SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              -------------------
                                    FORM 10-K
 (MARK ONE)
[ x ] Annual report pursuant to section 13 or 15(d) of the securities exchange
      act of 1934
      For the fiscal year ended APRIL 1, 2000, or

[   ] Transition report pursuant to section 13 or 15(d) of the securities
      exchange act of 1934
      For the transition period from __________ to __________.

Commission file number:  0-22594

                      ALLIANCE SEMICONDUCTOR CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                               77-0057842
             --------                               ----------
  (STATE OR OTHER JURISDICTION OF        (I.R.S. EMPLOYER IDENTIFICATION
  INCORPORATION OR ORGANIZATION)                     NUMBER)

                              2575 AUGUSTINE DRIVE
                       SANTA CLARA, CALIFORNIA 95054-2914
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

      Registrant's telephone number, including area code is (408) 855-4900
               Registrant's website address is HTTP://WWW.ALSC.COM
                               -------------------

        Securities registered pursuant to Section 12(b) of the Act: NONE
           Securities registered pursuant to Section 12(g) of the Act:

        TITLE OF EACH CLASS          NAME OF EACH EXCHANGE ON WHICH REGISTERED
        -------------------          -----------------------------------------
   Common Stock, par value $0.01                     NASDAQ

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes   X   No
                                              -----   ----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed under  Section 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by the court. Yes  X   No
                           -----   -----

As of June 19, 2000, there were 41,464,780  shares of Registrant's  Common Stock
outstanding.   The   aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  of the registrant on June 19, 2000, based upon the closing price
of  the  Common  Stock  on  the  NASDAQ  National  Market  for  such  date,  was
approximately $1,154,000,000.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's  definitive Proxy Statement for its 2000 Annual Meeting
of  Stockholders  ("Proxy  Statement") to be filed pursuant to Regulation 14A of
the Securities  and Exchange  Commission  under the  Securities  Exchange Act of
1934, as amended, which is anticipated to be filed within 120 days after the end
of Registrant's  fiscal year ended April 1, 2000, are  incorporated by reference
into Part III hereof.

                                     - 1 -
<PAGE>

===============================================================================
PART I

FORWARD LOOKING STATEMENTS

When  used  in this  report,  the  words  "expects,"  anticipates,"  "believes,"
"estimates"  and similar  expressions  are intended to identify  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
Such  forward-looking  statements,  are subject to risks and  uncertainties  and
include  the  following   statements   concerning  the  timing  of  new  product
introductions; the functionality and availability of products under development;
trends in the personal computer, networking, telecommunications, instrumentation
and consumer markets,  in particular as they may affect demand for or pricing of
the Company's  products;  the  percentage of export sales and sales to strategic
customers;  the percentage of revenue by product line; the availability and cost
of products  from the  Company's  suppliers;  changes in stock price of Broadcom
Corporation,  Chartered  Semiconductor,   United  Microelectronics  Corporation,
Vitesse Semiconductor Corporation and PMC-Sierra, Inc.; adverse changes in value
of  investments  made by Alliance  Venture  Management,  LLC; and the  Company's
potential  status as Investment Act of 1940 reporting  company.  These risks and
uncertainties  include  those  set  forth in Item 1 of Part I  hereof  (entitled
"Business") and in Item 7 of Part II hereof  (entitled  "Factors That May Affect
Future Results") and elsewhere in this Report. These risks and uncertainties, or
the occurrence of other events,  could cause actual results to differ materially
from those projected in the forward-looking  statements.  These  forward-looking
statements  speak  only as of the date of this  Report.  The  Company  expressly
disclaims  any  obligation  or  undertaking  to release  publicly any updates or
revisions  to any  forward-looking  statements  contained  herein to reflect any
change in the  Company's  expectations  with  regard  thereto or to reflect  any
change in events,  conditions or circumstances on which any such forward-looking
statement is based, in whole or in part.

ITEM 1
BUSINESS

OVERVIEW

Alliance Semiconductor Corporation was incorporated in California on February 4,
1985 and  reincorporated  in Delaware on October  26,  1993.  Unless the context
indicates  otherwise,  the terms  "Alliance" and the "Company" refer to Alliance
Semiconductor Corporation,  a Delaware corporation,  and its direct and indirect
subsidiaries.  The Company designs, develops and markets high performance memory
and memory  intensive  logic  products  to the  personal  computer,  networking,
telecommunications, instrumentation and consumer markets.

Market  trends,  such an  increased  emphasis on  high-throughput  applications,
including   networking,    graphics,   multimedia,   computer,   consumer,   and
telecommunications  products,  have created  opportunities  for high performance
memory products.  The Company addresses these opportunities with its families of
static  random access  memories  ("SRAMs")  and dynamic  random access  memories
("DRAMs"),  characterized by high storage capacity (density),  fast access times
and low power consumption.

The  semiconductor   industry  is  highly  cyclical  and  has  been  subject  to
significant   downturns  at  various  times  that  have  been  characterized  by
diminished  product  demand,  production  overcapacity  and  undercapacity,  and
accelerated erosion of selling prices. During much of fiscal 1999, 1998 and 1997
the market for  certain of the  Company's  DRAM and SRAM  devices  continued  to
experience  excess supply  relative to demand,  which  resulted in a significant
downward  trend in average  selling  prices.  Although  the Company is unable to
predict future trends in average selling prices,  historically the semiconductor
industry has experienced significant annual declines in average selling prices.

The average  selling  price that the Company is able to command for its products
is highly dependent on industry-wide  production  capacity and demand,  and as a
consequence  the Company could  experience (as it did throughout  much of fiscal
1999,  1998 and 1997) rapid  erosion in product  pricing which is not within the
control of the Company and which  could have an adverse  material  effect on the
Company's  results of  operations.  The  Company is unable to predict the future
prices for its products.

                                     - 2 -
<PAGE>

Throughout this report,  the Company has indicated its fiscal years as ending on
March 31,  whereas the  Company's  fiscal  year  actually  ends on the  Saturday
nearest the end of March.  The fiscal year ended  March 31,  2000  contained  52
weeks while the fiscal  years ended March 31, 1999 and March 31, 1998  contained
53 weeks and 52 weeks, respectively.

INDUSTRY BACKGROUND

Traditionally,  large manufacturing companies, such as Samsung, Hyundai, Micron,
NEC, Toshiba, Hitachi and Cypress Semiconductor,  have dominated the markets for
SRAMs and DRAMs.  The majority of the memory  products from these  manufacturers
have  consisted  of  commodity  products,  which  have  relatively  predictable,
multi-year product life cycles and thus require more focus on process technology
and  production  cost and less on design.  In recent years,  certain  technology
trends dramatically increased the performance  requirements for SRAMs and DRAMs,
creating  new  design   challenges   and  market   opportunities   for  emerging
semiconductor  companies.  The proliferation of more powerful personal computers
and workstations in recent years and the increasing  emphasis on high-throughput
networking,  graphics,  multimedia and telecommunications  products have created
mass  market  opportunities  for high  speed and low power  SRAMs and high speed
DRAMs.

SRAMs and DRAMs are forms of "volatile" memory, meaning that such devices retain
their memory only when connected to a power supply. In contrast, flash memory is
a form of  "non-volatile"  memory,  which retains its memory even when the power
supply is turned off. The demand for flash memory has increased in recent years.
In addition to being a preferred method of storing the basic input/output system
("BIOS") for computers,  a variety of applications make use of flash memory (for
instance, cellular phone handsets often allow users to "store" frequently-dialed
numbers in flash  memory;  such  memory is retained  when the  handset  power is
turned off).

Embedded-memory applications are growing rapidly, as manufacturers of items from
cell phones to toasters are  introducing  "smart"  machines that use  integrated
circuits to improve performance. Embedding memory and logic on a single chip may
produce significant advantages in size and speed.

TECHNOLOGY

The Company has focused on using  innovative  design  techniques to develop high
performance  SRAMs  and  DRAMs  that can be  manufactured  using a  simple  CMOS
manufacturing process. The Company combines both SRAM and DRAM design approaches
in  creating  its  SRAM and DRAM  products,  and  believes  that  merging  these
techniques  enables  it to  design  SRAMs  that  feature  some  of  the  density
attributes  of  DRAMs  and to  design  DRAMs  that  feature  some  of the  speed
attributes of SRAMs.  Since its inception in 1985,  the Company has  accumulated
substantial experience in designing SRAM and DRAM products.

The Company  believes  that the die sizes (the  physical  sizes of its complete,
unpackaged,  memory  circuits) of many of its products are smaller than those of
competing  products,  providing  the Company with a key  competitive  advantage.
Because  yields  increase  significantly  as die  size  decreases,  the  Company
believes that its small die sizes have been a major contributor to its generally
high manufacturing  yields.  Small die sizes also generally result in additional
benefits, such as lower die cost, increased speed, greater reliability and lower
power consumption.

In  addition  to having  small die sizes,  many of the  Company's  products  are
designed to be manufactured  using a CMOS process with fewer steps than required
for  competitive  memory  products.  The Company's  competitors  often require a
greater  number of mask steps  and/or more  complex  manufacturing  processes to
achieve similar  performance of such products.  Because yields typically decline
as  manufacturing  complexity  and the number of  process  steps  increase,  the
simpler  manufacturing  process  utilized by the Company has  contributed to its
generally high  manufacturing  yields.  The Company also believes that a simpler
manufacturing  process leads to faster time to market and shorter  manufacturing
cycle times.

The  Company's  development  strategy  is to  leverage  its  proprietary  design
modules,  which have been created using its design philosophies.  These modules,
which are scaleable in size,  can be used by the Company as building  blocks for
new products, resulting in shorter design cycles. The Company believes that this
design  strategy  also  enables it to maximize the  performance,  yield and cost
advantages  of its basic  designs  and  sustain  them  over  time in  successive
generations of higher performance and higher density products.

                                     - 3 -
<PAGE>

PRODUCTS

HIGH SPEED CMOS SRAMS

Sales of the  Company's  SRAM  products  accounted  for 43% of the Company's net
revenues in fiscal  2000.  During  fiscal  year's 1999 and 1998,  SRAM  products
contributed  approximately  58% and  27%,  respectively,  of the  Company's  net
revenues.  Focused on the  telecommunications,  networking and wireless markets,
the Company  currently offers SRAM products in broad range densities,  packages,
speed grades and low-power  ranges from 64 Kbit to 4 Kbit with speeds as fast as
10ns and stand by power as low as 20uA.  Currently  the  Company's  volume  SRAM
products  are  manufactured  using  0.35  and  0.25  micron   technology,   with
development to 0.18 micron technology underway.

HIGH SPEED CMOS DRAMS

Sales of the  Company's  DRAM  products  accounted  for 56% of the Company's net
revenues  in fiscal  2000.  During  fiscal  years 1999 and 1998,  DRAM  products
contributed  40% and 66%,  respectively,  of the Company's net revenues.  During
fiscal year 2000, the Company  continued to increase its volume of production of
4  Mbit  and  16  Mbit  DRAM  products  in  the  256  Kbit  x 16 and 1 Mbit x 16
configurations using technologies down to 0.25 micron.

HIGH SPEED CMOS FLASH MEMORIES

During  fiscal  2000,  the Company  changed its focus from 5V to 3V flash memory
products  (which  use a  single,  nominal,  3-volt  power  supply  for  read and
programming  functions).  The Company has sampled the 8 Mbit product with access
times as fast as 80ns, and has achieved functional silicon on 4 Mbit product. To
date,  the  Company  has not  derived  significant  revenue  from  flash  memory
products.

NETWORK HARDWARE ACCELERATORS

In fiscal year 1999,  the Company  announced  that it expected to introduce  the
first product of an Internet  Protocol  Routing  Processor  ("IPRP") family that
will  leverage the Company's  logic and embedded  memory  technology,  to enable
hardware  accelerated wire speed routing of IP packets, in multi-ported  Gigabit
and Terabit  routers.  These IPRP devices  could become  integral  components in
mission  critical and  multimedia  enhanced  high-end  routers,  which are being
deployed  to build the next  generation  Internet  infrastructure.  The  Company
achieved  working silicon of the first product of IPRP family during the quarter
ended  April  3,  1999.  However,  these  prototypes  did  not  achieve  all the
specifications necessary to introduce the product,  including the desired speed.
The Company  spent the entire fiscal year 2000  redesigning  the product and has
not yet produced a marketable product. While the Company plans on continuing its
effort to produce an IPRP  product,  there can be no assurance  that the Company
can or will do so.

PRODUCT DEVELOPMENT

Timely development and introduction of new products are essential to maintaining
the Company's  competitive  position.  The Company currently develops all of its
products  in-house and had on staff 79  development  personnel (38 in the United
States  and  41  in  India)  as  of  April  1,   2000.   The   Company   uses  a
workstation-based  computer-aided design environment to design and prototype new
products. The Company's design process uses network computing, high-level design
methodologies,  simulators, circuit synthesizers and other related tools. During
fiscal 2000, 1999 and 1998, the Company spent approximately $14.6 million, $14.1
million and $15.3 million respectively,  on product development activities.  The
Company plans to continue to invest substantial amounts in development to design
additional products.

The markets for the Company's products are characterized by rapid  technological
change,  evolving  industry  standards and product  obsolescence.  The Company's
future  success  will  be  highly  dependent  upon  the  timely  completion  and
introduction of new products at competitive  performance  levels. The success of
new  products  depends on a variety of  factors,  including  product  selection,
successful and timely completion of product  development,  the Company's ability
to secure  sufficient  foundry  capacity  for  volume  manufacturing  of wafers,
achievement of acceptable wafer  fabrication  yields (the proportion of good die
on a silicon  wafer) by the  Company's  independent  foundries and the Company's
ability to offer products at competitive prices.  There can be no assurance that
the Company will be able to identify new product opportunities successfully,  or
to develop and bring to market such new products in a timely and cost  effective
manner,  or  that  the  Company  will  be able  to

                                     - 4 -
<PAGE>

respond effectively to new technological changes or new product announcements by
others.  There also can be no  assurance  that the Company  can secure  adequate
foundry  capacity for the  production  of such  products,  or obtain  acceptable
manufacturing  yields  necessary  to enable  the  Company to offer  products  at
competitive prices.  Additionally,  there can be no assurance that the Company's
products  will  gain or  maintain  market  acceptance.  Such  inabilities  could
materially and adversely affect the Company's results of operations.

The markets for SRAMs, DRAMs, and flash memory products are volatile and subject
to rapid  technological  and price  change.  Any inventory of products for those
markets may be subject to obsolescence and price erosion, which could materially
and adversely affect the Company's results of operations.

CUSTOMERS

The  Company's   primary   customers  are  major   domestic  and   international
manufacturers  of  personal   computer  and  computer   peripherals,   consumer,
networking,  telecommunications  and wireless  products,  including;  3Com, Pace
Micro Technology,  Lucent, Sony, IBM, Toshiba, Acer, Alcatel,  Nokia, Solectron,
Jabil,  Newbridge Networks,  Efficient Networks,  General Instruments,  Seagate,
Brother and Pioneer.  A decline in demand in these industries or lack of success
in developing new markets or new products  could have a material  adverse effect
on the Company's results of operations.

The Company believes that if its sales penetration into these markets increases,
its  customer  base will  diversify  not only by  product  application  but also
geographically. There can be no assurance that such sales penetration into these
markets will, in fact, increase. The Company also, as a result of an antidumping
proceeding  commenced in February 1997,  must pay a cash deposit equal to 50.15%
of the value of any SRAMs manufactured  (wafer  fabrication) in Taiwan, in order
to import such goods into the U.S.  During  fiscal year 2000,  the Company moved
all of its SRAM  production  out of  Taiwan.  The  Company  intends  to sell its
remaining  SRAM  inventory  that was  manufactured  in Taiwan outside the United
States. See Note 13 of Notes to Consolidated Financial Statements.

Sales to the  Company's  customers  are  typically  made  pursuant  to  specific
purchase  orders,  which may be canceled  by the  customer  without  enforceable
penalties.  For the fiscal year ended March 31, 2000, one customer accounted for
approximately 10% of the Company's net revenues. For the fiscal year ended March
31, 1999, two customers accounted for approximately 15% and 13% of the Company's
net revenues.  For the fiscal year ended March 31, 1998, one customer  accounted
for  approximately  18% of the Company's  net  revenues.  See Note 1 of Notes to
Consolidated Financial Statements.

Historically,  the  semiconductor  industry  in general,  and the  semiconductor
memory business in particular,  has experienced  cyclical  downturns in business
that happen every few years. The industry experienced such a downturn in the mid
1990's and has been recovering over the last few years, as has the Company.  The
Company  fully  expects that another  downturn will occur in the next few years.
And while the  Company  is  trying  to take  precautions  so that it will not be
carrying significant  inventory (as happened in the last downturn) when the next
downturn  occurs,  it is difficult  to predict when the downturn  will occur and
customers  start  canceling  orders.  There can be no assurance that the Company
will be able to manage its  business  in a manner so as to prepare  for the next
downturn, when it occurs.  Additionally,  even if the Company is able to prepare
for the downturn,  any such downturn will  none-the-less  have a significant and
material  negative impact on the Company's  ability to sell products and results
of operations and such a negative impact on the Company may last several years.

SALES AND MARKETING

The  Company  markets  and  distributes  its  products   through  a  network  of
manufacturers'   representatives  and  distributors  throughout  North  America,
Europe, Asia and the rest of the world.

The Company uses  manufacturers'  representatives  and  distributors who are not
subject to minimum purchase  requirements and who can discontinue  marketing the
Company's products at any time. Many of the Company's distributors are permitted
to return a limited  amount of product  purchased in exchange for future orders.
The loss of one or more  manufacturers'  representatives  or distributors  could
have a material  adverse  effect on the  Company's  results of  operations.  The
Company believes that its relations with its manufacturers'  representatives and
distributors generally are good.

                                     - 5 -
<PAGE>

The Company believes that customer  service and technical  support are important
competitive  factors  in  selling  to  major  customers.  The  Company  provides
technical support to its customers  worldwide.  Distributors and  manufacturers'
representatives   supplement  the  Company's  efforts  by  providing  additional
customer  service at a local  level.  The Company  also works  closely  with its
customers in  qualification of its products and providing the needed quality and
reliability data. The Company believes that close contact with its customers not
only improves the customers' level of satisfaction  but also provides  important
insights into future market directions.

International  revenues  accounted  for  approximately  59%,  50% and 41% of net
revenues in fiscal 2000, 1999 and 1998,  respectively.  The Company expects that
international  sales will  continue to  represent a  significant  portion of net
revenues.  In addition,  the Company's products are manufactured,  assembled and
tested by independent third parties primarily located in Asia and North America,
and the Company has in the past, and intends in the future,  to make investments
in  certain  foundries  in Asia or  elsewhere  in  order  to  secure  production
capacity.   Due  to  its   international   sales  and  independent  third  party
manufacturing,  assembly and testing  operations,  the Company is subject to the
risks of conducting  business  internationally.  These risks include  unexpected
changes in regulatory requirements, delay resulting from difficulty in obtaining
export  licenses  of  certain   technology,   tariffs  and  other  barriers  and
restrictions,  and the burdens of complying  with a variety of foreign laws. The
Company is also subject to general  geopolitical  risks in  connection  with its
international operations, such as political and economic instability and changes
in  diplomatic  and trade  relationships.  In  addition,  because the  Company's
international  sales generally are denominated in U.S. dollars,  fluctuations in
the U.S.  dollar could  increase the price in local  currencies of the Company's
products in foreign  markets and make the  Company's  products  relatively  more
expensive than  competitors'  products that are denominated in local currencies.
Although the Company to date has not experienced any material  adverse effect on
its results of operations as a result of such regulatory, geopolitical and other
factors,  there can be no assurance that such factors will not adversely  impact
the  Company's  results of  operations  in the future or require  the Company to
modify its  current  business  practices.  See Note 15 of Notes to  Consolidated
Financial Statements.

MANUFACTURING

The Company  subcontracts  its  manufacturing  to independent  foundries,  which
allows the Company to avoid the  significant  capital  investment  required  for
wafer fabrication facilities.  The Company, however, has entered into agreements
providing for the investment of significant  sums for the formation of companies
to build and operate manufacturing  facilities or to obtain guaranteed capacity,
as described  below.  As a result,  the Company focuses its resources on product
design and  development,  quality  assurance,  marketing and sales, and customer
support.  The Company designs its products using proprietary circuit modules and
standard fabrication processes in order to operate within the process parameters
of its contract manufacturers.

The Company's major foundries are United Microelectronics Corporation ("UMC") in
Taiwan and Japan,  Chartered  Semiconductor  Manufacturing Ltd. ("Chartered") in
Singapore  and National  Semiconductor  Corporation  in the United  States.  The
Company has entered into  foundry  production  agreements  with all of its major
foundries.  Although the Company believes it currently has adequate  capacity to
address  market  requirements,  there can be no assurance that in the future the
Company's  current  foundries,  together with any additional  sources,  would be
willing or able to satisfy all of the Company's  requirements on a timely basis.
The Company has encountered  delays in the qualification  process and production
ramp-up  in  the  past,  and  qualification  of or  production  ramp-up  at  any
additional foundries could take longer than anticipated. The Company has entered
into  equity  arrangements  in order to obtain  an  adequate  supply of  wafers;
especially wafers manufactured using advanced process technologies.  The Company
will  continue to consider  various  possible  transactions,  including  but not
limited to equity  investments in independent wafer  manufacturers,  in exchange
for guaranteed production; the formation with others of new companies to own and
operate foundries;  the usage of "take or pay" contracts that commit the Company
to purchase  specified  quantities  of wafers  over  extended  periods;  and the
licensing of certain of the  Company's  designs,  in order to obtain an adequate
supply of wafers using advanced process technologies. There can be no assurance,
however,  that the Company would be able to consummate any such transaction in a
timely manner, or at all, or on terms commercially acceptable to the Company.

In  February  and April 1995,  the Company  purchased  shares of  Chartered  for
approximately  $51.6 million and entered into a  manufacturing  agreement  under
which  Chartered  would provide a minimum number of wafers from its 8-inch wafer
fabrication facility known as "Fab2", if Alliance so chooses.

In July 1995, the Company entered into an agreement with United Microelectronics
Corporation  ("UMC")  and S3  Incorporated  ("S3") to form a separate  Taiwanese
company,  United Semiconductor  Corporation ("USC"), for the

                                     - 6 -
<PAGE>

purpose of building and managing an 8-inch semiconductor  manufacturing facility
in  Taiwan.   Between   September  1995  and  July  1997  the  Company  invested
approximately  $70.4 million in USC in exchange for 190 million  shares or 19.0%
of the outstanding shares and 25% of the total wafer capacity.

In October  1995,  the  Company  entered  into an  agreement  with UMC and other
parties to form a separate Taiwanese company,  United Silicon Inc. ("USIC"), for
the  purpose of building  and  managing  an 8-inch  semiconductor  manufacturing
facility in Taiwan.  Between  January 1996 and July 1998,  the Company  invested
approximately  $16.8 million and acquired  approximately 3.2% of the outstanding
shares of USIC. The Company has the right to purchase  approximately 3.7% of the
manufacturing capacity of the facility.

In June 1999, UMC, a publicly traded company in Taiwan, announced plans to merge
four  semiconductor  wafer foundry units, USC, USIC,  United Integrated  Circuit
Corporation  and  UTEK  Semiconductor  Corporation,  into  UMC and  subsequently
completed the merger in January 2000. Through its representation on USC's board,
the  Company  had the right to choose  whether  to  consent  to the  merger  and
concluded it to be in the Company's  best interest to do so.  Alliance  received
247.7  million  shares  of UMC  stock for its  247.7  million  shares,  or 14.8%
ownership of USC,  and  approximately  35.6 million  shares of UMC stock for its
48.1 million  shares,  or 3.2% ownership of USIC. As a result of the merger,  at
March  31,  2000  Alliance  owned   approximately   283.3  million  shares,   or
approximately  3.2%,  of UMC,  and  maintained  its 25% and 3.7% wafer  capacity
allocation  rights  in the  former  USC and  USIC  foundries,  respectively.

There can be no assurance that the Company's  current  foundries,  together with
any additional sources,  will be able or willing to satisfy all of the Company's
requirements  on  a  timely  basis.  The  Company  has  encountered   delays  in
qualification and production  ramp-up in the past and the production  ramp-up at
any additional  foundries could take longer than anticipated.  In the event that
the  Company's  foundries  are  unable or  unwilling  to satisfy  the  Company's
requirements in a timely manner,  the Company's  results of operations  could be
materially adversely affected. In addition,  some of UMC's foundries are located
in the  Science-Based  Industrial  Park in Hsin-Chu  City,  Taiwan.  The Company
currently  expects  these  foundries  to supply the  substantial  portion of the
Company's  products in fiscal 2001.  Disruption  of  operations at the Company's
foundries for any reason, including work stoppages, fire, earthquakes as was the
case in  September  1999,  or other  natural  disasters,  could cause  delays in
shipments of the Company's products, and could have a material adverse effect on
the  Company's  results of  operations.  In or about October 1997, a fire caused
extensive  damage to one of UMC's foundries,  not used by the Company,  which is
located in the Hsin-Chu Science-Based  Industrial Park. There have been at least
two  other  fires at  semiconductor  manufacturing  facilities  in the  Hsin-Chu
Science-Based  Industrial  Park.  There can be no assurance  that fires or other
disasters  will not have a  material  adverse  effect on UMC in the  future.  In
addition, as a result of the rapid growth of the semiconductor industry based in
the Hsin-Chu Science-Based  Industrial Park, severe constraints have been placed
on the water and  electricity  supply in that region.  Any shortages of water or
electricity  could adversely affect the Company's  foundries'  ability to supply
the  Company's  products,  which  could  have a material  adverse  effect on the
Company's results of operations.

The Company is using  multiple  sources for certain of its  products,  which may
require the Company's customers to perform separate product qualifications.  The
Company  has not,  however,  developed  alternate  sources of supply for certain
other  products,  and its  newly  introduced  products  are  typically  produced
initially by a single  foundry until  alternate  sources can be  qualified.  The
requirement  that  a  customer  perform  separate  product  qualifications  or a
customer's  inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product  requirements  from the Company's
competitors, which would adversely affect the Company's results of operations.

The Company  purchases  semiconductor  wafers from these  foundries  pursuant to
various  agreements.  The Company  believes that its  relationship  with each of
these foundries is good. However, UMC and Chartered manufacture similar products
which are sold to the Company's competitors.

Reliance on these foundries  involves several risks,  including;  constraints or
delays in timely  delivery  of the  Company's  products,  reduced  control  over
delivery  schedules,  quality  assurance,  costs and loss of  production  due to
seismic  activity,  weather  conditions and other factors.  Although the Company
continuously  evaluates sources of supply and may seek to add additional foundry
capacity,  there  can be no  assurance  that  such  additional  capacity  can be
obtained at acceptable  prices, if at all. The occurrence of any supply or other
problem  resulting from these risks could have a material  adverse effect on the
Company's  results  of  operations.  There  can be no  assurance  that  problems
affecting  manufacturing  yields of the Company's products will not occur in the
future such as occurred during late in fiscal 1996.

                                     - 7 -
<PAGE>

The Company uses offshore subcontractors,  which are located primarily in Taiwan
and Singapore for die assembly and testing. In the assembly process, the silicon
wafers are separated into  individual dies that are then assembled into packages
and tested in accordance  with  procedures  developed by the Company.  Following
assembly,  the packaged devices are further tested and inspected pursuant to the
Company's  quality  assurance  program before  shipment to customers.  While the
timeliness, yield and quality of product deliveries from the Company's suppliers
of assembly and test  services  have been  acceptable  to date,  there can be no
assurance that problems will not occur in the future. Any significant disruption
in adequate supplies from these subcontractors,  or any other circumstances that
would require the Company to qualify alternative sources of supply,  could delay
shipment and result in the loss of customers,  limitations  or reductions in the
Company's  revenue,  and other  adverse  effects  on the  Company's  results  of
operations.  Most  of  the  Company's  wafer  foundries,  assembly  and  testing
facilities comply with the requirements of ISO 9000.

There is an ongoing risk that the  suppliers of wafer  fabrication,  wafer sort,
assembly and test  services to the Company may increase the price charged to the
Company for the services they provide,  to the point that the Company may not be
able to profitably have its products produced by such suppliers.  The occurrence
of such price  increases  could have a material  adverse effect on the Company's
results of operations.

The Company also is subject to the risks of shortages  and increases in the cost
of raw materials used in the manufacture or assembly of the Company's  products.
Shortages of raw  materials or  disruptions  in the provision of services by the
Company's  assembly or testing houses or other  circumstances that would require
the Company to seek  alternative  sources of supply,  assembly or testing  could
lead to constraints or delays in timely delivery of the Company's products. Such
constraints  or delays  may  result  in the loss of  customers,  limitations  or
reductions  in the Company's  revenue or other adverse  effects on the Company's
results  of  operations.   The  Company's  reliance  on  outside  foundries  and
independent assembly and testing houses involves several other risks,  including
reduced  control  over  delivery   schedules,   quality   assurance  and  costs.
Interruptions in supply at the Company's foundries or assembly or testing houses
may cause delays in delivery of the Company's  products.  The  occurrence of any
supply or other problem  resulting from the risks  described  above could have a
material adverse effect on the Company's results of operations.

COMPETITION

The  semiconductor  industry is intensely  competitive and is  characterized  by
price erosion,  rapid technological change,  product obsolescence and heightened
international  competition in many markets.  Many of the Company's customers may
be purchasing products from both the Company and the Company's competitors.  The
Company's  principal  competitors  include  Cypress  Semiconductor  Corporation;
Integrated Device Technology,  Inc.; Integrated Silicon Solutions,  Inc.; Micron
Technology,  Inc.; AMD; NEC; Samsung; Toshiba; and other U.S., Japanese, Korean,
and Taiwanese  manufacturers.  Most of the Company's  competitors  and potential
competitors  have  substantially   greater  financial,   technical,   marketing,
distribution  and other  resources,  broader  product lines and  longer-standing
relationships with customers than the Company. During an industry recession such
as occurred in 1998, 1997 and 1996 in the SRAM and DRAM markets,  companies that
have broader product lines and longer-standing  customer relationships may be in
a stronger  competitive  position than the Company. In addition,  as the Company
enters new markets,  the Company may face  additional  competition.  Markets for
most of the Company's  products are characterized by intense price  competition.
The  Company's  future  success  will be highly  dependent  upon the  successful
development  and timely  introduction of new products that meet the needs of the
market at a competitive  price.  There can be no assurance that the Company will
be able to  develop  or  market  any such  products  successfully.  The  Company
believes that its ability to compete successfully depends on a number of factors
both  within and  outside of its  control,  including  price,  product  quality,
performance,  success in developing  new products,  adequate  foundry  capacity,
sources  of raw  materials,  efficiency  of  production,  timing of new  product
introductions  by  competitors,  protection  of Company  products  by  effective
utilization  of  intellectual  property  laws and  general  market and  economic
conditions.  There can be no assurance  that the Company will be able to compete
successfully in the future.

