thousand) in stockholders’ equity for the changes in fair value of available-for-sale financial assets for the year ended December 31, 2006. NT$257,415 thousand (US$7,897 thousand) were deducted from the component of stockholders’ equity and transferred to current gain on disposal of investments (included in investment income, net) for selling available-for-sale financial assets.
g. Information about financial risks
1) Market risk
- a) Foreign exchange risk: The foreign exchange rate fluctuations would result in the Group’s foreign-currency-dominated assets and liabilities and open forward exchange contracts exposed to fair value risk and cash flow risk.
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b) Price risk: The fluctuations in market price would result in changes in fair values of domestic mutual fund for trading purpose and available-for-sale financial assets (including those reclassified as pledged assets) held by the Group.

2) Credit risk

Credit risk represents the potential loss that would be incurred by the Group if counter-parties breached contracts. The largest credit risk of financial instruments held by the Group is the same as their carrying amounts.

3) Liquidity risk

The Group had sufficient working capital to meet the cash needs upon settlement of contracts are publicly-traded. Therefore, no material liquidity risk was anticipated.

The Group’s domestic mutual fund for trading purpose, available-of-sale financial instruments (including those reclassified as pledged assets) are publicly-traded in an active market and ready to be sold approximately in their fair values on the market. Financial assets measured at holding cost, bonds measured at amortized cost and other long-term investments have significant liquidity risks in that these investments do not have quoted market prices in an active market. The outstanding forward exchange contracts as of December 31, 2006 were anticipated to generate cash inflows of JPY2,598,575 thousand, NT$1,382,864 thousand, EUR755 thousand, RMB6,229 thousand and PLN6,574 thousand, and cash outflows of NT$738,061 thousand, EUR4,300 thousand and US$40,860 thousand. No material cash flow risk is anticipated since the exchange rates of forward exchange contracts have been determined.

h. Cash flow hedge

1) Material price hedge

Palladium, a necessary material to manufacture passive components may result in risks of cash flow as fluctuations of market prices result in changes in cash outflows of future purchases. The Corporation estimated that foreign-currency exchange is significant and therefore, the Corporation entered the hedged transaction through forward purchase contracts for the year ended December 31, 2006. Our hedging strategy was to enter forward purchase contracts according to the forecast of quantity of demand and purchase amount of the production department and purchase department.

The Corporation does not have any hedged transaction related to open forward purchase contract as of December 31, 2006. The adjustment to stockholders’ equity - unrealized gain on financial instrument due to these hedged transaction was NT$3,553 thousand (US$109 thousand) for the year ended December 31, 2006. This amount was wholly deducted from cost of inventories - raw materials.

2) Foreign-currency sales hedge

The foreign-currency sales of the Corporation may result in risks of cash flow as the fluctuation of exchange rates can result in changes in cash inflows. The Corporation estimated that the risk of foreign-currency exchange is significant and therefore, the Corporation entered a hedged transaction through forward exchange contracts for the year ended December 31, 2006. Our hedging strategy was to enter forward exchange contracts according to the forecast of foreign-currency sales from our sales department.

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The total loss on settled forward exchange contracts was NT$842 thousand (US$26 thousand) and wholly charged against sales. The fair value of the open forward exchange contracts as of December 31, 2006 was NT$5,414 thousand (US$166 thousand), included in hedging financial asset or liability and unrealized loss on financial instrument. The Corporation expected cash inflows of foreign-currency sales in 2007, and the adjustment to stockholders’ equity - unrealized loss of financial instrument was NT$5,414 thousand (US$166 thousand) will be wholly charged against sales in 2007.

Open forward exchange contracts as of December 31, 2006 were as follows:

Type of Transaction Hedging derivative financing asset Sale of forward exchange Hedging derivative financing liability Sale of forward exchange Sale of forward exchange Sale of forward exchange Sale of forward exchange	Currency USD to NTD USD to NTD USD to NTD USD to NTD USD to NTD	Contract Due Date 2007.06.14 2007.05.08 2007.05.08 2007.05.08 2007.05.29	(In Thousands of Dollars) Contract Carrying Value/ Amount Fair Value NT$ US$ (Note 4) US$ 30,000 $ 290 $ 9 US$ 6,000 $ 2,202 $ 68 US$ 4,000 1,667 51 US$ 3,000 1,104 34 US$ 2,000 731 22 $ 5,704 $ 175	(In Thousands of Dollars) Contract Carrying Value/ Amount Fair Value NT$ US$ (Note 4) US$ 30,000 $ 290 $ 9 US$ 6,000 $ 2,202 $ 68 US$ 4,000 1,667 51 US$ 3,000 1,104 34 US$ 2,000 731 22 $ 5,704 $ 175	(In Thousands of Dollars) Contract Carrying Value/ Amount Fair Value NT$ US$ (Note 4) US$ 30,000 $ 290 $ 9 US$ 6,000 $ 2,202 $ 68 US$ 4,000 1,667 51 US$ 3,000 1,104 34 US$ 2,000 731 22 $ 5,704 $ 175
				NT$ $ 290 $ 2,202 1,667 1,104 731 $ 5,704
					$ 68 51 34 22 $ 175

3) Foreign-currency material and machinery purchase hedge
a) The Corporation

Material and machinery of the Corporation purchased from foreign countries may result in risks of cash flow as fluctuations of exchange rate can result in changes in cash outflows. The Corporation estimated the risk to be significant and therefore, the Corporation entered the hedged transaction through forward exchange contracts for the year ended December 31, 2006. The hedging strategy was to enter forward exchange contracts according to forecast imported material and machinery of the purchase department.

All of the foregoing forward exchange contracts were outstanding as of December 31, 2006. The fair value was NT$3,449 thousand (US$106 thousand) which was included in hedging financial liability and unrealized loss on financial instrument. The Corporation expected cash outflows of imported material and machinery in 2007, and the adjustment to stockholders’ equity - unrealized loss of financial instrument was NT$3,449 thousand (US$106 thousand) will be wholly deducted from cost of material and machinery in 2007.

Open forward exchange contracts as of December 31, 2006 were as follows:

Type of Transaction Hedging derivative financing liability Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange Purchase of forward exchange	Currency JPY to NTD JPY to NTD JPY to NTD JPY to NTD	Contract Due Date 2007.09.14 2007.09.14 2007.09.14 2007.08.31	(In Thousands of Dollars) Contract Carrying Value/ Amount Fair Value NT$ US$ (Note 4) JPY300,000 $ 719 $ 22 JPY100,000 240 7 JPY100,000 240 7 JPY500,000 2,250 70 $ 3,449 $ 106

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b) Compostar Technology Co., Ltd.

Compostar Technology Co., Ltd. imported foreign equipment for manufacturing passive components. It may result in risks of cash flow as fluctuations of exchange rate can result in changes in cash outflows of future purchases. Compostar Technology Co., Ltd. estimated the risk to be significant and therefore, entered the hedge transaction through forward purchase contracts in 2006. The hedge strategy was to enter forward purchase contracts according to a firm purchase commitment in 2007.

The fair value of NT$128 thousand (US$4 thousand) was shown as hedging derivative financing liability and unrealized loss on financial instrument. The firm commitment to purchase equipment will bring to outflows of foreign currency in April of 2007. The unrealized loss on financial instrument of NT$128 thousand should be fully adjusted to the cost of equipment.

The open forward exchange contract as of December 31, 2006 was as follows:

Type of Transaction Hedging derivative financing liabilities Purchase of forward exchange	Currency JPY to TWD	(In Thousands of Dollars) Contract Contract Carrying Value/ Due Date Amount Fair Value NT$ US$ (Note 4) 2007.04.27 JPY85,000 $ 128 $ 4

33. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the Securities and Futures Bureau for significant transactions and investees:

a. Financing provided: Table 1 (attached)
b. Endorsement/guarantee provided: Table 2 (attached)
c. Marketable securities held: Table 3 (attached)
d. Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the capital stock: Table 4 (attached)
e. Acquisition of individual real estates at costs of at least NT$100 million or 20% of the paid-in capital: None
f. Disposal of individual real estates at prices of at least NT$100 million or 20% of the capital stock: None
g. Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of the capital stock: Table 5 (attached)
h. Receivables from related parties amounting to at least NT$100 million or 20% of the capital stock: Table 6 (attached)
i. Names, locations, and related information of investees on which the Corporation exercises significant influence: Table 7 (attached)
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j. Investment in Mainland China
1) Investee company name, the description of the primary business activity and products, issued capital, nature of the relationship, capital inflow or outflow, ownership interest, gain or loss on investment, amounts received on investment, and the limitation on investment: Table 8 (attached)
2) Significant direct or indirect transactions with the investee company, prices, payment terms, loans, guarantee and unrealized gain or loss:
- a) Purchase, purchase percentage and related ending balance, percentage of accounts payable: Table 5 (attached)
- b) Sales, sales percentage and related ending balance, percentage of accounts receivable: Table 5 (attached)
- c) The amount of property transactions and related transaction’s gain or loss: Eliminated in the consolidated statements
- d) Providing collaterals or endorsements, the ending balance and purpose: Table 2 (attached)
- e) Financing to others, related information including highest balance, ending balance, interval of interest rate and total current interest: Table 1 (attached)
- f) Significant transactions effect to net income or financial situations. For example, professional services provided or received: None
k. Intercompany relationships and significant transactions: Table 9 (attached)

34. SEGMENT INFORMATION

a. Industry information

In order to allocate resources and fulfill performance evaluation reasonably, since 2006, the department in Group engaged in passive components reported industrial financial information separately by product groups. Therefore, the Group are divided into the following business segments:

1) Resistors business segment
2) Capacitors business segment
3) Ferrite business segment
4) Other electronic components and investment business segment

The industry financial information: Table 10 (attached)

b. Geographic information: Table 11 (attached)
61 -

c. Export sales:

Areas Asia Europe America	New Taiwan Dollars 2005 2006 $ 2,729,470 $ 3,192,458 572,174 735,187 783,662 600,602 $ 4,085,306 $ 4,528,247	U.S. Dollars (Note 4)
	2005 $ 2,729,470 572,174 783,662 $ 4,085,306	2006 $ 97,940 22,554 18,426
		$ 138,920

d. Important information of customers

Customers accounting for at least 10% of the Group’s total sales: None

62 -

TABLE 1

YAGEO CORPORATION AND SUBSIDIARIES

FINANCING PROVIDED YEAR ENDED DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

