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 March 31, 2001, 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 22, 2001, there were 41,522,266  shares of Registrant's  Common Stock
outstanding.   The   aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  of the registrant on June 22, 2001, based upon the closing price
of  the  Common  Stock  on  the  NASDAQ  National  Market  for  such  date,  was
approximately $457,160,000.

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 March 31, 2001, are incorporated by reference
into Part III hereof.

                                      -1-               Exhibit Index on page 36
<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 as the potential for further price
erosion of the  Company's  products;  additional  cancellation  of orders in the
Company's  backlog;  continuing  slowdown in the electronics  industry;  further
decreased  demand  and  increased  competitive  environment  for  the  Company's
products, including, without limitation, obsolescence of the Company's products;
continued  accumulation of excess inventory and price erosion or obsolescence of
existing  inventory,  any of which may result in additional  charges against the
Company's earnings; inability to timely ramp up production of and deliver new or
enhanced SRAM,  DRAM or flash products;  inability to  successfully  develop and
introduce new products;  inability to successfully  recruit and retain qualified
technical  and  other  personnel;  further  adverse  changes  in  the  value  of
securities  held  by the  Company,  including  those  of  Vitesse  Semiconductor
Corporation,  PMC-Sierra,  Inc., Broadcom Corporation,  Chartered Semiconductor,
United  Microelectronics  Corporation and Tower  Semiconductor;  further adverse
changes in value of  investments  made by  Alliance's  venture  funds managed by
Alliance  Venture  Management,   LLC;  the  Company's  potential  status  as  an
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. As the Company is currently experiencing,
as well as 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 is currently  experiencing (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 could continue to 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,  2001  contained  52
weeks,  while the fiscal years ended March 31, 2000 and March 31, 1999 contained
52 weeks and 53 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 some 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 DRAMs

Sales of the  Company's  DRAM  products  accounted  for 57% of the Company's net
revenues  in fiscal  2001.  During  fiscal  years 2000 and 1999,  DRAM  products
contributed  56% and 40%,  respectively,  of the Company's net revenues.  During
fiscal year 2001, 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 0.18 micron.

High Speed CMOS SRAMs

Sales of the  Company's  SRAM  products  accounted  for 43% of the Company's net
revenues in fiscal  2001.  During  fiscal  year's 2000 and 1999,  SRAM  products
contributed  approximately  43% and  58%,  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 Flash Memories

During  fiscal  2001,  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 available the 8-Mbit product with access
times as fast as 80ns, and has achieved  functional  silicon on 4-Mbit  product.
The Company is  co-developing  a 16-Mbit  product with one of its fab  partners,
United  Microelectronics  Corporation  ("UMC").  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 years 2000 and 2001  redesigning the product
and still has not  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 has 84 development  personnel (38 in the United States and
46 in  India)  as of  March  31,  2001.  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 2001, 2000 and 1999, the Company spent approximately $13.8 million, $14.6
million and $14.1 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,
develop and

                                      -4-
<PAGE>

bring to market such new products in a timely and cost effective manner, or that
the Company will be able to 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 17 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, 2001, no customers accounted for
10% or more of the Company's  net revenues.  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.  See Note 1 of Notes to
Consolidated Financial Statements.

Historically,  the  semiconductor  industry  in general,  and the  semiconductor
memory business in particular have  experienced  cyclical  downturns in business
every few years. The industry  experienced such a downturn in the mid 1990's and
had been recovering  over the last few years, as had the Company.  In the fourth
fiscal quarter of fiscal year 2001,  the industry and the Company  experienced a
significant downturn.  The Company cannot predict when the current downturn will
end. Even after the end of the current downturn,  the Company fully expects that
other downturns will occur.  And while the Company will try to take  precautions
so that it will not be carrying  significant  inventory (as happened in both the
current and the last downturns) when another downturn occurs, it is difficult to
predict when such downturns will occur,  and when customers will 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  downturns,  when  they  occur.
Additionally,  even if the  Company is able to prepare for  downturns,  any such
downturns could 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

                                      -5-
<PAGE>

Company's  results of operations.  The Company  believes that its relations with
its manufacturers' representatives and distributors generally are good.

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  63%,  59% and 50% of net
revenues in fiscal 2001, 2000 and 1999,  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 19 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  ("National")  in the United
States. The Company has entered into foundry  production  agreements with all of
its  major  foundries.  In  fiscal  2001,  the  Company  entered  into a foundry
production  agreement with Tower  Semiconductor,  Ltd. ("Tower"),  in connection
with an investment in a new  fabrication  facility  being  constructed by Tower.
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.

                                      -6-
<PAGE>

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.  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
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.

In January 2001,  Tower  satisfied the closing  conditions of the share purchase
agreements  (as  described  in  Investments  section)  it entered  into with the
Company to make an  investment  in Tower,  in  exchange  for shares of Tower and
certain manufacturing  rights,  including capacity rights and wafer credits. The
investment  in  Tower,  along  with the  investment  of the  Israel  Corporation
("TIC"),  SanDisk Corporation,  Inc. ("SanDisk") and Macronix International Co.,
Ltd. to purchase an aggregate of 3,629,873  Tower shares,  will be used to build
and operate a new fabrication facility,  which is expected to become operational
in 2002.