LICENSES, PATENTS AND MASKWORK PROTECTION

The  Company  seeks to  protect  its  proprietary  technology  by filing  patent
applications in the United States and  registering its circuit designs  pursuant
to the  Semiconductor  Chip  Protection  Act of 1984.  As of June 21, 2000,  the
Company holds 54 United States patents  covering  certain aspects of its product
designs or manufacturing technology, which patents expire between 2009 and 2018.
The Company also has 24 pending United States

                                     - 8 -
<PAGE>

patent  applications,  six of which have been  allowed  and are  expected  to be
issued as  patents.  No  assurance  can be given that the claims  allowed on any
patents held by the Company will be sufficiently  broad to protect the Company's
technology.  In addition,  no assurance can be given that any patents  issued to
the Company will not be  challenged,  invalidated  or  circumvented  or that the
rights granted  thereunder will provide  competitive  advantages to the Company.
The loss of patent  protection on the Company's  technology or the circumvention
of its patent  protection by competitors could have a material adverse effect on
the Company's ability to compete  successfully in its products  business.  There
can be no  assurance  that any  existing or future  patent  applications  by the
Company will result in issued patents with the scope of the claims sought by the
Company, or at all, that any current or future issued or licensed patents, trade
secrets or know-how will afford sufficient  protection against  competitors with
similar  technologies  or  processes,  or that any  patents  issued  will not be
infringed  upon or  designed  around by  others.  In  addition,  there can be no
assurance that others will not independently  develop  proprietary  technologies
and processes, which are the same as or substantially, equivalent or superior to
those of the Company.

From time to time,  the Company is contacted by companies who hold patents which
they  claim the  Company  infringes.  As of June 19,  2000,  the  Company  is in
discussions  with two  companies  who have  made  such  claims.  If the  Company
determines that the Company  possibly  infringes a patent and the patent appears
valid,  the Company  will  negotiate  a license,  if  possible.  There can be no
assurance  that the Company has not or will not infringe prior or future patents
owned by  others,  that the  Company  will not need to  acquire  licenses  under
patents  belonging to others for technology  potentially  useful or necessary to
the Company,  or that such licenses will be available to the Company, if at all,
on terms acceptable to the Company.

Copyrights  and maskwork  protection are also key elements in the conduct of the
Company's  business.  The Company also relies on trade  secrets and  proprietary
know-how,  which it seeks to  protect  by  confidentiality  agreements  with its
employees and  consultants,  and with third  parties.  There can be no assurance
that these agreements will not be breached,  that the Company will have adequate
remedies for any breach, or that its trade secrets and proprietary know-how will
not otherwise become known or be independently discovered by others.

The  semiconductor  industry is  characterized by frequent claims and litigation
regarding patent and other  intellectual  property rights.  The Company has from
time to time  received,  and believes that it likely will receive in the future,
notices  alleging  that  the  Company's  products,  or  the  processes  used  to
manufacture the Company's products, infringe the intellectual property rights of
third parties.  The ultimate conclusion with respect to any alleged infringement
must  be  determined  by a  court  or  administrative  agency  in the  event  of
litigation,  and there can be no assurance that a court or administrative agency
would  determine  that the  Company's  products do not  infringe  the patents in
question.  Patent  litigation  is inherently  uncertain  and the Company  cannot
predict the result of any such  litigation or the level of damages that could be
imposed  if it  were  determined  that  certain  of the  Company's  products  or
processes  infringe any of the patents in question.  The Company currently is in
litigation with Advanced Micro Devices,  Inc. ("AMD")  concerning  claims by AMD
that the Company's flash memory devices  infringe two AMD patents.  See Item 3 -
Legal Proceedings, below.

There can be no  assurance  that other  third  parties  will not  assert  claims
against the Company with respect to existing or future  products or that, in the
case  of the  existing  or  potential  allegations  described  above  or any new
dispute,  licenses to  disputed  third-party  technology  will be  available  on
reasonable  commercial terms, if at all. In the event of litigation to determine
the  validity  of any  third-party  claims (or claims  against  the  Company for
indemnification  related to such third-party  claims),  including the claims and
potential  claims  referred  to in the  preceding  paragraph,  such  litigation,
whether or not  determined in favor of the Company,  could result in significant
expense to the  Company and divert the efforts of the  Company's  technical  and
management  personnel from other  matters.  In the event of an adverse ruling in
such litigation, the Company might be required to cease the manufacture, use and
sale of  infringing  products,  discontinue  the use of certain  processes,  and
expend  significant  resources to develop  non-infringing  technology  or obtain
licenses to the infringing technology. In addition, depending upon the number of
infringing products and the extent of sales of such products,  the Company could
suffer significant  monetary damages. In the event of a successful claim against
the  Company  and the  Company's  failure to  develop  or  license a  substitute
technology,  the Company's  results of operations could be materially  adversely
affected.  In addition,  the laws of certain  territories in which the Company's
products are or may be developed,  manufactured or sold,  including Asia, Europe
or Latin  America,  may not  protect the  Company's  products  and  intellectual
property rights to the same extent as the laws of the United States.

                                     - 9 -
<PAGE>

BACKLOG

Sales of the Company's  products are made pursuant to standard  purchase orders.
Purchase  orders are subject to changes in  quantities  of products and delivery
schedules  in order to reflect  changes in the  customers'  requirements  and to
price  renegotiations.  In  addition,  orders  typically  may be canceled at the
discretion of the buyer without enforceable penalty. The Company's business,  in
line with that of much of the  semiconductor  industry is characterized by short
lead-time  orders and quick  delivery  schedules.  Also,  the  Company's  actual
shipments  depend on the  manufacturing  capacity  of the  Company's  foundries.
Finally, capacity constraints or unexpected manufacturing delays may prevent the
Company from meeting the demand for certain of its products.  Therefore  backlog
is not necessarily indicative of future sales.

INVESTMENTS

CHARTERED SEMICONDUCTOR CORPORATION

In  February  and  April  1995,  the  Company   purchased  shares  of  Chartered
Semiconductor  ("Chartered") for approximately  $51.6 million and entered into a
manufacturing  agreement whereby Chartered agreed to provide a minimum number of
wafers from its 8-inch wafer fabrication  facility known as "Fab2.", if Alliance
so chooses. In October 1999, Chartered  successfully completed an initial public
offering in Singapore  and the United  States.  At March 31,  2000,  the Company
owned  approximately  21.4 million ordinary shares or approximately 2.14 million
American  Depository  Shares or "ADSs." These shares were subject to a six-month
"lock-up",  or no trade  period,  which  expired  in April  2000.  In May  2000,
Chartered  completed a secondary public  offering,  in which the Company decided
not to  participate.  The  Companies  shares are now  subject  to an  additional
three-month   "lock-up"  which  expires  in  August  2000.  In  June  2000,  the
underwriter of the secondary  offering released the Company from the lockup, and
the  Company  started  selling  some of its shares.  The Company  does not own a
material percentage of the equity of Chartered.

Given the market risk for securities,  when these shares are ultimately sold, it
is possible that additional gain or loss will be reported.  If the Company sells
more that 50% of its original  holdings of Chartered,  the Company will start to
lose a proportionate share of its wafer production capacity rights,  which could
materially affect its ability to conduct its business.

Since Chartered is in the semiconductor  business, as is the Company, it will be
subject to the same  fluctuations  in market  value as is the  Company,  and may
experience  downturns in value at the same time the Company is experiencing such
downturns.  All of the risks that the Company may experience as a  semiconductor
company are also applicable to Chartered.  In addition,  because  Chartered is a
semiconductor manufacturer, it is subject to additional risks, such at fires and
other  disasters,   excess  fabrication  capacity,  and  other  risks  known  to
semiconductor  manufacturers.  There  can be no  assurances  that the  Company's
investment  in  Chartered  will  increase in value or even  maintain  its value.
Because of the cyclical nature of the semiconductor  industry, it is very likely
that  Chartered,  like the  Company,  will  experience  a  significant  business
downturn in the future, which will significantly  depress the value of Chartered
stock. Additionally, because of the loss of its wafer production capacity rights
if the Company sells more than 50% of its original holdings in Chartered,  there
can be no assurance  that the Company can sell  sufficient  stock to realize its
value on its investment in Chartered.

UNITED MICROELECTRONICS CORPORATION

In July 1995, the Company entered into an agreement with United Microelectronics
Corporation  ("UMC")  and S3  Incorporated  ("S3") to form a separate  Taiwanese
company,  United Semiconductor  Corporation ("USC"), for the purpose of building
and managing an 8-inch semiconductor  manufacturing  facility in Taiwan. Between
September 1995 and July 1997 the Company invested approximately $70.4 million in
USC in exchange for 190 million shares or 19% of the outstanding  shares and 25%
of the total wafer capacity.

In April 1998, the Company received  approximately US$31.7 million In connection
with the sale of 35  million  shares of USC,  and the  Company  had the right to
receive an additional New Taiwan Dollars ("NTD") 665 million upon the occurrence
of certain potential future events, including the sale or transfer of USC shares
by USC in an arms length  transaction,  or by a public offering of USC stock, or
by the sale of all or  substantially  all of the assets of USC.  In March  2000,
this right resulted in Alliance's  receipt of approximately NTD 665 million (US$
21.5 million) as a result of the merger between USC and UMC.

                                     - 10 -
<PAGE>

Following the April 1998 USC stock sale, the Company owned  approximately  15.5%
of the outstanding  shares of USC. In October 1998, USC issued 46 million shares
to the Company by way of a dividend distribution. Additionally, USC made a stock
distribution  to its  employees,  thereby  the  Company's  ownership  in USC was
reduced to 15.1% of the outstanding shares. In April 1999, USC issued 46 million
shares to the Company by way of dividend  distribution as well as  distributions
to  other  entities.  As a result  of these  distributions,  the  Company  owned
approximately 14.8% of the outstanding shares.

Prior to the merger with UMC, the Company, as part of its investment in USC, was
entitled  to 25% of the  output  capacity  of  the  wafer  fabrication  facility
operated by USC as well as a seat on the board of  directors of USC. As a result
of the capacity rights, the board seat, and certain contractual rights, Alliance
had  participated in both strategic and operating  decisions of USC on a routine
basis,  had rights of approval  with  respect to major  business  decisions  and
concluded that it had significant influence on financial and operating decisions
of USC.  Accordingly,  the Company accounted for its investment in USC using the
equity method with a ninety-day lag in reporting the Company's  share of results
for the entity.  In fiscal  years 2000,  1999 and 1998 the Company  reported its
proportionate share of equity income of USC of $9.5 million,  $10.9 million, and
$15.5 million, net of tax, respectively.

In October  1995,  the  Company  entered  into an  agreement  with UMC and other
parties to form a separate Taiwanese company,  United Silicon Inc. ("USIC"), for
the  purpose of building  and  managing  an 8-inch  semiconductor  manufacturing
facility in Taiwan.  Between  January 1996 and July 1998,  the Company  invested
approximately  $16.8  million and owned  approximately  3.2% of the  outstanding
shares of USIC has the right to purchase approximately 3.7% of the manufacturing
capacity of the facility. The Company accounted for its investment in USIC using
the cost method of accounting prior to the merger with UMC in January 2000.

In June 1999, UMC, a publicly traded company in Taiwan, announced plans to merge
four  semiconductor  wafer foundry units, USC, USIC,  United Integrated  Circuit
Corporation  and  UTEK  Semiconductor  Corporation,  into  UMC and  subsequently
completed the merger in January 2000. Through its representation on USC's board,
the  Company  had the right to choose  whether  to  consent  to the  merger  and
concluded it to be in the Company's best interest to do so. The Company received
247.7  million  shares  of UMC  stock for its  247.7  million  shares,  or 14.8%
ownership of USC,  and  approximately  35.6 million  shares of UMC stock for its
48.1 million  shares,  or 3.2% ownership of USIC. As a result of the merger,  at
March 31,  2000,  the Company  owned  approximately  283.3  million  shares,  or
approximately  3.2% of UMC,  and  maintained  its 25% and  3.7%  wafer  capacity
allocation  rights in the former USC and USIC  foundries,  respectively.  As the
Company no longer has an ability to exercise  significant  influence  over UMC's
operations, the investment in UMC is accounted for as a cost method investment.

During the fiscal fourth quarter of 2000, the Company  recognized a $908 million
pre-tax,  non-operating  gain as a result of the merger.  The gain was  computed
based on the share price of UMC at the date of the merger  (i.e.  NTD 112, or US
$3.5685),  as well as the approximately $21.5 million additional gain related to
the sale of the USC shares in April 1998.  The Company has accrued  $3.0 million
for the Taiwan securities transaction tax in connection with the shares received
by the Company.  This  transaction tax will be paid, on a per share basis,  when
the securities are sold.

According to Taiwanese laws and regulations, 50% of the 283.3 million Alliance's
UMC shares are subject to a six-month "lock-up" or no trade period. This lock-up
period  expires in July 2000.  Of the remaining  50%, or 141.6  million  shares,
approximately  28.3 million shares will become  eligible for sale two years from
the closing date of the transaction (i.e. January 2002), with approximately 28.3
million  shares  available  for sale every six months  thereafter,  during years
three and four (i.e.2002-2004).  In May 2000, the Company received an additional
20% or 56.6 million shares of UMC by way of a stock dividend.

Subsequent to the completion of the merger,  the Company  accounts for a portion
(approximately  50% at March 31, 2000) of its  investment in UMC,  which becomes
unrestricted within twelve months as an  available-for-sale  marketable security
in  accordance  with SFAS 115. At March 31,  2000,  the Company has  recorded an
unrealized gain of approximately $25.7 million,  which is net of deferred tax of
$17.6  million,  as  part  of  accumulated  other  comprehensive  income  in the
stockholders' equity section of the balance sheet with respect to the short term
portion of the  investments.  The  portion of the  investment  in UMC,  which is
restricted beyond twelve months  (approximately 50% of the Company's holdings at
March 31, 2000),  is accounted for as a cost method  investment and is presented
as a long-term investment.  As this long-term portion becomes current over time,
the  investment

                                     - 11 -
<PAGE>

will be  transferred to short-term  investments  and will be accounted for as an
available-for-sale   marketable  security  in  accordance  with  SFAS  115.  The
long-term portion of the investments become unrestricted securities between 2002
and 2004.

Given the market risk for securities,  when these shares are ultimately sold, it
is possible that additional gain or loss will be reported.  If the Company sells
more that 50% of its original  holdings of UMC, the Company will start to lose a
proportionate  share  of its  wafer  production  capacity  rights,  which  could
materially affect its ability to conduct its business.

Since  UMC is in the  semiconductor  business,  as is the  Company,  it  will be
subject to the same  fluctuations  in market  value as is the  Company,  and may
experience  downturns in value at the same time the Company is experiencing such
downturns.  All of the risks that the Company may experience as a  semiconductor
company are also applicable to UMC. In addition,  because UMC is a semiconductor
manufacturer,  it is  subject  to  additional  risks,  such as fires  and  other
disasters,  excess fabrication capacity,  and other risks known to semiconductor
manufacturers.  There can be no assurance  that the Company's  investment in UMC
will  increase  in value or even  maintain  its value.  Because of the  cyclical
nature of the  semiconductor  industry,  it is very  likely  that UMC,  like the
Company,  will experience a significant  business downturn in the future,  which
will significantly depress the value of UMC stock. Additionally,  because of the
loss of its wafer production  capacity rights if the Company sells more than 50%
of its original  holdings in UMC, there can be no assurance that the Company can
sell sufficient stock to realize its value on its investment in UMC.

MAVERICK NETWORKS, INC. / BROADCOM CORPORATION

In 1998, the Company was  approached by a startup  company,  Maverick  Networks,
Inc.  ("Maverick"),  regarding  their need for  imbedded  memory in an  internet
router  semiconductor that Maverick was designing.  Because the Company was also
interested in eventually entering the internet router semiconductor  market, the
Company  entered into an agreement with Maverick which called for the Company to
provide memory technology,  access to the Company's wafer production rights, and
cash to Maverick,  in exchange for certain  rights to Maverick's  technology and
stock in  Maverick.  On May 31,  1999,  Maverick  completed a  transaction  with
Broadcom  Corporation,  resulting  in the  Company  selling  its  39%  ownership
interest in Maverick in exchange for 538,961 shares of Broadcom's Class B common
stock.  Based on Broadcom's closing share price on the date of sale, the Company
recorded a pre-tax,  non-operating  gain in the first  quarter of fiscal 2000 of
approximately  $51.6 million based on the closing share price of Broadcom at the
date of the merger.  During  fiscal 2000,  the Company  sold  275,600  shares of
Broadcom  stock  and  realized  an  additional  pre-tax,  non-operating  gain of
approximately $23.7 million. In February 2000, Broadcom Corporation  announced a
two for one stock split.

Broadcom's  stock,  like many other high  technology  stocks,  has  historically
experienced  material and  significant  fluctuations  in market value,  and will
probably  continue  to do so in the future.  Additionally,  because it is common
that high technology stocks,  like Broadcom's and the Company's,  sometimes move
as a group, it is likely that Broadcom's  stock and the Company's stock can both
suffer  significant  loss in value at the same time,  as occurred in early 2000.
Thus,  there can be no assurance that the Company's  investment in Broadcom will
increase in value or even maintain its value.

ALLIANCE VENTURE MANAGEMENT, LLC

In October 1999, the Company formed Alliance Venture Management, LLC, ("Alliance
Venture Management"),  a California limited liability corporation, to manage and
act as the general partner in the investment funds the Company intended to form.
Alliance  Venture  Management does not directly  invest in the investment  funds
with the Company,  but is entitled to a management fee out of the net profits of
the investment funds.  This management  company structure was created to provide
incentives  to  the  individuals  who  participate  in  the  management  of  the
investment  funds by allowing them limited  participation  in the profits of the
various  investment  funds through the  management  fees paid by the  investment
funds.

In November 1999, the Company formed Alliance Ventures I, LP ("Alliance Ventures
I") and Alliance  Ventures II, LP  ("Alliance  Ventures  II"),  both  California
limited partnerships. The Company, as the sole limited partner, owns 100% of the
shares of each  partnership.  Alliance  Venture  Management  acts as the general
partner  of these  partnerships  and  receives  a  management  fee of 15% of the
profits from these partnerships for its managerial efforts.

                                     - 12 -
<PAGE>

At Alliance  Venture  Management's  inception in November 1999,  series A member
units and series B member units in Alliance Venture Management were created. The
unit holders of Series A units and Series B units receive management fees of 15%
of investment  gains realized by Alliance  Ventures I and Alliance  Ventures II,
respectively.  In February 2000, upon the creation of Alliance  Ventures III, LP
("Alliance  Ventures  III"),  the  management  agreement  for  Alliance  Venture
Management  was amended to create  series C member  units which are  entitled to
receive  a  management  fee of 16% of  investment  gains  realized  by  Alliance
Ventures III.

Each of the  owners  of the  Series  A, B and C member  units  paid the  initial
carrying value for their shares of the member units. While the Company owns 100%
of the common units in Alliance Venture Management,  it does not hold any series
A, B or C member units and does not participate in the management fees generated
by the  management of the  investment  funds.  Several of the  Company's  senior
management hold the majority of the units of Alliance Venture Management.

After  Alliance  Ventures I was  formed,  the Company  contributed  all its then
current investments,  except Chartered, UMC and Broadcom, to Alliance Ventures I
to allow Alliance Venture  Management to manage these  investments.  As of March
31,  2000,  Alliance  Ventures I, whose focus is  investing  in  networking  and
communication  start-up  companies,  has invested $22.3 million in 10 companies,
with a fund allocation of $20 million.  Alliance  Ventures II, whose focus is in
investing in internet start-up ventures, has invested approximately $4.4 million
in 8 companies,  from a total fund  allocation  of $15 million.  As of March 31,
2000,  Alliance Ventures III, whose focus is investing in emerging  companies in
the networking and  communication  market areas,  has invested $2 million in one
company, from a total fund allocation of $100 million.

Certain of the Company's officers have formed private venture funds which invest
in some of the same investments as the Company. Additionally, an outside venture
fund is being formed in which certain of the Company's  officers and  employees,
as well as the Company itself, are planning to make similar venture investments.

Alliance Venture Management  generally directs the individual funds to invest in
startup, pre-IPO (initial public offering) companies. These types of investments
are  inherently  risky,  and  many  venture  funds  have a large  percentage  of
investments decrease in value or fail.  Successful investing relies on the skill
of the  investment  managers,  but also on market and other factors  outside the
control of the managers. Recently, the market for these types of investments has
been successful and many venture capital funds have been  profitable,  and while
the  Company  has been  successful  in its recent  investments,  there can be no
assurance  as to any future or continued  success.  It is likely there will be a
downturn  in the  success of these  types of  investments  in the future and the
Company will suffer significant  diminished success in these investments.  There
can be no assurance,  and in fact it is likely, that many or most, and maybe all
of the Company's  venture type  investments may fail,  resulting in the complete
loss of some or all the  money  the  Company  has  invested  in  these  types of
investments.

OROLOGIC CORPORATION  / VITESSE SEMICONDUCTOR CORPORATION

In  August  1999,  the  Company  made  an  investment  in  Orologic  Corporation
("Orologic"),  a fabless  semiconductor  company that develops high  performance
system on a chip  solutions.  In  November  1999,  the Company  transferred  its
interest  in  Orologic  to  Alliance  Ventures  I, to allow it to be  managed by
Alliance Venture Management.  Subsequently, in March 2000, Vitesse Semiconductor
Corporation  ("Vitesse")  acquired  Orologic.  In  connection  with this merger,
Alliance  Ventures I received  852,447 shares of Vitesse for its equity interest
in Orologic. As a result of the merger, the Company recognized approximately $69
million pre-tax,  non-operating  gain, in its fiscal fourth quarter ending March
31,  2000,  based on the  closing  share price of Vitesse of $96.25 on March 31,
2000,  the closing date of the merger.  The Company  records its  investment  in
Vitesse Semiconductor  Corporation as an available-for-sale  marketable security
in accordance with SFAS 115. At March 31, 2000, the Company owned 852,447 shares
of Vitesse.

                                     - 13 -
<PAGE>

On May 12, 2000,  Alliance  Ventures I made a distribution  of the Vitesse stock
that had been  acquired by Alliance  Ventures I in exchange  for its sale of one
million shares of Orologic as follows:

<TABLE>
<CAPTION>

                                             Shares of Vitesse
                                             -----------------
<S>                                               <C>
Alliance                                          632,876
11.21%  shares  to be held in  escrow  for         95,417
  Alliance
Alliance Venture Management                       124,154
                                             -----------------
Total  shares   resulting   from  sale  of        852,447
  1,000,000 Orologic shares
                                             =================
</TABLE>

Alliance Ventures Management then immediately  distributed the Vitesse shares to
its unit holders.

Vitesse's  stock,  like many  other high  technology  stocks,  has  historically
experienced  material and  significant  fluctuations  in market value,  and will
probably  continue  to do so in the future.  Additionally,  because it is common
that high technology stocks, like Vitesse's and the Company's, sometimes move as
a group,  it is likely that  Vitesse's  stock and the  Company's  stock can both
suffer  significant  loss in value at the same time,  as occurred in early 2000.
Thus,  there can be no assurance  that the Company's  investment in Vitesse will
increase in value or even maintain its value.

MALLEABLE TECHNOLOGIES, INC.  /  PMC-SIERRA, INC.

In  1999,  the  Company  made  an  investment  in a  start-up  called  Malleable
Technologies,  Inc.  ("Malleable").  This investment was transferred to Alliance
Venture I, LP,  upon its  creation.  In June  2000,  PMC-Sierra,  Inc.  ("PMC"),
announced  that it agreed to acquire  Malleable.  According  to the terms of the
proposed acquisition, PMC will exchange 1.25 million shares of PMC stock for the
remaining 85% interest of Malleable that PMC does not already own. In connection
with the proposed merger,  Alliance Ventures I will receive approximately 79,000
shares of PMC for its 7%  interest  in  Malleable.  Upon the  completion  of the
merger,  the Company will report a gain based on the closing  share price of PMC
on the date of the merger.  Based on the closing  share price of PMC on June 14,
2000,  the estimated  pretax gain from this  transaction  is  approximately  $11
million.

PMC's  stock,  like  many  other  high  technology   stocks,   has  historically
experienced  material and  significant  fluctuations  in market value,  and will
probably  continue  to do so in the future.  Additionally,  because it is common
that high technology stocks,  like PMC's and the Company's,  sometimes move as a
group,  it is likely  that PMC's stock and the  Company's  stock can both suffer
significant  loss in value at the same time,  as occurred  in early 2000.  Thus,
there can be no assurance that the Company's  investment in PMC will increase in
value or even maintain its value.

THE INVESTMENT COMPANY ACT OF 1940

Following a special  study after the stock  market crash of 1929 and the ensuing
Depression, Congress enacted the Investment Company Act of 1940 (the "Act"). The
Act was primarily meant to regulate mutual funds,  such as the families of funds
offered by the Fidelity and Vanguard  organizations  (to pick two of many),  and
the smaller  number of closed-end  investment  companies  that are traded on the
public stock markets.  In those cases the funds in question describe  themselves
as being in the business of investing, reinvesting and trading in securities and
generally own relatively  diversified  portfolios of publicly traded  securities
that are issued by companies that the investment  companies do not control.  The
fundamental  intent of the Act is to protect the  interests of public  investors
from fraud and  manipulation  by the  people  who  establish  and  operate  such
investment  companies,  which constitute large pools of liquid assets that could
be used improperly, or be not properly safeguarded, by the persons in control of
them.

When the Act was written,  its drafters (and  Congress) also felt that a company
could,  either  deliberately  or  inadvertently,   come  to  have  the  defining
characteristics of an investment company without  proclaiming that fact or being
willing to voluntarily submit itself to regulation as an acknowledged investment
company,  and that  investors in such a company could be just as much in need of
protection  as are  investors  in  companies  that are openly  and  deliberately
established  as  investment  companies.  In order to deal  with  this  perceived
potential  abuse,  the Act and rules under it contain  provisions  and set forth
principles that are designed to differentiate  "true"  operating  companies from
companies  that may be  considered  to have  sufficient  investment-company-like
characteristics  to  require  regulation  by the Act's  complex  procedural  and
substantive  requirements.  These provisions apply to companies that own or hold
securities,  as well as companies that invest, reinvest and trade in securities,
and  particularly  focus  on  determining  the  primary  nature  of a  company's
activities,  including  whether an investing

                                     - 14 -
<PAGE>

company  controls and does business through the entities in which it invests or,
instead,  holds  its  securities  investments  passively  and  not as part of an
operating  business.  For instance,  under what is, for most purposes,  the most
liberal  of the  relevant  tests,  a company  may  become  subject  to the Act's
registration  requirements if it either holds more than 45% of its assets in, or
derives more than 45% of its income  from,  investments  in  companies  that the
investor  does not  primarily  control or through  which it does not actively do
business.  In making these  determinations  the Act  generally  requires  that a
company's  assets be valued on a current fair market value basis,  determined on
the basis of  securities'  public  trading  price  or,  in the case of  illiquid
securities and other assets, in good faith by the company's board of directors.

The Company  viewed its  investments  in  Chartered,  USC and USIC as  operating
investments primarily intended to secure adequate wafer manufacturing  capacity;
as previously noted, the Company's access to the manufacturing resources that it
obtained in  conjunction  with those  investments  will  decrease if the Company
ceases to own at least 50% of its original  investments in the  enterprises,  as
modified,  in the cases of USC and USIC,  by their merger into UMC. In addition,
the  Company  believes  that,  before  USC's  merger  into  UMC,  the  Company's
investment in USC  constituted  a joint  venture  interest that the staff of the
Securities  and Exchange  Commission  (the "SEC") would not regard as a security
for purposes of determining the proportion of the Company's assets that might be
viewed as having been held in passive investment securities. However, because of
the success  during the last year of the  Company's  investments,  including its
strategic  wafer  manufacturing  investments,  at  least  from  the  time of the
completion  of the merger of USC and USIC into UMC in January  2000 the  Company
believes that it could be viewed as holding a much larger  portion of its assets
in  investment  securities  than  is  presumptively  permitted  by the Act for a
company that is not registered under it.

On the other hand,  the  Company  also  believes  that the  investments  that it
currently  holds in Chartered and UMC, even though in companies that the Company
does not control,  should be regarded as strategic deployments of Company assets
for the purpose of furthering the Company's memory chip business, rather than as
the kind of financial  investments  that  generally are considered to constitute
investment  securities.  Applying  certain  other tests that the SEC utilizes in
determining  investment company status, the Company has never held itself out as
an investment company; its historical development has focused almost exclusively
on the memory chip  business;  the activities of its officers and employees have
been overwhelmingly  addressed to achieving success in the memory chip business;
and until the past year, its income (and losses) have derived almost exclusively
from the memory chip business.  Accordingly, the Company believes that it should
be  regarded  as being  primarily  engaged in a business  other than  investing,
reinvesting,  owning,  holding or trading in securities,  and shortly expects to
apply to the SEC for an order under section  3(b)(2) of the Act  confirming  its
non-investment-company   status.   However,  if  the  Company's  investments  in
Chartered and UMC are now viewed as investment  securities,  it must be conceded
that an unusually  large  proportion of the Company's  assets could be viewed as
invested in assets that would, under most circumstances, give rise to investment
company status.  Therefore,  while the Company  believes that it has meritorious
arguments as to why it should not be considered an investment company and should
not be subject to regulation  under the Act,  there can be no assurance that the
SEC  will  agree.  And  even if the SEC  grants  some  kind  of  exemption  from
investment company status to the Company, it may place significant  restrictions
on the  amount and type of  investments  the  Company is allowed to hold,  which
might  force the Company to divest  itself of many of its  current  investments.
Significant  potential  penalties  may be imposed  upon a company that should be
registered  under  the Act  but is  not,  and the  Company  intends  to  proceed
expeditiously to resolve its status.

If the Company does not receive an exemption  from the SEC, the Company would be
required  to  register  under  the  Act as a  closed-end  management  investment
company. In the absence of exemptions granted by the SEC (if it determines to do
so in its  discretion  after an  assessment  of the  public  interest),  the Act
imposes a number of significant  requirements and  restrictions  upon registered
investment  companies that do not normally apply to operating  companies.  These
would  include,  but not be limited to, a  requirement  that at least 40% of the
Company's  board of  directors  not be  "interested  persons"  of the Company as
defined in the Act and that those  directors be granted  certain  special rights
with  respect to the  approval of certain  kinds of  transactions  (particularly
those  that  pose a  possibility  of  giving  rise to  conflicts  of  interest);
prohibitions  on the grant of stock options that would be  outstanding  for more
than 120 days and upon the use of stock for compensation  (which could be highly
detrimental to the Company in view of the competitive  circumstances in which it
seeks to attract and retain  qualified  employees);  and broad  prohibitions  on
affiliate transactions,  such as the compensation arrangements applicable to the
management of Alliance Venture Management,  many kinds of incentive compensation
arrangements  for  management  employees  and joint  investment  by persons  who
control the Company in  entities in which the Company is also  investing  (which
could require the Company to abandon or significantly restructure its management
arrangements, particularly with respect to its investment activities). While the
Company could apply

                                     - 15 -
<PAGE>

for individual  exemptions from these restrictions,  there could be no guarantee
that such  exemptions  would be  granted,  or granted on terms that the  Company
would deem practical.  Additionally, the Company would be required to report its
financial  results in a different  form from that currently used by the Company,
which would have the effect of turning the  Company's  Statement  of  Operations
"upside down" by requiring that the Company report its investment income and the
results of its investment activities,  instead of its operations, as its primary
sources of revenue.