No.	Financing Name	Counter-party	Financial Statement Account	Financing Limit for Each Borrowing Company	Maximum Balance for the Period	Ending Balance	Interest Rate	Financing Reasons	Allowance for Bad Debt	Collateral	Collateral	Transaction Amount	Total Maximum Amount of Financing Allowed for Financier
										Item	Value
0	Yageo Corporation	Kuo Chung Development Limited Kuo Shin Investment Limited	Receivable from affiliates	$ 11,452,796 11,452,796	$ 174,377 68,773	$ - -	1.24% 1.24%	For revolving fund For revolving fund	$ - -	- -	$ - -	Payment for others $ 14,235 -	$ 11,452,796 11,452,796
1	Yageo Holding (Bermuda) Ltd.	Hsu Tai International (H.K.) Yageo Corporation Yageo Korea Yageo Japan Yageo America Ferroxcube Holding (Samoa) Ltd. GCD Vitrohm Holding Steller Inc. Phycomp Holding B.V. Ferroxcube International Holding B.V.	Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Loans to subsidiaries considered as a component of investment Loans to subsidiaries considered as a component of investment	US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941	US$ 3,651 US$ 30,000 US$ 55 US$ 491 US$ 5,381 US$ 6,756 US$ 34 US$ 10,345 US$ 700 US$ 281,552 US$ 71,067	US$ 3,362 (Note) US$ 15,200 (Note) US$ 55 (Note) US$ 336 (Note) US$ 5,381 (Note) US$ 5,294 (Note) US$ 34 (Note) US$ 10,345 (Note) US$ 500 (Note) US$ 259,070 (Note) US$ 65,598 (Note)	- - - - - - - 1.25% - - -	For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund For revolving fund	- - - - - - - - - - -	- - - - - - - - - - -	- - - - - - - - - -	- Sale 350,578 Purchase 1,941,407 - - - - - - - - -	US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941 US$ 610,941
2	Kuo Ding Venture Capital Limited	Yageo Corporation Kuo Chung Development Limited	Receivable from affiliates Receivable from affiliates	83,224 83,224	65,500 65,500	- 60,790 (Note)	1.24% 1.24%	For revolving fund For revolving fund	-	-	-	-	83,224 83,224
3	Yageo Holding International Ltd.	Yageo Holding (Bermuda) Ltd. Yageo Corporation	Receivable from affiliates Receivable from affiliates	US$ 8,516 US$ 8,516	US$ 7,396 US$ 7,400	- US$ 7,400 (Note)	- -	For revolving fund For revolving fund	- -	- -	- -	- -	US$ 8,516 US$ 8,516
4	Kuo Shin Investment Limited	Yageo Corporation Kuo Chung Development Limited	Receivable from affiliates Receivable from affiliates	561,890 561,890	312,550 134,292	22,530 (Note) 134,292 (Note)	1.24% 1.24%	For revolving fund For revolving fund	- -	- -	- -	- -	561,890 561,890
5	Kuo Chung Development Limited	Yageo Corporation	Receivable from affiliates	136,748	70,000	2,000 (Note)	1.24%	For revolving fund	-	-	-	-	136,748
6	Yageo Electronics (Dongguan) Co., Ltd.	Guo Chuang Electronics (Dongguan) Co., Ltd.	Receivable from affiliates	RMB 444,362	RMB 20,000	RMB 11,000	6.12%	For revolving fund	-	-	-	Purchase 5,898	RMB 444,362

(Continued)

63 -

No.	Financing Name	Counter-party	Financial Statement Account	Financing Limit for Each Borrowing Company	Maximum Balance for the Period	Ending Balance	Interest Rate	Financing Reasons	Allowance for Bad Debt	Collateral	Collateral	Transaction Amount	Total Maximum Amount of Financing Allowed for Financier
										Item	Value
7	Compstar Technology Co., Ltd.	Compstar Technology (Cayman) Ltd.	Receivable from affiliates	$ 620,400	US$ 4,690	US$ 1,732 (Note)	2%	For revolving fund	$ -	-	$ -	Sale $ 367,679	$ 1,034,000
8	Compostar Technology (Dongguan) Co., Ltd.	Compostar Technology (Shanghai) Co., Ltd. Compostar Technology (Su Zhou) Co., Ltd.	Receivable from affiliates Receivable from affiliates	620,400 620,400	RMB 15,500 RMB 11,500	RMB 12,400 (Note) RMB 7,500 (Note)	2%-5% 2%-5%	For revolving fund For revolving fund	- -	- -	- -	- -	1,034,000 1,034,000
9	Ferroxcube Taiwan Ltd.	Yageo Corporation	Receivable from affiliates	11,662	12,000	-	1.24%	For revolving fund	-	-	-	-	11,662
10 11	Ferroxcube Holding (Samoa) Ltd. Chipcera Holding Co., Ltd.	Ferroxcube Electronics (Dongguan) Co., Ltd. Chipcera Technology Co., Ltd.	Receivable from affiliates Receivable from affiliates	RMB 154,310 US$ 141	US$ 4,300 US$ 32	US$ 4,300 (Note) US$ 32 (Note)	- -	For revolving fund For revolving fund	- -	- -	- -	- -	RMB 154,310 US$ 141
12	Yageo Components (Suzhou) Co., Ltd.	Yageo Electronics (China) Co., Ltd.	Receivable from affiliates	RMB 41,912	RMB 10,000	RMB 10,000 (Note)	-	For revolving fund	-	-	-	-	RMB 41,912

Note: Eliminated

(Concluded)

64 -

TABLE 2

YAGEO CORPORATION AND SUBSIDIARIES

ENDORSEMENT/GUARANTEE PROVIDED YEAR ENDED DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

No.	Endorsement/Guarantee Provider	Counter-party	Counter-party	Limits on Each Counter-party’s Endorsement/ Guarantee Amounts	Maximum Balance for the Year	Ending Balance	Value of Collaterals Property, Plant, or Equipment	Ratio of Accumulated Amount of Collateral to Net Equity of the Latest Financial Statement	Maximum Collateral/Guarantee Amounts Allowable
		Name	Nature of Relationship
0	Yageo Corporation	Yageo Holding (Bermuda) Ltd. (for Yageo Holding (Bermuda) Ltd. to guarantee the loans of Yageo Electronics (China) Co., Ltd., Yageo Electronics (Dongguan) Co., Ltd., Ferroxcube Electronics (Dongguan) Co., Ltd.) Yageo Holding (Bermuda) Ltd. Kuo Shin Investment Limited Kuo Chung Development Limited	Subsidiary Subsidiary Subsidiary Subsidiary	$ 28,631,990 28,631,990 28,631,990 28,631,990	$ 332,600 ( US$ 10,000 ) 698,460 ( US$ 21,000 ) 250,000 100,000	$ 325,960 ( US$ 10,000 ) 684,516 ( US$ 21,000 ) 250,000 100,000	$ - - - -	1.14 2.39 0.87 0.35	$ 42,947,985 42,947,985 42,947,985 42,947,985
6	Yageo Electronics (Dongguan) Co., Ltd.	Yageo Electronics (China) Co., Ltd.	Affiliate	US$ 56,932	US$ 20,000	-	-	-	US$ 56,932
13	Yageo Electronics (China) Co., Ltd.	Yageo Electronics (Dongguan) Co., Ltd.	Affiliate	US$ 126,954	US$ 20,499 ( RMB 160,000 )	US$ 20,499 ( RMB 160,000 )	-	16.15	US$ 126,954
7	Compostar Technology Co., Ltd.	Compostar Technology (Cayman) Ltd.	Subsidiary	620,400	54,111 ( US$ 1,500 and EUR100)	53,187 ( US$ 1,500 and EUR100)	-	2.03	1,311,922

65 -

TABLE 3

YAGEO CORPORATION AND SUBSIDIARIES

LONG-TERM AND SHORT-TERM INVESTMENTS DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

Investor	Securities Type and Issuer	Relationship with the Investor	Financial Statement Account		December 31, 2006	December 31, 2006		Note
				Shares/Units (Thousands)	Carrying Value	Percentage of Ownership	Market Value or Net Asset Value
Yageo Corporation	Stocks Yageo Holding International Ltd. Teapo Electronics Corporation Kuo Shin Investment Limited Kuo Ding Venture Capital Limited GTCL Chilisin Electronics Corporation Fubon Venture Capital Corp. Yageo Holding (Bermuda) Ltd. Ferroxcube Taiwan Ltd. Compostar Technology Co., Ltd. Phycomp Holding B.V. Ferroxcube International Holding B.V. Phycomp Malaysia Yageo America Chipcera Technology Co., Ltd. FAT Venture Capital Corp. Taiwan High Speed Rail Corp. Apex Venture Capital Corp. WK Technology Fund Corp. Taiwan Fixed Network Co., Ltd. Linko International Golf & Country Club Far Eastern Air Transport Corp. TA-I Technology Co., Ltd. Limited company Ferroxcube Holding (Samoa) Ltd.	Subsidiary Equity-method investee Subsidiary Subsidiary Equity-method investee Equity-method investee Equity-method investee Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Member of the board of directors - Member of the board of directors - - - Supervisor - Subsidiary	Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments Other liabilities - others Long-term investments Long-term investments Other liabilities - others Long-term investments Financial assets measured at holding cost Financial assets measured at holding cost Financial assets measured at holding cost Financial assets measured at holding cost Financial assets measured at holding cost Financial assets measured at holding cost Available-for-sale financial assets Available-for-sale financial assets Investment accounted for using equity method	1,000 37,923 183,200 18,500 162,023 19,772 4,000 90,000 372 139,243 747 39 8,628 1 25,047 12,600 21,233 7,934 5,744 17,500 - 5,767 3,353 -	$ 277,573 417,634 1,380,255 209,045 887,760 284,356 66,425 19,914,222 25,425 1,725,695 (4,714,183 ) 652,841 1,311 (189,904 ) 223,908 30,389 212,333 36,088 37,986 145,250 482 62,682 124,984 644,429	100.0 10.1 100.0 100.0 15.4 14.5 20.0 100.0 100.0 67.4 100.0 100.0 100.0 100.0 69.0 12.0 0.4 9.4 2.9 0.3 0.1 1.0 2.1 100.0	$ 277,573 346,233 1,380,255 209,045 810,121 391,485 66,425 19,914,222 25,425 1,766,687 (4,800,342 ) 608,346 1,311 (189,904 ) 150,092 53,303 116,864 68,881 91,337 183,470 626 42,676 126,240 644,429	(Note) Pledged 35,804 thousand shares (Note) (Note) Pledged 8,818 thousand shares (Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note) Pledged 15,313 thousand shares Pledged 5,744 thousand shares Pledged 17,500 thousand shares (Note)
								(Continued)