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  2002.
Disruption of operations  at the Company's  foundries for any reason,  including
work  stoppages,  fire, and  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 and customers.

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 those occurring during late fiscal 1996.

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

                                      -7-
<PAGE>

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 downturn such
as the current  downturn and as occurred in 1999,  1998 and 1997 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 into 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 22, 2001,  the
Company holds 64 United States patents  covering  certain aspects of its product
designs or manufacturing technology, which patents expire between 2009 and 2019.
The Company also has 27 pending  United  States  patent  applications,  three 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

                                      -8-
<PAGE>

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 22,  2001,  the  Company  is in
discussions with one company who has 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.

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
and Latin  America,  may not protect the  Company's  products  and  intellectual
property rights to the same extent as the laws of the United States.

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

                                      -9-
<PAGE>

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

In  the  past  six  months,  marketable  securities  held  by the  Company  have
experienced  significant  declines  in their  market  value  primary  due to the
downturn in the semiconductor  sector and general market conditions.  Management
has evaluated the  marketable  securities  for potential  "other-than-temporary"
declines in their fair value. Such evaluation  included  researching  commentary
from  industry  experts,  analysts,  and other  companies,  all of whom were not
optimistic  that the  semiconductor  sector would recover in the next quarter or
two or three.  Based on the  continuing  depression  in the  investments'  stock
prices from those  originally used to record the investment and coupled with the
expectation that stock prices will not significantly  recover in the next 6 to 9
months,   based  on  unfavorable   business  conditions  for  companies  in  the
semiconductor  industry in general  management  determined that a write-down was
necessary as of March 31,  2001.  As a result,  the Company  recorded a pre-tax,
non-operating loss of approximately  $509.4 million during the fourth quarter of
fiscal 2001 based on the quoted price of the respective marketable securities as
of March 31, 2001. This was recorded in the Write-down of Marketable Securities.

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.  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.  During fiscal 2001, the Company sold 500,000 shares and recognized a
pre-tax  non-operating gain of approximately  $33.5 million.  At March 31, 2001,
the Company owned  approximately  16.4 million  ordinary shares or approximately
1.64 million American Depository Shares or "ADSs" 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 than 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 as 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.

                                      -10-
<PAGE>

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.

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 and the board seat,  Alliance had  participated  in both
strategic and operating  decisions of USC on a routine basis 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 and 1999, the Company  reported its  proportionate
share of equity  income of USC of $9.5  million and $10.9  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. 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  were  subject to a  six-month  "lock-up"  or no trade  period.  This
lock-up  period  expired 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  additional 20% or 56.6 million shares of UMC by way of a stock
dividend.

Subsequent to the completion of the merger,  the Company accounted for a portion
(approximately  50% at March 31, 2000) of its  investment  in UMC,  which became
unrestricted on January 2, 2001 as an available-for-sale  marketable security in
accordance  with  SFAS 115.  The  portion  of the  investment  in UMC,  which is
restricted  beyond  twelve  months  (approximately  50% and 42% of the Company's
holdings at March 31, 2000 and 2001,  respectively),  is accounted for as a cost
method investment and is presented as a long-term investment.  As this

                                      -11-
<PAGE>

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.

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.  At
the end of the  fourth  quarter  of fiscal  2001,  the  Company  wrote-down  its
investment in UMC and recognized a pre-tax,  non-operating loss of approximately
$460.0 million. This was recorded in the write-down of marketable securities. At
March 31, 2001, the Company owned approximately 340.0 million shares of UMC.

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 than 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 possible 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  embedded  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. During fiscal 2001, the Company sold 287,522 shares and
realized a pre-tax,  non-operating gain of approximately  $31.3 million.  At the
end of the fourth quarter fiscal 2001, the Company  wrote-down its investment in
Broadcom and  recognized a pre-tax,  non-operating  loss of  approximately  $3.8
million. This was recorded in the write-down of marketable securities.  At March
31, 2001, the Company owned approximately 200,000 shares of Broadcom.

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 possible that  Broadcom's  stock and the Company's  stock can
both suffer  significant  loss in value at the same time,  as occurred in fiscal
2001. 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

                                      -12-
<PAGE>

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.

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. In January  2001,  upon the creation of Alliance  Ventures IV, LP
("Alliance  Ventures IV") and Alliance  Ventures V, LP ("Alliance  Ventures V"),
the management  agreement for Alliance Venture  Management was amended to create
series D and E member units which are  entitled to receive a  management  fee of
15% of investment gains realized by Alliance  Ventures IV and Alliance  Ventures
V, respectively.