While the Company is working  diligently to deal with these  investment  company
issues,  there can be no assurance that a manageable solution will be found. The
SEC may be hesitant to grant an exemption from investment  company status in the
Company's  situation,  and it may not be feasible  for the Company to operate in
its present manner as a registered  investment company. As a result, the Company
might be required to divest  itself of assets  that it  considers  strategically
necessary  for the  conduct  of its  operations,  to  reorganize  as two or more
separate companies,  or both. Such divestitures or reorganizations  could have a
material adverse effect upon the Company's business and results of operations.

EMPLOYEES

As of April 1, 2000, the Company had 161 full-time  employees,  consisting of 79
in research and development,  5 in marketing,  15 in sales, 29 in administration
and 33 in operations. Of the 79 research and development employees (38 in the US
and 41 in India), 34 have advanced degrees. In 1997, the Company opened a design
center in India.  The Company  believes that the Company's  future  success will
depend,  in part,  on its ability to  continue  to attract and retain  qualified
technical and management personnel, particularly highly-skilled design engineers
involved in new  product  development,  for whom  competition  is  intense.  The
Company's  employees are not represented by any collective  bargaining unit, and
the Company has never experienced a work stoppage. The Company believes that its
employee relations are good.

The Company has recently  experienced  and may continue to experience  growth in
the  number  of its  employees  and the  scope of its  operating  and  financial
systems,  resulting in increased  responsibilities for the Company's management.
To manage  future  growth  effectively,  the  Company  will need to  continue to
implement  and improve its  operational,  financial and  management  information
systems and to hire, train,  motivate and manage its employees.  There can be no
assurance that the Company will be able effectively to manage future growth, and
the  failure  to do so could  have a material  adverse  effect on the  Company's
results of operations.

The Company will depend to a large extent on the continued  contributions of its
founders,  N. Damodar Reddy,  Chairman of the Board, Chief Executive Officer and
President of the Company,  and his brother C.N. Reddy,  Executive Vice President
and Chief  Operating  Officer of the  Company  (collectively  referred to as the
"Reddys"),  as well as other  officers  and key design  personnel,  many of whom
would be difficult to replace. During fiscal 2000 and subsequently,  a number of
officers  and  design  personnel  left  the  Company  to  pursue  various  other
opportunities.  The future  success of the Company will depend on its ability to
attract and retain qualified  technical and management  personnel,  particularly
highly-skilled  design engineers involved in new product  development,  for whom
competition is intense. The loss of either of the Reddys or key design personnel
could delay  product  development  cycles or otherwise  have a material  adverse
effect on the Company's business. The Company is not insured against the loss of
any of its key employees,  nor can the Company assure the successful recruitment
of new and replacement personnel.

ITEM 2
FACILITIES

The Company's executive offices and its principal  marketing,  sales and product
development  operations  are located in a 56,600 square foot leased  facility in
Santa Clara,  California  under a lease which expires in June 2006.  The Company
has an option to extend the lease for a term of five  years.  The  Company  also
leases  office  space in Hsin-Chu,  Taiwan to manage the  logistics of the wafer
fabrication,  assembly  and testing of the  Company's  products  in Taiwan.  The
Company leases an engineering  office in Bangalore,  India,  and has purchased a
parcel of land in an office park under  development  in  Hyderabad,  India,  for
product development.  Additionally,  the Company leases sales offices in Natick,
Massachusetts;  Heathrow,  Florida;  San Diego,  California:  Berkshire,  United
Kingdom; Taipei, Taiwan; and Japan.

                                     - 16 -
<PAGE>

ITEM 3
LEGAL PROCEEDINGS

In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors  and others in the United States  District
Court for the Northern  District of California,  alleging  violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated  thereunder.  The complaint alleged that the Company, N.D. Reddy and
C.N.  Reddy also had  liability  under  Section  20(a) of the Exchange  Act. The
complaint,  brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's  common stock between July 11,
1995 and December 29, 1995. In April 1997,  the Court  dismissed the  complaint,
with  leave to file an  amended  complaint.  In June  1997,  plaintiff  filed an
amended  complaint against the Company and certain of its officers and directors
alleging  violations  of Sections  10(b) and 20(a) of the Exchange  Act. In July
1997,  The Company moved to dismiss the amended  complaint.  In March 1998,  the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the  ruling  as to the one  claim  not  dismissed.  In June  1998,  the  parties
stipulated to dismiss the remaining  claim without  prejudice,  on the condition
that in the event the dismissal  with  prejudice of the other claims is affirmed
in its entirety,  such remaining claim shall be deemed dismissed with prejudice.
In June 1998,  the court entered  judgment  dismissing  the case pursuant to the
parties' stipulation. Plaintiffs have appealed the court's ruling dismissing the
claims and the parties have filed appeal briefs. The Company intends to continue
to defend vigorously against any claims asserted against it, and believes it has
meritorious defenses. Due to the inherent uncertainty of litigation, the Company
is not able to  reasonably  estimate the potential  losses,  if any, that may be
incurred in relation to this litigation.

In December 1996, Alliance Semiconductor  International  Corporation ("ASIC"), a
wholly-owned  subsidiary  of the Company,  was served with a complaint  filed in
Federal Court  alleging that ASIC had infringed two patents owned by AMD related
to flash memory devices,  and seeking  injunctive  relief and damages.  In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand  its  claims to  include  several  new flash  products  which had been
recently  announced by the Company.  In January and February 2000,  both parties
filed  for  motions  for  summary  judgment.   Each  defendant  has  denied  the
allegations of the complaint and asserted a counterclaim  for  declaration  that
each of the AMD patents is invalid and not infringed by such defendant.  A trial
date is currently set for September 2000. The Company believes the resolution of
this matter will not have a material adverse effect on its financial  conditions
and its results of operations.

In July 1998, the Company  learned that a default  judgment was entered  against
the Company in Canada, in the amount of approximately  US$170 million, in a case
filed in 1985 captioned  Prabhakara  Chowdary Balla and TritTek Research Ltd. v.
Fitch Research  Corporation,  et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry).  The Company,  which had previously not participated in the
case,  believes  that it never was properly  served with process in this action,
and that the Canadian court lacks  jurisdiction over the Company in this matter.
In  addition to  jurisdictional  and  procedural  arguments,  the  Company  also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's  bankruptcy in 1991. In February 1999, the
court set aside the default  judgment  against the Company.  In April 1999,  the
plaintiffs  were granted leave by the Court to appeal this judgment.  The appeal
brief and  reply  briefs  have been  filed and the  parties  are  awaiting  oral
arguments before the Court in June 2000.

In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United  States   International   Trade  Commission  ("ITC")  and  United  States
Department of Commerce  ("DOC"),  alleging that SRAMs  fabricated in Taiwan were
being sold in the  United  States at less than fair  value,  and that the United
States  industry  producing  SRAMs was  materially  injured or  threatened  with
material  injury by reason of imports  of SRAMs  fabricated  in Taiwan.  After a
final  affirmative  DOC  determination  of dumping and a final  affirmative  ITC
determination  of injury,  DOC issued an  antidumping  duty order in April 1998.
Under that  order,  the  Company's  imports  into the United  States on or after
approximately  April 16,1998 of SRAMs fabricated in Taiwan are subject to a cash
deposit in the amount of 50.15% (the "Antidumping  Margin") of the entered value
of  such  SRAMs.  (The  Company  posted  a bond in the  amount  of  59.06%  (the
preliminary  margin)  with  respect to its  importation,  between  approximately
October 1997 and April 1998, of SRAMs  fabricated  in Taiwan.) In May 1998,  the
Company and others filed an appeal in the United  States Court of  International
Trade (the  "CIT"),  challenging  the  determination  by the ITC that imports of
Taiwan-fabricated  SRAMs were causing material injury to the U.S.  industry.  On
June 30,  1999,  the CIT  issued a  decision  remanding  the  ITC's  affirmative
material injury determination to the ITC for  reconsideration.  The ITC's remand
determination  reaffirmed  its original  determination.  The CIT  considered the
remand   determination   and   remanded   it  back   to  the  ITC  for   further
reconsideration.  On June 12, 2000, in its second remand

                                     - 17 -
<PAGE>

determination  the ITC voted negative on injury,  thereby reversing its original
determination that  Taiwan-fabricated  SRAMs were causing material injury to the
U.S. industry. The second remand determination will be transmitted to the CIT on
June 26, 2000 for consideration. The decision of the CIT can be further appealed
to the Court of Appeals for the Federal  Circuit.  The  Company  cannot  predict
either the timing or the eventual results of the appeal.  Until a final judgment
is entered in the appeal,  no final  duties  will be  assessed on the  Company's
entries of SRAMs from Taiwan covered by the DOC  antidumping  duty order. If the
appeal is successful, the antidumping order will be terminated and cash deposits
will be refunded with  interest.  If the appeal is  unsuccessful,  the Company's
entries of  Taiwan-fabricated  SRAMs from October 1, 1997 through March 31, 2000
will be  liquidated  at the  deposit  rate in effect  at the time of  entry.  On
subsequent entries of Taiwan-fabricated SRAMs, the Company will continue to make
cash deposits in the amount of 50.15% of the entered  value.  In April 2001, the
Company  will  have  an  opportunity  to  request  a  review  of  its  sales  of
Taiwan-fabricated  SRAMs from April 1, 2000 through  March 31, 2001 (the "Review
Period").  If it does so,  the amount of  antidumping  duties,  if any,  owed on
imports from April 2000 through  March 2001 will remain  undetermined  until the
conclusion of the review in early 2002. If the DOC found, based upon analysis of
the Company's  sales during the Review Period,  that  antidumping  duties either
should not be imposed or should be imposed at a lower rate than the  Antidumping
Margin,  the difference  between the cash deposits made by the Company,  and the
deposits  that would have been made had the lower rate (or no rate,  as the case
may be) been in effect, would be returned to the Company, plus interest.  If, on
the other hand, the DOC found that higher margins were appropriate,  the Company
would have to pay  difference  between the cash deposits paid by the Company and
the  deposits  that would have been made had the higher rate been in effect.  At
March 31,  2000,  the Company had posted a bond secured by a letter of credit in
the amount of approximately $1.7 million and made cash deposits in the amount of
$1.7 million relating to the Company's importation of Taiwan-manufactured SRAMs.

In October 1998, Micron Technology,  Inc. filed an antidumping petition with the
DOC and the ITC, alleging that DRAMs fabricated in Taiwan were being sold in the
United  States at less than fair  value,  and that the  United  States  industry
producing  DRAMs was materially  injured or threatened  with material  injury by
reason of imports of DRAMs  fabricated  in Taiwan.  The petition  requested  the
United States government to impose antidumping duties on imports into the United
States of DRAMs  fabricated in Taiwan.  In December 1998, the ITC  preliminarily
determined  that  there was a  reasonable  indication  that the  imports  of the
products under  investigation  were injuring the United States industry.  In May
1999 the DOC issued a preliminary  affirmative  determination of dumping.  Under
that determination, the Company's imports into the United States on or after May
28, 1999 of DRAMs  fabricated  in Taiwan  were  subject to an  antidumping  duty
deposit in the  amount of 16.65%  (the  preliminary  "all  others"  rate) of the
entered   value  of  such   DRAMs,   an   antidumping   margin   calculated   by
weight-averaging the antidumping margins of individually investigated respondent
companies.  The  Company  posted a bond to cover  deposits on such  entries.  In
October 1999 the DOC issued a final affirmative  determination of dumping. Under
that  determination,  the  Company's  imports into the United States on or after
October 19, 1999 of DRAMs  fabricated  in Taiwan were subject to an  antidumping
duty deposit in the amount of 21.35%, (the final "all-others" rate). However, on
December  8, 1999,  the ITC  issued a final  negative  determination  of injury.
Consequently,  the investigation  was terminated,  the suspension of liquidation
lifted, and the bond posted in September 1999 released.  In January 2000, Micron
filed an appeal in the CIT challenging the determination by the ITC that imports
of  Taiwan-fabricated  DRAMs  were  not  causing  material  injury  to the  U.S.
industry.  On March 21, 2000 the appeal of the ITC decision was dismissed by the
CIT.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information  concerning executive officers of the Company as of the date of this
report is set forth below:

<TABLE>
<CAPTION>
Name              Age   Position
----------------  ----  --------------------------------------------------
<S>               <C>   <C>
N. Damodar Reddy  61    Chairman, President and Chief Executive Officer
C.N. Reddy        44    Executive Vice President, Chief Operating
                          Officer, Director and Secretary
David Eichler     51    Vice President, Finance and Administration and
                          Chief Financial Officer
Bradley Perkins   43    Vice President and General Counsel
Ritu Shrivastava  49    Vice President, Technology Development
</TABLE>

                                     - 18 -
<PAGE>

N.  Damodar  Reddy is the  co-founder  of the  Company  and has  served  as the
Company's  Chairman of the Board,  Chief  Executive  Officer and President from
its inception in February  1985.  Mr. Reddy also served as the Company's  Chief
Financial  Officer from June 1998 until January 1999 . From  September  1983 to
February  1985,  Mr. Reddy served as President and Chief  Executive  Officer of
Modular  Semiconductor,  Inc.,  and from 1980 to 1983,  he served as manager of
Advanced  CMOS  Technology  Development  at Synertek,  Inc.,  a  subsidiary  of
Honeywell,  Inc.  Prior to that time,  Mr.  Reddy  held  various  research  and
development  and management  positions at Four Phase  Systems,  a subsidiary of
Motorola,  Inc.,  Fairchild  Semiconductor and RCA Technology Center. Mr. Reddy
is a member of the board of directors of two publicly traded  companies,  Sage,
Inc.  and  eMagin   Corporation.   He  holds  an  M.S.   degree  in  Electrical
Engineering from North Dakota State  University and an M.B.A.  from Santa Clara
University.  N. Damodar Reddy is the brother of C.N. Reddy.

C.N.  Reddy is the  co-founder  of the Company and has served as the  Company's
Secretary  and  director  since its  inception in February  1985.  Beginning in
February   1985,   Mr.  Reddy  served  as  the  Company's   Vice   President  -
Engineering.   In  May  1993,  he  was  appointed   Senior   Vice-President   -
Engineering   and  Operations  of  the  Company.   In  December  1997,  he  was
appointed  Executive Vice President and Chief Operating  Officer.  From 1984 to
1985,  he served as  Director  of Memory  Products  of  Modular  Semiconductor,
Inc.,  and from 1983 to 1984,  Mr.  Reddy served as a SRAM product line manager
for Cypress  Semiconductor  Corporation.  From 1980 to 1983,  Mr.  Reddy served
as a DRAM  development  manager for Texas  Instruments,  Inc. and, before that,
he was a  design  engineer  with  National  Semiconductor  Corporation  for two
years.  Mr.  Reddy holds an M.S.  degree in  Electrical  Engineering  from Utah
State  University.  C.N. Reddy is named inventor of over 15 patents  related to
SRAM and DRAM designs.  C.N. Reddy is the brother of N. Damodar Reddy.

David  Eichler  joined the  Company  in January  1999,  and was  appointed  Vice
President  Finance and  Administration  and Chief  Financial  Officer.  Prior to
joining the Company, Mr. Eichler was Vice President Finance and Chief Accounting
Officer for Adobe Systems Incorporated in 1998. From 1994 to 1998, he was Senior
Vice President Finance & Administration  and Chief Financial Officer for Hyundai
Electronics  America. He has also held senior financial  management positions at
Syntex Corporation, Oki Semiconductor and Tandem Computers Incorporated.

Bradley A. Perkins  joined the Company in January 1999,  and was appointed Vice
President and General  Counsel.  Prior to joining the Company,  Mr. Perkins was
Vice  President,  General  Counsel and  Secretary  at Mission  West  Properties
(formerly  Berg & Berg  Developers),  from January 1998 to January  1999.  From
November 1991 to January 1998, Mr. Perkins was with Valence  Technology,  Inc.,
where he was Vice President,  General Counsel and Secretary.  From  August 1988
to  November 1991,  Mr. Perkins was Assistant  General Counsel and Intellectual
Property Counsel with VLSI Technology, Inc.

Ritu  Shrivastava  joined the Company in November  1993,  and was appointed Vice
President  -  Technology   Development  in  August  1995.  Mr.  Shrivastava  was
designated as an executive officer of the Company in July 1997. Prior to joining
the Company,  Dr.  Shrivastava worked at Cypress  Semiconductor  Corporation for
more than 10 years in  various  technology  management  positions,  the last one
being Director of Technology  Development.  Prior to that time, Dr.  Shrivastava
was with Mostek Corporation for 3 years,  responsible for CMOS development.  Dr.
Shrivastava  served on the  Electrical  Engineering  faculty at Louisiana  State
University  where he also  received his Ph.D..  Dr.  Shrivastava  completed  his
Masters and  Bachelor's  degrees in Electrical  Communication  Engineering  from
Indian Institute of Science, Bangalore, India and a Bachelor's degree in Physics
from Jabalpur  University,  India.  Dr.  Shrivastava is named inventor in over 9
patents related to various technologies, and is a Senior Member of IEEE.

                                     - 19 -
<PAGE>

================================================================================
PART II

ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The  Company's  Common Stock is listed on the NASDAQ  National  Market under the
symbol ALSC. The Company  completed its initial  public  offering on December 1,
1993. The following table sets forth, for the periods indicated the high and low
closing sale prices on NASDAQ for the Company's Common Stock.

<TABLE>
<CAPTION>
Fiscal Year     High        Low
             ----------- ----------
1999
<S>            <C>        <C>
1st Quarter     $9.62      $2.56
2nd Quarter      3.66       2.09
3rd Quarter      5.12       1.94
4th Quarter      5.56       2.50
2000
1st Quarter    $11.56      $2.63
2nd Quarter     12.94       7.69
3rd Quarter     16.69       9.00
4th Quarter     26.31      14.81
2001
1st Quarter    $29.38     $14.00
(through June 19, 2000)
</TABLE>


As of June 19,  2000,  there  were  approximately  131  holders of record of the
Company's Common Stock.

The Company has never  declared or paid any cash dividends on its capital stock.
The Company currently intends to retain future earnings, if any, for development
of its business and, therefore,  does not anticipate that it will declare or pay
cash dividends on its capital stock in the foreseeable future.

                                     - 20 -
<PAGE>

ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes selected  consolidated  financial information for
each of the five fiscal years ended March 31st and should be read in conjunction
with the consolidated financial statements and notes relating thereto.

<TABLE>
<CAPTION>
                                         Year Ended March 31,
                            -----------------------------------------------
                             2000      1999      1998     1997      1996
                            --------  --------  -------  --------  --------
                                (in thousands, except per share data)
Consolidated Statement of Operations Data:
<S>                        <C>        <C>      <C>       <C>      <C>
Net revenues                 $89,153   $47,783 $118,400   $82,572  $201,098
Cost of revenues              58,428    60,231  117,400    84,630   158,159
                            --------  --------  -------  --------  --------
  Gross profit (loss)         30,725   (12,448)   1,000    (2,058)   42,939
Operating expenses:
  Research and development    14,568    14,099   15,254    15,012    14,664
  Selling, general and        15,962    12,652   18,666    10,344    17,202
administrative
                            --------  --------  -------  --------  --------
Income (loss)from                195   (39,199) (32,920)  (27,414)   11,073
  operations
Gain on investments        1,049,130    15,823        -         -         -
Other income, net                 29    (1,126)     287               6,498
                                                            1,753
                            --------  --------  -------  --------  --------
Income (loss) before       1,049,354   (24,502) (32,633)  (25,661)   17,571
  income taxes
Provision for income taxes   410,348     8,397  (11,421)   (8,990)    6,852

                            --------  --------  -------  --------  --------
Income (loss) before         639,006   (32,899) (21,212)  (16,671)   10,719
  equity in investees
Equity in income of            9,094    10,856   15,475         -         -
  investees
                            --------  --------  -------  --------  --------
Net income (loss)           $648,100  $(22,043) $(5,737) $(16,671   $10,719
                            ========  ========  =======  ========  ========
Net income (loss) per share:
    Basic                     $15.49    $(0.53)  $(0.15)   $(0.43)    $0.28
                            ========  ========  =======  ========  ========
    Diluted                   $15.07    $(0.53)  $(0.15)   $(0.43)    $0.26
                            ========  ========  =======  ========  ========
Weighted average number of common shares:
    Basic                     41,829    41,378   39,493    38,653    37,900
                            ========  ========  =======  ========  ========
    Diluted                   42,992    41,378   39,493    38,653    40,633
                            ========  ========  =======  ========  ========

                                         Year ended March 31,
                            -----------------------------------------------
                              2000      1999      1998     1997      1996
                            --------  --------  -------  --------  --------
                                            (in thousands)
Consolidated Balance Sheet
Data:
Working capital             $615,937  $22,102   $39,879   $78,000  $106,171
Total assets               1,520,442  193,557   243,668   232,486   263,238
Stockholders' equity         963,955  163,570   189,111   204,594   219,381
Long term obligations          2,714      578     1,276     2,219         -
</TABLE>

                                     - 21 -
<PAGE>
<TABLE>
<CAPTION>

                                      Fiscal Year 2000                         Fiscal Year 1999
                        ------------------------------------------ -----------------------------------------
                            4th       3rd        2nd       1st        4th       3rd        2nd       1st
                            Qtr.      Qtr.       Qtr.      Qtr.       Qtr.      Qtr.       Qtr.      Qtr.
                        ---------- --------- ---------- ---------- --------- ---------  --------- ----------
Operating Summary:                               (in thousands, except per share data)
<S>                      <C>       <C>        <C>        <C>       <C>       <C>        <C>        <C>
Net revenues              $28,833   $23,497    $19,112    $17,711   $13,879   $13,282    $10,472    $10,150
Cost of revenues           18,241    15,412     12,304     12,470     8,332    10,864     13,544     27,491
                        ---------- --------- ---------- ---------- --------- ---------  --------- ----------
  Gross profit (loss)      10,592     8,085      6,808      5,241     5,547     2,418     (3,072)   (17,341)
Operating expenses:
  Research and              3,789     3,330      4,244      3,206     3,087     3,285      3,511      4,216
    development
  Selling, general and      3,355     6,753      3,108      2,745     2,981     2,863      2,797      4,011
    administrative
                        ---------- --------- ---------- ---------- --------- ---------  --------- ----------
Income (loss) from          3,448    (1,998)      (544)      (710)     (521)   (3,730)    (9,380)   (25,568)
  operations
Gain on investments       988,717     5,111      3,696     51,606         -         -          -     15,823
Other income                  233       (56)      (269)       121      (476)     (387)      (180)       (83)
  (expense), net
                        ---------- --------- ---------- ---------- --------- ---------  --------- ----------
Income (loss) before      992,398     3,057      2,883     51,017      (997)    (4,117)   (9,560)    (9,828)
  income taxes
Provision (benefit)       410,945      (963)     1,186       (819)        -          -         -      8,397
  for income taxes
                        ---------- --------- ---------- ---------- --------- ---------  --------- ----------
Income (loss) before      581,453     4,020     1,697      51,836      (997)   (4,117)    (9,560)   (18,225)
  equity in income
  of investees
Equity in income             (368)    5,134      2,796      1,532     1,555     2,064      3,691      3,546
  (loss) of investees
                        ---------- --------- ---------- ---------- --------- ---------  --------- ----------
Net income (loss)        $581,085    $9,154     $4,493    $53,368      $558   $(2,053)   $(5,869)  $(14,679)
                        ========== ========= ========== ========== ========= =========  ========= ==========
Net income (loss) per share:
    Basic                  $13.88     $0.22      $0.11      $1.28     $0.01    $(0.05)    $(0.14)    $(0.36)
                        ========== ========= ========== ========== ========= =========  ========= ==========
    Diluted                $13.48     $0.21      $0.10      $1.27     $0.01    $(0.05)    $(0.14)   $(0.36)
                        ========== ========= ========== ========== ========= =========  ========= ==========
Weighted average number of common shares:
    Basic                  41,864    41,858     41,812     41,608    41,573    41,512     41,456     40,963
                        ========== ========= ========== ========== ========= =========  ========= ==========
    Diluted                43,118    42,944     42,995     42,149    41,840    41,512     41,456     40,963
                        ========== ========= ========== ========== ========= =========  ========= ==========
</TABLE>


During  fiscal  year 2000,  the Company  experienced  an increase in the average
selling  price and  increased  demand for DRAM and SRAM  products.  In the first
fiscal 2000 quarter, the Company recognized a gain on its investment in Maverick
Networks ("Maverick") when it was sold to Broadcom Corporation ("Broadcom"), for
$51.6 million. In subsequent quarters,  the Company recognized  additional gains
of $23.7  million  on sale of  Broadcom  securities.  In the third  fiscal  2000
quarter,  the Company also recorded a $3.6 million  discretionary  non-recurring
compensation  expense  related to this  transaction.  In the fourth  fiscal 2000
quarter,   the  Company   recognized  a  gain  on  its   investment   in  United
Microelectronics  Corporation ("UMC") of $908 million ($532 million net of tax).
Also in the fourth  fiscal 2000  quarter,  the Company  recognized a gain of $69
million  ($41  million net of tax) on its  investment  in  Orologic  Corporation
("Orologic") when it was sold to Vitesse Semiconductor  Corporation ("Vitesse").
In fiscal 1999, the Company  recorded  pre-tax charges in the first,  second and
third  quarters of  approximately  $20  million  for decline in market  value of
certain  inventory  and to provide  additional  reserves for obsolete and excess
inventory.  During the first  quarter of fiscal  1999,  the  Company  recorded a
valuation  allowance of $8.4 million  with respect to the  Company's  previously
recorded  deferred tax assets.  In the first  quarter of fiscal  2000,  when the
Company  recognized  a gain of $51.6  million  related  to the sale of  Maverick
Networks to Broadcom Corporation,  the Company released the entire $17.8 million
valuation allowance and recorded the tax benefit as an offset to income.

                                     - 22 -
<PAGE>

ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
           OPERATIONS

The  statements in this  Management's  Discussion  and Analysis that are forward
looking  involve  numerous  risks and  uncertainties  and are  based on  current
expectations.  Actual results may differ materially.  Certain of these risks and
uncertainties are discussed under "Factors That May Affect Future Results."

OVERVIEW

The Company  designs and develops high  performance  memory  products and memory
intensive  logic  products.  These  circuits  are  used  in a  wide  variety  of
electronic  products,  including;  desktop and portable  computers,  networking,
telecommunications, instrumentation and consumer devices. The Company's business
strategy  has been to be a supplier of these  products,  operating  on a fabless
basis by utilizing independent manufacturing facilities.

During  fiscal  2000,  DRAM  products  accounted  for  approximately  56% of net
revenues,  SRAM  products  accounted for  approximately  43% of net revenues and
flash products accounted for approximately 1% of net revenues.  This compares to
40%, 58% and 2%, respectively, for fiscal 1999. During the latter part of fiscal
1999, the Company introduced 16-Mbit DRAM in 4-Mbit x 4 configuration.

The market for memory products used in personal  computers is  characterized  by
price  volatility  and has  experienced  significant  fluctuations  and cyclical
downturns in product demand, such as the severe price erosion of DRAMs and SRAMs
in fiscal 1999, 1998 and 1997.  While the Company's  strategy is to increase its
penetration  into  the  networking,   telecommunications,   instrumentation  and
consumer  markets with its existing SRAM, DRAM and flash products and to develop
and  sell in  volume  quantities  new  products  complementary  to its  existing
products,  the Company may not be  successful  in  executing  such  strategy.  A
decline  in demand in the  personal  computer  industry  or lack of  success  in
developing new markets or new products  could have a material  adverse effect on
the Company's results of operations.

RESULTS OF OPERATIONS

The  percentage  of net  revenues  represented  by  certain  line  items  in the
Company's consolidated statements of operations for the years indicated, are set
forth in the table below.

<TABLE>
<CAPTION>
                                     Percentage of Net Revenues for Year
                                               Ended March 31,
                                    --------------------------------------
                                       2000         1999          1998
                                    -----------  ------------  -----------
<S>                                  <C>            <C>          <C>
Net revenues                           100.0%       100.0%       100.0%
Cost of revenues                        65.5        126.1         99.2
                                   -----------  ------------  -----------
  Gross profit (loss)                   34.5        (26.1)         0.8
Operating expenses:
  Research and development              16.3         29.5         12.9
  Selling, general and                  17.9         26.5         15.7
    administrative
                                    -----------  ------------  -----------
Income( loss) from operations            0.3        (82.1)       (27.8)
Gain on investments                   1176.8         33.2          -
Other income, net                        0.0         (2.4)         0.2
                                    -----------  ------------  -----------
Income (loss) before income taxes     1177.1        (51.3)       (27.6)
Provision (benefit) for income         460.3         17.7         (9.7)
  taxes
                                    -----------  ------------  -----------
Income (loss) before equity in         716.8        (69.0)       (17.9)
  Income of investees
Equity in income of investees           10.2         22.7         13.1
                                    -----------  ------------  -----------
Net income (loss)                      727.0%       (46.3)%       (4.8)%
                                    ===========  ============  ===========
</TABLE>


NET REVENUES

The  Company's  net  revenues  increased  to $89.2  million  in  fiscal  2000 or
approximately  87%,  from $47.8  million in fiscal  1999.  The  increase  in net
revenues  in  fiscal  2000  was  primary  due to a  combination  of  sale of new
products,  overall increase in average selling prices and increase in unit sales
of the Company's  SRAM and DRAM  products.  The Company's net revenues in fiscal
1999 declined to $47.8 million from $118.4 million in fiscal 1998,

                                     - 23 -
<PAGE>

a decrease of approximately 60%. The decrease in net revenues in fiscal 1999 was
due to a lower  average  selling  price and a drop in the unit  shipments of the
Company's SRAM, DRAM and MMUI products.

Net revenue from the Company's  DRAM product  family in fiscal 2000  contributed
$50.2 million or approximately  56%, up from $18.4 million or approximately  39%
in fiscal 1999.  During  fiscal  2000,  sales of the  Company's  16-Mbit DRAM in
4-Mbit x 4  configuration,  which was  introduced  in the latter  part of fiscal
1999,  increased  significantly  along with an overall  increase  in the average
selling  prices.  DRAM net  revenues  for  fiscal  1998 were  $76.1  million  or
approximately 64% of total net revenues.

Net revenue from the Company's  SRAM product  family in fiscal 2000  contributed
$38.1  million or  approximately  43% of the  Company's  revenues.  In  absolute
dollars, this was an increase of $9.7 million but as a percent of total revenues
was down 17%. SRAM average selling prices and units sales  increased  throughout
fiscal  2000.   SRAM  net  revenues  in  fiscal  1998  were  $33.7   million  or
approximately 28% of total net revenues.

The Company's flash memory products did not contribute any significant  revenues
for fiscal 2000 and prior years.

The Company  continues to focus its effort in selling in the non-PC market.  Net
sales to non-PC segments of the market, such as telecommunications,  networking,
datacom and consumer in fiscal 2000 accounted for  approximately 56% compared to
approximately 52% during fiscal 1999 and 25% in fiscal 1998.

International  net revenues in fiscal 2000 increased by approximately  121% over
fiscal 1999.  International  net revenues are derived from  customers in Europe,
Asia and the rest of the  world.  The  largest  increase  in  international  net
revenues was to customers in Europe,  which  increased  approximately  195% over
fiscal year 1999. The increase was due to an overall  increase in product demand
and  higher  selling  prices.  See Note 15 of Notes  to  Consolidated  Financial
Statements for details of revenue by geographic area..

During  fiscal  2000,  one  customer  accounted  for  approximately  10%  of net
revenues.  Two customers accounted for approximately 15% and 13% of net revenues
during   fiscal  1999,   while  one  customer  in  fiscal  1998   accounted  for
approximately 18%. See Note 1 of Notes to Consolidated Financial Statements.