66 -

Investor	Securities Type and Issuer	Relationship with the Investor	Financial Statement Account		December 31, 2006	December 31, 2006		Note
				Shares/Units (Thousands)	Carrying Value	Percentage of Ownership	Market Value or Net Asset Value
Kuo Shin Investment Limited Yageo Holding (Bermuda) Ltd.	Phycomp Singapore Kuo Chung Development Ltd. Stocks Tait Marketing & Distribution Co., Ltd. TA-I Technology Co., Ltd. Ralec Electronic Corp. Chilisin Electronics Corporation GTCL King Power International Co., Ltd. Parawin Venture Capital Corp. Compostar Technology Co., Ltd. Chipcera Technology Co., Ltd. Taiwan Fixed Network Co., Ltd. Jih Sun Securities Investment Trust Co., Ltd. Bonds Ta Chong Subordinated Debt Stocks GCD Grace T.H.W. Group Limited company Yageo Electronics (China) Co., Ltd. Yageo Electronics (Dongguan) Co., Ltd. Vitrohm Holding Hsu Tai International (H.K.) Yageo Korea Yageo Japan Guo Chuang Electronics (Dongguan) Co., Ltd. Yageo Components (Su Zhou) Co., Ltd. Ko-E Holding (Cayman Islands), Ltd. Belkin International Fund Springboard-Harper Fund	Subsidiary Subsidiary - - Equity-method investee Equity-method investee Equity-method investee - Member of the board of director Equity-method investee Equity-method investee - - - Equity-method investee - Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Subsidiary Subsidiary Equity-method investee -	Investment accounted for using equity method Investment accounted for using equity method Available-for-sale financial assets Available-for-sale financial assets Long-term investments Long-term investments Long-term investments Financial assets measured at holding cost Financial assets measured at holding cost Long-term investments Long-term investments Financial assets measured at holding cost Financial assets measured at holding cost Bonds investments with no active market Long-term investments Financial assets measured at holding cost Long-term investments Long-term investments Other liabilities - others Other liabilities - others Long-term investments Other liabilities - others Long-term investments Long-term investments Long-term investments Long-term investments Other long-term investments	- - 7,875 23,594 2,090 3,467 28,063 2,124 10,000 4,063 5,786 13,703 1,560 - 3,370 3,833 - - - - - - - - - - -	$ 13,394 341,872 225,246 207,625 63,120 90,147 153,766 39,208 76,628 47,672 49,066 113,731 12,000 50,000 US$ 2,035 US$ 4,358 US$ 125,578 US$ 58,350 US$ (4,812 ) US$ (1,140 ) US$ 264 US$ (140 ) US$ 474 US$ 5,370 US$ 4,924 US$ 1,005 US$ 685	100.0 100.0 5.0 14.3 3.5 2.6 2.7 16.6 10.0 2.0 15.9 0.2 4.0 - 26.7 1.8 100.0 100.0 100.0 99.0 100.0 100.0 35.0 100.0 90.0 46.0 4.0	$ 13,394 341,872 296,490 235,937 57,380 68,652 140,318 39,208 76,628 51,546 34,673 143,657 26,628 50,000 US$ 2,610 US$ 4,912 US$ 126,954 US$ 58,350 US$ (4,812 ) US$ (1,140 ) US$ 264 US$ (140 ) US$ 474 US$ 5,370 US$ 4,924 US$ 1,287 US$ 1,508	(Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note)

(Continued)

67 -

Investor	Securities Type and Issuer	Relationship with the Investor	Financial Statement Account		December 31, 2006	December 31, 2006		Note
				Shares/Units (Thousands)	Carrying Value	Percentage of Ownership	Market Value or Net Asset Value
Kuo Ding Venture Capital Limited Kuo Chung Development Limited Yageo Holding International Ltd. Ferroxcube Holding (Samoa) Ltd. Compostar Technology Co., Ltd. Compostar Technology (Cayman) Ltd. Ko-E Holding (Cayman Islands), Ltd.	Crystal Internet Venture Fund (II) (B.V.I.), L.P. VenGlobal International Fund Dyna Fund International L.P. Dyna Fund (II) L.P. Stocks GTCL Chilisin Electronics Corporation Taiwan Fixed Network Co., Ltd. Stocks GTCL TA-I Technology Co., Ltd. Ralec Electronic Corp. Stocks Steller Inc. Limited company Hsu Tai International (H.K.) Limited company Ferroxcube Electronics (Dongguan) Ltd. Stocks Luminous Town Electric Co., Ltd. Strong Components Co., Ltd. Compostar Technology (Cayman) Ltd. TA-I Technology Co., Ltd. Limited company Compostar Technology (Shanghai) Ltd. Compostar Technology (Dongguan) Co., Ltd. Compostar Technology (Suzhou) Co., Ltd. Stocks Ko-E Corp.	- - - - Equity-method investee Equity-method investee - Equity-method investee - Equity-method investee Subsidiary Subsidiary Subsidiary The same chairman of board of directors Equity-method investee Subsidiary - Subsidiary Subsidiary Subsidiary Subsidiary	Other long-term investments Other long-term investments Other long-term investments Other long-term investments Long-term investments Long-term investments Financial assets measured at holding cost Long-term investments Available-for-sale financial assets Long-term investments Long-term investments Long-term investments Long-term investments Financial assets measured at holding cost Long-term investments Long-term investments Available-for-sale financial assets Other liabilities - other Other liabilities - other Other liabilities - other Long-term investments	- - - - 8,716 1,788 7,007 2,625 7,874 2,110 1,000 - - 12,207 6,530 47,000 814 - - - 4,500	US$ 900 US$ 58 US$ 60 US$ 73 47,756 39,533 58,158 11,240 224,866 63,716 US$ 1,114 US$ 0.00006 US$ 16,509 134,583 111,660 233,889 30,594 US$ (1,419 ) US$ (1,497 ) US$ (18 ) US$ 1,496	3.3 5.7 3.0 0.6 0.8 1.3 0.1 0.3 5.0 3.5 100.0 1.0 100.0 15.8 31.4 100.0 0.5 100.0 100.0 100.0 100.0	US$ 1,313 US$ 297 US$ 50 US$ 158 43,579 35,408 73,461 13,125 296,468 57,930 US$ 1,114 US$ 0.00006 US$ 16,509 99,510 111,660 233,889 30,647 US$ (1,419 ) US$ (1,497 ) US$ (18 ) US$ 1,496	(Note) (Note) (Note) (Note) (Note) (Note) (Note) (Note)
								(Continued)

68 -

Investor	Securities Type and Issuer	Relationship with the Investor	Financial Statement Account		December 31, 2006	December 31, 2006		Note
				Shares/Units (Thousands)	Carrying Value	Percentage of Ownership	Market Value or Net Asset Value
Chipcera Technology Co., Ltd. Chipcera Holding Co., Ltd.	Limited company Ko-E Technology (Shenzhen) Co., Ltd. Ko-E (H.K.) Limited Limited company Chipcera Holding B.V. Limited company Dongguan Chang An Wusha Chipcera Factory Dongguan Chen An Trading Co., Ltd.	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary	Long-term investments Long-term investments Long-term investments Long-term investments Long-term investments	- - 800 - -	US$ 1,008 US$ 249 4,606 US$ 73 US$ 37	100.0 100.0 100.0 100.0 100.0	US$ 1,008 US$ 249 4,606 US$ 73 US$ 37	(Note) (Note) (Note) (Note) (Note)

Note: Eliminated.

(Concluded)

69 -

TABLE 4

YAGEO CORPORATION AND SUBSIDIARIES

LONG-TERM AND SHORT-TERM INVESTMENTS ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE CAPITAL STOCK YEAR ENDED DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

Company Name	Securities Type and Name	Financial Statement Account	Counter-party	Nature of Relationship	Beginning Balance	Beginning Balance	Acquisition	Acquisition			Disposal			Ending Balance	Ending Balance
					Shares/Units (Thousands)	Amount	Shares/Units (Thousands)	Amount	Shares/Units (Thousands)	Amount	Carrying Value	Gain (Loss) on Disposal	Adjustment	Shares/Units (Thousands)	Amount
Yageo Corporation Ferroxcube Taiwan Ltd. Kuo Shin Investment Limited Kuo Chung Development Limited Yageo Holding (Bermuda) Ltd.	Limited company Ferroxcube Holding (Samoa) Ltd. Stocks Chipcera Technology Co., Ltd. GTCL TA-I Technology Co., Ltd. Fund Dresdner Bond Davn Fund Stocks TA-I Technology Co., Ltd. Tait Marketing & Distribution Co., Ltd. Stocks TA-I Technology Co., Ltd. Ralec Electronic Corp. Limited company Ko-E Holding (Cayman Islands), Ltd.	Investments accounted for using equity method Investments accounted for using equity method Investments accounted for using equity method Available-for-sale financial assets Financial assets at fair value through profit or loss Available-for-sale financial assets Available-for-sale financial assets Available-for-sale financial assets Investments accounted for using equity method Investments accounted for using equity method	Subsidiary Shin Ya Venture Capital etc. - - - - - Subsidiary	Increase in capital - - - - - - - - Increase in capital	- - 187,653 - 525 - 58,338 - - -	$ 515,240 - 870,213 - 6,000 - 513,372 - - -	- 25,047 - 3,353 15,564 7,875 - 7,874 5,792 -	$ 122,475 205,910 - 124,984 178,940 225,246 - 224,866 100,298 US$ 4,500	- - 25,630 - 16,089 - 34,744 - 3,682 (Note 4) -	$ - - 156,896 - 185,109 - 335,825 - - -	$ - - 122,286 - 184,940 - 305,747 - 36,815 (Note 4) -	$ - - 36,179 (Note 3) - 169 - 35,424 (Note 5) - - -	$ 6,714 (Note 1) 17,998 (Note 1) 139,833 (Note 1) - - - - - 233 (Note 4) US$ 424 (Note 1)	- 25,047 (Note 6) 162,023 3,353 - 7,875 23,594 7,874 2,110 -	$ 644,429 (Note 6) 223,908 (Note 6) 887,760 124,984 (Note 2) - 225,246 (Note 2) 207,625 (Note 2) 224,866 (Note 2) 63,716 US$ 4,924 (Note 6)

Note 1: Equity in net gain or loss of investees and other equity-method adjustment.