Each of the owners of the series A, B, C, D and E 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, C, D or E 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,  2001,  Alliance  Ventures I, whose focus is  investing  in  networking  and
communication start-up companies,  has invested $22.0 million in nine companies,
with a fund allocation of $20.0 million. Alliance Ventures II, whose focus is in
investing in internet start-up ventures has invested  approximately $9.1 million
in ten companies, with a total fund allocation of $15.0 million. As of March 31,
2001,  Alliance Ventures III, whose focus is investing in emerging  companies in
the networking and communication  market areas, has invested $38.6 million in 14
companies, with a total fund allocation of $100.0 million. As of March 31, 2001,
Alliance  Ventures IV,  whose focus is  investing  in emerging  companies in the
semiconductor  market areas, has invested $4.0 million in two companies,  with a
total fund allocation of $40.0 million.  As of March 31, 2001, Alliance Ventures
V,  whose  focus is  investing  in  emerging  companies  in the  networking  and
communication market areas, has invested $6.5 million in three companies, with a
total fund allocation of $60.0 million.

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  $5.7 million for the year ended March 31,
2001. In addition, the Company wrote-down several of its investments in Alliance
Ventures and  recognized a pre-tax,  non-operating  loss of  approximately  $2.6
million,  at the end of the fourth quarter fiscal 2001. This was recorded in the
write-down of marketable securities and other investments.

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 has been formed in which  certain of the  Company's  officers  and
employees,  as well as the Company itself, has made similar venture investments,
including investment in some of the same companies as Alliance Ventures.

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. 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

                                      -13-
<PAGE>

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 possible,  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.

Solar Venture Partners, LP

In August  2000,  the  Company  agreed to invest $20  million  in Solar  Venture
Partners,  LP  ("Solar"),  a  venture  capital  partnership  whose  focus  is in
investing   in   early   stage   companies   in   the   areas   of   networking,
telecommunications,  wireless,  software infrastructure enabling efficiencies of
the  Web  and  e-commerce,   semiconductors  for  emerging  markets  and  design
automation.  The Company has invested $12.5 million, $9.5 million is in the form
of three promissory notes, which on March 31, 2001 were converted into a limited
partnership  interest in Solar.  Due to changes in the venture  capital  market,
Alliance has decided to limit its  investment in Solar to $12.5 million  already
invested.

Certain of the Company's  officers and employees  have invested in Solar.  Solar
has made investments in some of the same companies as Alliance Ventures.

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 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.  The  Company  records  its  investment  in Vitesse  Semiconductor
Corporation as an available-for-sale marketable security in accordance with SFAS
115.

In  January   2001,   the  Company   entered  into  two   derivative   contracts
("Agreements")  with Bear Stearns and received  aggregate cash proceeds of $31.5
million.  The  Agreements  have payment  provisions  that  incorporate  a collar
arrangement  with  respect to 490,000  shares of  Vitesse  Semiconductor  common
stock.  As such,  under the  Agreements,  the Company  must pay Bear  Stearns an
amount  based on the  market  price of  Vitesse  Semiconductor  Common  Stock in
January 2003, the maturity date of the Agreements. If the stock price of Vitesse
Semiconductor  exceeds  the ceiling of the collar,  then the  settlement  amount
increases  by an amount  determined  by a  formula  included  in the  Agreements
(generally equal to the excess of the value of the stock over the ceiling of the
collar). If the stock price of Vitesse Semiconductor declines below the floor of
the collar,  then the settlement  amount also decreases by the amount determined
by a formula  included in the Agreements  (generally  equal to the excess of the
floor of the  collar  over the  value of the  stock).  At March  31,  2001,  the
derivative  contracts  were  in  the  money  to the  Company  based  on  Vitesse
Semiconductor's  market  price  of  $23.81  on  that  date.  Under  the  current
accounting practice, the Company is required to offset the gain on the contracts
with the loss on the Vitesse  stock,  both were  recorded in the  write-down  of
marketable  securities  in the  fourth  quarter  of fiscal  2001.  The  pre-tax,
non-operating  gain on the  contracts  amounted to $20.6  million,  representing
their intrinsic value at March 31, 2001. At the end of the fourth quarter fiscal
2001, the Company wrote-down its investment in Vitesse and recognized a pre-tax,
non-operating  loss of  approximately  $52.9  million.  At March 31,  2001,  the
Company owned 728,293 shares of Vitesse.

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 possible that Vitesse's  stock and the Company's  stock can both
suffer  significant  loss in value at the same time, as occurred in fiscal 2001.
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"),

                                      -14-
<PAGE>

announced  that it agreed to acquire  Malleable.  According  to the terms of the
acquisition,  PMC exchanged  1.25 million  shares of PMC stock for the remaining
85% interest of Malleable  that PMC did 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. At the
end of the fourth quarter fiscal 2001, the Company  wrote-down its investment in
PMC and recognized a pre-tax, non-operating loss of approximately $10.8 million,
which was recorded in the  write-down of marketable  securities.  . At March 31,
2001, the Company owned 68,152 shares of PMC.

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 fiscal 2001.  Thus,
there can be no assurance that the Company's  investment in PMC will increase in
value or even maintain its value.

Tower Semiconductor Ltd.