Generally,  the markets for the Company's products are characterized by volatile
supply and demand conditions,  numerous competitors, rapid technological change,
and product obsolescence.  These conditions,  which could require the Company to
make significant shifts in its product mix in a relatively short period of time.
These changes involve  several risks,  including,  among others,  constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated  wafer  manufacturing  yields;  lower than expected  throughput from
assembly  and test  suppliers;  and less than  anticipated  demand  and  selling
prices.  The occurrence of any problems  resulting from these risks could have a
material adverse effect on the Company's results of operations.

GROSS PROFIT (LOSS)

The Company's  gross profit for fiscal 2000 was  approximately  $30.7 million or
34.5% of net revenues as compared to a loss of  approximately  $12.4  million or
approximately  26.1% of net revenues for the same period in fiscal 1999,  and $1
million or approximately 0.8% in fiscal 1998. The dramatic  improvement in gross
profits  during  fiscal  year 2000 was  primarily  the result of higher  average
selling  prices,  higher unit sales,  and an increased mix of higher margin DRAM
products. During fiscal 1999, the Company recorded $20 million pre-tax inventory
charges in recognition of lower average selling prices together with the decline
in  the  unit  shipments  for  the  Company's  DRAM  and  SRAM  products  due to
competitive  market  conditions.  The Company's gross profit for fiscal 1998 was
approximately  $1 million or  approximately  0.8% of net revenues and recorded a
pre-tax charge of  approximately  $15 million,  primarily to adjust the value of
the Company's inventory to reflect declines in market value.

The Company is subject to a number of factors that may have an adverse impact on
gross  profits,  including  the  availability  and  cost of  products  from  the
Company's suppliers; increased competition and related decreases in unit average
selling  prices;  changes  in the mix of  product  sold;  and the  timing of new
product introductions and volume shipments. In addition, the Company may seek to
add  additional  foundry  suppliers  and transfer  existing and newly  developed
products  to  more  advanced  manufacturing   processes.   The  commencement  of
manufacturing  at a new foundry is often  characterized  by lower  yields as the
manufacturing   process  is  refined.   There  can  be  no  assurance  that  the
commencement of such  manufacturing  will not have a material  adverse effect on
the Company's gross profits in future periods.

                                     - 24 -
<PAGE>

RESEARCH AND DEVELOPMENT

Research and development  expenses consist  principally of salaries and benefits
for  engineering  design,  contracted  development  efforts,  facilities  costs,
equipment and software  depreciation and  amortization,  wafer masks and tooling
costs, test wafers and other expense items.

Research  and  development   expenses  were   approximately   $14.6  million  or
approximately 16.3% of net revenues for fiscal 2000 as compared to $14.1 million
or approximately  29.5% of net revenues for fiscal 1999, and approximately $15.3
million  or  approximately  12.9% of net  revenues  for fiscal  1998.  The small
increase  in  spending  between  fiscal 2000 and 1999 was due to higher mask and
tooling charges while the decrease in spending  between fiscal 1999 and 1998 was
due to lower  engineering  headcount and personnel  related  costs,  as well as,
lower  mask and  tooling  charges  due to the  discontinuance  of the  Company's
graphic accelerator product line in July 1998.

During  fiscal  2000,  the  Company's  development  efforts  focused on advanced
process and design technology involving SRAMs, DRAMs and Flash memory products.

The Company  believes that investments in research and development are necessary
to  remain  competitive  in  the  marketplace  and  accordingly,   research  and
development expenses may increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.

SELLING, GENERAL AND ADMINISTRATIVE

Selling,  general and  administrative  expenses  generally  include salaries and
benefits  associated  with sales,  sales support,  marketing and  administrative
personnel,  as well as  sales  commissions,  outside  marketing  costs,  travel,
equipment  depreciation and software  amortization,  facilities  costs, bad debt
expense, insurance and legal costs.

Selling,  general and administrative  expenses in fiscal 2000 were approximately
$16.0   million  or   approximately   17.9%  of  net  revenues  as  compared  to
approximately   $12.7  million  or  approximately   26.5%  in  fiscal  1999  and
approximately  $18.7 million or  approximately  15.7% of net revenues for fiscal
1998.  In  fiscal  2000,  the  Company  recorded  a $3.6  million  discretionary
non-recurring  compensation  expense  related to the sale of Maverick  Networks,
Inc. ("Maverick") to Broadcom Corporation ("Broadcom"). The decrease in spending
in fiscal  1999  compared to fiscal 1998 was due  principally  to lower  outside
sales  commissions  which was a result of a 60% decrease in net revenues,  which
was partially offset by higher legal fees associated with the SRAM  anti-dumping
proceeding.

Selling,  general and administrative  expenses may increase in absolute dollars,
and may also  fluctuate as a percentage of net revenues in the future  primarily
as the result of commissions, which are dependent on the level of revenues.

GAIN ON INVESTMENTS

On May 31, 1999, Maverick (an entity in which the Company had a 39% interest in)
completed a  transaction  with  Broadcom,  resulting in the Company  selling its
ownership  interest in Maverick in  exchange  for 538,961  shares of  Broadcom's
Class B common  stock.  Based on  Broadcom's  closing share price on the date of
sale, the Company recorded a pre-tax gain in the first quarter of fiscal 2000 of
approximately  $51.6 million.  Subsequent to the transaction date, the Company's
investment  in  Broadcom  is being  be  accounted  for as an  available-for-sale
marketable security in accordance with SFAS 115. During fiscal 2000, the Company
sold 275,600 shares of Broadcom stock and realized an additional pre-tax gain of
approximately  $23.7  million.  At March 31,  2000,  the Company  owned  487,522
shares,  after being  adjusted for a 2 for 1 stock split in February  2000,  and
recorded an additional unrealized gain of approximately $23.4 million,  which is
net of deferred tax of  approximately  $16.1 million tax, as part of accumulated
other  comprehensive  income in the  stockholders  equity section of the balance
sheet. See Note 2 of Notes to Consolidated Financial Statements.

In June 1999, UMC, a publicly traded company in Taiwan, announced plans to merge
four  semiconductor  wafer foundry units, USC, USIC,  United Integrated  Circuit
Corporation  and  UTEK  Semiconductor  Corporation,  into  UMC and  subsequently
completed the merger in January 2000. Through its representation on USC's board,
the  Company  had the right to choose  whether  to  consent  to the  merger  and
concluded it to be in the Company's  best interest to do so.  Alliance  received
247.7  million  shares  of UMC  stock for its  247.7  million  shares,  or 14.8%

                                     - 25 -
<PAGE>

ownership of USC,  and  approximately  35.6 million  shares of UMC stock for its
48.1 million  shares,  or 3.2% ownership of USIC. At March 31, 2000, the Company
owned  approximately  283.3 million shares,  or  approximately  3.2% of UMC, and
maintained its 25% and 3.7% wafer capacity  allocation  rights in the former USC
and USIC  foundries,  respectively.  As the  Company no longer has an ability to
exercise significant  influence over UMC's operations,  the investment in UMC is
accounted for as a cost method investment.

During the fiscal fourth quarter of 2000, the Company  recognized a $908 million
pre-tax,  non-operating  gain as a result of the merger.  The gain was  computed
based on the share price of UMC at the date of the merger  (i.e.  NTD 112, or US
$3.5685),  as well as the approximately $21.5 million additional gain related to
the sale of the USC shares in April 1998. The Company has accrued  approximately
$3.0 million for the Taiwan  securities  transaction  tax in connection with the
shares  received by the Company.  This  transaction  tax will be paid,  on a per
share basis, when the securities are sold.

According to Taiwanese laws and regulations, 50% of the 283.3 million Alliance's
UMC shares are subject to a six-month "lock-up" or no trade period. This lock-up
period  expires in July 2000.  Of the remaining  50%, or 141.6  million  shares,
approximately  28.3 million shares will become  eligible for sale two years from
the closing date of the transaction (i.e. January 2002), with approximately 28.3
million  shares  available  for sale every six months  thereafter,  during years
three  and four  (i.e.  2002 to 2004).  In May 2000,  the  Company  received  an
additional 20% or 56.6 million shares of UMC by way of a stock dividend.

Subsequent to the  completion  of the merger the Company  accounts for a portion
(approximately  50% at March 31, 2000) of its  investment in UMC,  which becomes
unrestricted within twelve months as an  available-for-sale  marketable security
in  accordance  with SFAS 115. At March 31,  2000,  the Company has  recorded an
unrealized gain of approximately $25.7 million,  which is net of deferred tax of
$17.6  million,  as  part  of  accumulated  other  comprehensive  income  in the
stockholders' equity section of the balance sheet with respect to the short term
portion of the  investments.  The  portion of the  investment  in UMC,  which is
restricted beyond twelve months  (approximately 50% of the Company's holdings at
March 31, 2000),  is accounted for as a cost method  investment and is presented
as a long-term investment.  As this long-term portion becomes current over time,
the  investment  will be  transferred  to  short-term  investments  and  will be
accounted for as an  available-for-sale  marketable  security in accordance with
SFAS  115.  The  long-term  portion  of  the  investments  become   unrestricted
securities between 2002 and 2004.

On March 31, 2000,  Orologic completed a transaction with Vitesse,  resulting in
the Company  selling its ownership  interest in Orologic in exchange for 852,447
shares of Vitesse.  Based on Vitesse's  closing share price on the date of sale,
the Company recognized approximately $69 million pre-tax, non-operating gain, in
fiscal 2000.  Subsequent to the  transaction  date, the Company's  investment in
Vitesse is being be accounted for as an  available-for-sale  marketable security
in accordance with SFAS 115. At March 31, 2000, the Company owns 852,447 Vitesse
shares. See Note 7 of Notes to Consolidated Financial Statements.

OTHER INCOME, NET

Other Income,  Net represents  interest income from  short-term  investments and
interest  expense on short and  long-term  obligations.  Other  Income,  Net was
approximately  $29,000  compared to a net expense of $1.1 million in fiscal 1999
and net income of $287,000 in fiscal 1998. The change from fiscal 1999 to fiscal
2000 was attributed to higher interest income and lower interest expense.

PROVISION FOR INCOME TAXES

The Company's effective tax rate for fiscal years 2000, 1999 and 1998 was 39.1%,
(34.3%),  and 35.0%,  respectively.  During fiscal 2000, the Company  recorded a
provision for income taxes of approximately $410.3 million, primarily the result
of the gains on investments of Broadcom, UMC and Vitesse.

For the year ended March 31, 1999,  the Company  incurred a $24.5 million pretax
loss,  $9.8 million of which was incurred in the quarter ended June 30, 1998. As
a result of the fiscal year 1999 loss, the lack of carryback potential,  and the
uncertainty  regarding  future results due to significant,  rapid and unexpected
product selling price declines that the Company experienced during the first and
subsequent quarters of fiscal 1999,  management

                                     - 26 -
<PAGE>

could no longer  conclude  that it was "more  likely than not" that its deferred
tax assets would be realized.  As a result,  a full valuation  allowance of $8.4
million was recorded during quarter ended June 30, 1998.

EQUITY IN INCOME OF INVESTEES

Prior to the UMC  merger  discussed  elsewhere,  the  Company  had made  several
investments with other parties to form a separate Taiwanese  company,  USC. This
investment  was  accounted  for under the  equity  method of  accounting  with a
ninety-day  lag in  reporting  the  Company's  share of results  for the entity.
Equity in income of USC reflects the company's share of income earned by USC for
the  previous  quarter.  In fiscal 2000,  the Company  reported its share in the
income  of USC in the  amount  of $9.5  million.  As a result  of the  merger in
January 2000, the Company no longer recorded its  proportionate  share of equity
income in USC, as the  Company no longer has an ability to exercise  significant
influence  over UMC's  operations.  The  investment in UMC is accounted for as a
cost method  investment.  In fiscal 1999, the Company  reported its share in the
income of USC in the  amount of $10.9  million,  as  compared  to $15.5  million
reported in fiscal 1998. The 30% decrease in income between fiscal 1999 and 1998
was primarily due to lower net income and a decrease in the Company's  ownership
percentage from approximately 18% to 15%.

The Company,  through Alliance Venture Management,  invested approximately $28.7
million during fiscal 2000 in three Alliance  ventures funds,  Alliance Ventures
I, Alliance  Ventures II and Alliance  Ventures III.  Alliance Ventures I, whose
focus is investing in  networking  and  communication  start-up  companies,  has
invested  $22.3  million  in  ten  companies,  with  approximately  $20  million
allocated  to this fund.  Alliance  Ventures  II, whose focus is in investing in
internet start-up  ventures,  has approximately $4.4 million invested to-date in
eight companies,  with approximately $15 million total designated for this fund.
Alliance  Ventures III,  whose focus is on emerging  companies in the networking
and  communication  market areas, has invested $2 million in one company and has
been allocated up to $100 million for new investments.

Several of the Alliance  Venture  investments  are  accounted  for as the equity
method due to the  Company's  ability to exercise  significant  influence on the
operations of investees resulting primarily from ownership interest and/or board
representation.  The total  equity in the net losses of the equity  investees of
Alliance Ventures was approximately $368,000 for the year ended March 31, 2000.

FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company's quarterly and annual results of operations have historically been,
and will continue to be,  subject to quarterly and other  fluctuations  due to a
variety of factors, including:  general economic conditions;  changes in pricing
policies by the Company,  its  competitors  or its  suppliers;  anticipated  and
unanticipated  decreases  in  unit  average  selling  prices  of  the  Company's
products;  fluctuations  in  manufacturing  yields,  availability  and  cost  of
products from the Company's suppliers;  the timing of new product  announcements
and  introductions  by the  Company  or its  competitors;  changes in the mix of
products sold; the cyclical nature of the  semiconductor  industry;  the gain or
loss of  significant  customers;  increased  research and  development  expenses
associated with new product introductions;  market acceptance of new or enhanced
versions of the Company's products;  seasonal customer demand; and the timing of
significant  orders.  Results of operations could also be adversely  affected by
economic  conditions  generally or in various geographic areas, other conditions
affecting the timing of customer orders and capital spending,  a downturn in the
market  for  personal   computers,   or  order  cancellations  or  rescheduling.
Additionally,  because  the Company is  continuing  to  increase  its  operating
expenses  for  personnel  and new  product  development  to be  able to  support
increased  sales levels,  the Company's  results of operations will be adversely
affected if such increased sales levels are not achieved.

The markets for the Company's products are characterized by rapid  technological
change, evolving industry standards,  product obsolescence and significant price
competition  and,  as a result,  are  subject to  decreases  in average  selling
prices. The Company experienced significant deterioration in the average selling
prices for its SRAM and DRAM products  during fiscal years 1998,  1997 and 1996.
The  Company  is  unable  to  predict  the  future   prices  for  its  products.
Historically,  average  selling prices for  semiconductor  memory  products have
declined and the Company expects that average-selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly  dependent  on its ability to increase  unit sales  volume of existing
products and to successfully develop, introduce and sell new products. Declining
average  selling prices will also adversely  affect the Company's  gross margins
unless  the  Company  is able to  significantly  reduce  its cost per unit in an
amount to  offset  the  declines  in  average  selling  prices.  There can be no
assurance  that the  Company  will be able to  increase  unit  sales  volumes of
existing  products,  develop,  introduce and sell new products or  significantly

                                     - 27 -
<PAGE>

reduce  its cost per  unit.  There  also can be no  assurance  that  even if the
Company were to increase  unit sales volumes and  sufficiently  reduce its costs
per unit,  the Company  would be able to maintain or increase  revenues or gross
margins.

The Company  usually  ships more product in the third month of each quarter than
in either of the first two months of the  quarter,  with  shipments in the third
month  higher  at the end of the  month.  This  pattern,  which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last  month  of the  quarter  may  cause  the  Company's  quarterly  results  of
operations  to be more  difficult  to predict.  Moreover,  a  disruption  in the
Company's  production  or shipping  near the end of a quarter  could  materially
reduce the  Company's  net sales for that  quarter.  The  Company's  reliance on
outside  foundries  and  independent  assembly  and testing  houses  reduces the
Company's ability to control, among other things, delivery schedules.

The  cyclical  nature of the  semiconductor  industry  periodically  results  in
shortages of advanced process wafer fabrication capacity such as the Company has
experienced from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand,  and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition,  the Company must order products and build inventory  substantially
in advance of products  shipments,  and there is a risk that because  demand for
the  Company's  products is volatile and subject to rapid  technology  and price
change, the Company will forecast incorrectly and produce excess or insufficient
inventories of particular  products.  This inventory risk is heightened  because
certain of the Company's key customers  place orders with short lead times.  The
Company's  customers' ability to reschedule or cancel orders without significant
penalty could adversely  affect the Company's  liquidity,  as the Company may be
unable to adjust its  purchases  from its  independent  foundries  to match such
customer changes and cancellations.  The Company has in the past produced excess
quantities of certain  products,  which has had a material adverse effect on the
Company's  results of operations.  There can be no assurance that the Company in
the future will not produce  excess  quantities of any of its  products.  To the
extent the Company  produces  excess or  insufficient  inventories of particular
products,  the Company's results of operations could be adversely  affected,  as
was the case in fiscal 1999,  1998 and 1997, when the Company  recorded  pre-tax
charges  totaling  approximately  $20  million,  $15  million  and $17  million,
respectively,  primarily  to  reflect  a  decline  in  market  value of  certain
inventory.

The Company currently relies on independent  foundries to manufacture all of the
Company's  products.   Reliance  on  these  foundries  involves  several  risks,
including  constraints or delays in timely  delivery of the Company's  products,
reduced control over delivery schedules, quality assurance and costs and loss of
production due to seismic activity,  weather conditions and other factors. In or
about October 1997, a fire caused extensive damage to United Integrated Circuits
Corporation ("UICC"), a foundry joint venture between UMC and various companies.
UICC is located next to UMC in the Hsin-Chu Science-Based Industrial Park, where
Company has products  manufactured.  UICC suffered an additional fire in January
1998,  and since  October  1996,  there  have  been at least two other  fires at
semiconductor  manufacturing facilities in the Hsin-Chu Science-Based Industrial
Park.  There can be no assurance  that fires or other  disasters will not have a
material  adverse affect on UMC in the future.  In addition,  as a result of the
rapid growth of the semiconductor  industry based in the Hsin-Chu  Science-Based
Industrial  Park,  severe   constraints  have  been  placed  on  the  water  and
electricity  supply in that region.  Any shortages of water or electricity could
adversely  affect the  Company's  foundries'  ability  to supply  the  Company's
products, which could have a material adverse effect on the Company's results of
operations or financial condition.  Although the Company continuously  evaluates
sources of supply and may seek to add additional foundry capacity,  there can be
no assurance that such additional capacity can be obtained at acceptable prices,
if at all. The  occurrence of any supply or other problem  resulting  from these
risks  could  have a  material  adverse  effect  on  the  Company's  results  of
operations,  as was the case  during the third  quarter of fiscal  1996,  during
which  period  manufacturing  yields  of  one  of the  Company's  products  were
materially adversely affected by manufacturing  problems at one of the Company's
foundry  suppliers.  There can be no  assurance  that other  problems  affecting
manufacturing yields of the Company's products will not occur in the future.

There is an ongoing risk that the  suppliers of wafer  fabrication,  wafer sort,
assembly and test  services to the Company may increase the price charged to the
Company for the services they provide,  to the point that the Company may not be
able to profitably have its products produced at such suppliers.  The occurrence
of such price  increases  could have a material  adverse affect on the Company's
results of operations.

The Company conducts a significant  portion of its business  internationally and
is  subject  to a number of risks  resulting  from such  operations.  Such risks
include  political and economic  instability and changes in diplomatic and trade
relationships,  foreign currency fluctuations,  unexpected changes in regulatory
requirements,  delays resulting

                                     - 28 -
<PAGE>

from difficulty in obtaining export licenses for certain technology, tariffs and
other barriers and restrictions,  and the burdens of complying with a variety of
foreign  laws.  Current or  potential  customers  of the  Company  in Asia,  for
instance, may become unwilling or unable to purchase the Company's products, and
the Company's  Asian  competitors  may be able to become more  price-competitive
relative to the Company due to declining  values of their  national  currencies.
There can be no  assurance  that such  factors  will not  adversely  impact  the
Company's  results of  operations in the future or require the Company to modify
its current business practices.

Additionally,  other  factors  may  materially  adversely  affect the  Company's
results  of   operations.   The  Company   relies  on  domestic   and   offshore
subcontractors for die assembly and testing of products, and is subject to risks
of disruption in adequate supply of such services and quality problems with such
services.  The Company is subject to the risks of shortages of goods or services
and increases in the cost of raw materials  used in the  manufacture or assembly
of the Company's products.  The Company faces intense  competition,  and many of
its principal  competitors and potential  competitors have substantially greater
financial,  technical,  marketing,  distribution  and other  resources,  broader
product lines and  longer-standing  relationships  with  customers than does the
Company,  any  of  which  factors  may  place  such  competitors  and  potential
competitors in a stronger  competitive  position than the Company. The Company's
corporate headquarters are located near major earthquake faults, and the Company
is subject to the risk of damage or disruption in the event of seismic activity.
There can be no assurance that any of the foregoing  factors will not materially
adversely affect the Company's results of operations.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective  accounting  standards for reporting changes in the fair value of the
instruments.  The statement is effective for all fiscal quarters of fiscal years
beginning  after  June 15,  2000.  Upon  adoption  of SFAS No.  133,  we will be
required to adjust hedging  instruments to fair value in the balance sheet,  and
recognize the offsetting  gain or loss as transition  adjustments to be reported
in net income or other comprehensive income, as appropriate,  and presented in a
manner similar to the cumulative effect of a change in accounting principle.  We
believe the adoption of this statement will not have a significant effect on our
results of operations.

Current pending litigation,  administrative proceedings and claims are set forth
in Item 3 - Legal  Proceedings  and in Item 1 - Licenses,  Patents and  Maskwork
Protection,  above.  The  Company  intends to  vigorously  defend  itself in the
litigation and claims and,  subject to the inherent  uncertainties of litigation
and  based  upon  discovery  completed  to date,  management  believes  that the
resolution  of these  matters  will not have a  material  adverse  effect on the
Company's  financial  position.  However,  should  the  outcome  of any of these
actions be  unfavorable,  the  Company  may be required to pay damages and other
expenses,  or may be enjoined from  manufacturing or selling any products deemed
to  infringe  the  intellectual  property  rights of others,  which could have a
material  adverse  effect on the  Company's  financial  position  or  results of
operations.  Moreover,  the semiconductor  industry is characterized by frequent
claims and litigation  regarding patent and other intellectual  property rights.
The Company has from time to time received,  and believes that it likely will in
the  future  receive,  notices  alleging  that the  Company's  products,  or the
processes used to manufacture the Company's products,  infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation  involving such claims (the Company  currently is
involved in patent  litigation).  In the event of  litigation  to determine  the
validity of any third-party claims (such as the current patent  litigation),  or
claims  against  the  Company for  indemnification  related to such  third-party
claims,  such  litigation,  whether or not  determined  in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from other matters. In the event of
an adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of certain
processes,  expend significant resources to develop non-infringing technology or
obtain licenses to the infringing  technology.  In addition,  depending upon the
number of  infringing  products  and the extent of sales of such  products,  the
Company could suffer significant  monetary damages. In the event of a successful
claim  against  the Company  and the  Company's  failure to develop or license a
substitute  technology,  the Company's results of operations could be materially
adversely affected.

The Company also, as a result of an antidumping proceeding commenced in February
1997,  must pay a cash deposit equal to 50.15% of the entered value of any SRAMs
manufactured  (wafer  fabrication) in Taiwan, in order to import such goods into
the U.S.  Although the Company may be refunded  such deposits in the future (see
Item 3 - Legal Proceedings,  above), the deposit requirement,  and the potential
that all entries of  Taiwan-fabricated  SRAMs from October 1, 1997 through March
31, 1999 will be  liquidated  at the bond rate or deposit  rate in effect at

                                     - 20 -
<PAGE>

the time of entry, may materially adversely affect the Company's ability to sell
in the United  States SRAMs  manufactured  (wafer  fabrication)  in Taiwan.  The
Company   manufactures   (wafer   fabrication)   SRAMs  in  Singapore  (and  has
manufactured SRAMs in the United States as well), and may be able to support its
U.S. customers with such products,  which are not subject to antidumping duties.
There can be no assurance, however, that the Company will be able to do so.

In October 1998, Micron Technology,  Inc. filed an antidumping petition with the
DOC  and the  ITC,  alleging  that  dynamic  random  access  memories  ("DRAMs")
fabricated  in Taiwan  were being  sold in the  United  States at less than fair
value,  and that the  United  States  industry  producing  DRAMs was  materially
injured  or  threatened  with  material  injury by reason  of  imports  of DRAMs
fabricated in Taiwan.  The petition  requested  the United States  government to
impose  antidumping duties on imports into the United States of DRAMs fabricated
in Taiwan. In December 1998, the ITC  preliminarily  determined that there was a
reasonable  indication that the imports of the products under investigation were
injuring the United States  industry.  In May 1999, the DOC issued a preliminary
affirmative  determination of dumping.  Under that determination,  the Company's
imports into the United  States on or after May 28, 1999 of DRAMs  fabricated in
Taiwan were subject to an antidumping  duty deposit in the amount of 16.65% (the
preliminary  "all  others"  rate)  of  the  entered  value  of  such  DRAMs,  an
antidumping  margin calculated by  weight-averaging  the antidumping  margins of
individually  investigated  respondent  companies.  The Company posted a bond to
cover  deposits  on  such  entries.  In  October  1999  the DOC  issued  a final
affirmative  determination of dumping.  Under that determination,  the Company's
imports into the United States on or after October 19, 1999 of DRAMs  fabricated
in Taiwan were subject to an  antidumping  duty deposit in the amount of 21.35%,
(the final "all-others"  rate).  However,  on December 8, 1999, the ITC issued a
final negative  determination of injury.  Consequently,  the  investigation  was
terminated,  the  suspension  of  liquidation  lifted,  and the bond  posted  in
September  1999  released.  In January  2000,  Micron filed an appeal in the CIT
challenging the determination by the ITC that imports of Taiwan-fabricated DRAMs
were not causing  material injury to the U.S.  industry.  On March 21, 2000, the
appeal of the ITC decision was dismissed by the CIT.

The Company,  through Alliance Venture Management,  invests in startup,  pre-IPO
(initial public offering)  companies.  These types of investments are inherently
risky and many venture funds have a large percentage of investments  decrease in
value or fail.  Most of these startup  companies  fail,  and the investors  lose
their  entire  investment.  Successful  investing  relies  on the  skill  of the
investment managers, but also on market and other factors outside the control of
the  managers.  Recently,  the market for these  types of  investments  has been
successful and many venture  capital funds have been  profitable,  and while the
Company has been successful in its recent investments, there can be no assurance
as to any future or continued success.  It is likely there will be a downturn in
the success of these  types of  investments  in the future and the Company  will
suffer  significant  diminished  success in these  investments.  There can be no
assurance,  and in fact it is  likely,  that many or most,  and maybe all of the
Company's  venture type investments may fail,  resulting in the complete loss of
some or all the money the Company invested.

As a result of the foregoing  factors,  as well as other  factors  affecting the
Company's results of operations, past performance should not be considered to be
a  reliable  indicator  of  future  performance  and  investors  should  not use
historical  trends  to  anticipate  results  or trends  in  future  periods.  In
addition,  stock prices for many technology companies are subject to significant
volatility,  particularly on a quarterly  basis. If revenues or earnings fail to
meet expectations of the investment  community,  there could be an immediate and
significant impact on the market price of the Company's Common Stock.

Due to the  foregoing  factors,  it is likely  that in some  future  quarter  or
quarters the Company's  results of operations may be below the  expectations  of
public market analysts and investors.  In such event, the price of the Company's
Common Stock would likely be materially and adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2000, the Company had approximately  $34.8 million in cash and cash
equivalents, an increase of $28.6 million from March 31, 1999; and approximately
$615.9  million in net working  capital,  an increase  of  approximately  $593.8
million from approximately $22.1 million at March 31, 1999.

Additionally,  the Company had short-term  investments in marketable  securities
whose fair value at March 31, 2000 was $883.3 million.  Refer to Notes 2-5,7 and
16 of Notes to the Consolidated Financial Statements for further details.

                                     - 30 -
<PAGE>

During fiscal year 2000,  operating  activities used cash of $3.5 million.  This
was  primarily  the result of net income,  the impact of non-cash  items such as
depreciation and  amortization,  non-cash  investment gains related primarily to
the merger of USC and USIC into UMC and Broadcom,  net of deferred taxes, offset
in part by growth in inventory  and accounts  receivable,  accounts  payable and
taxes payable. Cash used in operating activities of $23.6 million in fiscal year
1999 was  primarily  due to the  operating  loss of $22 million,  while the cash
provided  from  operating  activities  in fiscal  year 1998 of $6.9  million was
primarily related to the growth in working capital items.

Investing activities provided cash in the amount of $38.9 million in fiscal 2000
as the  result  of the  proceeds  from the sale of a  portion  of the  Company's
holdings in Broadcom of $48.9 million,  additional  proceeds from the April 1998
sale of USC stock of $21.5  million,  offset  in part,  by  investments  made by
Alliance Ventures of $28.7 million. Investing activities in fiscal 1999 provided
cash in the amount of $25.0 million as the result of proceeds from the sale of a
portion of the  Companies  holdings  in USC,  which  were  offset,  in part,  by
additional  investments  in USIC and other  start-up  companies and purchases of
equipment.  In fiscal 1998 investing activities used cash in the amount of $21.0
million which was primarily the result of additional investments in USC of $17.6
million and $2.4 million in purchases of equipment.

Net cash used in  financing  activities  in fiscal 2000 was  approximately  $6.8
million  compared to cash  provided by  financing  activities  in fiscal 1999 of
approximately   $1.8  million,   and  cash  used  in  financing   activities  of
approximately  $0.2  million  in  fiscal  1998.  The use of cash  for  financing
activities in fiscal 2000 was primarily the result of repurchase of 720 thousand
shares of the Company's common stock for $12.5 million offset,  by a decrease in
restricted cash of approximately $2.3 million,  and proceeds from sale of common
stock of approximately  $4.7 million.  Cash provided by financing  activities in
fiscal 1999 primarily  reflects a decrease in restricted  cash of  approximately
$1.3 million and net  proceeds  from the issuance of common  stock,  offset,  in
part, by principal lease payments of $1.5 million.

The Company  believes  these sources of liquidity,  and financing  opportunities
available to it will be  sufficient to meet its  projected  working  capital and
other cash requirements for the foreseeable future. However, it is possible that
the Company may need to raise additional funds to fund its activities beyond the
next year or to consummate  acquisitions of other  businesses,  products,  wafer
capacity or technologies. The Company could raise such funds by selling some its
short  term  investments,  selling  more  stock  to the  public  or to  selected
investors,  or by  borrowing  money.  The  Company  may not be  able  to  obtain
additional  funds on terms that would be favorable to its  shareholders  and the
Company, or at all. If the Company raises additional funds by issuing additional
equity, the ownership percentages of existing shareholders would be reduced.