Note 2: Represent original carrying value before market price adjustment.

Note 3: Represent difference between selling price and carrying value of NT$34,610 thousand, add reverse prior year translation adjustment on long-term equity investment of NT$476 and equity in the changes in capital surplus of NT$1,093 thousand

Note 4: Represent reduce capital 3,682 thousand shares and return NT$36,815 thousand, cash dividend (NT$1,115 thousand) and adjustment in equity method NT$1,348 thousand.

Note 5: Represent difference between selling price and carrying value of NT$30,078 thousand, add reverse translation adjustment on long-term equity investment of NT$5,433 thousand and changes in unrealized loss on long-term investment of (NT$87 thousand).

Note 6: Eliminated.

70 -

TABLE 5

YAGEO CORPORATION AND SUBSIDIARIES

TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE CAPITAL STOCK YEAR ENDED DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

Company Name	Related Party	Nature of Relationship		Transaction Details	Transaction Details	Transaction Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts (Payable) or Receivable	Notes/Accounts (Payable) or Receivable	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
Yageo Corporation Yageo Holding (Bermuda) Ltd. Yageo USA (H.K.) Limited Ferroxcube Holding (Samoa) Ltd. Yageo Electronics (China) Co., Ltd. Yageo Electronics (Dongguan) Co., Ltd. Compostar Technology Co., Ltd. Compostar Technology (Cayman) Ltd.	Yageo Holding (Bermuda) Ltd. Yageo USA (H.K.) Limited Yageo Europe KFT Ko-E Corp. Compostar Technology Co., Ltd. King Power International Co., Ltd. Yageo Electronics (China) Co., Ltd. Yageo Electronics (Dongguan) Co., Ltd. Ferroxcube H.K. Ltd. Yageo Electronics (Dongguan) Co., Ltd. Yageo Holding (Bermuda) Ltd. Yageo Europe KFT Guo Chuang Electronics (Dongguan) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Ko-E (H.K.) Limited Compostar Technology (Cayman) Ltd. Compostar Technology (Dongguan) Co., Ltd. Compostar Technology (Su Zhou) Co., Ltd.	Subsidiary Subsidiary of Yageo Holding (Bermuda) Ltd. Subsidiary Subsidiary of Yageo Holding (Bermuda) Ltd. Subsidiary An equity-method investee of subsidiary prior to the end of 2006 Subsidiary Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Subsidiary Subsidiary Subsidiary	Sale Purchase Sale Sale Sale Sale Purchase Sale Purchase Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Purchase Sale Sale	$ 1,941,407 (Note) 350,578 (Note) 1,652,492 (Note) 1,358,792 (Note) 370,943 (Note) 368,767 (Note) 857,532 (Note) 129,423 136,798 US$ 61,083 (Note) 1,652,492 (Note) RMB 157,343 (Note) RMB 209,555 (Note) RMB 88,786 (Note) RMB 45,502 (Note) RMB 30,389 (Note) RMB 36,980 (Note) RMB 38,702 (Note) 367,679 (Note) US$ 5,882 (Note) US$ 4,205 (Note) US$ 4,458 (Note)	18 6 15 13 4 3 15 1 2 70 100 100 17 7 4 3 3 5 13 33 23 25	T/T 90 days T/T 90 days Offset account T/T 90 days Offset account T/T 60 days T/T 60 days T/T 90 days T/T 90 days Notes 120 days T/T 60 days T/T 90 days Offset account T/T 90 days T/T 30 days T/T 90 days T/T 90 days T/T 90 days T/T 60 days T/T 65 days T/T 60 days T/T 180 days T/T 180 days T/T 180 days T/T 180 days	- - - - - - - - - - - - - - - - - - - - - -	- - - - - - - - - - - - - - - - - - - - - -	$ 215,649 (Note) (168,695 ) (Note) 415,427 (Note) 189,091 (Note) 367,374 (Note) 183,193 (Note) (433,969 ) (Note) 8,136 (89,741 ) US$ 44,285 (Note) - RMB 10,171 (Note) RMB 80,606 (Note) RMB 28,261 (Note) RMB 6,866 (Note) RMB 8,398 (Note) RMB 43,087 (Note) RMB 36,636 (Note) 73,520 (Note) US$ (792 ) (Note) US$ 6,504 (Note) US$ 5,292 (Note)	9 6 17 8 15 8 16 - 3 87 - 98 18 6 2 2 10 11 7 21 41 34

(Continued)

71 -

Company Name	Related Party	Nature of Relationship		Transaction Details	Transaction Details	Transaction Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts (Payable) or Receivable	Notes/Accounts (Payable) or Receivable	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
Ferroxcube International Holding B.V. Ko-E Corp.	Ferroxcube Holding (Samoa) Ltd. King Power International Co., Ltd.	Affiliate An equity-method investee of Kuo Shin Investment Limited prior to the end of 2006	Sale Sale	EUR 4,190 (Note) 116,946	6 27	T/T 60 days T/T 60 days	- -	- -	EUR 1,532 (Note) 117,296	14 29

Note: Eliminated.

(Concluded)

72 -

TABLE 6

YAGEO CORPORATION AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF CAPITAL STOCK DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

Company Name	Related Party	Nature of Relationship	Ending Balance	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period	Allowance for Bad Debts
					Amount	Action Taken
Yageo Corporation Yageo Holding (Bermuda) Ltd. Yageo International Yageo Electronics (China) Co., Ltd. Yageo Electronics (Dongguan) Co., Ltd. Compostar Technology Co., Ltd. Compostar Technology (Cayman) Ltd.	Yageo USA (H.K.) Limited Ko-E Corp. Yageo Holding (Bermuda) Ltd. Yageo Europe KFT Compostar Technology Co., Ltd. Yageo Electronics (China) Co., Ltd. Yageo Corporation Hsu Tai International (H.K.) Ferroxcube Holding (Samoa) Ltd. Phycomp Holding B.V. Ferroxcube International Holding B.V. Vitrohm Holding Yageo America Yageo Corporation Yageo Electronics (Dongguan) Co., Ltd. Yageo Holding (Bermuda) Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Ko-E (H.K.) Limited Yageo Corporation Compostar Technology (Dongguan) Co., Ltd. Compostar Technology (Su Zhou) Co., Ltd.	Subsidiary of Yageo Holding (Bermuda) Ltd. Subsidiary of Yageo Holding (Bermuda) Ltd. Subsidiary Subsidiary Subsidiary Subsidiary Parent company Subsidiary Affiliate Affiliate Affiliate Affiliate Affiliate Parent company Affiliate Parent company Affiliate Affiliate Parent company Subsidiary Subsidiary	$ 415,427 (Note 3) 367,374 (Note 3) 215,649 (Note 3) 189,091 (Note 3) 183,193 (Note 3) US$ 44,285 (Note 3) US$ 15,200 (Note 3) 168,695 (Note 3) US$ 3,362 (Note 3) US$ 5,294 (Note 3) US$ 259,070 (Notes 2 and 3) US$ 65,598 (Notes 2 and 3) US$ 10,345 (Note 3) US$ 5,381 (Note 3) US$ 7,400 (Note 3) RMB 80,606 (Note 3) RMB 28,261 (Note 3) RMB 43,087 (Note 3) RMB 36,636 (Note 3) 433,969 (Note 3) US$ 6,504 (Note 3) US$ 5,292 (Note 3)	4.83 1.01 11.56 7.68 2.83 2.12 - (Note 1) 2.82 - (Note 1) - (Note 1) - (Note 1) - (Note 1) - (Note 1) - (Note 1) - (Note 1) 3.64 3.27 0.86 1.06 3.21 0.59 0.79	$ - - - - - - - - - - - - - - - - - - - - - -	- - - - - - - - - - - - - - - - - - - - - -	$ 415,427 354,893 215,649 90,875 183,144 - - 132,371 - - - - - - - RMB 40,792 RMB 28,261 RMB 20,018 RMB 20,996 430,369 US$ 1,177 US$ 1,167	$ - - - - - - - - - - - - - - - - - - - - - -
								(Continued)

73 -

(Concluded)

Company Name	Related Party	Nature of Relationship	Ending Balance	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period	Allowance for Bad Debts
					Amount	Action Taken
Ferroxcube Holding (Samoa) Ltd. Kuo Shin Investment Limited Ko-E Corp.	Ferroxcube Electronics (Dongguan) Ltd. Kuo Chung Development Limited King Power International Co., Ltd.	Subsidiary Affiliate An equity-method investee of Kuo Shin Investment Limited prior to the end of 2006	US$ 4,300 (Note 3) 134,292 (Note 3) 117,296	- (Note 1) - (Note 1) 1.00	$ - - -	- - -	$ - 134,292 113,328	$ - - -

Note 1: Flexible payment term based on borrower’s financial condition.

Note 2: Foreign-currency loans to long-term investee.

Note 3: Eliminated.