In August 2000, the Company  entered into a share purchase  agreement with Tower
Semiconductor  ("Tower")  under which  Alliance  committed to make a $75 million
strategic  investment  in Tower as part of Tower's plan to build its new fab. In
return  for  its  investment,   Alliance  will  receive  equity,   corresponding
representation on Tower's Board of Director and committed production capacity in
the advanced fab, which Tower intends to build.  Pursuant to the agreement,  the
Company purchased  1,233,241  ordinary shares of Tower for an aggregate purchase
price of $31 million in the fourth  quarter of fiscal  2001.  The Company has an
obligation to purchase an  additional  1,466,760  ordinary  shares in four equal
increments upon  occurrence of events relating to Tower's  construction of FAB 2
as  specified  in the  agreement.  These  additional  shares are  expected to be
purchased by the Company during fiscal 2002 and 2003.

In connection  with the share  purchase  agreement,  the Company  entered into a
foundry  agreement  under which the  Company is entitled to a certain  amount of
credits  towards  future wafer  purchases  from Tower.  The amount of credits is
determined  upon each share  purchase  transaction by Alliance and is calculated
based  on the  difference  between  Tower's  average  stock  price  for 30  days
preceding a purchase  transaction and Alliance's share purchase  exercise price.
At March 31, 2001,  such wafer  credits from Tower totaled  $14.7  million.  The
wafer credits will be utilized as the Company purchases wafers from Tower in the
future where 15% of order value will be applied against the wafer credits. Under
the terms of the foundry  agreement,  the Company is guaranteed a capacity of up
to 15% of  available  wafer  starts but not to exceed  5,000  wafers  starts per
month.  The  guaranteed  capacity  may be reduced if the  Company  elects not to
exercise its additional share purchase obligation.  The Company accounts for its
investment  in Tower under the cost method based on the  Company's  inability to
exercise significant influence over Tower's operations.

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 not be 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

                                      -15-
<PAGE>

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  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,  and its new
investment  in Tower,  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 two years
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 two years,  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 has
applied 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,  UMC and Tower 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 is
proceeding 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

                                      -16-
<PAGE>

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 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 March 31, 2001, the Company had 203 full-time employees,  consisting of 84
in research and development,  6 in marketing,  19 in sales, 38 in administration
and 56 in operations. Of the 84 research and development employees (38 in the US
and 46 in India), 24 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
for  Investments  and Director 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

                                      -17-
<PAGE>

of land in an office park under  development  in Hyderabad,  India,  for product
development.   Additionally,   the  Company  leases  sales  offices  in  Natick,
Massachusetts;  Garner, North Carolina; San Diego, California; Berkshire, United
Kingdom; Taipei, Taiwan; and Japan.

ITEM 3
LEGAL PROCEEDINGS

In July 1998, the Company  learned that a default  judgment was entered  against
the Company in Canada,  in the amount of approximately  $170 million (USD), 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.  Oral
arguments  were made before the Court of Appeals in June 2000.  In July 2000 the
Court of  Appeals  instructed  the  lower  Court to allow  the  parties  to take
depositions regarding the issue of service of process,  while also setting aside
the default  judgment against the Company.  The plaintiffs  appealed the setting
aside of the default judgment against the Company to the Canadian Supreme Court.
In June  2001,  the  Canadian  Supreme  Court  refused to hear the appeal of the
setting aside of the default judgment against the Company.  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 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  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  was  transmitted  to the CIT on June 26, 2000 for
consideration.  Micron  has  appealed  the  decision  of the CIT to the Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal,  although it is expected to take a year or
more to  conclude.  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  unsuccessful,  the antidumping
order will be terminated  and cash deposits will be refunded with  interest.  If
the appeal is successful,  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.  At March 31,  2001,  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.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

                                      -18-
<PAGE>

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        62    Chairman, President, Chief Executive Officer, and
                              Acting Chief Financial Officer
C.N. Reddy              45    Executive Vice President for Investments, Director
Bradley A. Perkins      44    Vice President, General Counsel and Secretary
Ritu Shrivastava        50    Vice President, Technology Development
</TABLE>

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 a director of the
Company since its inception in February  1985.  Mr. Reddy served as Secretary to
the Company from February 1985 to October 2000.  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.  In October 2000, Mr. Reddy  resigned his positions as Chief  Operating
Officer  and  Secretary,   and  was  appointed   Executive  Vice  President  for
Investments.  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. Mr. Reddy is named inventor of over 15 patents related to
SRAM and DRAM designs. C.N. Reddy is the brother of N. Damodar Reddy.

Bradley A. Perkins  joined the Company in January 1999,  and was appointed  Vice
President  and General  Counsel.  In January  2001,  Mr.  Perkins was  appointed
Secretary of the Company.  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. Mr.  Perkins  holds a B.S.E.  in electrical
engineering  from  Duke  University,  and a J.D.  from  McGeorge  School of Law,
University of the Pacific.