In order to obtain an adequate supply of wafers,  especially wafers manufactured
using  advanced  process  technologies,  the Company  has entered  into and will
continue to consider various possible transactions, including equity investments
in or loans to foundries in exchange for  guaranteed  production  capacity,  the
formation of joint ventures to own and operate  foundries,  as was the case with
Chartered  Semiconductor  or UMC, or the usage of "take or pay"  contracts  that
commit the  Company to purchase  specified  quantities  of wafers over  extended
periods.  Manufacturing  arrangements  such as  these  may  require  substantial
capital investments,  which may require the Company to seek additional equity or
debt  financing.  There can be no assurance that such additional  financing,  if
required,  will  be  available  when  needed  or,  if  available,   will  be  on
satisfactory terms. Additionally, the Company has entered into and will continue
to enter into various  transactions,  including the licensing of its  integrated
circuit designs in exchange for royalties,  fees or guarantees of  manufacturing
capacity. Refer to Part I, Item 1- Investments and Notes 3 and 4 in the Notes to
the Consolidated Financial Statements.

                                     - 31 -
<PAGE>

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to the impact of foreign  currency  fluctuations and changes in
market values of our investments. These investments operate in markets that have
experienced  significant  exchange rate and market price  fluctuations  over the
year ended March 31, 2000. These entities,  in which we hold varying  percentage
interests,  operate and sell their products in various global markets;  however,
the majority of their sales are  denominated  in U.S.  dollars,  and  therefore,
their foreign currency risk is reduced. We did not hold any derivative financial
instruments for trading purposes as of March 31, 2000.

INVESTMENT RISK

As  of  March  31,  2000,  our  short-term  investment  portfolio  consisted  of
marketable   equity  securities  in  Chartered   Semiconductor,   UMC,  Broadcom
Corporation,  and  Vitesse  Semiconductor,  the future  whose  value of which is
subject to market value  fluctuations.  Refer to Notes 2,3,4,5 and 7 for further
details.

FOREIGN CURRENCY RISK

Based on our overall  currency  rate exposure at March 31, 2000, a near term 10%
appreciation  or  depreciation  in the value of the U.S.  dollar  would  have an
insignificant  effect on our financial position,  results of operations and cash
flows over the next fiscal year.  There can be no assurance  that there will not
be a material impact in the future.

As of June 20, 2000,  the Company owned  approximately  339.9 million  shares of
UMC, a publicly  traded Company in Taiwan.  Since these shares are not tradeable
in the United  States,  they are subject to foreign  currency  risk.  The market
value of these  holdings on June 20, 2000 based on the price per share of NTD 87
and the NTD/US  dollar  exchange rate of NTD $30.833 per US$ is US$ 959 million.
The  value  of  these   investments   could  be  impacted  by  foreign  currency
fluctuations  which could have a material impact on the financial  condition and
results of operations of the Company in the future.

ITEM 8
CONSOLIDATED FINANCIAL STATEMENTS

The index to the Company's Consolidated Financial Statements and Schedules,  and
the report of the independent  accountants appear in Part III of this Form 10-K.
Selected quarterly financial data appears in Item 6 above.

ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

                                     - 32 -
<PAGE>

===============================================================================
PART III

ITEM 10
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Other than the information  required pursuant to Item 405 of Regulation S-K, the
information  required by this item concerning  executive officers of the Company
is set forth in Part I of this Form 10-K after Item 4. The information  required
by this item with  respect to  directors  is  incorporated  by  reference to the
section captioned "Election of Directors" in the proxy statement.

ITEM 11
EXECUTIVE COMPENSATION

The  information  required  by this item is  incorporated  by  reference  to the
section captioned "Executive Compensation" contained in the Proxy Statement.

ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required  by this item is  incorporated  by  reference  to the
section  captioned   "Security   Ownership  of  Certain  Beneficial  Owners  and
Management" contained in the Proxy Statement.

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this item is  incorporated  by  reference  to the
section captioned "Certain Transactions" contained in the Proxy Statement.

ITEM 14
EXHIBITS,  FINANCIAL  STATEMENTS,  FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

      (a)    (1) (I) FINANCIAL STATEMENTS - See Index to Consolidated  Financial
             Statements on page F-1 of this Form 10-K Annual Report.

           (II) REPORT OF  INDEPENDENT  ACCOUNTANTS - See Index to  Consolidated
             Financial Statements on F-1 of this Form 10-K Annual Report.

        (2)  (I)     SCHEDULE  II:  VALUATION  AND  QUALIFYING  ACCOUNTS  - See
             Index to  Consolidated  Financial  Statements  on F-1 of this Form
             10-K Annual Report.

           (II) FINANCIAL  STATEMENTS  OF UNITED  SEMICONDUCTOR  CORPORATION,  A
             TAIWANESE COMPANY - The following financial statements are filed as
             part of this report:  Financial  Statements of United Semiconductor
             Corporation for the Fiscal Year Ended December 31, 1998.

        (3)  EXHIBITS - See  Exhibit  Index on page 34 of this Form 10-K  Annual
             Report.

                                     - 33 -
<PAGE>

===============================================================================
EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit     Document Description
  Number
-----------  --------------------------------------------------------------
<S>          <C>
  3.01(A)    Registrant's Certificate of Incorporation
  3.02(A)    Registrant's Certificate of Elimination of Series A
             Preferred Stock
  3.03(F)    Registrant's Certificate of Amendment of Certificate of
             Incorporation
  3.04(A)    Registrant's Bylaws
  4.01(A)    Specimen of Common Stock Certificate of Registrant
 10.01+(K)   Registrant's 1992 Stock Option Plan adopted by Registrant on
             April 7, 1992 and amended through September 19, 1996, and
             related documents
 10.02+(A)   Registrant's Directors Stock Option Plan adopted by
             Registrant on October 1, 1993 and related documents
 10.03+(A)   Form of Indemnity Agreement used between Registrant and
             certain of its officers and directors
 10.04+(K)   Form of Indemnity Agreement used between the Registrant and
             certain of its officers
 10.05(B)    Sublease Agreement dated February 1994 between Registrant
             and Fujitsu America, Inc.
 10.06(B)    Net Lease Agreement  dated February 1, 1994 between  Registrant and
             Realtec Properties I L.P.
 10.07*I     Subscription Agreement dated February 17, 1995, by and among
             Registrant, Singapore Technology Pte. Ltd. and Chartered
             Semiconductor Manufacturing  Pte. Ltd.
 10.8*I      Manufacturing Agreement dated February 17, 1995, between
             Registrant and Chartered Semiconductor Manufacturing Pte.
             Ltd.
 10.9(D)     Supplemental Subscription Agreement dated March 15, 1995, by
             and among Registrant, Singapore Technology Pte. Ltd. and
             Chartered Semiconductor Manufacturing Pte. Ltd.
 10.10*(D)   Supplemental Manufacturing Agreement dated March 15, 1995,
             between Registrant and Chartered Semiconductor Manufacturing
             Pte. Ltd.
 10.11*(E)   Foundry  Venture  Agreement  dated  July  8,  1995,  by  and  among
             Registrant, S3 Incorporated and United Microelectronics Corporation
 10.12*(E)   Foundry Capacity Agreement dated July 8, 1995, by and among
             Registrant, Fabco, S3 Incorporated and United
             Microelectronics Corporation
 10.13*(F)   Foundry Venture Agreement dated September 29, 1995, between
             Registrant and United Microelectronics Corporation
 10.14*(F)   Foundry Capacity Agreement dated September 29, 1995, by and
             among Registrant, FabVen and United Microelectronics
             Corporation
 10.15*(F)   Written Assurances Re: Foundry Venture Agreement dated
             September 29, 1995 by and among Registrant, FabVen and
             United Microelectronics Corporation
 10.16*(G)   Letter  Agreement dated June 26, 1996 by and among  Registrant,  S3
             Incorporated and United Microelectronics Corporation
 10.17(H)    Stock Purchase Agreement dated as of June 30, 1996 by and
             among Registrant, S3 Incorporated, United Microelectronics
             Corporation and United Semiconductor Corporation
 10.18*(H)   Amendment to Fabco Foundry Capacity Agreement dated as of
             July 3, 1996 by and among Registrant, S3 Incorporated,
             United Microelectronics Corporation and United Semiconductor
             Corporation
 10.19(H)    Side Letter dated July 11, 1996 by and among Registrant, S3
             Incorporated, United Microelectronics Corporation and United
             Semiconductor Corporation
 10.20+(I)   1996 Employee Stock Purchase Plan
 10.21(J)    Letter Agreement dated December 23, 1996 by and among
             Registrant, S3 Incorporated, United Microelectronics
             Corporation and United Semiconductor Corporation
 10.22(K)    Trademark  License  Agreement  dated as of October 17, 1996 between
             Registrant and Alliance Semiconductor  International Corporation, a
             Delaware corporation, as amended through May 31, 1997
 10.23(K)    Restated Amendment to FabCo Foundry Venture Agreement dated
             as of February 28, 1997 by and among Registrant, S3
             Incorporated, United Microelectronics Corporation and United
             Semiconductor Corporation
 10.24(K)    Letter Agreement dated April 25, 1997 by and among
             Registrant, S3 Incorporated, United Microelectronics
             Corporation and United Semiconductor Corporation
 10.25*(K)   Restated DRAM Agreement dated as of February 28, 1996
             between Registrant and United Microelectronics Corporation
 10.26*(K)   First  Amendment to Restated DRAM  Agreement  dated as of March 26,
             1996 between Registrant and United Microelectronics Corporation
 10.27*(K)   Second  Amendment to Restated DRAM  Agreement  dated as of July 10,
             1996 between Registrant and United Microelectronics Corporation
 10.28(K)    Promissory Note and Security Agreement dated March 28, 1997
             between Registrant and Matrix Funding Corporation
 10.29*(L)   Sale and Transfer Agreement dated as of March 4, 1998
 10.30(M)    Alliance Venture Management, LLC  Limited Liability Company
             Operating Agreement dated October 15, 1999
 10.31(M)    Alliance Venture Management, LLC  Amended Limited Liability
             Company Operating Agreement dated February 28, 2000
 10.32(M)    Alliance Ventures I, LP Agreement of Limited Partnership
             dated November 12, 1999
 10.33(M)    Alliance Ventures II, LP Agreement of Limited Partnership
             dated November 12, 1999
 10.34(M)    Alliance Ventures III, LP Agreement of Limited Partnership
             dated February 28, 2000
 21.01(M)    Subsidiaries of Registrant
 23.01(M)    Consent of PricewaterhouseCoopers LLP (San Jose, California)
 23.02(M)    Consent of PricewaterhouseCoopers (Hsinchu, Taiwan, R.O.C.)
 27.01(M)    Financial Data Schedule (filed only with the electronic
             version of the Form 10-K)
</TABLE>

+  MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT  REQUIRED TO BE FILED
   AS AN EXHIBIT TO THIS FORM 10-K.
*  CONFIDENTIAL  TREATMENT HAS BEEN GRANTED WITH RESPECT TO CERTAIN  PORTIONS OF
   THIS DOCUMENT.

                                     - 34 -
<PAGE>

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
   THIS DOCUMENT.
(A)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  REGISTRATION  STATEMENT  ON FORM SB-2  (FILE  NO.  33-69956-LA)
   DECLARED EFFECTIVE BY THE COMMISSION ON NOVEMBER 30, 1993.
(B)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  ANNUAL REPORT ON FORM 10-KSB FILED WITH THE  COMMISSION ON JUNE
   29, 1994.
(C)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  REGISTRATION  STATEMENT  ON FORM SB-2  (FILE  NO.  33-90346-LA)
   DECLARED EFFECTIVE BY THE COMMISSION ON MARCH 28, 1995.
(D)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  CURRENT  REPORT ON FORM 8-K FILED WITH THE  COMMISSION ON APRIL
   28, 1995.
(E)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S CURRENT REPORT ON FORM 8-K FILED WITH THE COMMISSION ON JULY 24,
   1995.
(F)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  CURRENT REPORT ON FORM 8-K FILED WITH THE COMMISSION ON OCTOBER
   23, 1995.
(G)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  QUARTERLY  REPORT ON FORM 10-Q  FILED  WITH THE  COMMISSION  ON
   AUGUST 13, 1996.
(H)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  QUARTERLY  REPORT ON FORM 10-Q  FILED  WITH THE  COMMISSION  ON
   NOVEMBER 12, 1996.
(I)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  REGISTRATION  STATEMENT ON FORM S-8 (FILE NO.  333-13461) FILED
   WITH THE COMMISSION ON OCTOBER 4, 1996.
(J)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  QUARTERLY  REPORT ON FORM 10-Q  FILED  WITH THE  COMMISSION  ON
   FEBRUARY 11, 1997.
(K)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S ANNUAL REPORT ON FORM 10-K FILED WITH THE COMMISSION ON JUNE 27,
   1997.
(L)THE  DOCUMENT   REFERRED  TO  IS  HEREBY   INCORPORATED   BY  REFERENCE  FROM
   REGISTRANT'S  CURRENT  REPORT ON FORM 8-K FILED WITH THE  COMMISSION ON MARCH
   19, 1998.
(M) THE DOCUMENT REFERRED TO IS FILED HEREWITH.

                                     - 35 -
<PAGE>

===============================================================================
SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                          ALLIANCE SEMICONDUCTOR CORPORATION


June 28, 2000             By:  /S/ N. DAMODAR REDDY
                               ------------------------------------
                          N. Damodar Reddy
                          Chairman of the Board, President and Chief Executive
                          Officer
                          (Principal Executive Officer)


June 28, 2000             By:  /S/ DAVID EICHLER
                               -------------------------------
                          David Eichler
                          Vice President, Finance and Administration and Chief
                          Financial Officer
                          (Principal Financial and Accounting Officer)


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS,  that each person whose signature  appears below
constitutes  and appoints N.  Damodar  Reddy and Bradley A. Perkins or either of
them,  his true and  lawful  attorneys-in-fact  and  agents,  with full power of
substitution and  re-substitution,  for him and in his name, place and stead, in
any and all  capacities  to sign any and all  amendments  to this Report on Form
10-K,  and to file the same,  with all exhibits  thereto and other  documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing  requisite  and necessary to be done
in  connection  therewith,  as fully to all intents and  purposes as he might or
could  do  in  person,   hereby   ratifying   and   confirming   all  that  said
attorneys-in-fact  and agents, or either of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report on Form 10-K has been signed by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated.

SIGNATURE                TITLE                              DATE

/S/ N. DAMODAR REDDY     Director, Chairman of the Board,   June 28, 2000
-------------------------
N. Damodar Reddy         President and Chief Executive
                         Officer

/S/ DAVID EICHLER        Vice President, Finance and        June 28, 2000
-------------------------
David Eichler            Administration and Chief
                         Financial Officer

/S/ C. N. REDDY          Director, Chief Operating          June 28, 2000
-------------------------
C. N. Reddy              Officer and Secretary

/S/ SANFORD L. KANE      Director                           June 28, 2000
-------------------------
Sanford L. Kane

/S/ JON B. MINNIS        Director                           June 28, 2000
-------------------------
Jon B. Minnis

                                     - 36 -
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                  Index to Consolidated Financial Statements


                                                                           PAGES
CONSOLIDATED FINANCIAL STATEMENTS:

<S>                                                                         <C>
   Report of Independent Accountants........................................F-2

   Consolidated Balance Sheets as of March 31, 2000 and 1999................F-3

   Consolidated Statements of Operations for the years ended March 31, 2000,
   1999 and 1998............................................................F-4

   Consolidated Statements of Stockholders' Equity for the years ended March
   31, 2000, 1999 and 1998..................................................F-5

   Consolidated Statements of Cash Flows for the years ended March 31, 2000,
   1999 and 1998............................................................F-6

   Notes to Consolidated Financial Statements ..............................F-7

FINANCIAL STATEMENT SCHEDULE:

   Report of Independent Accountants........................................F-22

   Schedule II - Valuation and Qualifying Accounts..........................F-23
</TABLE>

                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS





The Board of Directors and Stockholders of
Alliance Semiconductor Corporation:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly,  in all material  respects,  the financial  position of Alliance
Semiconductor  Corporation and its  subsidiaries at March 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended March 31, 2000, in  conformity  with  accounting  principles
generally  accepted in the United  States.  These  financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements in  accordance  with  auditing  standards  generally
accepted in the United  States which  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,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 25, 2000

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                     (in thousands, except per share data)

                                                       March 31,
                                               -------------------------
                                                  2000          1999
                                               -----------  ------------
                      ASSETS
<S>                                            <C>          <C>
     Current assets:
       Cash and cash equivalents                  $34,770        $6,219
       Restricted cash                              2,804         5,175
         Short term investments (Notes            883,300             -
           2,3,4,5 and 7)
       Accounts receivable, net (Note 2)           15,858         8,943
       Inventory (Note 2)                          37,439        12,927
         Related party receivables (Note 14)        1,778         1,815
       Other current assets                         1,958         1,709
                                               -----------  ------------
            Total current assets                  977,907        36,788

     Property and equipment, net  (Note 2)          9,990         9,943
     Investment in Chartered Semiconductor              -        51,596
     (Note 3)
     Investment in United Semiconductor                 -        77,310
     Corp.(Note 4)
     Investment in United Silicon, Inc.                 -        16,799
     (Note 4)
     Investment in United Microelectronics        505,478             -
     Corp. (excluding short term portion)
     (Notes 2 and 4)
     Alliance Ventures investments (Note 6)        26,646             -
     Other assets                                     421         1,121
                                               -----------  ------------
            Total assets                       $1,520,442      $193,557

                                               ===========  ============

       LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Accounts payable                           $27,133        $8,046
       Accrued liabilities                         10,388         5,325
         Income taxes payable                       6,641             -
         Deferred income taxes (Note 9)           316,903             -
         Current portion of capital lease             905         1,315
           obligation
                                               -----------  ------------
            Total current liabilities             361,970        14,686
     Long term obligations                          1,517             -
     Long term capital lease obligation             1,197           578
     Deferred income taxes (Note 9)               191,803        14,723
                                               -----------  ------------
            Total  liabilities                    556,487        29,987
                                               -----------  ------------
     Commitments and contingencies (Notes
       8,12 and 13)

     Stockholders' equity:
       Preferred stock, $0.01 par value;
        5,000 shares authorized; none issued            -             -
        and outstanding
       Common stock, $0.01 par value; 100,000
        shares authorized;  42,406 and 41,609         424           416
        shares issued and 41,686 and 41,609
        shares  outstanding
       Additional paid-in capital                 193,260       185,025
       Treasury stock (720  shares at cost)       (12,468)            -
       Retained earnings (deficit)                644,595        (3,505)
       Accumulated other comprehensive income     138,144       (18,366)
     (loss) (Note 2)
                                               -----------  ------------
                                               -----------  ------------
            Total stockholders' equity            963,955       163,570
                                               -----------  ------------
                    Total liabilities and      $1,520,442      $193,557
                      stockholders' equity
                                               ===========  ============
</TABLE>


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

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

                                   Year Ended March 31,
                             ---------------------------------
                                2000        1999       1998
                             ----------   ---------  ---------
<S>                          <C>          <C>       <C>
 Net revenues                  $89,153     $47,783   $118,400
 Cost of revenues               58,428      60,231    117,400
                             ----------   ---------  ---------
   Gross profit (loss)          30,725     (12,448)     1,000
 Operating expenses:
   Research and development     14,568      14,099     15,254
   Selling, general and         15,962      12,652     18,666
     administrative
                             ----------   ---------  ---------
 Income (loss) from                195     (39,199)   (32,920)
   operations
 Gain on investments         1,049,130      15,823          -
 Other income, net                  29      (1,126)       287
                             ----------   ---------  ---------
 Income (loss) before        1,049,354     (24,502)   (32,633)
   income taxes
 Provision (benefit) for       410,348       8,397    (11,421)
   income taxes
                             ----------   ---------  ---------
 Income (loss) before          639,006     (32,899)   (21,212)
   equity in income of
   investees
 Equity in income of             9,094       10,856    15,475
   investees
                             ----------   ---------  ---------
 Net Income (loss)            $648,100    $(22,043)   $(5,737)
                             ==========   =========  =========
 Net Income (loss) per share:
   Basic                        $15.49      $(0.53)    $(0.15)
                             ==========   =========  =========
   Diluted                      $15.07      $(0.53)    $(0.15)
                             ==========   =========  =========
 Weighted average number of common shares:
   Basic                        41,829      41,378     39,493
                             ==========   =========  =========
   Diluted                      42,992      41,378     39,493
                             ==========   =========  =========
</TABLE>

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

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (in thousands, except share data)

                                                                             Accumulated
                           Common Stock           Additional                    Other       Retained         Total
                     --------------------------    Paid In      Treasury     Comprehensive  Earnings     Stockholder's
                       Shares        Amount        Capital        Stock      Income(loss)   (Deficit)       Equity
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------
<S>                   <C>           <C>           <C>           <C>           <C>           <C>           <C>
 Balances at          38,984,901          $390      $180,012            $-          $(83)      $24,275      $204,594
   March 31, 1997

 Issuance of common    1,465,087            14         3,087             -             -             -         3,101
   stock under
   employee stock
   plans
 Cumulative                    -             -             -             -       (12,847)            -
   translation
   adjustments
 Net loss                      -             -             -             -             -        (5,737)
 Total comprehensive                                                                                         (18,584)
   loss
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------
 Balances at          40,449,988           404       183,099             -       (12,930)       18,538       189,111
   March 31, 1998

 Issuance of common    1,158,635            12         1,926             -             -             -         1,938
   stock under
   employee stock plans
 Cumulative                    -             -             -             -        (5,436)            -
 translation
 adjustments
 Net loss                      -             -             -             -             -       (22,043)
 Total comprehensive loss                                                                                     (27,479)
                      ------------  ------------  ------------  ------------  ------------  ------------  ------------
 Balances at           41,608,623           416       185,025             -       (18,366)       (3,505)      163,570
   March 31, 1999

 Issuance of common       797,482             8         4,719             -             -             -         4,727
   stock under
   employee stock
   plans
 Repurchase of                  -(1)          -       (12,468)            -             -             -       (12,468)
   common stock
 Tax Benefit on                 -             -         3,516             -             -             -         3,516
   exercise of stock
   options
 Cumulative                     -             -             -             -        18,366             -
   translation
   adjustments
 Unrealized gain on
   investments                   -            -             -             -       138,144             -
   (net of tax,
   $94,814)
 Net income                      -            -             -             -             -       648,100
 Total                                                                                                         804,610
   comprehensive income
                       ------------  ------------  ------------  ------------  ------------  ------------  ------------
 Balances at            42,406,105(1)       $424      $193,260      $(12,468)     $138,144      $644,595      $963,955
   March 31, 2000
                       ============  ============  ============  ============  ============  ============  ============
</TABLE>


(1)  At March 31, 2000, the Company held 720,000 shares in treasury stock, which
     have not been retired.  After taking in account these treasury shares,  the
     net outstanding shares at March 31, 2000 was 41,686,105.

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

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

                                      Year Ended March 31,
                                 ---------------------------------
                                   2000        1999       1998
                                 ----------  ---------  ----------
Cash flows from operating activities:
<S>                              <C>         <C>         <C>
  Net Income (loss)               $648,100   $(22,043)    $(5,737)
  Adjustments to reconcile net
    income (loss) to net cash
    provided by (used in)
    operating activities:
   Depreciation and amortization     4,417      3,789       3,465
   Inventory write-down                742     20,437      15,154
   Non-recurring compensation        3,655          -           -
     charge
   Equity in income of investees    (9,094)   (10,856)    (15,475)
   Gain on investments          (1,049,130)   (15,823)          -
   Changes in assets and
     liabilities:
    Accounts receivable           (  6,915)     6,773       1,111
    Inventory                      (25,254)      (989)    (17,994)
            Related party               37     (1,815)          -
              receivables
    Other assets                       (99)     1,622           3
    Accounts payable                19,087    (27,668)     16,948
    Accrued liabilities                 92     (2,446)      3,187
            Deferred income        399,168     25,466       6,238
              taxes
    Income tax payable              10,157          -           -
    Long-term obligation             1,517          -           -
                                 ----------  ---------  ----------
Net cash provided by (used in)      (3,520)   (23,553)      6,900
  operating activities
                                 ----------  ---------  ----------
Cash provided by (used in) investing activities:
   Purchase of property and         (2,816)    (2,609)     (2,408)
     equipment
  Proceeds from sale of
   securities of United             21,481     31,662     (17,631)
   Semiconductor Corporation
   Proceeds from sale of            48,911          -           -
     securities of Broadcom
   Purchase of securities of             -     (3,098)          -
United Silicon, Inc.
   Purchase of other               (28,696)    (1,000)     (1,000)
     investments
                                 ----------  ---------  ----------
Net cash provided by (used in)      38,880     24,955     (21,039)
  investing activities
                                 ----------  ---------  ----------

Cash flows from financing activities:
  Net proceeds from the              4,727      1,938       3,101
    issuance of common stock
  Principal payments on lease       (1,439)    (1,468)     (1,929)
    obligation
  Repurchase of common stock       (12,468)         -           -
  Restricted cash                    2,371      1,337      (1,391)
                                 ----------  ---------  ----------
Net cash provided by (used in)      (6,809)     1,807
  financing activities                                       (219)
                                 ----------  ---------  ----------
Net increase (decrease) in cash     28,551      3,209     (14,358)
  and cash equivalents
Cash and cash equivalents at         6,219      3,010      17,368
  beginning of the period
                                 ----------  ---------  ----------
Cash and cash equivalents at       $34,770     $6,219      $3,010
  end of the period
                                 ==========  =========  ==========

SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
  Cash paid (refunded)  for           $355   $(17,736)   $(17,783)
    income taxes
                                 ==========  =========  ==========
    Cash paid for interest             $99       $214        $393
                                 ==========  =========  ==========
SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
    Property and equipment          $1,648         $-        $828
      leases
                                 ==========  =========  ==========
</TABLE>

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

                                      F-6
<PAGE>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (in thousands, except per share data)

NOTE 1.    THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Alliance  Semiconductor  Corporation  (the "Company" or "Alliance"),  a Delaware
corporation,  designs, develops and markets high performance memory products and
memory  intensive logic products.  The Company sells its products to the desktop
and portable  computing,  networking,  telecommunications,  instrumentation  and
consumer markets.

The  semiconductor   industry  is  highly  cyclical  and  has  been  subject  to
significant  rapid  technological  changes  at  various  times  that  have  been
characterized by diminished  product demand,  production  overcapacity,  product
shortages due to production  undercapacity  and  accelerated  erosion of selling
prices.  The average  selling  price that the Company is able to command for its
products is highly  dependent on industry-wide  production  capacity and demand,
and as a  consequence  the Company  could  experience  rapid  erosion in product
pricing  (such as that  occurred  with SRAM and DRAM pricing  during fiscal year
1999,  1998 and 1997),  which is not within the control of the Company and which
could have an adverse  material  effect on the Company's  results of operations.
The Company is unable to predict future prices for its products.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its direct and indirect  subsidiaries,  including  Alliance Venture  Management,
LLC,  Alliance  Ventures,  LP I,  II and  III  (See  Note  6).  All  significant
intercompany accounts and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the period.  Actual results
could differ from those estimates.

BASIS OF PRESENTATION

For  purposes of  presentation,  the Company has  indicated  its fiscal years as
ending on March 31,  whereas  the  Company's  fiscal year  actually  ends on the
Saturday  nearest  the end of March.  The  fiscal  year  ended  March  31,  2000
contained  52 weeks  while the fiscal  years  ended March 31, 1999 and March 31,
1998  contained 53 weeks and 52 weeks,  respectively.  Certain items  previously
reported in specific  financial  statement  captions have been  reclassified  to
conform to the fiscal year 2000 presentation.

CASH AND CASH EQUIVALENTS

Cash and cash  equivalents  consist of cash on deposit and highly  liquid  money
market instruments with banks and financial institutions.  The Company considers
all highly  liquid debt  investments  with maturity from the date of purchase of
three months or less to be cash equivalents.

RESTRICTED CASH

Restricted  cash,  in the form of  certificates  of  deposit,  support  stand-by
letters of  credit,  which in turn are used to secure  customs  duties and other
purchase commitments.

SHORT TERM INVESTMENTS

The Company accounts for its short term investments in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity  Securities."  Management
determines the appropriate  classification of investment  securities at the time
of purchase and reevaluates  such  designation as of each balance sheet date. At
March  31,  2000,  all  short-term  investment  securities  were  designated  as
available-for-sale in accordance with SFAS 115.

Available-for-sale  securities are carried at fair value, using available market
information  with  unrealized  gains and losses  reported in  accumulated  other
comprehensive income (loss) in the balance sheet.

                                      F-7
<PAGE>

INVENTORIES

Inventories are stated at the lower of standard cost (which  approximates actual
cost on a first-in, first-out basis) or market. Market is based on the estimated
net  realizable  value.  The Company  also  evaluates  its open  purchase  order
commitments  on  an  on-going  basis  and  accrues  for  any  expected  loss  if
appropriate.

PROPERTY AND EQUIPMENT

Property and equipment  are stated at cost and  depreciated  on a  straight-line
basis over the estimated  economic useful lives of the assets,  which range from
three  to  seven  years.  Upon  disposal,  the  cost of the  asset  and  related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the result of operations.

LONG-LIVED ASSETS

Long-lived  assets held by the  Company are  reviewed  for  impairment  whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability  is measured by comparison  of carrying  amounts to
future  net  cash  flows  an  asset  is  expected  to  generate.  If an asset is
considered  to be impaired,  the  impairment to be recognized is measured by the
amount  to which  the  carrying  amount  of the  assets  exceeds  the  projected
discounted future cash flows arising from the asset.

REVENUE RECOGNITION

Revenue from product sales, including sales to distributors,  is recognized upon
shipment, net of accruals for estimated sales returns and allowances.

RESEARCH AND DEVELOPMENT COSTS

Costs  incurred in the research and  development  of  semiconductor  devices are
expensed as incurred,  including the cost of prototype wafers and new production
mask sets.

INCOME TAXES

The Company  accounts  for its income  taxes in  accordance  with the  liability
method.  Under this method,  deferred tax assets and  liabilities are determined
based on the difference between the financial  statement and income tax bases of
the assets and  liabilities  using  enacted  tax rates in effect for the year in
which  the  differences  are  expected  to  affect  taxable  income.   Valuation
allowances are  established  when necessary to reduce deferred tax assets to the
amounts expected to be realized.

CONCENTRATION OF RISKS

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  principally  of cash and cash  equivalents,  short and long
term investments and accounts receivable.

Cash  is  deposited  with  one  major  bank  in the  United  States  while  cash
equivalents  are deposited with two major  financial  institutions in the United
States.  The Company  attempts to limit its  exposure  to these  investments  by
placing  such  investments  with  several  financial  institutions  and performs
periodic evaluations of these institutions.

Short and long term  investments  are  subject to  declines in market as well as
risk  associated  with the  underlying  investment.  The Company  evaluates  its
investments  from  time to time in  terms of  credit  risk  since a  substantial
portion of its assets are now in the form of  investments,  not all of which are
liquid,  and  may  enter  into  full or  partial  hedging  strategies  involving
financial  derivative  instruments to minimize  market risk.  During fiscal year
2000, the Company entered into a number of "cashless  collar" and "covered call"
option transactions to partially hedge its holdings in Broadcom Corporation. The
Company may enter into other similar transactions in the future.