74 -

TABLE 7

YAGEO CORPORATION AND SUBSIDIARIES

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE YEAR ENDED DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

Investor Company	Investee Company	Location	Main Businesses and Products	Investment Amount	Investment Amount	Balance as of December	Balance as of December	31, 2006	Net Income (Loss) of the Investee	Investment Gain (Loss)	Note
				December 31, 2006	December 31, 2005	Shares (Thousands)	Percentage of Ownership	Carrying Value
Yageo Corporation Kuo Shin Investment Limited Yageo Holding (Bermuda) Ltd.	Yageo Holding (Bermuda) Ltd. Rancher International Yageo Holding International Ltd. Teapo Electronics Corporation Kuo Shin Investment Limited Kuo Ding Venture Capital Limited GTCL Fubon Venture Capital Corp. Chilisin Electronics Corporation Kuo Chung Development Ltd. Ferroxcube Taiwan Ltd. Compostar Technology Co., Ltd. Chipcera Technology Co., Ltd. Ferroxcube Holding (Samoa) Ltd. Phycomp Holding B.V. Ferroxcube International Holding B.V. Phycomp Malaysia Phycomp Singapore Yageo America Chilisin Electronics Corporation GTCL King Power International Co., Ltd. Ralec Electronic Corp. Chipcera Technology Co., Ltd. Compostar Technology Co., Ltd. Vitrohm Holding Yageo Electronics (Dongguan) Co., Ltd.	Bermuda B.V.I. Bermuda Taipei Taipei Taipei Singapore Taipei Hsinchu Taipei Hsinchu Kaohsiung Kaohsiung West Samoa Netherlands Netherlands Malaysia Singapore America Hsinchu Singapore Taipei Kaohsiung Kaohsiung Kaohsiung Germany China	Investment Investment Investment Capacitor manufacture and marketing Investment Venture capital Investment Venture capital Inductance manufacture and marketing Investment Ferrite core manufacture and marketing Electronic component manufacture and marketing Capacitor manufacture and marketing Investment Holding company Holding company Electronic component manufacture and marketing Electronic component manufacture and marketing Electronic component manufacture and marketing Inductance manufacture and marketing Investment Electronic component marketing Resistor manufacture and marketing Capacitor manufacture and marketing Electronic component manufacture and marketing Investment Resistor manufacture and marketing	US$ 382,770 - US$ 48,825 958,939 1,929,881 185,000 390,078 40,000 319,184 127,288 16,175 1,411,992 205,910 US$ 21,928 US$ 142,572 US$ 70,155 MYR 759 SG$ 780 US$ 196 76,988 96,943 9,000 62,907 46,289 42,631 EUR 15,849 US$ 33,931	US$ 342,770 US$ 40,000 US$ 48,825 955,720 1,929,881 185,000 451,784 100,000 319,184 127,288 28,175 1,379,557 - US$ 18,123 US$ 142,572 US$ 70,155 MYR 759 SG$ 780 US$ 196 76,988 96,943 9,000 - - 42,631 EUR 15,849 US$ 33,426	90,000 - 1,000 37,923 183,200 18,500 162,023 4,000 19,772 - 372 139,243 25,047 - 747 39 8,628 - 1 3,467 28,063 2,124 2,090 5,786 4,063 - -	100.0 - 100.0 10.1 100.0 100.0 15.4 20.0 14.5 100.0 100.0 67.4 69.0 100.0 100.0 100.0 100.0 100.0 100.0 2.6 2.7 16.6 3.5 15.9 2.0 100.0 100.0	$ 19,914,222 (Note) - 277,573 (Note) 417,634 1,380,255 (Note) 209,045 (Note) 887,760 66,425 284,356 341,872 (Note) 25,425 (Note) 1,725,695 (Note) 223,908 (Note) 644,429 (Note) (4,714,183) (Note) 652,841 (Note) 1,311 (Note) 13,394 (Note) (189,904 ) (Note) 90,147 153,766 39,208 63,120 49,066 (Note) 47,672 (Note) US$ (4,812 ) (Note) US$ 58,350 (Note)	$ 1,092,167 - 20,569 (492,466 ) 219,182 9,647 616,226 59,891 264,298 22,922 14,185 291,807 (100,311 ) (16,028 ) (1,980,152 ) (35,986 ) (85 ) (707 ) (5,465 ) 264,298 616,226 84,558 4,620 (100,311 ) 291,807 US$ 2,041 US$ 12,187	$ 1,042,951 (Note) - 20,569 (Note) (49,786 ) 219,182 (Note) 9,638 (Note) 108,474 11,978 39,654 22,922 (Note) 15,527 (Note) 188,823 (Note) 17,822 (Note) (16,028 ) (Note) (102,688 ) (Note) (35,986 ) (Note) (85 ) (Note) (707 ) (Note) (5,465 ) (Note) 6,954 17,659 14,620 107 2,750 (Note) 5,733 (Note) US$ 2,041 (Note) US$ 12,187 (Note)	Subsidiary Being merged into Yageo Holding (Bermuda) Ltd. in first half year of 2006 Subsidiary Equity-method investee Subsidiary Subsidiary Equity-method investee Equity-method investee Equity-method investee Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Equity-method investee Equity method investee of subsidiary prior to the end of 2006, and then transferred to financial assets measured at holding cost Equity-method investee of subsidiary Subsidiary Subsidiary Subsidiary Subsidiary

(Continued)

75 -

Investor Company	Investee Company	Location	Main Businesses and Products	Investment Amount	Investment Amount	Balance as of December	Balance as of December	31, 2006	Net Income (Loss) of the Investee	Investment Gain (Loss)	Note
				December 31, 2006	December 31, 2005	Shares (Thousands)	Percentage of Ownership	Carrying Value
Kuo Ding Venture Capital Limited Kuo Chung Development Limited Yageo International Ferroxcube Holding (Samoa) Ltd. Compostar Technology Co., Ltd. Compostar Technology (Cayman) Ltd. Chipcera Technology Co., Ltd. Ko-E Holding (Cayman Islands), Ltd. Chipcera Holding B.V.	GCD Yageo Electronics (China) Co., Ltd. Hsu Tai International (H.K.) Yageo Korea Yageo Japan Guo Chuang Electronics (Dongguan) Co., Ltd. Yageo Components (Su Zhou) Co., Ltd. Ko-E Holding (Cayman Islands), Ltd. Belkin International GTCL Chilisin Electronic Corporation GTCL Ralec Electronic Corp. Steller Inc. Paracatu Hsu Tai International (H.K.) Ferroxcube Electronics (Dongguan) Co., Ltd. Strong Components Co., Ltd. Compostar Technology (Cayman) Ltd. Compostar Technology (Shanghai) Co., Ltd. Compostar Technology (Dongguan) Co., Ltd. Compostar Technology (Su Zhou) Co., Ltd. Chipcera Holding B.V. Ko-E Corp. Ko-E Technology (Shenzhen) Co., Ltd. Ko-E (H.K.) Limited Dongguan Chang An Wusha Chipcera Dongguan Chen An Trading Co., Ltd.	B.V.I. China Hong Kong Korea Japan China China Cayman Islands Samoa Singapore Hsinchu Singapore Kaohsiung U.S.A. Portugal Hong Kong China Kaohsiung Cayman Islands China China China B.V.I. Taipei China Hong Kong China China	Investment Resistor manufacture and marketing Investment Resistor marketing Resistor marketing Resistor manufacture and marketing Resistor manufacture and marketing Holding company Investment Investment Inductance manufacture and marketing Investment Resistor manufacture and marketing Manufacture and market electronic components Resister marketing Investment Core manufacture and marketing Electronic component and capacitor manufacture and marketing Marketing of passive component Resistor, capacitor and related electronic production storehouse and marketing Resistor and capacitor manufacture and marketing Resistor and capacitor manufacture and marketing Investment Electronic components marketing Electronic components marketing Electronic components marketing Capacitor manufacture and marketing Capacitor manufacture and marketing	US$ 3,502 US$ 81,000 US$ 2,400 US$ 236 US$ 339 US$ 598 US$ 5,000 US$ 4,500 US$ 920 $ 29,020 33,739 6,345 63,483 US$ 8,882 - US$ 0.00006 US$ 18,628 184,146 502,517 US$ 500 US$ 1,502 US$ 1,400 8,931 US$ 1,393 US$ 1,000 US$ 1 - US$ 63	US$ 6,295 US$ 81,000 US$ 2,400 US$ 236 US$ 339 US$ 1,344 US$ 2,000 - - $ 58,039 33,739 12,690 - US$ 8,882 US$ 3 US$ 0.00006 US$ 18,123 184,146 502,517 US$ 500 US$ 1,502 US$ 1,400 10,958 - - - - -	3,370 - - - - - - - - 8,716 1,788 2,625 2,110 1,000 - - - 6,530 47,000 - - - 800 4,500 - - - -	26.7 100.0 99.0 100.0 100.0 35.0 100.0 90.0 46.0 0.8 1.3 0.3 3.5 100.0 - 1.0 100.0 31.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0	US$ 2,035 US$ 125,578 (Note) US$ (1,140 ) (Note) US$ 264 (Note) US$ (140 ) (Note) US$ 474 US$ 5,370 (Note) US$ 4,924 (Note) US$ 1,005 $ 47,756 39,533 11,240 63,716 US$ 1,114 (Note) - US$ 0.00006 (Note) US$ 16,509 (Note) 111,660 233,889 (Note) US$ (1,419 ) (Note) US$ (1,497 ) (Note) US$ (18 ) (Note) 4,606 (Note) US$ 1,496 (Note) US$ 1,008 (Note) US$ 249 (Note) US$ 73 (Note) US$ 37 (Note)	US$ (1 ) US$ 21,678 US$ 180 US$ (347 ) US$ 23 US$ (22 ) US$ 535 US$ 463 US$ 739 $ 616,226 264,298 616,226 4,620 US$ (1 ) US$ (73 ) US$ 180 US$ (492 ) (19,317 ) (5,034 ) US$ (179 ) US$ 354 US$ 455 (1,123 ) US$ 115 US$ (13 ) US$ 248 US$ (26 ) US$ (9 )	US$ (1 ) US$ 20,870 (Note) US$ 180 (Note) US$ (347 ) (Note) US$ 23 (Note) US$ (128 ) US$ 535 (Note) US$ 417 (Note) US$ 85 $ 7,701 3,586 2,319 105 US$ (1 ) (Note) US$ (73 ) (Note) - US$ (492 ) (Note) (6,069 ) (5,034 ) (Note) US$ (179 ) (Note) US$ 354 (Note) US$ 455 (Note) (1,123 ) (Note) US$ 115 (Note) US$ (13 ) (Note) US$ 248 (Note) US$ (26 ) (Note) US$ (9 ) (Note)	Equity-method investee of subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee of subsidiary Subsidiary Subsidiary Equity-method investee Equity-method investee Equity-method investee Equity-method investee Equity-method investee of subsidiary Subsidiary Liquidated in 2006 Subsidiary Subsidiary Equity-method investee of subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary

Note: Eliminated.