Ritu  Shrivastava  joined the Company in November  1993,  and was appointed Vice
President  -  Technology   Development  in  August  1995.  Dr.  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 Fellow 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
                  ----------- ----------
2000
<S>                 <C>         <C>
  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
  2nd Quarter        26.69      17.88
  3rd Quarter        20.75      10.88
  4th Quarter        16.19      10.69
2002
  1st Quarter
  (through June     $14.55     $10.00
  22, 2001)
</TABLE>


As of June 22,  2001,  there  were  approximately  129  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,
                            --------------------------------------------------
                             2001         2000       1999     1998      1997
                            --------    --------   -------  --------  --------
                                 (in thousands, except per share data)
Consolidated Statement of Operations Data:
<S>                         <C>        <C>         <C>      <C>        <C>
Net revenues                $208,678     $89,153   $47,783  $118,400   $82,572
Cost of revenues             187,913      58,428    60,231   117,400    84,630
                            --------    --------   -------  --------  --------
  Gross profit (loss)         20,765      30,725   (12,448)    1,000    (2,058)
Operating expenses:
  Research and development    13,766      14,568    14,099    15,254    15,012
  Selling, general and        19,691      15,962    12,652    18,666    10,344
    administrative
                            --------    --------   -------  --------  --------
Income (loss)from            (12,692)        195   (39,199)  (32,920)  (27,414)
  operations
Gain on investments           75,801   1,049,130    15,823         -         -
Write-down of marketable
  securities and            (509,449)          -         -         -         -
  Other investments
Other income, net               (200)         29    (1,126)      287
                                                                         1,753
                            --------    --------   -------  --------  --------
Income (loss) before        (446,540)  1,049,354   (24,502)  (32,633)  (25,661)
  income taxes
Provision (benefit) for
  income taxes              (179,956)    410,348     8,397   (11,421)   (8,990)
                            --------    --------   -------  --------  --------
Income (loss) before
  equity in  income  (loss) (266,584)    639,006   (32,899)  (21,212)  (16,671)
  of investees
Equity in income (loss) of
  investees                   (5,737)      9,094    10,856    15,475         -
                            --------    --------   -------  --------  --------
Net income (loss)          $(272,321)   $648,100  $(22,043)  $(5,737) $(16,671)
                            ========    ========   =======  ========  ========
Net income (loss) per share:
    Basic                     $(6.58)     $15.49    $(0.53)   $(0.15)   $(0.43)
                            ========    ========   =======  ========  ========
    Diluted                   $(6.58)     $15.07    $(0.53)   $(0.15)   $(0.43)
                            ========    ========   =======  ========  ========
Weighted average number of common shares:
    Basic                     41,376      41,829    41,378    39,493    38,653
                            ========    ========   =======  ========  ========
    Diluted                   41,376      42,992    41,378    39,493    38,653
                            ========    ========   =======  ========  ========

                                         Year ended March 31,
                            --------------------------------------------------
                             2001         2000      1999      1998      1997
                            --------    --------   -------  --------  --------
                                              (in thousands)
Consolidated Balance Sheet Data:
Working capital             $289,659    $615,937   $22,102   $39,879   $78,000
Total assets                 849,239   1,520,442   193,557   243,668   232,486
Stockholders' equity         547,289     963,955   163,570   189,111   204,594
Long term obligations         12,568       2,714       578     1,276     2,219
</TABLE>

                                      -21-
<PAGE>

<TABLE>
<CAPTION>
                                    Fiscal Year 2001                       Fiscal Year 2000
                        --------------------------------------  -------------------------------------
                          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            $32,993   $63,815   $64,466   $47,404   $28,833   $23,497   $19,112   $17,711
Cost of revenues         75,557    42,530    39,943    29,883    18,242    15,412    12,304    12,470
                        --------  --------  --------  --------  --------  --------  --------  --------
  Gross profit (loss)   (42,564)   21,285    24,523    17,521    10,591     8,085     6,808     5,241
Operating expenses:
  Research and            3,599     3,109     3,467     3,591     3,788     3,330     4,244     3,206
    development
  Selling, general and    5,140     4,777     5,260     4,514     3,356     6,753     3,108     2,745
    administrative
                        --------  --------  --------  --------  --------  --------  --------  --------
Income (loss) from      (51,303)   13,399     15,796    9,416     3,447    (1,998)     (544)     (710)
  operations
Gain on investments       9,541     5,258     13,485   47,517   988,717     5,111     3,696    51,606
Write-down of
  marketable securities(509,449)        -          -        -         -         -         -         -
  and other investments
Other income               (673)    (200)       333       340       233       (56)     (269)      121
  (expense), net
                        --------  --------  --------  --------  --------  --------  --------  --------
Income (loss) before   (551,884)   18,457    29,614    57,273   992,397     3,057     2,883    51,017
  income taxes
Provision (benefit)    (220,973)    5,654    12,053    23,310   410,944      (963)    1,186      (819)
  for income taxes
                        --------  --------  --------  --------  --------  --------  --------  --------
                       (330,911)   12,803    17,561    33,963   581,453     4,020     1,697    51,836
Income (loss) before
  equity in income
  (loss) of investees
Equity in income         (2,092)   (1,854)   (1,093)     (698)     (368)    5,134     2,796     1,532
  (loss) of investees
                        --------  --------  --------  --------  --------  --------  --------  --------
Net income (loss)     $(333,003)  $10,949   $16,468   $33,265  $581,085    $9,154    $4,493   $53,368
                        ========  ========  ========  ========  ========  ========  ========  ========
et income (loss) per share:
    Basic                $(8.05)    $0.27     $0.40     $0.80    $13.88     $0.22     $0.11     $1.28
                        ========  ========  ========  ========  ========  ========  ========  ========
    Diluted              $(8.05)    $0.26     $0.39     $0.78    $13.48     $0.21     $0.10     $1.27
                        ========  ========  ========  ========  ========  ========  ========  ========