                                      F-8
<PAGE>

The  Company  sells  its  products  to  original  equipment   manufacturers  and
distributors   throughout  the  world.   The  Company  performs  ongoing  credit
evaluations  of its customers  and, on occasion,  may require  letters of credit
from its non-US  customers.  The following  table  summarizes  the revenues from
customers,  all of which  were  third  parties,  in  excess  of 10% of total net
revenues, for fiscal year 2000, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
            Year ended March 31,
         ----------------------------
           2000      1999      1998
         --------  --------  --------
<S>        <C>       <C>       <C>
Customer A 10%        -         -
Customer B  7%       15%        2%
Customer C  -         -        18%
Customer D  6%       13%        -
</TABLE>

At March 31, 2000 Customer A accounted for 8% of accounts receivable, net.

The Company  conducts the  majority of its business in U.S.  dollars and foreign
currency  translation  gains and losses have not been  material in any one year.
International  sales accounted for approximately  $53.0 million,  $24.0 million,
and $48.5 million of net revenues for the years ended March 31, 2000,  March 31,
1999 and March 31, 1998, respectively.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based awards using the intrinsic value method
in accordance with  Accounting  Principles  Board No. 25,  "Accounting for Stock
Issued to Employees." The Company's  policy is to grant options with an exercise
price  equal to the fair  market  value  of the  Company's  stock on the date of
grant. Accordingly, no compensation expense has been recognized in the Company's
statements of operations.  The Company provides additional pro forma disclosures
as  required  under  Statement  of  Financial   Accounting   Standard  No.  123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Refer to Note 10.

NET INCOME (LOSS) PER SHARE

Basic EPS is computed by dividing net income available to common stockholders by
the weighted  average  number of common  shares  outstanding  during the period.
Diluted EPS gives effect to all dilutive  potential  common  shares  outstanding
during the period including stock options,  using the treasury stock method.  In
computing  diluted  EPS,  the  average  stock  price  for the  period is used in
determining  the number of shares  assumed  to be  purchased  from the  proceeds
obtained upon exercise of stock options.

Following is a  reconciliation  of the numerators and  denominators of the Basic
and Diluted EPS computations for the periods presented below:

<TABLE>
<CAPTION>
                                    Year Ended March 31,
                                ------------------------------
                                 2000       1999       1998
                                --------   --------   --------
<S>                             <C>       <C>         <C>
Net income/(loss) available to  $648,100  $(22,043)   $(5,737)
  common shareholders
                                ========   ========   ========
Weighed average common shares     41,829    41,378     39,493
  outstanding (basic)
Effect of dilutive options         1,163         -          -
                                --------   --------   --------
Weighed average common shares     42,992    41,378     39,493
  outstanding (diluted)
                                ========   ========   ========
Net income/(loss) per share:
   Basic                         $15.49     $(0.53)    $(0.15)
                                ========   ========   ========
   Diluted                       $15.07     $(0.53)    $(0.15)
                                ========   ========   ========
</TABLE>

Due to the  Company's  net loss from  continuing  operations in 1999 and 1998, a
calculation of EPS assuming  dilution is not required for those years.  At March
31, 1999 there were 2,741,298 options  outstanding to purchase common stock at a
weighted  average  price of $5.37 per share and at March 31,  1998,  there  were
3,675,431  options  outstanding to purchase  common stock at a weighted  average
price of $5.81 per share.  The  outstanding  options at March 31,  1999 and 1998
were excluded from the diluted loss per share computations  because their effect
would be anti-dilutive.

                                      F-9
<PAGE>

COMPREHENSIVE INCOME

In 1999, the Company adopted Statement of Financial Accounting Standards No. 130
(SFAS 130),  "Reporting  Comprehensive  Income," which requires an enterprise to
report,  by major  components  and as a single  total,  the change in net assets
during the period from non-owner sources. Total accumulated comprehensive income
for  fiscal  year  2000  was  $804.6  million  compared  to  total   accumulated
comprehensive  losses of $27.5  million and $18.6  million for fiscal years 1999
and 1998 respectively. The components of accumulated comprehensive income (loss)
are shown in the consolidated statements of shareholders' equity.

SEGMENT REPORTING

In 1999,  the Company  adopted SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and  Related  Information."  which  establishes  annual and  interim
reporting   standards  for  an  enterprise's   business   segments  and  related
disclosures about its products, services,  geographic areas and major customers.
The Company operates in one reportable segment, memory products.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective  accounting  standards for reporting changes in the fair value of the
instruments.  The statement is effective for all fiscal quarters of fiscal years
beginning  after June 15, 2000.  Upon adoption of SFAS No. 133, the Company will
be required to adjust  hedging  instruments  to fair value in the balance sheet,
and  recognize  the  offsetting  gain or loss as  transition  adjustments  to be
reported  in net  income or other  comprehensive  income,  as  appropriate,  and
presented in a manner similar to the cumulative effect of a change in accounting
principle.  The Company  believes the adoption of this statement will not have a
significant effect on the results of operations.

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin  No.  101 or SAB 101,  "Revenue  Recognition  in  Financial
Statements,"  which  provides  guidance  on the  recognition,  presentation  and
disclosure  of  revenue in  financial  statements  filed  with the SEC.  SAB 101
outlines the basic  criteria that must be met to recognize  revenue and provides
guidance for disclosures  related to revenue recognition  policies.  The Company
has complied with SAB 101 for all periods presented.

In March 2000, The Financial  Accounting  Standards  Board ("FASB")  issued FASB
interpretation  No. 44  "Accounting  for Certain  Transactions  Involving  Stock
Compensation an interpretation of APB Opinion No. 25". This  interpretation  has
provisions  that are  effective  on staggered  dates,  some of which began after
December  15,1998 and others  that become  effective  after June 30,  2000.  The
adoption of this interpretation is not expected to have a material impact on the
financial statements.

NOTE 2.  BALANCE SHEET COMPONENTS

SHORT-TERM INVESTMENTS

Short-term  investments include the following  available-for-sale  securities at
March 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                        March 31, 2000
                                  -------------------------
                                   Number of       Market
                                    Shares         Value
                                  ------------  -----------
<S>                                  <C>          <C>
UMC                                  141,650      $548,752
Chartered Semiconductor                2,141       201,789
Broadcom Corporation                     488        62,831
Vitesse Semiconductor                    852        69,928
                                                -----------
Total                                             $883,300
                                                ===========
</TABLE>


                                      F-10
<PAGE>

LONG-TERM INVESTMENTS

At March 31,  2000,  the  Company's  long term  investments  were as follows (in
thousands):

<TABLE>
<CAPTION>
                        March 31, 2000
                    -----------------------
                     Number of        $
                      Shares
                    ------------  ---------
<S>                  <C>          <C>
UMC                  141,650      $505,478
Alliance Ventures                   26,646
                                  ---------
Total                             $532,124
                                  =========
</TABLE>

ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                    March 31,
                             -----------------------
                                2000        1999
                             ----------- -----------
                                 (in thousands)
Accounts receivable:
<S>                            <C>         <C>
  Trade receivables            $16,812     $11,470
  Less allowance for              (954)     (2,527)
    doubtful accounts
    and sales related reserves
                             ----------- -----------
                               $15,858      $8,943
                             =========== ===========
</TABLE>

INVENTORIES

<TABLE>
<CAPTION>
                                     March 31,
                             -----------------------
                                2000        1999
                             ----------- -----------
                                 (in thousands)
Inventory:
<S>                            <C>          <C>
  Work in process              $20,737      $5,119
  Finished goods                16,702       7,808
                             ----------- -----------
                               $37,439     $12,927
                             =========== ===========
</TABLE>

PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                    March 31,
                             -----------------------
                                2000        1999
                             ----------- -----------
                                 (in thousands)

<S>                            <C>         <C>
  Engineering and test         $13,756     $12,258
   equipment
    Computers and software       9,474       9,011
    Furniture and office         1,599         778
      equipment
  Leasehold improvements         1,299         467
    Land                           288         288
                             ----------- -----------
                                26,416      22,802
Less:  Accumulated             (16,426)    (12,859)
  depreciation and
  amortization
                             ----------- -----------
                                $9,990      $9,943
                             =========== ===========
</TABLE>

Depreciation and amortization  expense for fiscal years 2000, 1999 and 1998 were
$4.4 million, $3.8 million and $3.5 million, respectively.

Property and  equipment  includes  $2.5 million and $4.7 million of assets under
capital   leases  at  March  31,  2000  and  1999,   respectively.   Accumulated
depreciation  of assets  under  capital  leases  totaled  $0.7  million and $3.5
million at March 31, 2000 and 1999, respectively.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Components of accumulated other  comprehensive  income at March 31, 2000 were as
follows:

<TABLE>
<CAPTION>
                 Unrealized  Tax Effect        Net
                    Gain                    Unrealized
                                               Gain
                 ----------  -----------  -------------
<S>                <C>        <C>            <C>
UMC                $43,274    $(17,613)      $ 25,661
Chartered          150,194     (61,129)        89,065
Semiconductor
Broadcom            39,490     (16,072)        23,418
Corporation
                 ----------  -----------  -------------
                  $232,958    $(94,814)      $138,144
                 ==========  ===========  =============
</TABLE>

                                      F-11
<PAGE>

NOTE 3. INVESTMENT IN CHARTERED SEMICONDUCTOR MANUFACTURING LTD. ("CHARTERED")

In  February  and  April  1995,  the  Company   purchased  shares  of  Chartered
Semiconductor  ("Chartered") for approximately  $51.6 million and entered into a
manufacturing  agreement whereby Chartered agreed to provide a minimum number of
wafers from its 8-inch wafer  fabrication  facility known as "Fab2", if Alliance
so chooses. In October 1999, Chartered  successfully completed an initial public
offering in Singapore  and the United  States.  At March 31,  2000,  the Company
owned  approximately  21.4 million ordinary shares or approximately 2.14 million
American Depository Shares or "ADSs."

These shares were subject to a six-month  "lock-up",  or no trade period,  which
expired in April 2000.  In May 2000,  Chartered  completed  a  secondary  public
offering,  which Alliance  decided not to  participate  in and as a result,  the
Company's  shares are now subject to an additional  three-month  "lock-up" which
expires in August 2000. In June 2000, the underwriter of the secondary  offering
released the Company from the lock-up,  and the Company  started selling some of
its shares.  The  Company  does not own a material  percentage  of the equity of
Chartered.  If the  Company  sells  more that 50% of its  original  holdings  in
Chartered,  the Company  will start to lose a  proportionate  share of its wafer
production capacity rights, which could materially affect its ability to conduct
its  business.  Additionally,  because  of  the  potential  loss  of  its  wafer
production  capacity  rights if the Company  sells more than 50% of its original
holdings in  Chartered,  there can be no assurance  that the Company can realize
its value on its investment in Chartered.

Prior to the fiscal third quarter of fiscal year 2000, the Company  recorded its
investment  in  Chartered  as a  long-term  investment  using the cost method of
accounting.  The Company now records  its  investment  as an  available-for-sale
marketable  security in accordance with SFAS 115. At March 31, 2000, the Company
has recorded an unrealized gain of approximately $89.1 million,  which is net of
deferred  tax of  approximately  $61.1  million,  as part of  accumulated  other
comprehensive income in the stockholder's equity section of the balance sheet.

NOTE 4.  INVESTMENT IN UNITED MICROELECTRONICS CORPORATION ("UMC")

In July 1995, the Company entered into an agreement with United Microelectronics
Corporation  ("UMC")  and S3  Incorporated  ("S3") to form a separate  Taiwanese
company,  United Semiconductor  Corporation ("USC"), for the purpose of building
and managing an 8-inch semiconductor  manufacturing  facility in Taiwan. Between
September 1995 and July 1997 the Company invested approximately $70.4 million in
USC in exchange for 190 million  shares or 19.0% of the  outstanding  shares and
25% of the total  wafer  capacity.  In April 1998,  the Company  sold 35 million
shares of USC to an affiliate of UMC and received approximately US$31.7 million.
In connection  with the sale, the Company had the right to receive an additional
NTD 665 million upon the occurrence of certain  potential  future events,  which
included  the  sale  or  transfer  of  USC  shares  by  USC  in an  arms  length
transaction,  or by a public  offering  of USC  stock,  or by the sale of all or
substantially  all of the  assets  of USC.  In  March  2000,  Alliance  received
approximately  NTD 665  million  (US$21.5  million)  as a result  of the  merger
between USC and UMC, described below.

Subsequent  to the April 1998 USC stock sale,  the Company  owned  approximately
15.5% of the  outstanding  shares of USC. In October 1998, USC issued 46 million
shares to the Company by way of a dividend distribution.  Additionally, USC also
made a stock  distribution  to its  employees  thereby  reducing  the  Company's
ownership in USC to 14.8% of the outstanding shares.

Prior to the merger with UMC, the Company, as part of its investment in USC, was
entitled  to 25% of the  output  capacity  of  the  wafer  fabrication  facility
operated by USC as well as a seat on the board of  directors of USC. As a result
of the capacity rights, the board seat, and certain contractual rights, Alliance
had  participated in both strategic and operating  decisions of USC on a routine
basis,  had rights of approval  with  respect to major  business  decisions  and
concluded that it had significant influence on financial and operating decisions
of USC.  Accordingly,  the Company accounted for its investment in USC using the
equity method with a ninety-day lag in reporting the Company's  share of results
for the entity.  In fiscal  years 2000,  1999 and 1998 the Company  reported its
proportionate share of equity income of USC of $9.5 million,  $10.9 million, and
$15.5 million, net of tax, respectively.

In October  1995,  the  Company  entered  into an  agreement  with UMC and other
parties to form a separate Taiwanese company,  United Silicon Inc. ("USIC"), for
the  purpose of building  and  managing  an 8-inch  semiconductor  manufacturing
facility in Taiwan.  Between  January 1996 and July 1998,  the Company  invested

                                      F-12
<PAGE>

approximately  $16.8  million and owned  approximately  3.2% of the  outstanding
shares  of  USIC  and  had  the  right  to  purchase  approximately  3.7% of the
manufacturing capacity of the facility. The Company accounted for its investment
in USIC using the cost  method of  accounting  prior to the  merger  with UMC in
January 2000.

In June 1999, UMC, a publicly traded company in Taiwan, announced plans to merge
four  semiconductor  wafer foundry units, USC, USIC,  United Integrated  Circuit
Corporation  and  UTEK  Semiconductor  Corporation,  into  UMC and  subsequently
completed the merger in January 2000. Through its representation on USC's board,
the  Company  had the right to choose  whether  to  consent  to the  merger  and
concluded it to be in the Company's  best interest to do so.  Alliance  received
247.7  million  shares  of UMC  stock for its  247.7  million  shares,  or 14.8%
ownership of USC,  and  approximately  35.6 million  shares of UMC stock for its
48.1  million  shares,  or 3.2%  ownership of USIC.  At March 31, 2000  Alliance
Semiconductor owned approximately 283.3 million shares, or approximately 3.2% of
UMC, and  maintained its 25% and 3.7% wafer  capacity  allocation  rights in the
former  USC and USIC  foundries,  respectively.  As a result  of the  merger  in
January 2000, the Company no longer recorded its  proportionate  share of equity
income in USC, as the  Company no longer has an ability to exercise  significant
influence  over UMC's  operations.  The  investment in UMC is accounted for as a
cost method investment.

During the fiscal fourth quarter of 2000, the Company  recognized a $908 million
pre-tax,  non-operating  gain as a result of the merger.  The gain was  computed
based on the share price of UMC at the date of the merger (i.e.  NTD 112, or US$
3.5685),  as well as the approximately  $21.5 million additional gain related to
the sale of the USC shares in April 1998. The Company has accrued  approximately
$3.0 million for the Taiwan  securities  transaction  tax in connection with the
shares  received by the Company.  This  transaction  tax will be paid,  on a per
share basis, when the securities are sold.

According to Taiwanese laws and regulations, 50% of the 283.3 million Alliance's
UMC shares are subject to a six-month "lock-up" or no trade period. This lock-up
period  expires in July 2000.  Of the remaining  50%, or 141.6  million  shares,
approximately  28.3 million shares will become  eligible for sale two years from
the closing date of the transaction (i.e. January 2002), with approximately 28.3
million  shares  available-for-sale  every six months  thereafter,  during years
three and four (i.e.2002-2004).  In May 2000, the Company received an additional
20% or 56.6 million shares of UMC by way of a stock dividend.

Subsequent to the  completion  of the merger the Company  accounts for a portion
(approximately  50% at March 31, 2000) of its  investment in UMC,  which becomes
unrestricted within twelve months as an  available-for-sale  marketable security
in  accordance  with SFAS 115. At March 31,  2000,  the Company has  recorded an
unrealized gain of approximately $25.7 million,  which is net of deferred tax of
$17.6  million,  as  part  of  accumulated  other  comprehensive  income  in the
stockholders' equity section of the balance sheet with respect to the short term
portion of the  investments.  As the portion of the  investment  in UMC which is
restricted beyond twelve months  (approximately 50% of the Company's holdings at
March 31, 2000) is accounted for as a cost method investment and is presented as
a long-term investment. As this long-term portion becomes current over time, the
investment  will be transferred to short-term  investments and will be accounted
for as an  available-for-sale  marketable  security in accordance with SFAS 115.
The long-term portion of the investments become unrestricted  securities between
2002 and 2004.

Given the market risk for securities,  when these shares are ultimately sold, it
is possible that additional gain or loss will be reported.

Note 5. INVESTMENT IN MAVERICK NETWORKS, INC. / BROADCOM CORPORATION

In 1998, the Company was  approached by a startup  company,  Maverick  Networks,
Inc. ("Maverick"), regarding their need for imbedded memory in a internet router
semiconductor  that  Maverick  was  designing.  Because  the  Company  was  also
interested in eventually entering the internet router semiconductor  market, the
Company  entered into an agreement with Maverick which called for the Company to
provide memory technology,  access to the Company's wafer production rights, and
cash to Maverick,  in exchange for certain  rights to Maverick's  technology and
stock in  Maverick.  On May 31,  1999,  Maverick  completed a  transaction  with
Broadcom  Corporation,  resulting  in the  Company  selling  its  39%  ownership
interest in Maverick in exchange for 538,961 shares of Broadcom's Class B common
stock.  Based on Broadcom's closing share price on the date of sale, the Company
recorded a pre-tax,  non-operating  gain in the first  quarter of fiscal 2000 of
approximately  $51.6 million based on the closing share price of Broadcom at the
date of the merger.  During  fiscal 2000,

                                      F-13
<PAGE>

the Company sold  275,600  shares of Broadcom  stock and realized an  additional
pre-tax,  non-operating gain of approximately  $23.7 million.  In February 2000,
Broadcom Corporation announced a two for one stock split.

The  Company  records  its  investment  in  Broadcom  as  an  available-for-sale
marketable  security in accordance with SFAS 115. At March 31, 2000, the Company
owned  approximately  487,522  shares of Broadcom  and  recorded  an  additional
unrealized gain of approximately $23.4 million,  which is net of deferred tax of
approximately $16.1 million,  as part of accumulated other comprehensive  income
in the stockholders equity section of the balance sheet.

Note 6. ALLIANCE VENTURE MANAGEMENT, LLC

In October 1999, the Company formed Alliance Venture Management,  LLC ("Alliance
Venture Management"),  a California limited liability corporation, to manage and
act as the general partner in the investment funds the Company intended to form.
Alliance  Venture  Management does not directly  invest in the investment  funds
with the Company,  but is entitled to a management fee out of the net profits of
the investment funds.  This management  company structure was created to provide
incentives  to  the  individuals  who  participate  in  the  management  of  the
investment  funds, by allowing them limited  participation in the profits of the
various  investment  funds,  through the management  fees paid by the investment
funds.

In November 1999, the Company formed Alliance Ventures I, LP ("Alliance  Venture
I") and Alliance  Ventures II ("Alliance  Venture II"), both California  limited
partnerships.  The Company, as the sole limited partner, owns 100% of the shares
of each partnership.  Alliance Venture Management acts as the general partner of
these  partnerships  and  receives a  management  fee of 15% of the profits from
these  partnerships  for its managerial  efforts.  In February 2000, the Company
formed  Alliance  Ventures III ("Alliance  Venture  III"), a California  limited
partnership.  The Company, as the sole limited partner,  owns 100% of the shares
of this partnership.  Alliance Venture Management acts as the general partner of
this  partnership  and receives a management fee of 16% of the profits from this
partnership  for  its  managerial  efforts.  Several  of  the  Company's  senior
management hold a majority of the units of Alliance Venture Management.

After  Alliance  Ventures I, was formed,  the Company  contributed  all its then
current investments,  except Chartered, UMC and Broadcom, to Alliance Ventures I
to allow Alliance Venture  Management to manage these  investments.  As of March
31,  2000,  Alliance  Ventures I, whose focus is  investing  in  networking  and
communication  start-up  companies,  has invested $22.3 million in 10 companies,
and Alliance  Ventures  II,  whose focus is in  investing  in internet  start-up
ventures  has  approximately  $4.4  million  in 8  companies,  with a total fund
allocation of $15 million.  As of March 31, 2000,  Alliance  Ventures III, whose
focus is investing in emerging  companies in the  networking  and  communication
market  areas,  has  invested  $2  million  in one  company,  with a total  fund
allocation of $100 million.

Several of these  investments  are accounted for as the equity method due to the
Company's  ability to exercise  its  influence  on the  operations  of investees
resulting  primarily from ownership  interest and/or board  representation.  The
total equity in the net losses of the equity  investees of these  venture  funds
was $368,000 for the year ended March 31, 2000.

Note 7. INVESTMENT IN OROLOGIC CORPORATION / VITESSE SEMICONDUCTOR CORPORATION

In  August  1999,  the  Company  made  an  investment  in  Orologic  Corporation
("Orologic"),  a fabless  semiconductor  company that develops high  performance
system on a chip  solutions.  In  November  1999,  the Company  transferred  its
interest  in  Orologic  to  Alliance  Ventures  I, to allow it to be  managed by
Alliance Venture  Management.  See Note 6. Subsequently,  in March 2000, Vitesse
Semiconductor Corporation ("Vitesse") acquired Orologic. In connection with this
merger,  Alliance  Ventures I received  852,447 shares of Vitesse for its equity
interest  in  Orologic.  As a  result  of the  merger,  the  Company  recognized
approximately  $69 million  pre-tax,  non-operating  gain,  in its fiscal fourth
quarter  ending March 31, 2000,  based on the closing  share price of Vitesse of
$96.25 on March 31, 2000, the closing date of the merger.

The Company  records its investment in Vitesse  Semiconductor  Corporation as an
available-for-sale marketable security in accordance with SFAS 115. At March 31,
2000, the Company owned 852,447 shares of Vitesse.

On May 12, 2000,  Alliance  Ventures I made a distribution  of the Vitesse stock
that had been  acquired by Alliance  Ventures I in exchange  for its sale of one
million shares of Orologic as follows:

                                      F-14
<PAGE>

<TABLE>
<CAPTION>

                                             Shares of Vitesse
                                             -----------------
<S>                                               <C>
Alliance                                          632,876
11.21%  shares  to be held in  escrow  for         95,417
  Alliance
Alliance Venture Management                       124,154
                                             -----------------
Total  shares   resulting   from  sale  of        852,447
  1,000,000 Orologic shares
                                             =================
</TABLE>

Alliance Ventures Management then immediately  distributed the Vitesse shares to
its unit holders.

NOTE 8.  LONG TERM OBLIGATIONS, LEASES AND COMMITMENTS

OPERATING LEASES

The Company  leases its  headquarters  facility  under an  operating  lease that
expires in June 2006.  Under the terms of the lease,  the Company is required to
pay property taxes,  insurance and maintenance  costs. In addition,  the Company
also leases sales and design center offices under operating leases, which expire
between 2000 and 2007.

Future  minimum  fiscal  rental  payments  under  non-cancelable  leases  are as
follows:


<TABLE>
<CAPTION>
  Fiscal        (in
   Year      thousands)
-----------  ----------
<S>           <C>
   2001        $1,601
   2002         1,598
   2003         1,604
   2004         1,636
   2005         1,696
Thereafter      2,160
             ----------
Total          $10,295
  payments
             ==========
</TABLE>

Rent expense for fiscal  2000,  1999,  and 1998 was  $1,386,000,  $635,000,  and
$484,000, respectively.

CAPITAL LEASES

At March 31, 2000, equipment under capital leases amounted to approximately $2.5
million  compared to $4.7  million at March 31, 1999.  The original  lease terms
range from three to five years.

The  following  is a schedule of future  minimum  fiscal  lease  payments  under
capital leases:

<TABLE>
<CAPTION>
        Fiscal Year           (in
                           thousands)
-------------------------  ----------
<S>                          <C>
2001                         $1,129
2002                            864
2003                            327
                           ----------
Total payments minimum        2,320
  lease payments
Amount representing            (318)
  interest
                           ----------
                              2,002
Less current portion           (905)
                           ----------
Long-term capital lease      $1,097
  obligations
                           ==========
</TABLE>

LETTERS OF CREDIT

At March 31, 2000,  approximately $2.8 million in standby letters of credit were
outstanding and expire through March 30, 2001, secured by restricted cash.

                                      F-15
<PAGE>

NOTE 9.  PROVISION (BENEFIT) FOR INCOME TAXES

The provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                             March 31,
                  -------------------------------
                   2000       1999       1998
                  --------  ---------  ----------
                          (in thousands)
Current:
<S>              <C>         <C>        <C>
  Federal         $14,340         $-    $(20,173)
  State               228          -           -
                  --------  ---------  ----------
                   14,568          -     (20,173)
                  --------  ---------  ----------
Deferred:
  Federal        $340,351     $8,397       8,752
  State            55,429          -           -
                  --------  ---------  ----------
                  395,780      8,397       8,752
                  --------  ---------  ----------
   Total         $410,348     $8,397     $(11,421)
     provision
     (benefit)
                  ========  =========  ==========
</TABLE>

In addition to the provision (benefit) for taxes noted above,  deferred taxes of
$ $6.4  million,  and $8.3  million for the years ended March 31, 1999 and 1998,
respectively, are recorded as part of the equity in income of USC.

Deferred tax assets (liabilities) comprise the following:

<TABLE>
<CAPTION>
                             March 31,
                         ------------------
                          2000      1999
                         -------  ---------
                           (in thousands)
<S>                   <C>         <C>
Inventory reserves       $1,982     $5,267
Accrued expenses and      4,198      3,226
reserves
NOL carry forward             -      8,531
Other                         -        791
                         -------  ---------
  Gross deferred tax      6,180     17,815
assets
Investment in USC             -    (14,723)
Investment in UMC      (398,851)         -
Investment in Broadcom  (25,127)         -
Investment in Chartered (61,129)         -
Investment in Orologic  (27,952)         -
Other                    (1,827)         -
                         -------  ---------
  Gross deferred tax   (514,886)   (14,723)
liabilities
                         -------  ---------
Deferred tax asset            -    (17,815)
valuation allowance
                         -------  ---------
                      $(508,706)  $(14,723)
                         =======  =========
</TABLE>

The provision  (benefit)  for income taxes  differs from the amount  obtained by
applying  the U.S.  federal  statutory  rate to income  before  income  taxes as
follows:

<TABLE>
<CAPTION>
                                Year Ended March 31,
                         -----------------------------------
                            2000       1999         1998
                         ----------  ----------  -----------
                         (in thousands, except percentages)
<S>                       <C>         <C>          <C>
Federal  statutory rate         35%         35%          35%
Tax at federal            $367,274     $(8,531)    $(11,421)
  statutory rate
State taxes, net of       59,813             -            -
  federal benefit
Change in valuation      (17,815)        8,397            -
  allowance
Current year losses and
  timing differences           -         8,531            -
  with no tax benefit
  recognized
Other, net                 1,076             -            -
                         ----------  ----------  -----------
  Total                  $410,348       $8,397     $(11,421)
                         ==========  ==========  ===========
</TABLE>

Due to the  uncertainty  of the  realization  of the  deferred  tax assets,  the
Company provided a full valuation  allowance on the deferred tax assets at March
31, 1999.  In the first  quarter of fiscal 2000,  when the Company  recognized a
gain of $51.6  million  related to the sale of  Maverick  Networks  to  Broadcom
Corporation,  the Company released the entire $17.8 million valuation  allowance
and recorded the tax benefit as an offset to income during fiscal 2000.  The tax
benefit  associated with the previous  exercises of non-qualified  stock options
and  disqualifying   dispositions  of  incentive  stock  options  reduced  taxes
currently  payable by $3.5  million in fiscal  year 2000 and $0 in fiscal  years
1999 and 1998.

                                      F-16
<PAGE>

Note 10.  STOCK OPTION PLANS

1992 STOCK OPTION PLAN

In April 1992,  the Company  adopted the 1992 Stock Option Plan (the "Plan") and
reserved  5,625,000  shares  of Common  Stock  for  issuance  to  employees  and
consultants of the Company. The Board of Directors may terminate the Plan at any
time at its  discretion.  On September 30, 1993,  the number of shares of Common
Stock  reserved for issuance  under the Plan was  increased to 7,875,000  and on
September 14, 1995,  the number of shares  reserved for issuance  under the Plan
was increased to 9,000,000.  On August 31, 1999,  the number of shares  reserved
for issuance under the Plan was increased by 2,000,000 to 11,000,000. The Option
Plan,  which  has a term  of ten  years,  provides  for  incentive  as  well  as
nonqualified stock options.

Incentive  stock  options  may not be  granted  at less than 100  percent of the
estimated fair value, as determined by the Board of Directors,  of the Company's
Common  Stock at the date of grant and the option  term may not exceed 10 years.
For holders of more than 10 percent of the total  combined  voting  power of all
classes  of the  Company's  stock,  options  may not be granted at less than 110
percent of the estimated fair value of the Common Stock at the date of grant and
the option term may not exceed five years.

DIRECTORS' STOCK OPTION PLAN

On September 30, 1993, the Company adopted its 1993 Directors' Stock Option Plan
("Directors'  Plan"),  under  which  900,000  shares of Common  Stock  have been
reserved for issuance.  The Directors'  Plan provides for the automatic grant to
each  non-employee  director  of  the  Company  (but  excluding  persons  on the
Company's  Board of Directors in November 1993) of an option to purchase  22,500
shares of Common Stock on the date of such director's  election to the Company's
Board of Directors.  Thereafter,  such director will receive an automatic annual
grant of an option to purchase 11,250 shares of Common Stock on the date of each
annual  meeting  of  the  Company's  stockholders  at  which  such  director  is
re-elected.  The maximum number of shares that may be issued to any one director
under this plan is 90,000.  Such  options will vest ratably over four years from
their respective dates of grant.

The following  table  summarizes  grant and stock option activity under the Plan
and the Directors' Plan for fiscal years 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                     Options        Options Outstanding
                   ------------  --------------------------
                    Available                  Weighted
                    for Grant      Shares   Average Prices
                   ------------  ---------- ---------------
<S>                  <C>          <C>            <C>
  Balance at         2,210,796    4,191,289      $3.87
    March 31, 1997
    Options         (1,588,504)   1,588,504       8.18
      granted
    Options            736,197     (736,197)      6.77
      canceled
    Options                  -   (1,368,165)      2.12
      exercised
                   ------------  ---------- ---------------
  Balance at         1,358,489    3,675,431      $5.81
    March 31, 1998
    Options         (1,405,150)   1,405,150       3.52
      granted
    Options          1,352,324   (1,352,324)      7.23
      canceled
    Options                  -     (986,959)      1.56
      exercised
                   ------------  ---------- ---------------
  Balance at         1,305,663    2,741,298      $5.37
  March 31, 1999
  Options            2,000,000            -          -
    Authorized
    Options         (1,150,950)   1,150,950     $11.91
      granted
    Options            925,374     (925,374)     $5.49
      canceled
    Options                  -     (677,717)     $5.85
      exercised
                   ------------  ---------- ---------------
  Balance at         3,080,087    2,289,157      $8.44
    March 31, 2000
                   ============  ========== ===============
</TABLE>

As of March 31, 2000, options to purchase approximately 350,037 shares of Common
stock  were  exercisable.  Options  granted  vest  over a period of four to five
years.