(Concluded)

76 -

TABLE 8

YAGEO CORPORATION AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA YEAR ENDED DECEMBER 31, 2006

(In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

Investee Company Name	Main Businesses and Products	Total Amount of Paid-in Capital	Investment Type (e.g., Direct or Indirect)	Accumulated Outflow of Investment from Taiwan as of January 1, 2006	Investment Flows	Investment Flows	Accumulated Outflow of Investment from Taiwan as of December 31, 2006	% Ownership of Direct or Indirect Investment	Investment Gain (Loss)	Carrying Value as of December 31, 2006	Accumulated Inward Remittance of Earnings as of December 31, 2006	Accumulated Investment in Mainland China as of December 31, 2006	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment
					Outflow	Inflow
Yageo Electronics (Dongguan) Co., Ltd. Yageo Electronics (China) Co., Ltd. Ferroxcube Electronics (Dongguan) Co., Ltd. Guo Chuang Electronics (Dongguan) Co., Ltd. Yageo Components (Su Zhou) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Guo Ray Electronics Co., Ltd.	Manufacture and marketing of passive components Manufacture and marketing of passive components Manufacture and marketing of core Ferrite core Manufacture and marketing of passive components Manufacture and marketing of passive components Manufacture and marketing of Electronic components Manufacture and marketing of passive components	US$ 33,931 ($ 1,106,015 ) US$ 81,000 ($ 2,640,276 ) US$ 18,628 ($ 607,198 ) US$ 1,709 ($ 55,707 ) US$ 5,000 ($ 162,980 ) US$ 1,000 ($ 32,596 ) US$ 1,600 ($ 52,154 )	Indirect: Through a company registered in a third region Indirect: Through a company registered in a third region Indirect: Through a company registered in a third region Indirect: Through a company registered in a third region Indirect: Through a company registered in a third region Indirect: Through a company registered in a third region Indirect: Through a company registered in a third region	US$ 33,426 ($ 1,089,554 ) US$ 81,000 ($ 2,640,276 ) US$ 18,123 ($ 590,737 ) US$ 1,344 ($ 43,809 ) US$ 2,000 ($ 65,192 ) - -	US$ 505 ( $ 16,461) - US$ 505 ($ 16,461 ) US$ 365 ($ 11,897 ) US$ 3,000 ($ 97,788 ) US$ 900 ($ 29,336 ) US$ 736 ($ 23,991 )	- - - US$ 1,111 ($ 36,214 ) (Note) - - -	US$ 33,931 ($ 1,106,015 ) US$ 81,000 ($ 2,640,276 ) US$ 18,628 ($ 607,198 ) US$ 598 ($ 19,492 ) US$ 5,000 ($ 162,980 ) US$ 900 ($ 29,336 ) US$ 736 ($ 23,991 )	100 100 100 35 100 90 46	US$ 12,187 ($ 397,247 ) (Note) US$ 20,870 ($ 680,279 ) (Note) US$ (492 ) ($ 16,037 ) (Note) US$ (128 ) ($ 4,172 ) US$ 535 ($ 17,439 ) (Note) US$ (12 ) ($ 391 ) (Note) US$ 180 ($ 5,867 )	US$ 58,350 ($ 1,901,977 ) (Note) US$ 125,578 ($ 4,093,340 ) (Note) US$ 16,509 ($ 538,127 ) (Note) US$ 474 ($ 15,451 ) US$ 5,370 ($ 175,041 ) (Note) US$ 1,008 ($ 32,857 ) (Note) US$ 2,065 ($ 67,311 )	$ - US$ 7,751 ($ 252,652 ) - - - - -	US$ 33,931 ($ 1,106,015 ) US$ 81,000 ($ 2,640,276 ) US$ 18,628 ($ 607,198 ) US$ 598 ($ 19,492 ) US$ 5,000 ($ 162,980 ) US$ 1,000 ($ 32,596 ) US$ 736 ($ 23,991 )	US$ 37,770 US$ 93,000 US$ 26,660 US$ 2,735 US$ 5,000 US$ 3,150 US$ 736	$7,226,398

Note: Eliminated.

77 -

TABLE 9

YAGEO CORPORATION AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS YEARS ENDED DECEMBER 31, 2005 AND 2006 (In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

2005

No.	Company Name	Related Party	Nature of Relationship (Note)	Transaction Details	Transaction Details
				Financial Statement Account	Amount	Payment Terms	% to Total Sales or Assets
0	Yageo Corporation	Yageo Holding (Bermuda), Ltd. Yageo Holding (Bermuda), Ltd. Yageo Components (Su Zhou) Co., Ltd. Yageo Components (Su Zhou) Co., Ltd. Yageo USA (H.K.) Limited Yageo USA (H.K.) Limited Yageo Europe KFT Yageo Europe KFT Compostar Technology Co., Ltd Compostar Technology Co., Ltd Yageo Japan Yageo Japan Steller, Inc. Steller, Inc. Yageo America Yageo Korea Yageo Japan	1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1	Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Commission cost Commission cost Commission cost	$ 1,307,670 184,024 20,537 13,616 1,201,063 269,446 1,070,019 164,600 119,768 107,752 21,940 6,118 11,333 4,197 67,673 15,995 3,927	T/T 90 days T/T 90 days T/T 90 days T/T 90 days Offset account T/T 90 days Offset account T/T 90 days Offset account T/T 60 days Offset account T/T 60 days T/T 90 days T/T 90 days Offset account T/T 90 days Offset account T/T 90 days T/T 150 days T/T 150 days Offset account T/T 30 days T/T 30 days	8 - - - 7 1 6 - 1 - - - - - - -
1	Yageo Holding (Bermuda), Ltd.	Ferroxcube International Holding B.V. Phycomp Holding B.V. Yageo Electronics (China) Co., Ltd. Yageo Corporation Yageo Corporation	3 3 1 2 2	Loans to subsidiaries considered as a component of investment Loans to subsidiaries considered as a component of investment Sales and Commission income Sales Accounts and notes receivables from related parties	1,935,159 8,350,679 1,307,670 179,128 80,030	- - T/T 90 days T/T 90 days T/T 90 days	4 18 8 1 -
2	Yageo USA (H.K.) Limited	Yageo Corporation Yageo Electronics (Dongguan) Co., Ltd.	2 3	Sales Sales	17,000 1,201,063	Offset account T/T 90 days Offset account T/T 90 days	- 7
3	Yageo Electronics (China) Co., Ltd.	Yageo Holding (Bermuda), Ltd. Yageo Europe KFT	2 3	Sales Sales	179,128 98,437	T/T 90 days T/T 90 days	1 1
4	Yageo Components (Su Zhou) Co., Ltd.	Yageo Europe KFT	3	Sales	31,575	T/T 90 days	-
5	Yageo Electronics (Dongguan) Co., Ltd.	Yageo USA (H.K.) Limited	3	Sales	17,000	Offset account T/T 90 days	-
6	Yageo Europe KFT	Yageo Corporation	2	Sales	142,872	Offset account T/T 60 days	1
							(Continued)

78 -

No.	Company Name	Related Party	Nature of Relationship (Note)	Transaction Details	Transaction Details
				Financial Statement Account	Amount	Payment Terms	% to Total Sales or Assets
7	Yageo Europe B.V.	Yageo Corporation Yageo Corporation	2 2	Sales Accounts and notes receivables from related parties	$ 30,688 14,106	T/T 60 days T/T 60 days	- -
8	Ferroxcube Holding (Samoa), Ltd.	Ferroxcube International Holding B.V.	3	Sales	534,649	T/T 30 days	3
9	Compostar Technology Co., Ltd.	Yageo Corporation Yageo Corporation	2 2	Sales Accounts and notes receivables from related parties	211,660 178,845	T/T 90 days T/T 90 days	1 -
10	Yageo Holding International, Ltd.	Yageo Holding (Bermuda), Ltd.	3	Receivable from affiliates	149,122	-	-
11	Rancher International Limited	Yageo Holding (Bermuda), Ltd.	3	Receivable from affiliates	739,373	-	2
12	Luminary International	Yageo Holding (Bermuda), Ltd.	3	Receivable from affiliates	568,713	-	1

2006

No.	Company Name	Related Party	Nature of Relationship (Note)	Transaction Details	Transaction Details
				Financial Statement Account	Amount	Payment Terms	% to Total Sales or Assets
0	Yageo Corporation	Yageo Holding (Bermuda), Ltd. Yageo Holding (Bermuda), Ltd. Yageo Components (Su Zhou) Co., Ltd. Yageo Components (Su Zhou) Co., Ltd. Yageo USA (H.K.) Limited Yageo USA (H.K.) Limited Ko-E Corp. Ko-E Corp. Ko-E (H.K.) Limited Ko-E (H.K.) Limited Yageo Europe KFT Yageo Europe KFT Yageo Japan Steller, Inc. Steller, Inc. Compostar Technology Co., Ltd. Compostar Technology Co., Ltd. Compostar Technology Co., Ltd. Compostar Technology Co., Ltd. Chipcera Technology Co., Ltd. Chipcera Technology Co., Ltd. Kuo Chung Development Kuo Shin Investment Limited Ko-E Corp. Kuo ChungDevelopment Limited	1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1	Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Rental revenue Consulting revenue Sales Accounts and notes receivables from related parties Interest income Interest income Rental revenue Other receivable	$ 1,941,407 215,649 42,523 7,547 1,652,492 415,427 370,943 367,374 29,582 29,161 1,358,792 189,091 1,810 6,201 1,991 368,767 183,193 4,229 9,600 33,817 28,523 426 82 936 14,235	T/T 90 days T/T 90 days T/T 90 days T/T 90 days Offset account T/T 90 days Offset account T/T 90 days T/T 60 days T/T 60 days T/T 60 days T/T 60 days Offset account T/T 60 days Offset account T/T 60 days Offset account T/T 90 days T/T 150 days T/T 150 days T/T 90 days T/T 90 days T/T 30 days Receipt in advance by seasons T/T 90 days T/T 90 days - - T/T 30 days T/T90 days	10 - - - 8 1 2 1 - - 7 - - - - 2 - - - - - - - - -
							(Continued)