Weighted average number of common shares:
    Basic                41,383    41,296    41,326    41,543    41,864    41,858    41,812    41,608
                        ========  ========  ========  ========  ========  ========  ========  ========
    Diluted              41,383    42,221    42,537    42,778    43,118    42,944    42,995    42,149
                        ========  ========  ========  ========  ========  ========  ========  ========
</TABLE>


During  the  first  and  second  quarters  of  fiscal  year  2001,  the  Company
experienced  an increase in the average  selling price and increased  demand for
DRAM and SRAM  products.  During the third and fourth  quarters  of fiscal  year
2001, the Company  experienced  substantial order cancellations and reschedules.
As a result,  the  Company  experienced  a decrease in certain  product  average
selling  prices and a decrease in demand.  In the first fiscal  quarter of 2001,
the Company recognized a gain on its investment in Malleable Technologies,  Inc.
("Malleable") when it was sold to PMC-Sierra,  Inc. ("PMC"),  for $11.0 million.
Also in the first fiscal quarter,  the Company  recognized gains of $2.9 million
on the sale of Broadcom Corporation ("Broadcom")  securities,  and $33.5 million
on the sale of Chartered Semiconductor  Corporation ("Chartered") securities. In
subsequent quarters, the Company recognized gains of $28.5 million on additional
sales of Broadcom securities. In the fourth fiscal quarter, the Company recorded
a pre-tax charge of $509.4 million for a write-down of its marketable securities
and other  investments.  In the third and fourth  fiscal  quarters,  the Company
recorded pre-tax charges of $53.9 million ($32.2 million net of tax) for decline
in market  value of certain  inventory  and to provide  additional  reserves for
obsolete and excess  inventory.  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").

                                      -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," as
well as elsewhere in this report.

Overview

<TABLE>
<CAPTION>
Overview                    Years ended
                 --------------------------------
                  March        March       March
                 31, 2001    31, 2000    31, 1999
                 ---------  ----------  ---------
<S>             <C>          <C>         <C>
Revenue          $208,678     $89,153     $47,783
                 =========  ==========  =========
Net income      $(272,321)   $648,100    $(22,043)
(loss)
                 =========  ==========  =========
Diluted
earnings per
share              $(6.58)     $15.07      $(0.53)
                 =========  ==========  =========
</TABLE>

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  2001,  DRAM  products  accounted  for  approximately  57% of net
revenues,  SRAM  products  accounted for  approximately  43% of net revenues and
flash products  accounted for approximately  less than 1% of net revenues.  This
compares to 56%, 43% and 1% of net revenues, respectively, for fiscal 2000.

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. On June 8, 2001,  the Company  announced that it
expected  that its  revenues  for the  first  quarter  of  fiscal  2002  will be
approximately  50% to 55% below the $33.0 million reported in the fourth quarter
of fiscal 2001, as a result of lower demand and lower average  selling prices of
some  of  its  products.  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.

                                      -23-
<PAGE>

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,
                                    --------------------------------------
                                       2001         2000          1999
                                    -----------  ------------  -----------
<S>                                    <C>          <C>          <C>
Net revenues                           100.0%       100.0%       100.0%
Cost of revenues                        90.1         65.5        126.1
                                    -----------  ------------  -----------
Gross profit (loss)                      9.9         34.5        (26.1)
Operating expenses:
  Research and development               6.6         16.3         29.5
  Selling, general and                   9.4         17.9         26.5
    administrative
                                    -----------  ------------  -----------
Income (loss) from operations           (6.1)         0.3        (82.1)
Gain on investments                     36.3       1176.8         33.2
Write-down of marketable
s  ecurities and other                  (244.1)         -            -
   investments
Other income (loss), net                (0.1)         0.0         (2.4)
                                    -----------  ------------  -----------
Income (loss) before income taxes     (214.0)      1177.1        (51.3)
Provision (benefit) for income         (86.2)       460.3         17.7
taxes
                                    -----------  ------------  -----------
Income (loss) before equity in        (127.8)       716.8        (69.0)
  income (loss) of investees
Equity in income (loss) of              (2.7)        10.2         22.7
  investees
                                    -----------  ------------  -----------
Net income (loss)                     (130.5)%      727.0%       (46.3)%
                                    ===========  ============  ===========
</TABLE>