The weighted  average  estimated fair value at the date of grant,  as defined by
SFAS 123, for options  granted in fiscal 2000,  1999, and 1998 was $8.57,  $2.44
and $4.90  per  option,  respectively.  The  estimated  grant  date  fair  value
disclosed above was calculated  using the  Black-Scholes  model.  This model, as
well as other  currently  accepted  option  valuation  models,  was developed to
estimate the fair value of freely tradable,  fully transferable  options without
vesting restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future stock
price  volatility  and  expected  time to  exercise,  which  greatly  affect the
calculated values.  Significant option groups outstanding at March 31, 2000, and
related  weighted average exercise price and contractual life information are as
follows:

                                      F-17
<PAGE>


<TABLE>
<CAPTION>
                  Outstanding and Exercisable by Price Range

                Number      Weighted    Weighted      Number      Weighted
  Range of    Outstanding    Average     Average    Vested and    Average
  Exercise       As of      Remaining   Exercise   Exercisable    Exercise
   Prices      March 31,   Contractual    Price    As of March     Price
                 2000         Life                   31, 2000
------------- ------------ ------------ ---------- -------------  ---------
<S>           <C>              <C>        <C>        <C>            <C>
  $2.09 -      296,900         4.46       $2.31      27,540         $2.31
   $2.31
  $2.44 -      609,775         4.57       $3.81     165,675         $3.75
   $5.50
  $5.56 -      277,482         2.83       $7.19      96,922         $7.12
   $7.38
  $7.44 -      255,100         4.03       $8.80      58,700         $7.95
   $11.13
  $11.19 -     350,000         5.42      $11.19           -          -
   $11.19
  $11.25-      231,000         5.41      $11.95           -          -
   $12.06
  $12.13 -     268,900         5.79      $20.05       1,200        $12.44
   $25.75
------------- ------------ ------------ ---------- -------------  ---------
  $2.09 -    2,289,157         4.64       $8.44     350,037         $5.30
   $25.75
============= ============ ============ ========== =============  =========
</TABLE>

The following  assumptions  are included in the estimated  grant date fair value
calculations for stock options:

<TABLE>
<CAPTION>
                2000        1999         1998
              ---------   ----------  ------------
<S>             <C>         <C>          <C>
Expected life   5.00        5.00         5.00
                years       years        years
Risk-free       6.7%        5.7%         6.0%
  interest rate
Volatility      86%         88.0%        65.0%
Dividend        0.0%        0.0%         0.0%
  yield
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

In September 1996, the Company and its  shareholders  approved an Employee Stock
Purchase Plan ("ESPP"),  which allows eligible  employees of the Company and its
designated  subsidiaries  to purchase  shares of Common  Stock  through  payroll
deductions.  The ESPP consists of a series of 12-month offering periods composed
of two consecutive 6-month purchase periods. The purchase price per share is 85%
of the fair market value of the Common Stock, at the date of commencement of the
offering period,  or at the last day of the respective  6-month purchase period,
whichever  is lower.  Purchases  are  limited to 10% of an  eligible  employee's
compensation, subject to a maximum annual employee contribution and limited to a
$25,000 fair market  value.  Of the 750,000  shares of Common  Stock  authorized
under the ESPP,  119,765,  171,676,  and 96,922 shares were issued during fiscal
2000, 1999, and 1998, respectively.

Compensation  costs  (included in pro forma net income  (loss) and pro forma net
income  (loss) per share  amounts) for the grant date fair value,  as defined by
SFAS 123, of the purchase rights granted under the ESPP,  were calculated  using
the Black-Scholes model. The following weighted average assumptions are included
in the estimated grant date fair value calculations for rights to purchase stock
under the ESPP;

<TABLE>
<CAPTION>
                2000        1999         1998
              ---------  -----------  -----------
<S>           <C>         <C>          <C>
Expected life 6 months    6 months     6 months
Risk-free       6.4%        4.9%         5.4%
  interest rate
Volatility     78.0%       88.0%        65.0%
Dividend        0.0%        0.0%         0.0%
  yield
</TABLE>

The weighted average estimated grant date fair value, as defined by SFAS 123, or
rights to purchase  Common Stock under the ESPP granted in fiscal 2000, 1999 and
1998 was $2.24, $2.55 and $3.04 per share, respectively.

PRO FORMA NET INCOME (LOSS) AND PRO FORMA NET INCOME (LOSS) PER SHARE

Had the Company recorded  compensation expense based on the estimated grant date
fair  value,  as defined by SFAS 123,  for awards  granted  under the Plan,  the
Directors'  Plan and its ESPP, the Company's pro forma net income (loss) and pro
forma net income  (loss) per share for the years ended March 31, 2000,  1999 and
1998, would have been as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                             March 31,
                  -------------------------------
                    2000       1999       1998
                  ---------  ---------  ---------
<S>               <C>        <C>        <C>
Pro forma income  $646,905   $(23,231)  $(8,153)
  (loss):
Pro forma net
  loss per share:
  Basic            $15.47    $(0.56)     $(0.21)
  Diluted          $15.05    $(0.56)     $(0.21)

</TABLE>
                                      F-18
<PAGE>


NOTE 11.  401(K) SALARY SAVINGS PLAN

Effective May 1992,  the Company  adopted the Salary  Savings Plan (the "Savings
Plan")  pursuant to Section  401(k) of the Internal  Revenue Code (the  "Code"),
whereby  eligible  employees may contribute up to 15% of their earnings,  not to
exceed amounts allowed under the Code.  Effective April 1999, the Company agreed
to match up to 50% of the first 6% of the employee  contribution to a maximum of
two thousand dollars annually per employee.  The Company's matching contribution
vests over five years. In fiscal year 2000 the Company contributed approximately
$131,000. There were no contributions made in fiscal 1999 and 1998.

NOTE 12.  LEGAL MATTERS

In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors  and others in the United States  District
Court for the Northern  District of California,  alleging  violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated  thereunder.  The complaint alleged that the Company, N.D. Reddy and
C.N.  Reddy also had  liability  under  Section  20(a) of the Exchange  Act. The
complaint,  brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's  common stock between July 11,
1995 and December 29, 1995. In April 1997,  the Court  dismissed the  complaint,
with  leave to file an  amended  complaint.  In June  1997,  plaintiff  filed an
amended  complaint against the Company and certain of its officers and directors
alleging  violations  of Sections  10(b) and 20(a) of the Exchange  Act. In July
1997,  The Company moved to dismiss the amended  complaint.  In March 1998,  the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the  ruling  as to the one  claim  not  dismissed.  In June  1998,  the  parties
stipulated to dismiss the remaining  claim without  prejudice,  on the condition
that in the event the dismissal  with  prejudice of the other claims is affirmed
in its entirety,  such remaining claim shall be deemed dismissed with prejudice.
In June 1998,  the court entered  judgment  dismissing  the case pursuant to the
parties' stipulation. Plaintiffs have appealed the court's ruling dismissing the
claims and the parties have filed appeal briefs. The Company intends to continue
to defend vigorously against any claims asserted against it, and believes it has
meritorious defenses. Due to the inherent uncertainty of litigation, the Company
is not able to  reasonably  estimate the potential  losses,  if any, that may be
incurred in relation to this litigation.

In December 1996, Alliance Semiconductor  International  Corporation ("ASIC"), a
wholly owned  subsidiary  of the Company,  was served with a complaint  filed in
Federal Court  alleging that ASIC had infringed two patents owned by AMD related
to flash memory devices,  and seeking  injunctive  relief and damages.  In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand  its  claims to  include  several  new flash  products  which had been
recently  announced by the Company.  In January and February 2000,  both parties
filed  for  motions  for  summary  judgment.   Each  defendant  has  denied  the
allegations of the complaint and asserted a counterclaim  for  declaration  that
each of the AMD patents is invalid and not infringed by such defendant.  A trial
date is currently set for September 2000. The Company believes the resolution of
this matter will not have a material adverse effect on its financial  conditions
and its results of operations.

In July 1998, the Company  learned that a default  judgment was entered  against
the Company in Canada, in the amount of approximately  US$170 million, in a case
filed in 1985 captioned  Prabhakara  Chowdary Balla and TritTek Research Ltd. v.
Fitch Research  Corporation,  et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry).  The Company,  which had previously not participated in the
case,  believes  that it never was properly  served with process in this action,
and that the Canadian court lacks  jurisdiction over the Company in this matter.
In  addition to  jurisdictional  and  procedural  arguments,  the  Company  also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's  bankruptcy in 1991. In February 1999, the
court set aside the default  judgment  against the Company.  In April 1999,  the
plaintiffs  were granted leave by the Court to appeal this judgment.  The appeal
brief and  reply  briefs  have been  filed and the  parties  are  awaiting  oral
arguments before the Court in June 2000.

NOTE 13.  ANTIDUMPING PROCEEDING (TAIWAN-MANUFACTURED SRAMS AND DRAMS)

In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United  States   International   Trade  Commission  ("ITC")  and  United  States
Department of Commerce  ("DOC"),  alleging that SRAMs  fabricated

                                      F-19
<PAGE>


in Taiwan were being sold in the United States at less than fair value, and that
the United States industry  producing SRAMs was materially injured or threatened
with material injury by reason of imports of SRAMs fabricated in Taiwan. After a
final  affirmative  DOC  determination  of dumping and a final  affirmative  ITC
determination  of injury,  DOC issued an  antidumping  duty order in April 1998.
Under that  order,  the  Company's  imports  into the United  States on or after
approximately  April 16,1998 of SRAMs fabricated in Taiwan are subject to a cash
deposit in the amount of 50.15% (the "Antidumping  Margin") of the entered value
of  such  SRAMs.  (The  Company  posted  a bond in the  amount  of  59.06%  (the
preliminary  margin)  with  respect to its  importation,  between  approximately
October 1997 and April 1998, of SRAMs  fabricated  in Taiwan.) In May 1998,  the
Company and others filed an appeal in the United  States Court of  International
Trade (the  "CIT"),  challenging  the  determination  by the ITC that imports of
Taiwan-fabricated  SRAMs were causing material injury to the U.S.  industry.  On
June 30, 1999 the CIT issued a decision remanding the ITC's affirmative material
injury  determination  to  the  ITC  for   reconsideration.   The  ITC's  remand
determination  reaffirmed  its original  determination.  The CIT  considered the
remand   determination   and   remanded   it  back   to  the  ITC  for   further
reconsideration.  On June 12, 2000, in its second remand  determination  the ITC
voted  negative on injury,  thereby  reversing its original  determination  that
Taiwan-fabricated  SRAMs were causing material injury to the U.S. industry.  The
second remand  determination will be transmitted to the CIT on June 26, 2000 for
consideration.  The decision of the CIT can be further  appealed to the Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal.  Until a final  judgment is entered in the
appeal,  no final duties will be assessed on the Company's entries of SRAMs from
Taiwan covered by the DOC  antidumping  duty order. If the appeal is successful,
the antidumping order will be terminated and cash deposits will be refunded with
interest.   If  the   appeal  is   unsuccessful,   the   Company's   entries  of
Taiwan-fabricated  SRAMs from  October 1, 1997  through  March 31,  2000 will be
liquidated  at the deposit  rate in effect at the time of entry.  On  subsequent
entries of  Taiwan-fabricated  SRAMs,  the  Company  will  continue to make cash
deposits  in the  amount of 50.15% of the  entered  value.  In April  2001,  the
Company  will  have  an  opportunity  to  request  a  review  of  its  sales  of
Taiwan-fabricated  SRAMs from April 1, 2000 through  March 31, 2001 (the "Review
Period").  If it does so,  the amount of  antidumping  duties,  if any,  owed on
imports from April 2000 through  March 2001 will remain  undetermined  until the
conclusion of the review in early 2002. If the DOC found, based upon analysis of
the Company's  sales during the Review Period,  that  antidumping  duties either
should not be imposed or should be imposed at a lower rate than the  Antidumping
Margin,  the difference  between the cash deposits made by the Company,  and the
deposits  that would have been made had the lower rate (or no rate,  as the case
may be) been in effect, would be returned to the Company, plus interest.  If, on
the other hand, the DOC found that higher margins were appropriate,  the Company
would have to pay  difference  between the cash deposits paid by the Company and
the  deposits  that would have been made had the higher rate been in effect.  At
March 31,  2000,  the Company had posted a bond secured by a letter of credit in
the amount of approximately $1.7 million and made cash deposits in the amount of
$1.7 million relating to the Company's importation of Taiwan-manufactured SRAMs.

In October 1998, Micron Technology,  Inc. filed an antidumping petition with the
DOC and the ITC, alleging that DRAMs fabricated in Taiwan were being sold in the
United  States at less than fair  value,  and that the  United  States  industry
producing  DRAMs was materially  injured or threatened  with material  injury by
reason of imports of DRAMs  fabricated  in Taiwan.  The petition  requested  the
United States government to impose antidumping duties on imports into the United
States of DRAMs  fabricated in Taiwan.  In December 1998, the ITC  preliminarily
determined  that  there was a  reasonable  indication  that the  imports  of the
products under  investigation  were injuring the United States industry.  In May
1999 the DOC issued a preliminary  affirmative  determination of dumping.  Under
that determination, the Company's imports into the United States on or after May
28, 1999 of DRAMs  fabricated  in Taiwan  were  subject to an  antidumping  duty
deposit in the  amount of 16.65%  (the  preliminary  "all  others"  rate) of the
entered   value  of  such   DRAMs,   an   antidumping   margin   calculated   by
weight-averaging the antidumping margins of individually investigated respondent
companies.  The  Company  posted a bond to cover  deposits on such  entries.  In
October 1999 the DOC issued a final affirmative  determination of dumping. Under
that  determination,  the  Company's  imports into the United States on or after
October 19, 1999 of DRAMs  fabricated  in Taiwan were subject to an  antidumping
duty deposit in the amount of 21.35%, (the final "all-others" rate). However, on
December  8, 1999,  the ITC  issued a final  negative  determination  of injury.
Consequently,  the investigation  was terminated,  the suspension of liquidation
lifted, and the bond posted in September 1999 released.  In January 2000, Micron
filed an appeal in the CIT challenging the determination by the ITC that imports
of  Taiwan-fabricated  DRAMs  were  not  causing  material  injury  to the  U.S.
industry.  On March 21, 2000 the Appeal of the ITC decision was dismissed by the
CIT.

NOTE 14.  RELATED PARTY TRANSACTIONS

On May 18,  1998,  the  Company  provided  loans  to two of its  officers  and a
director aggregating $1,735,000.  The officer loans were used for the payment of
taxes  resulting from the gain on the exercise of  non-qualified  stock options.
The loan to a director was used for the exercise of stock  options.  Under these
loans,  both principal and

                                      F-20
<PAGE>


accrued  interest were due on December 31, 1999, with accrued  interest at rates
ranging  from 5.50% to 5.58% per  annum.  The loan to the  director  was paid at
December 31, 1999.  The officer  loans were extended to December 31, 2000. As of
March 31,  2000,  $1,615,000  was  outstanding  under these  loans with  accrued
interest of $163,000.

In fiscal year 2000, the Company made wafer purchases from USC of  approximately
$15.1 million prior to the merger with UMC in January 2000. After the completion
of the merger in January 2000, the Company purchased $1.5 million of wafers from
UMC. In fiscal year 1999, the Company made wafer  purchases  $8.8 million,  from
USC.

NOTE 15.  SEGMENT AND GEOGRAPHIC INFORMATION

The Company  operates in one reportable  segment,  memory  products.  The memory
products  segment  includes;  Static Random Access Memories  ("SRAMs"),  Dynamic
Random Access Memories ("DRAMs"), and Flash Memories ("Flash").

The  following  illustrates  revenues  by  geographic  locations.  Revenues  are
attributed to countries based on the customer's location.

<TABLE>
<CAPTION>
                       Year Ended March 31,
                  -------------------------------
                   2000       1999       1998
                  --------  ---------  ----------
                          (in thousands)
<S>               <C>       <C>        <C>
United States     $36,088   $23,770    $68,985
Taiwan             11,310     6,061      24,966
Asia (except       16,462     9,076      11,262
  Taiwan)
Europe             25,293     8,567      12,240
Rest of world           -       309         947
                  --------  ---------  ----------

   Total          $89,153   $47,783    $118,400
                  ========  =========  ==========
</TABLE>

International  net  revenues in fiscal 2000  increased by 121% over fiscal 1999.
International  net revenues are derived from  customers in Europe,  Asia and the
rest of the world.  The largest  increase in  international  net revenues was to
customers in Europe,  which increased  approximately 195% over fiscal year 1999.
The increase was due to an overall increase in product demand and higher average
selling prices,  in the respective  areas.  International  revenues declined 51%
from  fiscal 1998 to fiscal  1999.  The largest  decrease in  international  net
revenues was to customers in Taiwan,  which decreased 76%. This decrease was due
to an  overall  decrease  in  product  demand  and lower  selling  prices in the
respective areas.

NOTE 16.  SUBSEQUENT EVENTS (UNAUDITED)

In June 2000,  PMC-Sierra,  Inc.  ("PMC"),  announced  that it agreed to acquire
Malleable  Technologies,  Inc.  ("Malleable").  According  to the  terms  of the
proposed acquisition, PMC will exchange 1.25 million shares of PMC stock for the
remaining 85% interest of Malleable that PMC does not already own. In connection
with the proposed merger,  Alliance Ventures I will receive approximately 79,000
shares of PMC for its 7%  interest  in  Malleable.  Upon the  completion  of the
merger,  the Company will report a gain based on the closing  share price of PMC
on the date of the merger.  Based on the closing  share price of PMC on June 14,
2000,  the estimated  pretax gain from this  transaction  is  approximately  $11
million.  There is no assurance that this  acquisition will be completed or that
the realized gain amount will be equal or exceed the reported gain amount on the
closing date of the merger.

                                      F-21
<PAGE>


                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE


To the Board of Directors
of Alliance Semiconductor Corporation:

Our audits of the consolidated  financial  statements  referred to in our report
dated April 25, 2000, appearing in this Annual Report on Form 10-K also included
an audit of the Financial  Statement Schedule listed in Item 14(a)(2)(I) of this
Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all  material  respects,   the  information  set  forth  therein  when  read  in
conjunction with the related consolidated financial statements.



/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 25, 2000

                                      F-22
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


                                        Balance at                                 Balance
           Description                  beginning                                   at end
                                        of period      Additions    Reductions      period
                                       ------------  ------------  ------------  ------------
<S>                                      <C>             <C>        <C>            <C>
Year ended March 31, 2000
  Allowance for doubtful                   $2,527         $6,209      $(7,782)         $954
    accounts and sales-related
    reserves
  Inventory related reserves for
    excess and obsolescence; and          $15,701         $5,862     $(13,293)       $8,270
    lower of cost or market issues

Year ended March 31, 1999
  Allowance for doubtful                   $2,010         $3,193      $(2,676)       $2,527
    accounts and sales-related
    reserves
  Inventory related reserves for
    excess and obsolescence; and          $14,967        $20,437     $(19,703)      $15,701
    lower of cost or market issues

Year ended March 31, 1998
  Allowance for doubtful                     $650         $7,512      $(6,152)       $2,010
    accounts and sales-related
    reserves
  Inventory related reserves for
    excess and obsolescence; and          $40,732        $15,154     $(40,919)      $14,967
    lower of cost or market issues

</TABLE>

                                      F-23
<PAGE>

            Financial Statements of United Semiconductor Corporation
       for the Fiscal Year Ended December 31, 1998 and December 31, 1997.


                                      F-24
<PAGE>

                        UNITED SEMICONDUCTOR CORPORATION
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997




<PAGE>
                                              2/F No. 11 Innovation Rd., 1
                                              Science-Based Industrial Park
                                              Hsinchu, Taiwan, Republic of China
                                              Tel:(03) 578-0205
                                              Fax:(03) 577-7985

January 22, 1999
(99)B.L36P4065



To the Board of Directors of United Semiconductor Corporation



We have  examined  the  accompanying  balance  sheets  of  United  Semiconductor
Corporation  as of December  31, 1998 and 1997,  and the related  statements  of
income, of changes in stockholders'  equity and of cash flows for the years then
ended.  Our  examinations  were made in accordance with the "Rules Governing the
Certification  of Financial  Statements  by Certified  Public  Accountants"  and
generally  accepted  auditing  standards  in the United  States and  accordingly
included such tests of the accounting records and such other auditing procedures
as we considered necessary in the circumstances.


In our  opinion,  the  financial  statements  examined by us present  fairly the
financial position of United  Semiconductor  Corporation as of December 31, 1998
and 1997,  and the  results of its  operations  and its cash flows for the years
then  ended,  in  conformity  with  generally  accepted  accounting   principles
consistently applied.


/S/ PRICEWATERHOUSECOOPERS

                                      ~1~
<PAGE>
<TABLE>
<CAPTION>
                            UNITED SEMICONDUCTOR CORPORATION
                            --------------------------------
                                     BALANCE SHEET
                                     -------------
                                      DECEMBER 31,
                                      ------------
                       (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)


                                                            1998              1997
                                                         -----------       -----------
<S>                                                      <C>               <C>
ASSETS
Current Assets
     Cash and cash equivalents (Note 4(1))               $ 7,516,907       $ 5,469,227
     Marketable securities (Note 4(2))                     3,138,393         3,190,746
     Notes receivable -- third parties                           189              --
                      -- related parties (Note 5)              8,352               781
     Accounts receivable
          third parties (Note 4(3))                          778,399           937,320
          related parties (Note 5)                           436,937           939,664
     Other receivables                                       165,146            88,905
     Inventories (Note 4(4))                                 665,344           511,486
     Prepaid expenses                                          7,803            17,669
     Other current assets (Note 4(12))                        93,353           230,381
                                                         -----------       -----------
                                                          12,810,823        11,386,179
                                                         -----------       -----------
Long-Term  Investments  (Note  4(5))
     Long-term  investment                                   105,759              --
     Prepaid long-term investment                            250,400              --
                                                         -----------       -----------
                                                             356,159              --
                                                         -----------       -----------

Property, Plant and Equipment (Notes 4(6) and 6)
Cost
     Machinery and equipment                              18,591,271        10,169,495
     Transportation equipment                                  3,206             3,206
     Furniture and fixtures                                  217,742           130,771
     Leasehold improvements                                   10,966            10,966
     Other equipment                                          40,974            14,270
                                                         -----------       -----------
                                                          18,864,159        10,328,708
     Acculmulated depreciation                            (4,452,290)       (1,944,961)
     Construction in progress and prepayments                967,065         2,460,306
                                                         -----------       -----------
                                                          15,378,934        10,844,053
Tangible Asset                                           -----------       -----------

     Other intangible assets                                 813,455         1,037,500
                                                         -----------       -----------
Other Assets
     Deposit -- out                                            1,475            30,979
     Preferred expense                                       134,044            54,027
     Preferred income tax assets (Note 4(12))                238,121           103,102
     Other assets                                              2,231              --
                                                         -----------       -----------
                                                             375,871           188,108
                                                         -----------       -----------
TOTAL ASSETS                                             $29,735,242       $23,455,840
                                                         ===========       ===========


                                                             1998             1997
                                                         -----------       -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Short-term loans (Note 4(7))                        $   781,944       $ 1,911,632
     Notes payable (Note 5)                                     --             125,209
     Accounts payable -- third parties                       461,646           513,371
                      -- related parties (Note 5)             23,634            21,485
     Accrued expenses (Notes 5)                              811,301           578,013
     Other payables                                        1,213,782           359,172
     Current portion of long-term loans (Note 4(8))        1,571,458           656,744
     Other current liabilities                                 6,607             1,268
                                                         -----------       -----------
                                                           4,870,372         4,166,894
                                                         -----------       -----------
Long-term Liabilities
     Long-term loans (Note 4(8))                           7,041,589         5,190,525
                                                         -----------       -----------
Other  Liabilities
     Accrued pension liabilities                              24,958            11,619
                                                         -----------       -----------

Total Liabilities                                         11,936,919         9,369,038
                                                         -----------       -----------

Stockholders' Equity
     Common stock (Note 4(10))                            13,367,809        10,000,000
     Capital reserve generated from the gain on
        disposal of fixed assets                                  40                40
     Retained earnings (Note 4(11))
            -- Legal reserve                                 408,676              --
            -- Unappropriated earnings                     4,022,045         4,086,762
     Cumulative translation adjustment                          (247)             --
                                                         -----------       -----------
Total stockholders' equity                                17,798,323        14,086,802
                                                         -----------       -----------
Commitments and Contingent Liabilities (Note 7)




TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $29,735,242       $23,455,840
                                                         ===========       ===========


<FN>
      The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                          ~2~

<PAGE>

<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION
                               STATEMENT OF INCOME
                        FOR THE YEARS ENDED DECEMBER 31,
                    (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS
                         EXCEPT EARNINGS PER SHARE DATA)

<CAPTION>
                                                          1998             1999
                                                      ------------    ------------
<S>                                                   <C>             <C>
Operating Revenues
  Sales revenues                                      $ 12,614,679    $ 10,003,022
  Sales returns                                           (186,848)        (21,216)
  Sales allowance                                         (634,954)       (302,184)
                                                      ------------    ------------
  Net sales                                             11,792,877       9,679,622
  Other operating revenues                                 183,553          81,542
                                                      ------------    ------------
  Net operating revenues                                11,976,430       9,761,164
                                                      ------------    ------------
Operating Cost
  Cost of goods sold                                    (6,748,200)     (5,278,405)
  Other operating cost                                    (129,181)        (38,604)
                                                      ------------    ------------
                                                        (6,877,381)     (5,317,009)
                                                      ------------    ------------
Gross Profit                                             5,099,049       4,444,155
                                                      ------------    ------------
Operating Expenses
  Selling expenses                                        (218,789)        (88,841)
  Administrative expenses                                 (214,364)       (265,943)
  Research and development expenses                       (701,179)       (443,866)
                                                      ------------    ------------
                                                        (1,134,332)       (798,650)
                                                      ------------    ------------
Operating Income                                         3,964,717       3,645,505
                                                      ------------    ------------
Non-operating Income
  Interest income                                          368,695         264,153
  Dividends revenue                                         28,010          21,420
  Gain on disposal of investment                            41,516          16,956
  Foreign exchange gain                                       --           397,616
  Gain on reverse of allowance on inventory loss            59,540            --
  Other income                                               5,370           6,853
                                                      ------------    ------------
                                                           503,131         706,998
                                                      ------------    ------------
Non-operating Expenses
  Interest expense                                        (464,199)       (354,973)
  Foreign exchange loss                                    (71,071)           --
  Provision for loss on obsolescence of inventories           --           (50,562)
  Financial expense                                        (10,919)           (391)
  Other loss                                              (103,307)           (419)
                                                      ------------    ------------
                                                          (649,496)       (406,345)
                                                      ------------    ------------
Income before income tax                                 3,818,352       3,946,158
Income tax (expense) benefit (Note 4(12))                  (69,803)         84,057
                                                      ------------    ------------
Net income                                            $  3,748,549    $  4,030,215
                                                      ============    ============

Earnings per share (Note 4(13))
  Net income                                          $       2.80    $       3.01
                                                      ============    ============

<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                      ~3~
<PAGE>

<TABLE>
                                    UNITED SEMICONDUCTOR CORPORATION
                                    --------------------------------
                              STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                              --------------------------------------------
                                    FOR THE YEARS ENDED DECEMBER 31,
                                    --------------------------------
                               (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)
<CAPTION>

                                                                                     Retained Earnings
                                                                                     -----------------
                                                                                              Unappropriated
                                            Common Stock   Capital Reserve    Legal Reserve      Earnings
                                            ------------   ---------------    -------------      --------
<S>                                         <C>                 <C>                 <C>           <C>
Balance at January 1, 1997                  $ 10,000,000        $ --              $   --        $    56,587
Net income for 1997                                 --            --                  --          4,030,215
Transfer of the gain on disposal of
     fixed assets to capital reserve                --            40                  --                (40)
                                            ------------        ----              --------      -----------
Balance at December 31,1997                   10,000,000          40                  --          4,086,762
Appropriation of 1997 earnings:
     Appropriation for legal reserve                --            --               408,676         (408,676)
     Capitalization of employees' bonus          367,809          --                  --           (367,809)
     Directors' and supervisors'
         remuneration                               --            --                  --            (36,781)
     Stock dividends                           3,000,000          --                  --         (3,000,000)
Net income for 1998                                 --            --                  --          3,748,549
Accumulative translation adjustment                 --            --                  --               --
                                            ------------        ----              --------       -----------
Balance at December 31, 1998                 $13,367,809        $ 40              $408,676       $ 4,022,045
                                            ============        ====              ========       ===========
</TABLE>
<TABLE>
<CAPTION>
                                            Cumulative Translation
                                            Adjustment from Long-       Total Stock-
                                               Term Investments        holders' Equity
                                               ----------------        ---------------
<S>                                                <C>                  <C>
Balance at January 1, 1997                         $ --                 $10,056,587
Net income for 1997                                  --                   4,030,215
Transfer of the gain on disposal of
     fixed assets to capital reserve                 --                        --
                                                   ----                 -----------
Balance at December 31,1997                          --                  14,086,802
Appropriation of 1997 earnings:
     Appropriation for legal reserve                 --                        --
     Capitalization of employees' bonus              --                        --
     Directors' and supervisors'
         remuneration                                --                     (36,781)
     Stock dividends                                 --                        --
Net income for 1998                                  --                   3,748,549
Accumulative translation adjustment                 (247)                      (247)
                                                   -----                -----------
Balance at December 31, 1998                       $(247)               $17,798,323
                                                   =====                ===========

<FN>
     The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                         ~4~


<PAGE>

<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION

                            STATEMENT OF CASH FLOWS

                        FOR THE YEARS ENDED DECEMBER 31,

                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                          1998          1999
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Operating activities:
  Net income                                                          $ 3,748,549    $ 4,030,215
  Adjustments to reconcile net income to net cash provided by
    (used in) operating activities
    Depreciation                                                        2,510,951      1,591,371
    Amortization                                                          363,314        320,071
    (Reverse of) Provision for loss on obsolescence of inventories        (47,943)        38,403
    Loss (gain) on disposal of fixed assets                                    15            (40)
    Fixed assets transferred to expenses                                    4,759         26,516
    Changes in asset and liability accounts:
      Accounts and notes receivable                                       653,888     (1,026,445)
      Other receivables                                                   (76,241)       (24,017)
      Inventories                                                        (105,915)       (64,203)
      Prepaid expenses                                                      9,866         (5,673)
      Other current assets                                                137,028       (208,429)
      Deferred income tax assets                                         (135,019)       116,684
      Other assets                                                         (2,231)          --
      Accounts and notes payable                                         (174,785)       213,748
      Accrued expenses and other payable                                  233,288        283,571
      Other current liabilities                                              (908)         5,911
      Accrued pension liabilities                                          13,339         11,619
                                                                      -----------    -----------
  Net cash provided by operating activities                             7,131,955      5,309,302
                                                                      -----------    -----------
Investing activities:
  Acquisition of fixed assets                                          (6,280,177)    (4,644,743)
  Proceeds from disposal of fixed assets                                     --            9,180
  Decrease (increase) in marketable securities                             52,353     (2,987,926)
  Increase in long-term investment                                       (356,406)          --
  Increase in deferred expense and intangible assets                     (128,858)       (25,882)
  Decrease (increase) in deposit-out                                       29,504           (915)
                                                                      -----------    -----------
  Net cash used in investing activities                                (6,683,584)    (7,650,286)
                                                                      -----------    -----------
</TABLE>

                                      ~5~
<PAGE>

<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION

                      STATEMENT OF CASH FLOWS (CONTINUED)

                        FOR THE YEARS ENDED DECEMBER 31,

                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                1998           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Financing activities:
 (Decrease) increase in short-term loans                     (1,129,688)     1,750,112
 Proceeds from long-term loans                                2,765,778      1,517,771
 Appropriation of directors' and supervisors' remuneration      (36,781)          --
                                                            -----------    -----------
Net cash provided by financing activities                     1,599,309      3,267,883
                                                            -----------    -----------
Net increase in cash and cash equivalents                     2,047,680        926,899
Cash and cash equivalents at the beginning of year            5,469,227      4,542,328
                                                            -----------    -----------
Cash and cash equivalents at the end of year                $ 7,516,907    $ 5,469,227
                                                            ===========    ===========


Supplemental disclosures of cash flow information
 Cash paid for interest (excluding interest capitalized)    $   444,233    $   345,781
                                                            ===========    ===========
 Cash paid for income tax                                   $     1,744    $    51,501
                                                            ===========    ===========
Investing activities partially paid by cash
Acquisition of fixed assets                                 $ 7,154,510    $ 3,445,946
Add:  payable at the beginning of year                          352,925      1,551,722
Less: payable at the end of year                             (1,213,782)      (352,925)
      Fixed assets exchange                                     (13,476)          --
                                                            -----------    -----------
Cash paid                                                   $ 6,280,177    $ 4,644,743
                                                            ===========    ===========

<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                      ~6~
<PAGE>

                        UNITED SEMICONDUCTOR CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)


1. HISTORY AND ORGANIZATION

   United  Semiconductor  Corporation  was  incorporated as a company limited by
   shares on October 6, 1995 and commenced its  operations in June,  1996. As of
   December 31, 1998, the paid-in  capital is  $13,367,809.  The Company's major
   business activities are as follows:

   a. Semiconductor and semiconductor device foundry;

   b. Providing the mask tooling, package, burn-in, and testing services for the
      above-mentioned products; and

   c. Research and development for the technology of wafer fabrication.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Translation of foreign currency transactions

   The  accounts  of  the  Company  are   maintained  in  New  Taiwan   dollars.
   Transactions denominated in foreign currencies are translated into New Taiwan
   dollars  at the  rates  of  exchange  prevailing  on the  transaction  dates.
   Receivables,  other monetary  assets and  liabilities  denominated in foreign
   currencies  are  translated  into New Taiwan dollars at the rates of exchange
   prevailing at the balance sheet date.  Exchange  gains or losses are included
   in the current year's results.