79 -

No.	Company Name	Related Party	Nature of Relationship (Note)	Transaction Details	Transaction Details
				Financial Statement Account	Amount	Payment Terms	% to Total Sales or Assets
1	Yageo Holding (Bermuda), Ltd.	Ferroxcube International Holding B.V. Phycomp Holding B.V. Hsu Tai International (H.K.) Ferroxcube Holding (Samoa), Ltd. Vitrohm Holding Yageo America Yageo Corporation Yageo Electronics (China) Co., Ltd. Yageo Electronics (China) Co., Ltd. Yageo Corporation Yageo Corporation	3 3 1 3 1 3 2 1 1 2 2	Loans to subsidiaries considered as a component of investment Loans to subsidiaries considered as a component of investment Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Receivable from affiliates Accounts and notes receivables from related parties Sales and commission income Sales Accounts and notes receivables from related parties	$ 2,138,232 8,444,646 109,588 172,563 337,206 175,399 495,459 1,443,514 1,941,407 350,578 168,695	- - - - - - - T/T 90 days T/T 90 days T/T 90 days T/T 90 days	5 18 - - 1 - 1 3 10 2 -
2	Yageo USA (H.K.) Limited	Yageo Corporation Yageo Electronics (Dongguan) Co., Ltd.	2 3	Sales Sales	13,108 1,652,492	Offset account T/T 90 days Offset account T/T 90 days	- 8
3	Yageo Electronics (China) Co., Ltd.	Yageo Holding (Bermuda), Ltd. Yageo Holding (Bermuda), Ltd. Yageo Electronics (Dongguan) Co., Ltd. Yageo Electronics (Dongguan) Co., Ltd. Yageo Europe KFT Yageo Europe KFT Ko-E Technology (Shenzhen) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd.	2 2 3 3 3 3 3 3	Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties	370,788 118,024 875,144 336,627 190,025 28,674 154,436 179,940	T/T 90 days T/T 90 days T/T 90 days T/T 90 days T/T 90 days T/T 90 days T/T 65 days T/T 65 days	2 - 4 1 1 - 1 -
4	Yageo Components (Su Zhou) Co., Ltd.	Yageo Europe KFT	3	Sales	40,547	T/T 90 days	-
5	Yageo Electronics (Dongguan) Co., Ltd.	Yageo USA (H.K.) Limited Ko-E (H.K.) Limited Ko-E (H.K.) Limited	3 3 3	Sales Sales Accounts and notes receivables from related parties	13,108 161,627 152,999	Offset account T/T 90 days T/T 60 days T/T 60 days	- 1 -
6	Compostar Technology Co., Ltd.	Yageo Corporation Yageo Corporation Yageo Corporation Compostar Technology (Cayman), Ltd. Compostar Technology (Cayman), Ltd.	2 2 2 1 1	Sales Accounts and notes receivables from related parties Rental revenue Sales Accounts and notes receivables from related parties	857,532 433,969 3,537 367,679 73,520	T/T 90 days T/T 90 days T/T 30 days T/T 180 days T/T 180 days	4 1 - 2 -
7	Ferroxcube Holding (Samoa), Ltd.	Ferroxcube H.K., Ltd. Ferroxcube Electronics (Dongguan) Co., Ltd.	3 1	Sales Receivable from affiliates	657,096 140,163	T/T 30 days -	3 -
8	Yageo International	Yageo Corporation	2	Receivable from affiliates	241,210	-	1
9	Yageo America	Yageo Corporation Yageo Corporation	2 2	Accounts and notes receivables from related parties Commission revenue	3,253 56,860	T/T 30 days T/T 30 days	- -
							(Continued)

80 -

No.	Company Name	Related Party	Nature of Relationship (Note)	Transaction Details	Transaction Details
				Financial Statement Account	Amount	Payment Terms	% to Total Sales or Assets
10	Yageo Korea	Yageo Corporation Yageo Corporation	2 2	Commission revenue Accounts and notes receivables from related parties	$ 12,727 2,733	T/T 30 days T/T 30 days	- -
11	Yageo Japan	Yageo Corporation Yageo Corporation	2 2	Commission revenue Accounts and notes receivables from related parties	3,504 1,369	Offset account T/T 30 days Offset account T/T 30 days	- -
12	Ferroxcube International Holding B.V.	Ferroxcube Holding (Samoa), Ltd.	3	Sales	179,872	T/T 60 days	1
13	Ferroxcube Taiwan, Ltd.	Ferroxcube H.K., Ltd. Yageo Corporation	3 2	Commission revenue Interest income	31,388 2	T/T 60 days -	- -
14	Compostar Technology (Cayman), Ltd.	Compostar Technology (Dongguan) Co., Ltd. Compostar Technology (Dongguan) Co., Ltd. Compostar Technology (Su Zhou) Co., Ltd. Compostar Technology (Su Zhou) Co., Ltd.	1 1 1 1	Sales Accounts and notes receivables from related parties Sales Accounts and notes receivables from related parties	137,066 212,004 145,313 172,498	T/T 180 days T/T 180 days T/T 180 days T/T 180 days	1 1 1 -
15	Compostar Technology (Dongguan) Co., Ltd.	Compostar Technology (Cayman), Ltd. Compostar Technology (Cayman), Ltd.	2 2	Sales Accounts and notes receivables from related parties	191,730 25,816	T/T 180 days T/T 180 days	1 -
16	Kuo Shin Investment Limited	Yageo Corporation Yageo Corporation Kuo Chung Development Limited	2 2 3	Receivable from affiliates Interest income Receivable from affiliates	22,531 895 134,292	- - -	- - -
17	Kuo Ding Venture Capital Limited	Yageo Corporation Kuo Chung Development Limited	2 3	Interest income Receivable from affiliates	182 60,790	- -	- -
18	Kuo Chung Development Limited	Yageo Corporation Yageo Corporation	2 2	Receivable from affiliates Interest income	2,002 289	- -	- -
19	Chipcera Technology Co., Ltd.	Yageo Corporation Yageo Corporation	2 2	Sales Accounts and notes receivables from related parties	3,752 9,657	T/T 120 days T/T 120 days	- -
20	Ko-E Corp.	Yageo Corporation Yageo Corporation	2 2	Accounts and notes receivables from related parties Sales expenses	1,998 1,998	T/T 60 days T/T 60 days	- -
21	Hsu Tai International (H.K.)	Yageo Corporation	2	Other receivable	19,608	-	-

Note: Nature of relationship:

The Corporation to subsidiaries.
Subsidiaries to the Corporation.
Subsidiaries to subsidiaries.

(Concluded)

81 -

TABLE 10

YAGEO CORPORATION AND SUBSIDIARIES

INDUSTRY SEGMENT INFORMATION YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of New Taiwan Dollars and U.S. Dollars)

Revenues generated from customers excluding the Group (B) Revenues generated from the Group Total revenues Segment operating income (loss) (C) Equity in net gain of investee company Interest expense General revenue (B) General expense (D) Income before income tax Identifiable assets (E) Long-term equity investments Assets not identifiable to a specified segment (E) Total assets Depreciation expense Capital expenditure			New Taiwan Dollars	New Taiwan Dollars								Total $ 20,829,914 - $ 20,829,914 $ 3,873,462 162,442 (407,073 ) 394,624 (1,740,580 ) $ 2,282,875 $ 31,583,214 2,363,027 12,390,818 $ 46,337,059 $ 2,340,526 $ 2,285,610		U.S. Dollars (Note 4)	U.S. Dollars (Note 4)			Total $ 639,033 - $ 639,033 $ 118,832 4,983 (12,489 ) 12,107 (53,398 ) $ 70,035 $ 968,928 72,494 380,134 $ 1,421,556 $ 71,804 $ 70,119
		2005				Total $ 16,757,584 - $ 16,757,584 $ 1,682,722 184,805 (498,680 ) 648,299 (1,614,752 ) $ 402,394 $ 30,347,401 2,230,503 13,628,116 $ 46,206,020 $ 2,182,490 $ 868,816		2006						2006
	Resistor Segment $ 5,847,406 1,452,975 $ 7,300,381 $ 1,614,412 $ 8,778,389 $ 630,236 $ 419,223	Capacitor Segment $ 7,687,346 4,023,344 $ 11,710,690 $ 128,804 $ 12,542,961 $ 1,215,723 $ 226,457	Ferrite Segment $ 2,090,176 644,956 $ 2,735,132 $ (154,203 ) $ 3,001,454 $ 297,751 $ 223,136	Other Electronic Components and Investment Segment $ 1,132,656 448,532 $ 1,581,188 $ 93,709 $ 6,024,597 $ 38,780 $ -	Adjustment and Elimination $ - (6,569,807 ) $ (6,569,807 ) $ - $ - $ -		Resistor Segment $ 7,137,654 2,359,943 $ 9,497,597 $ 2,528,232 $ 9,368,208 $ 605,527 $ 1,205,540	Capacitor Segment $ 9,805,298 6,472,527 $ 16,277,825 $ 1,023,347 $ 12,097,747 $ 1,376,748 $ 937,590	Ferrite Segment $ 2,484,429 674,599 $ 3,159,028 $ 37,562 $ 3,323,696 $ 310,310 $ 141,941	Other Electronic Components and Investment Segment $ 1,402,533 790,140 $ 2,192,673 $ 284,321 $ 6,793,563 $ 47,941 $ 539	Adjustment and Elimination $ - (10,297,209 ) $ (10,297,209 ) $ - $ - $ -		Resistor Segment $ 218,973 72,400 $ 291,373 $ 77,563 $ 287,403 $ 18,576 $ 36,984	Capacitor Segment $ 300,813 198,568 $ 499,381 $ 31,395 $ 371,142 $ 42,237 $ 28,763	Ferrite Segment $ 76,219 20,696 $ 96,915 $ 1,152 $ 101,966 $ 9,520 $ 4,355	Other Electronic Components and Investment Segment $ 43,028 24,240 $ 67,268 $ 8,722 $ 208,417 $ 1,471 $ 17	Adjustment and Elimination $ - (315,904 ) $ (315,904 ) $ - $ - $ -

Notes:

(A) The Group is distinguished into segments of Resistor, Capacitor, Ferrite, other electronic components and investment.