Net Revenues

<TABLE>
<CAPTION>
Revenues              Years ended              Percentage change
            --------------------------------  -------------------
             March      March      March        2000      1999
              31,        31,        31,          to        to
              2001       2000       1999        2001      2000
            ---------  ---------  ----------  --------  ---------
<S>          <C>        <C>         <C>        <C>        <C>
SRAMS        $90,549    $38,088     $28,435    137.7%     33.9%
DRAMS        117,938     50,235      18,424    134.8%    172.7%
Other            191        830         924    (77.0)%   (10.2)%
            ---------  ---------  ----------  --------  ---------
Total       $208,678    $89,153     $47,783    134.1%     86.6%
Revenues
            =========  =========  ==========  ========  =========
</TABLE>


The  Company's  net  revenues  increased  to $208.7  million  in fiscal  2001 or
approximately  134%,  from $89.2  million in fiscal  2000.  The  increase in net
revenues  in fiscal  2001 was  primarily  due to a  combination  of sales of new
products,  overall  increase in average  selling  prices and an increase in unit
sales of the Company's SRAM and DRAM products  during the first three  quarters.
During the fourth  quarter  of fiscal  2001 the  Company's  net  revenues  fell,
largely  due to a decrease  in demand  and in some  cases a decrease  in average
selling  prices.  The Company's  net revenues in fiscal 2000  increased to $89.2
million from $47.8 million in fiscal 1999, an increase of approximately 87%. The
increase  in net  revenues in fiscal  2000 was due to a higher  average  selling
price and an increase unit shipments of the Company's SRAM and DRAM products.

Net revenue from the Company's  DRAM product  family in fiscal 2001  contributed
$117.9 million or approximately  57%, up from $50.2 million or approximately 56%
in fiscal 2000.  During the first three  quarters of fiscal  2001,  sales of the
Company's  16-Mbit DRAM in both the 1-Mbit x 16 configuration and the 4-Mbit x 4
configuration,  increased  significantly,  along with an overall increase in the
average  selling  prices.  During the fourth  quarter of fiscal  2001 demand for
these  products  decreased  as well as the  average  selling  prices.  DRAM  net
revenues for fiscal 1999 were $18.4  million or  approximately  39% of total net
revenues.

Net revenue from the Company's  SRAM product  family in fiscal 2001  contributed
$90.5  million or  approximately  43% of the  Company's  revenues  up from $38.1
million or approximately  43% in fiscal 2000. During the first three quarters of
fiscal  2001,  sales of the  Company's  4-Mbit SRAM in both the 3.3V and 5V fast
asynchronous  configurations,  increased  significantly  along  with an  overall
increase in the average selling prices. During the fourth quarter of fiscal 2001
the demand for those products  decreased but the average selling prices remained
stable.  SRAM net revenues in fiscal 1999 were $28.4 million,  or  approximately
59% of total net revenues.

                                      -24-
<PAGE>

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 2001 accounted for  approximately 73% compared to
approximately 56% during fiscal 2000 and 52% in fiscal 1999.

International  net revenues in fiscal 2001 were $131.6 million or  approximately
63% of total net revenues for fiscal 2001. This was an increase of approximately
148% over fiscal  2000.  International  net  revenues  in fiscal 2000  increased
approximately 121% over fiscal 1999. International net revenues are derived from
customers  in Europe,  Asia and the rest of the world.  The  largest  percentage
increase in international net revenues was to customers in Asia, which increased
approximately  236% over fiscal year 2000.  The  increase  was due to an overall
increase  in product  demand and higher  selling  prices  during the first three
quarters of the year.

During fiscal 2001, no single  customer  accounted for over 10% of net revenues.
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.

On June 8, 2001,  the Company  announced  that it expected that its revenues for
the first  quarter  of fiscal  2002 will be  approximately  50% to 55% below the
$33.0  million  reported in the fourth  quarter of fiscal  2001,  as a result of
lower demand and lower average selling prices of some of its products.

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  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 2001 was approximately  $20.8 million,  or
10.0% of net revenues,  as compared to $30.7 million,  or approximately 34.5% of
net revenues,  for the same period in fiscal 2000,  and a loss of  approximately
$12.4 million,  or approximately  26.1% of net revenues,  in fiscal 1999. During
third and fourth  quarter of fiscal 2001,  the Company  took  pre-tax  inventory
charges of $53.9  million in  recognition  of lower average  selling  prices and
inventory  in excess of demand  due to the  decline  in unit  shipments  for the
Company's  DRAM and SRAM  products.  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 $20.0 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 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.