   Cash equivalents

   Cash equivalents are short-term, highly liquid investments, which are readily
   convertible  to known  amounts  of cash and with  maturity  dates that do not
   present  significant  risk of changes in value because of changes in interest
   rates.

   Marketable securities

   Marketable securities are recorded at cost when acquired. The carrying amount
   of  the  marketable  securities  portfolio  is  stated  at the  lower  of its
   aggregate  cost or market value at the balance  sheet date.  The market value
   for listed  equity  securities  or  close-ended  funds are  determined by the
   average closing prices occurred during the last month of the fiscal year. The
   market value for open-ended  funds are determined by their equity per unit at
   balance sheet date.

                                      ~7~
<PAGE>

   Inventories

   Inventories,  except raw materials  stated at actual,  are stated at standard
   cost which is adjusted to actual  cost based on  weighted  average  method at
   month end. Inventories are valued at the lower of cost or market value at the
   year end. An allowance for loss on  obsolescence  and decline in market value
   is provided when necessary.

   Long-term investments

   A. If the  investee  company is listed and the Company  owns less than 20% of
      the  outstanding  shares and has no  significant  influence on operational
      decisions of the listed  company,  such investment is accounted for by the
      lower of cost or market value method.  The unrealized  loss resulting from
      the  decline  in  market  value  of  such   investment  is  deducted  from
      stockholders'  equity. The Company's  investment in a company which is not
      listed is accounted for under the cost method.

   B. Investment  income or loss from  investments  in both listed and  unlisted
      companies is accounted for under equity  method  provided that the Company
      owns over 20% of the outstanding  shares or has  significant  influence on
      operational decisions of the listed and unlisted companies.

   C. For long-term  investments  in which the Company owns more than 50% of the
      subsidiary,  consolidated  financial statements are prepared, if the total
      assets and the operating income of the subsidiary are less than 10% of the
      respective  nonconsolidated  total assets and income of the  Company,  the
      subsidiary's  financial  statements are not  consolidated  and instead are
      accounted  for using the equity  method.  Irrespective  of the above test,
      when  the  total  combined   assets  or  operating   income  of  all  such
      nonconsolidated  subsidiaries  constitute  more than 30% of the  Company's
      nonconsolidated  total assets or income,  then each individual  subsidiary
      with total assets or  operating  income  greater than 3% of the  Company's
      respective  nonconsolidated  total  assets and income is  included  in the
      consolidation.

   D. In evaluation of overseas long-term investment, the cumulative translation
      adjustment   derived  form  the  investee's   foreign  currency  financial
      statements  is treated as  adjusted  item of the  Company's  stockholders'
      equity account.

   Property, plant and equipment

   A. Property,  plant and  equipment are stated at cost.  Interest  incurred on
      loans  used  to  finance  the   construction  of  property  and  plant  is
      capitalized and depreciated accordingly.

                                      ~8~
<PAGE>

   B. Depreciation  is provided on the  straight-line  method  using the assets'
      economic  service  lives.  When the economic  service lives are completed,
      fixed assets which are still in use are depreciated  based on the residual
      value. The service lives of the fixed assets are five to ten years.

   C. Maintenance  and repairs are charged to expenses as incurred.  Significant
      renewals  and  improvements  are treated as capital  expenditures  and are
      depreciated accordingly.

   Intangible assets

   A. Technology  knowhow was provided by a major shareholder as part of paid-in
      capital.  The  asset is  amortized  over five  years on the  straight-line
      method starting from the date of operation.

   B. Royalties are stated at cost and amortized on a  straight-line  basis over
      the contract period.

   Deferred charges

   Deferred  charges are stated at cost and amortized on a  straight-line  basis
   over the following years: software - 3 years; organization cost - 5 years.

Retirement plan

   A. The Company has a  non-contributory  and funded defined benefit retirement
      plan covering all its regular employees.

   B. The net  pension  cost is  computed  based on an  actuarial  valuation  in
      accordance with the provision of FASB No. 18 of the R.O.C., which requires
      consideration  of cost  components  such as service cost,  interest  cost,
      expected  return on plan  assets and  amortization  of net  obligation  at
      transition.

   Income tax

   Income  tax is  provided  based on  accounting  income  after  adjusting  for
   permanent  differences.  The provision  for income tax includes  deferred tax
   resulting  from items  reported in  different  periods for tax and  financial
   reporting purposes and from investment tax credits. A valuation  allowance is
   provided for deferred tax asset to the extent that it is more likely than not
   that  the  tax  benefits  will  not  be  realized.  Deferred  tax  assets  or
   liabilities are further  classified into current or noncurrent  items and are
   presented in the financial statements as net balance. Over or under provision
   of prior years' income tax  liabilities  are  included in the current  year's
   income tax expense.

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
   None.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

                                      ~9~
<PAGE>


(1) CASH AND CASH EQUIVALENTS

                                                            December 31
                                                     ---------------------------
                                                        1998             1997
                                                     ----------       ----------
Cash:
Cash on hand                                         $    2,355       $    1,817
Demand accounts                                         387,694           58,655
Checking accounts                                       169,402           16,607
Time deposits                                         6,054,016        5,342,348
                                                     ----------       ----------
                                                      6,613,467        5,419,427

Cash equivalents:
Bonds with repurchase agreement                         903,440           49,800
                                                     ----------       ----------
                                                     $7,516,907       $5,469,227
                                                     ==========       ==========


(2) MARKETABLE SECURITIES

                                                             December 31
                                                     ---------------------------
                                                        1998             1997
                                                     ----------       ----------
Mutual funds                                         $  199,040       $  251,393
Listed equity securities stocks                       2,939,353        2,939,353
                                                     ----------       ----------
                                                     $3,138,393       $3,190,746
                                                     ==========       ==========


(3) ACCOUNTS RECEIVABLE - NET
                                                             December 31
                                                       ------------------------
                                                          1998           1997
                                                       ---------      ---------
Accounts receivable -- third parties                   $ 863,417      $ 959,159
Less: Allowance for doubtful accounts                    (20,982)       (21,839)
      Allowance for sales returns and discounts          (64,036)          --
                                                       ---------      ---------
                                                       $ 778,399      $ 937,320
                                                       =========      =========


(4) INVENTORIES
                                                              December 31
                                                       ------------------------
                                                          1997           1998
                                                       ---------      ---------
Raw materials, supplies and spare parts                $  88,653      $ 226,426
Work in process                                          445,414        315,274
Finished goods                                           171,737         58,189
                                                       ---------      ---------
                                                         705,804        599,889

Less: Allowance for loss on obsolescence                 (40,460)       (88,403)
                                                       ---------      ---------
                                                       $ 665,344      $ 511,486
                                                       =========      =========

                                      ~10~

<PAGE>


<TABLE>
(5) LONG-TERM INVESTMENT

<CAPTION>
                                                                            December 31,
                                                         --------------------------------------------------
                                                                  1998                       1997
                                                         ------------------------  ------------------------
                                                                     Percentage                Percentage
    Investee Company                                       Amount   of ownership    Amount    of ownership
    ----------------                                     ----------  ------------  ----------  ------------
<S>                                                      <C>              <C>      <C>              <C>
    Investment accounted for under equity
    method:
         UMC-USA                                         $106,006         20%      $   --            --
         Cumulative translation adjustment                   (247)                     --
                                                         --------                  --------
         Subtotal                                         105,759                      --
                                                         --------                  --------

    Prepaid long-term investment:
         Industrial Bank of Taiwan                        250,000                      --
         SBIP Administration Recycle Co.                      400                      --
                                                         --------                  --------
    Subtotal                                              250,400                      --
                                                         --------                  --------
    Grand total                                          $356,159                  $   --
                                                         ========                  ========
</TABLE>


<TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT

<CAPTION>
                                                                                            December 31, 1998
                                                                        ------------------------------------------------------------
                                                                                                Accumulated
                                                                            Cost                depreciation             Book value
                                                                        ------------            ------------            ------------
<S>                                                                     <C>                     <C>                     <C>
Machinery and equipment                                                 $ 18,591,271            $ (4,387,198)           $ 14,204,073
Transportation equipment                                                       3,206                  (1,122)                  2,084
Furniture and fixtures                                                       217,742                 (53,978)                163,764
Leasehold improvements                                                        10,966                  (4,142)                  6,824
Other equipment                                                               40,974                  (5,850)                 35,124
Construction in progress and prepayments                                     967,065                    --                   967,065
                                                                        ------------            ------------            ------------
                                                                        $ 19,831,224            $ (4,452,290)           $ 15,378,934
                                                                        ============            ============            ============


                                                                                            December 31, 1997
                                                                        ------------------------------------------------------------
                                                                                                Accumulated
                                                                            Cost                depreciation             Book value
                                                                        ------------            ------------            ------------
Machinery and equipment                                                 $ 10,169,495            $ (1,915,540)           $  8,253,955
Transportation equipment                                                       3,206                    (587)                  2,619
Furniture and fixtures                                                       130,771                 (24,341)                106,430
Leasehold improvements                                                        10,966                  (2,315)                  8,651
Other equipment                                                               14,270                  (2,178)                 12,092
Construction in progress and prepayments                                   2,460,306                    --                 2,460,306
                                                                        ------------            ------------            ------------
                                                                        $ 12,789,014            $ (1,944,961)           $ 10,844,053
                                                                        ============            ============            ============
</TABLE>


Interest expense  amounting to $118,745 and $24,321 were capitalized in 1998 and
1997, respectively.

                                      ~11~

<PAGE>


(7)     SHORT-TERM LOANS

                                                      December 31
                                           ---------------------------------
                                               1998                 1997
                                           -------------       -------------
Unsecured loans                            $     781,944       $   1,911,632
                                           =============       =============
Annual interest rates                       0.73% - 8.22%       1.25% - 7.66%
                                           =============       =============


(8) LONG-TERM LOANS


                                                        December 31
                                           -------------------------------------
                                                1998                   1997
                                           -------------          -------------
Long-term loans                            $   8,613,047          $   5,847,269
Less: Current portion                         (1,571,458)              (656,744)
                                           -------------          -------------
                                           $   7,041,589          $   5,190,525
                                           =============          =============
Annual interest rates                       1.25% - 7.60%          1.31% - 7.20%
                                           =============          =============


(9) RETIREMENT PLAN

A.   All of the  regular  employees  of the  Company  are covered by the pension
     plan.  Under the plan,  the Company  contributes  an amount  equal to 2% of
     total wages on a monthly basis to the pension fund deposited in the Central
     Trust of China.  Pension benefits are generally based on service years (two
     points per year for service years 15 years and below and one point per year
     for service years over 15 years). Each employee is limited up to 45 points.
     During 1998 and 1997,  the Company  recognized  pension  cost  amounting to
     $22,262 and $17,793, respectively. The balances of the Company's employees'
     retirement  fund in  Central  Trust of China  was  $18,068  and  $9,270  at
     December 31, 1998 and 1997, respectively.

B.   Based on  actuarial  assumptions  for the years of 1998 and 1997,  both the
     discount rate and expected rate of return on plan asset are 6.25% and 6.5%,
     respectively  and the  rates of  compensation  increase  are  both 8%.  The
     unrecognized  net  obligation at  transition  is amortized  equally over 15
     years. The funded status of pension plan is listed as follows:

                                      ~12~

<PAGE>


                                                              December 31
                                                         ----------------------
                                                           1998          1997
                                                         --------      --------
Vested benefit obligation                                $   --        $   --
Non-vested benefit obligation                             (11,417)       (4,947)
                                                         --------      --------
Accumulated benefit obligation                            (11,417)       (4,947)
Effect on projected salary increase                       (57,082)      (25,388)
                                                         --------      --------
Projected benefit obligation                              (68,499)      (30,335)
Market-related value of plan assets                        18,068         8,638
                                                         --------      --------
Projected benefit obligation exceeds plan asset           (50,431)      (21,697)
Unrecognized net obligation at transition                     260           281
Unrecognized pension gain or loss                          26,647        11,360
                                                         --------      --------
Accrued pension liability                                $(23,524)     $(10,056)
                                                         ========      ========


(10)    COMMON STOCK

A.   As of December 31, 1998, the Company's  authorized capital was $23,000,000,
     representing  2,300,000 thousand shares, with par value of NT$10. The total
     issued  and  outstanding  capital  at  December  31,  1998  and  1997  were
     $13,367,809 and $10,000,000, respectively.

B.   Based on the resolution of the  shareholders'  meeting on May 26, 1998, the
     Company   issued   new  shares  of  336,781   thousand   shares   from  the
     capitalization  of retained  earnings of $3,000,000 and employees' bonus of
     $367,809.   The  Company  has  completed  the  amendment   procedures   for
     registration.


(11) RETAINED EARNINGS

A.   According  to the  Company's  Articles  of  Incorporation,  current  year's
     earnings, if any, shall be distributed in the following order:

     (1)  paying all taxes and dues;

     (2)  covering prior years' operating losses, if any;

     (3)  setting aside 10% of the  remaining  amount,  after  deducting (1) and
          (2), as legal reserve;

     (4)  allocating  not over 10% of the par value of common stocks as interest
          of capital to common stockholders;

     (5)  allocating 1% of the remaining  amount,  after deducting (1), (2), (3)
          and (4) above from the current  year's  earnings,  as  directors'  and
          supervisor's renumeration;

     (6)  allocating not below 10% of the remaining amount, after deducting (1),
          (2), (3) and (4) above from the current year's earnings, as employees'
          bonus;  and

                                      ~13~

<PAGE>


     (7)  distributing the remaining amount in accordance with the resolution of
          the board of directors and stockholders.


(12) INCOME TAX

A.   Income tax receivable at December 31, 1998 and 1997 was derived as follows:

                                                           1998           1997
                                                         --------      --------
Income tax expense (benefit)                             $ 69,803      $(84,057)
Net effect of the change in deferred
  income tax assets and liabilities                       (54,187)       89,634
Adjustment of prior year's income tax expense              (3,101)         --
Withholding income tax                                    (34,994)      (51,259)
Tax on interest which is subject to separate
  withholding income tax                                   (1,744)         (242)
                                                         --------      --------
Income tax receivable (shown in other
  current assets)                                        $(24,223)     $(45,924)
                                                         ========      ========


B.   Deferred income tax assets and liabilities as of December 31, 1998 and 1997
     were as follows

                                                             December 31
                                                    ---------------------------
                                                        1998             1997
                                                    -----------     -----------
Deferred income tax assets -- current               $    43,335     $   228,270
Deferred income tax liabilities -- current               (4,271)           --
                                                    -----------     -----------
                                                         39,064         228,270
                                                    -----------     -----------
Deferred income tax assets -- noncurrent              1,526,536       1,262,960
Deferred income tax liabilities -- noncurrent          (470,012)       (611,435)

Valuation allowance for deferred income
  tax assets -- noncurrent                             (818,403)       (548,423)
                                                    -----------     -----------
                                                        238,121         103,102
                                                    -----------     -----------
                                                    $   277,185     $   331,372
                                                    ===========     ===========


<TABLE>
C.   Components of deferred income tax assets and liabilities as of December 31,
     1998 and 1997 were as follows:

<CAPTION>
                                                                      December 31, 1998                    December 31, 1997
                                                               ------------------------------        ------------------------------
                                                                 Amount            Tax Effect          Amount           Tax Effect
                                                               -----------        -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>                <C>
Current items:
  Temporary differences
    Unrealized foreign exchange gain                           $   195,322        $    39,064        $ 1,141,350        $   228,270
                                                               -----------        -----------        -----------        -----------
Non-current items
  Temporary differences
    Depreciation                                                (2,350,062)          (470,012)        (3,057,175)          (611,435)
    Amortization of technology knowhow, etc.                       135,180             27,036            956,290            191,258
  Investment tax credits                                              --            1,499,500               --            1,071,702
  Valuation allowance for deferred income
    tax assets                                                        --             (818,403)              --             (548,423)
                                                               -----------        -----------        -----------        -----------
                                                               $(2,214,882)           238,121        $(2,100,885)           103,102
                                                               ===========        -----------        ===========        -----------
                                                                                  $   277,185                           $   331,372
                                                                                  ===========                           ===========
</TABLE>

                                      ~14~
<PAGE>


D.   The Company's  income tax return for 1996 has been assessed and approved by
     the Tax Authority.

E.   Pursuant  to the  "Statute  For The  Establishment  and  Administration  of
     Science-Based  Industrial Park", the Company was granted several periods of
     tax holidays with respect to income derived from approved investments.  The
     tax holidays will be expired on December, 2001.

F.   As of December 31, 1998,  the unused  investment  tax credits  amounting to
     $1,499,500  resulting from the acquisition of equipment and expenditures on
     research and development will expire on December 31, 2002.

G.   As of December 31, 1998, the Company's  deductible  credit account  balance
     for   shareholders'   income  tax  is  $36,733.   The  ending   balance  of
     unappropriated  earnings amounting to $4,022,045,  of which $3,748,549 came
     from the year of 1998 and $273,496  came from and before the years of 1997.
     The  estimated  ratio of  deductible  tax credit for the  appropriation  of
     1998's earnings is 0.33%.


(13) EARNINGS PER SHARE

                                                      1998              1997
                                                   -----------     -----------
Net income                                         $ 3,748,549     $ 4,030,215
                                                   ===========     ===========
Weighted average outstanding common stock
  (Expressed in thousand shares)                     1,336,781       1,000,000
                                                   ===========     ===========
Retroactively adjusted weighted average
  outstanding common stock
  (Expressed in thousand shares)                     1,336,781       1,336,781
                                                   ===========     ===========
Earnings per share (Expressed in
  New Taiwan dollars)                              $      2.80     $      4.03
                                                   ===========     ===========
Retroactively adjusted weighted average
  earnings per share                               $      2.80     $      3.01
                                                   ===========     ===========



5. RELATED PARTY TRANSACTION

(1) Names and Relationships of Related Parties

       Name of the related parties             The relationship with the Company
       ---------------------------             ---------------------------------
United Microelectronics Co., Ltd. (UMC)        The major investor of the Company
United  Integrated  Circuits  Corporation      Common board chairman
United Silicon  Incorporated                   Common board chairman
Utek  Semiconductor  Inc.                      Common board chairman
AMIC Technology, Incorporated                  The affiliate of UMC
Faraday Technology Corporation                 Common major investor
NOVATEK Microelectronics Corp.                 Common major investor
Integrated Technology Express                  Common major investor
MediaTek Incorporation                         Common major investor
Industrial Bank of Taiwan                      The Company is the promoter
Chiao Tung Bank                                The Company's chairman is a board
                                               member of the Bank
S3 Inc.                                        A director of the Company
S3 International Ltd.                          100% investee of S3 Inc.
ALLIANCE Semiconductor Corp. (Alliance)        A director of the Company
UMC-USA                                        The investee of the Company

                                      ~15~

<PAGE>


(2)  Significant Related Party Transactions

     a. Sales

                                    1998                        1997
                          -------------------------   -------------------------
                                        Percentage                   Percentage
                            Amount     of net sales     Amount     of net sales
                          ----------   ------------   ----------   ------------
United Microelectronics
  Co., Ltd.               $1,562,443            13%   $2,503,897           26%
United Integrated
  Circuit Co., Ltd.          229,583             2%      302,866            3%
S3 International Ltd.      1,456,778            12%         --            --
Alliance                     271,453             2%         --            --
Others                       108,098             1%      425,071            4%
                          ----------    ----------    ----------    ----------
                          $3,628,355            30%   $3,231,834           33%
                          ==========    ==========    ==========    ==========

     The above sales are dealt with in the ordinary  course of business  similar
     to those with other companies. The actual collection period is appoximately
     two months.

     b. Purchases

                                           1998                   1997
                                   ---------------------   --------------------
                                              Percentage              Percentage
                                                of net                 of net
                                    Amount     purchases    Amount    purchases
                                   --------    ---------   --------   ---------
United Microelectronics
  Co., Ltd.                        $ 69,942           3%   $ 15,912           2%
United Silicon Incorporated          17,115           1%       --          --
United Integrated Circuit
  Co., Ltd.                          19,060           1%       --          --
                                   --------    --------    --------    --------
                                   $106,117           5%   $ 15,912           2%
                                   ========    ========    ========    ========


     The above  purchases  are dealt  with in the  ordinary  course of  business
     similar to those with other companies and are payable after two months from
     the date of transaction entries.

     c. Notes receivable

                                              1998                  1997
                                       -------------------   -------------------
                                                Percentage            Percentage
                                                 of notes              of notes
                                       Amount   receivable   Amount   receivable
                                       ------   ----------   ------   ----------
United Microelectronics
  Co., Ltd.                            $ --         --       $  781        100%
AMIC Technology Incorporated            6,736         79%      --         --
Faraday Technology Corporation            812         10%      --         --
Integrated Technology Express             804          9%      --         --
                                       ------     ------     ------     ------
                                        8,352         98%    $  781        100%
                                       ======     ======     ======     ======

                                      ~16~

<PAGE>


<TABLE>
     d. Accounts receivable

<CAPTION>
                                                                         1998                                     1997
                                                              -----------------------------           ------------------------------
                                                                                 Percentage                              Percentage
                                                                                 of accounts                             of accounts
                                                                Amount           receivable            Amount             receivable
                                                              --------           ----------           ---------           ----------
<S>                                                           <C>                        <C>          <C>                        <C>
United Microelectronics Co., Ltd.                             $ 303,987                  22%          $ 218,633                  11%
United Integrated Circuits Co., Ltd.                               --                  --               317,533                  17%
S3 International Ltd.                                           140,624                  10%            263,252                  14%
Others                                                           79,157                   6%            148,453                   8%
                                                              ---------           ---------           ---------           ---------
                                                                523,768                  38%            947,871                  50%
Less: Allowance for doubtful accounts                            (4,541)               --                (8,207)               --
      Allowance for sales returns and discounts                 (82,290)                 (6)%              --                  --
                                                              ---------           ---------           ---------           ---------
                                                              $ 436,937                  32%          $ 939,664                  50%
                                                              =========           =========           =========           =========
</TABLE>


     e. Notes payable

                                             1998                   1997
                                       ----------------     -------------------
                                               Percentage             Percentage
                                               of notes                of notes
                                       Amount   payable     Amount      payable
                                       ------   -------     ------      -------
United Microelectronics
  Co., Ltd.                            $ --        --      $25,992           21%
                                       ======      ==      =======      =======


     f. Accounts payable

                                         1998                     1997
                                  -------------------     -------------------
                                             Percentage              Percentage
                                            of accounts             of accounts
                                  Amount      payable     Amount      payable
                                  ------      -------     ------      -------
United Microelectronics
  Co., Ltd.                       $20,776           4%    $ 9,428           2%
United Integrated
  Circuit Co., Ltd.                 1,281        --        12,057           2%
United Silicon
  Incorporated                      1,577           1%       --          --
                                  -------     -------     -------     -------
                                  $23,634           5%    $21,485           4%
                                  =======     =======     =======     =======

                                      ~17~

<PAGE>


     g. Accrued expenses

                                           1998                     1997
                                   --------------------    --------------------
                                              Percentage              Percentage
                                              of accrued              of accrued
                                    Amount     expenses     Amount     expenses
                                   --------    --------    --------    --------
United Microelectronics
  Co., Ltd.                        $190,761          24%   $ 77,387          13%
Others                                  197        --          --          --
                                   --------    --------    --------    --------
                                   $190,958          24%   $ 77,387          13%
                                   ========    ========    ========    ========

     h. Property transaction

     1998:  None.

     1997:  The  Company  sold one set of  machinery  and  equipment  to  United
            Integrated Circuit Co., Ltd. for $9,180. The gain on the transaction
            was $40.


<TABLE>
     i. Financing transaction -- Long-term loan

<CAPTION>
                                                                    1998
                           -------------------------------------------------------------------------------------
                            The Highest Balance
                           ----------------------
Chiao-Tung Bank            Time            Amount       Ending Balance    Interest Rate    Interest Expense Paid
                           ----            ------       --------------    -------------    ---------------------
<S>                   <C>                <C>              <C>           <C>                     <C>
                      February 1998      $ 720,144        $ 576,112     6.575% ~ 6.975%         $ 44,824
                                         =========        =========                             ========

                                                                    1997
                           -------------------------------------------------------------------------------------
                            The Highest Balance
                           ----------------------
Chiao-Tung Bank            Time            Amount       Ending Balance    Interest Rate    Interest Expense Paid
                           ----            ------       --------------    -------------    ---------------------
                      December 1997      $ 720,144        $ 720,144           6.575%            $ 40,409
                                         =========        =========                             ========
</TABLE>


<TABLE>
     j. Other transactions

<CAPTION>
        Related Parties                      Item                  1998            1997
        ---------------                      ----                  ----            ----
<S>                                     <C>                     <C>             <C>
United Microelectronics Co., Ltd.       Rental                  $ 201,211       $ 199,329
              "                         Fab service charge         87,696          64,954
              "                         Research & design
                                          expense                 168,420          76,992
              "                         Technology
                                          developing expense      145,911            --
              "                         Management
                                          allocation fee           69,915            --
                                                                ---------       ---------
                                                                  673,153         341,275
UMC-USA                                 Commission                137,272            --
                                                                ---------       ---------
                                                                $ 810,425       $ 341,275
                                                                =========       =========
</TABLE>

                                      ~18~

<PAGE>


<TABLE>
6.   ASSETS PLEDGED AS COLLATERAL

<CAPTION>
                                                       December 31
                                            -------------------------------
                                                1998                1997          Subject of collateral
                                            ------------        -----------       ---------------------
<S>                                         <C>                 <C>                 <C>
Machinery and equipment                     $ 12,575,024        $ 6,272,029         Long-term loan
Deferred assets-software                          53,690             --             Long-term loan
Time deposits                                      2,231              2,111         Guaranty for Customs Duties
                                            ------------        -----------
                                            $ 12,630,945        $ 6,274,140
                                            ============        ===========
</TABLE>


7.   COMMITMENTS AND CONTINGENT LIABILITIES

     a.   The Company's  unused  letters of credit for import of machinery  were
          approximately   USD25,510  thousand  dollars,   JPY3,516,992  thousand
          dollars, and DEMl20 thousand dollars at December 31, 1998.

     b.   The Company has signed several contracts for the purchase of equipment
          amounting to USD1,204,098  thousand  dollars,  TPY91,153,936  thousand
          dollars,  and DEM703  thousand  dollars.  As of December 31, 1998, the
          amount of unrecorded outstanding obligations under these contracts are
          USD1,101,281  thousand dollars,  JPY77,117,921  thousand dollars,  and
          DEM120 thousand dollars.

     c.   On September 24, 1997,  the Department of Commerce (DOC) of the United
          States of America (USA) made a preliminary  determination  that Static
          Random Access Memory (SRAM)  manufactured  in Taiwan are being sold at
          less than fair market value, i.e. dumped prices.  In March,  1998, the
          DOC issued its final  determination,  setting  the duty rate at 41.75%
          for "all others" not named as direct participants in the investigation
          (such as customers who used the Company to fabricate SRAM). Management
          believes  that this final  ruling of the case will not have a material
          adverse effect on the Company's  financial position because the volume
          of  SRAM  products   exported  by  the  Company  to  the  USA  is  not
          significant.

                                      ~19~

<PAGE>


     d.   On December 7, 1998, the  International  Trade Commission (ITC) of the
          USA  issued  a  statement  to the  DOC  that  there  was a  reasonable
          indication that the U.S.  industry is suffering a material injury as a
          result of Dynamic Random Access Memory (DRAM),  which are manufactured
          in Taiwan  and being sold at less than fair  market  value in the USA.
          Based on the precedent set in the SRAM investigation  described above,
          the Company expects that foundry  customers who were not  participants
          in the investigation will also be subject to the "all other" rate with
          respect to DRAM.  Management  believes  that the final  outcome of the
          investigation will not have a material adverse effect to the Company's
          financial  position  because the  Company's  volume of export sales of
          DRAM to the USA is not significant.

     e.   A number of third  parties hold  patents in the area of  semiconductor
          processing,  and some have  notified  the Company  demanding  that the
          Company  obtain  a  license  for  various  semiconductor   fabrication
          techniques and circuit  designs.  The third parties  involved  include
          Texas Instruments,  EMI, Intel, Chou H. Li, NEC, and Sanyo. Management
          has indicated a willingness to obtain licenses  wherever  required and
          necessary to continue its business.


8.   COMPARATIVE FIGURES RECLASSIFICATION

     Certain accounts in the 1997 financial statements have been reclassified to
     conform with the presentation adopted for the 1998 financial statements.

                                      ~20~