(B) Represents revenues and other income among segments, excluding non-segment-related revenues.

(C) Represents the balance of revenue minus costs and operating expenses. Costs and operating expenses represents costs and expenses that are related to revenue of segments.

(D) Represents general and administrative expenses and non-attributed expenses.

(E) Represents enterprise assets used by the industry segment, excluding:

a. Assets not for operation by the specific industry segment.
b. Advances or loans to another industry segment.
c. Long-term stock investments under equity method.
82 -

TABLE 11

YAGEO CORPORATION AND SUBSIDIARIES

GEOGRAPHIC INFORMATION YEARS ENDED DECEMBER 31, 2005 AND 2006 (In Thousands of New Taiwan Dollars and U.S. Dollars)

Revenues generated from customers excluding the Group Revenues generated from the Group Total revenues Segment operating income Equity in net gain of investee companies Interest expense General revenue General expense Income before income tax Identifiable assets Long-term equity investments Assets not identifiable to a specified geographic location Total assets			New Taiwan Dollars	New Taiwan Dollars								Combined $ 20,829,914 - $ 20,829,914 $ 3,873,462 162,442 (407,073 ) 394,624 (1,740,580 ) $ 2,282,875 $ 31,583,214 2,363,027 12,390,818 $ 46,337,059		U.S. Dollars (Note 4)	U.S. Dollars (Note 4)			Combined $ 639,033 - $ 639,033 $ 118,832 4,983 (12,489 ) 12,107 (53,398 ) $ 70,035 $ 968,928 72,494 380,134 $ 1,421,556
		2005				Combined $ 16,757,584 - $ 16,757,584 $ 1,682,722 184,805 (498,680 ) 648,299 (1,614,752 ) $ 402,394 $ 30,347,401 2,230,503 13,628,116 $ 46,206,020		2006						2006
	Domestic $ 6,397,424 4,240,372 $ 10,637,796 $ 549,709 $ 18,024,802	Europe $ 4,558,659 287,614 $ 4,846,273 $ 360,884 $ 5,849,492	Asia $ 5,423,061 1,834,868 $ 7,257,929 $ 726,485 $ 6,473,107	Others $ 378,440 206,953 $ 585,393 $ 45,644 $ -	Adjustment and Eliminations $ - (6,569,807 ) $ (6,569,807 ) $ -		Domestic $ 7,466,059 7,125,603 $ 14,591,662 $ 1,115,969 $ 17,463,426	Europe $ 5,479,019 4,385 $ 5,483,404 $ 526,140 $ 5,757,857	Asia $ 7,733,614 3,167,221 $ 10,900,835 $ 2,203,881 $ 8,361,931	Others $ 151,222 - $ 151,222 $ 27,472 $ -	Adjustment and Eliminations $ - (10,297,209 ) $ (10,297,209 ) $ -		Domestic $ 229,048 218,604 $ 447,652 $ 34,236 $ 535,753	Europe $ 168,089 134 $ 168,223 $ 16,141 $ 176,643	Asia $ 237,257 97,166 $ 334,423 $ 67,612 $ 256,532	Others $ 4,639 - $ 4,639 $ 843 $ -	Adjustment and Eliminations $ - (315,904 ) $ (315,904 ) $ -

83 -

TABLE 12

YAGEO CORPORATION AND SUBSIDIARIES

THE GROUP’S ORGANIZATION CHART DECEMBER 31, 2006

==> picture [1080 x 331] intentionally omitted <==

----- Start of picture text -----

|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|Yageo Corporation|
|100%|100%|100%|100%|100%|100%|100%|100%|100%|100%|100%|100%|
|America Yageo|Ferroxcube Holding|Kuo Shin|Kuo Chung|Kuo Ding Venture|Holding Yageo|InternationalYageo|Singapore Phycomp|Phycomp Malaysia|Ferroxcube Taiwan,|Phycomp|Ferroxcube|
|Corporation|69%|(Samoa),|Investment|Development|Capital|(Bermuda),|PTE. Ltd.|SDN. BHD.|Ltd.|
|Limited|Limited|
|Ltd.|Limited|Ltd.|
|100%|2%|
|67.4%|
|Ferroxcube|Compostar|
|Electronics|Technology|
|Technology Chipcera|(Dongguan) Co., Ltd.|Co., Ltd.|100%|100%|100%|100%|100%|100%|90%|100%|99%|
|Co., Ltd.|
|100%|Yageo USA|Yageo|Yageo|Yageo|Yageo|Vitrohm|Ko-E|Yageo|Hsu Tai|1%|
|15.9%|(H.K.)|Japan|Korea|Electronics|Electronics|Holding|Holding|Component|Internation|
|Limited|(Dongguan|(China)|GmbH|(Cayman|s (Su Zhou)|al (H.K.)|
|100%|Compostar|) Co., Ltd.|Co., Ltd.|Islands)|Co., Ltd.|
|Technology|
|(Cayman),|100%|
|Chipcera|Ltd.|
|Holding|100%|
|Co., Ltd.|Vitrohm|
|Portuguesa|Steller Inc.|
|100%|100%|100%|100%|100%|100%|100%|100%|
|Compostar|Compostar|Compostar|Ko-E Corp.|Ko-E (H.K.)|Ko-E|
|Dongguan|Dongguan|Technology|Technology|Technology|Limited|Technology|
|Chang An|Chen An|(Shanghai)|(Dongguan)|(Su Zhou)|(Shenzhen)|
|Wusha|Trading Co.,|Co., Ltd.|Co., Ltd.|Co., Ltd.|Co., Ltd.|
|Chipcera|Ltd.|

----- End of picture text -----

84 -

Financial asset valuation loss Other expenses (Note 26) Total nonoperating expenses and losses INCOME BEFORE INCOME TAX EXPENSE INCOME TAX EXPENSE (Notes 2 and 23) CONSOLIDATED NET INCOME ATTRIBUTE TO: Parent company’s stockholders Minority interest NET EARNINGS PER SHARE Basic Diluted		New Taiwan	New Taiwan	New Taiwan



			2005 Income Before Income Tax Net Expense Income $ 0.15 $ 0.13 $ 0.11 $ 0.10

AI assistant

YAGEO — Capital/Financing Update 2014

52008_rns_2014-07-04_e138d966-d40e-4cca-9ecb-12677a2edad6.pdf

Offering Circular dated June 4, 2007

US$230,000,000 Zero Coupon Convertible Instruments Due 2014

Issue Price 100%

TABLE OF CONTENTS

THE OFFERING

USE OF PROCEEDS

BUSINESS

Overview

Competitive Strengths

TERMS AND CONDITIONS OF THE INSTRUMENTS

1. STATUS

2. FORM, DENOMINATION AND TITLE

(A) Form and Denomination

(B) Title

3. NEGATIVE PLEDGE

4. TRANSFERS OF INSTRUMENTS; ISSUE OF CERTIFICATES

(A) Transfers

(B) Delivery of New Definitive Certificates

(C) Formalities Free of Charge

(D) Restricted Transfer Period

(E) Provisions on Transfer

5. CONVERSION

(A) Conversion Right

(ii) Number of Shares or GDRs issuable on Conversion

(iii) Initial Conversion Price

(iv) Survival on default

(B) Conversion Procedures

(i) Exercise procedures; Conversion Notice; Deposit Date; Conversion Date

(ii) Taxes and expenses

(iii) Transfer of Shares or GDRs

(iv) Holder of record

(v) Delivery of Shares or GDRs

(vi) Retroactive Adjustment of Conversion Price

(vii) Dividend and Other entitlement

(viii) Conversion Agents

(ix) Satisfaction of the Company’s obligations

(x) Compliance with the Deposit Agreements

(C) Adjustments to Conversion Price

(D) Conversion Undertaking

(i) Listing of the Share and GDRs:

(ii) Closed Periods:

(iii) Notice:

6. PAYMENTS

(A) Manner of Payment

(B) Registered Account and Address

(C) Fiscal Laws

(D) Date of Payment

(E) Payment Delay

(F) Partial Payments

7. REDEMPTION, REPURCHASE AND CANCELLATION

(A) Redemption at Maturity

(B) Redemption at the Option of the Company

(C) Cancellation

(D) Redemption Notice

8. TAXATION

9. EVENTS OF DEFAULT

10. PRESCRIPTION

11. ENFORCEMENT

12. MEETINGS OF HOLDERS, MODIFICATION AND WAIVER

(A) Quorums for Meetings

(B) Modification with Consent of Holders

(C) Modification of Conversion Right and Other Provisions

(D) Waiver of Default

(E) Exercise of Trustee’s Functions

13. REPLACEMENT OF CERTIFICATES

14. NOTICES

15. INDEMNIFICATION

16. GOVERNING LAW AND JURISDICTION; THIRD PARTY RIGHTS

(A) Governing Law

(B) Jurisdiction

CONVERSION INTO GDRs

The Depositary Facilities

Delivery of GDRs on conversion of Instruments

Delivery of GDRs

Converting Holders that are unable to make either the representations with respect to the Regulation S Depositary Facility or the Rule 144A Depositary Facility will not be able to deposit their Shares and receive GDRs.

Procedures; Conversion Notice; Taxes and Duties

Termination or Substitution of Arrangements for Delivery of GDRs

YAGEO Capital/Financing Update 2014