Research and Development

<TABLE>
<CAPTION>
Research and
Development                   Years ended             Percentage change
                   --------------------------------- -------------------
                     March      March       March      2000 to    1999
                   31, 2001   31, 2000    31, 1999     2001     to 2000
                   ---------- ----------  ---------- ---------  --------
<S>                 <C>         <C>         <C>        <C>        <C>
Revenue             $208,678    $89,153     $47,783    134.1%     86.6%
                   ========== ==========  ========== =========  ========
Research and         $13,766    $14,568     $14,099     (5.5)%     3.3%
  Development
                   ========== ==========  ========== =========  ========
R&D as a percent
  of revenues           6.6%       16.3%       29.5%   (59.6)%   (44.6)%
                   ========== ==========  ========== =========  ========
</TABLE>

                                      -25-
<PAGE>

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   $13.8  million  or
approximately 7% of net revenues for fiscal 2001 as compared to $14.6 million or
approximately  16% of net  revenues  for fiscal 2000,  and  approximately  $14.1
million or approximately 29% of net revenues for fiscal 1999. The small decrease
in spending between fiscal 2001 and 2000 was due to lower  depreciation  expense
for R&D equipment.  The small increase in spending  between fiscal 2000 and 1999
was  higher  mask  and  tooling  charges.  During  fiscal  2001,  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

<TABLE>
<CAPTION>
Selling, General
and Administration              Years ended              Percentage change
                     ---------------------------------  -------------------
                       March       March       March      2000 to    1999
                     31, 2001    31, 2000    31, 1999     2001     to 2000
                     ----------  ----------  ---------  ---------  --------
<S>                   <C>          <C>        <C>         <C>        <C>
Revenue               $208,678     $89,153    $47,783     134.1%     86.6%
                     ==========  ==========  =========  =========  ========
Selling, General       $19,691     $15,962    $12,652      23.4%     26.2%
  and Administration
                     ==========  ==========  =========  =========  ========
SG&A  as  a  percent
  of revenues             9.4%       17.9%      26.5%     (47.3)%   (32.4)%
                     ==========  ==========  =========  =========  ========
</TABLE>


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 2001 were approximately
$20 million or approximately 9% of net revenues as compared to approximately $16
million or approximately 18% in fiscal 2000 and  approximately  $12.7 million or
approximately  26% of net  revenues  for fiscal  1999.  The increase in spending
between fiscal 2001 and 2000 was higher sales commissions principally due to the
134% growth in net revenues, travel and an increase in allowances for bad debts.
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 2000 was due principally to lower outside sales commissions.

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

Gain on  investments  during  fiscal 2001 was largely  attributed to the sale of
Chartered and Broadcom securities.  During fiscal 2001, the Company sold 500,000
shares of  Chartered  and  recorded  a pre-tax  gain of $33.5  million  and sold
287,522 shares of Broadcom and recorded a pre-tax gain $31.3 million.

In June 2000,  Malleable  completed a merger with  PMC-Sierra,  resulting in the
Company's  selling its  ownership  interest in  Malleable in exchange for 68,000
shares of  PMC-Sierra  Common Stock with a fair market  value of $12.4  million.
Upon completion of the transaction in June 2000, the Company  recorded a pre-tax
gain of  $11.0  million.  Subsequent  to the  transaction  date,  the  Company's
investment in PMC-Sierra is accounted for as an "available-for-sale" security in
accordance with SFAS No. 115.

In May 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

                                      -26-
<PAGE>

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.  At March 31,
2001,  the Company  owned  200,000  shares of  Broadcom.  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.  Alliance received 247.7 million shares of
UMC  stock  for  its  247.7  million  shares,  or  15%  ownership  of  USC,  and
approximately  35.6 million shares of UMC stock for its 48.1 million shares,  or
3%  ownership  of  USIC.  At  March  31,  2001  and  2000,   the  Company  owned
approximately 340.0 and 283.3 million shares, respectively or approximately 3.0%
and 3.2% of UMC, and maintained its 25% and 4% 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  were  subject to a  six-month  "lock-up"  or no trade  period.  This
lock-up  period  expired 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  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 became
unrestricted  in January 2001 as an  available-for-sale  marketable  security in
accordance with SFAS 115. At March 31, 2000, the Company  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  42% of the Company's holdings at March 31,
2001),  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,
which is 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, 2001, the Company
owns  728,293  Vitesse  shares,  after  distribution  made to  Alliance  Venture
Management in May 2000.

Write-Down of Marketable Securities and Other Investments

In  the  past  six  months,  marketable  securities  held  by the  Company  have
experienced  significant  declines in their  market value  primarily  due to the
downturn in the semiconductor  sector and general market conditions.  Management
has evaluated the  marketable  securities  for potential  "other-than-temporary"
declines in their value.

                                      -27-
<PAGE>

Such evaluation included researching commentary from industry experts,  analysts
and other  companies,  all of whom were not  optimistic  that the  semiconductor
sector  would  recover in the quarter or two or three.  Based on the  continuing
depression in the in  investments'  stock prices from those  originally  used to
record the  investment  and coupled with the  expectation  that the stock prices
will not significantly  recover in the next 6 to 9 months,  based on unfavorable
business  conditions for the companies in the semiconductor  industry in general
(including lower Fab capacity at UMC),  management  determined that a write down
was necessary as of March 31, 2001.  As a result the Company  recorded a pre-tax
loss of $506.8  million  during the fourth  quarter of fiscal  2001 based on the
quoted  market price of the  respective  marketable  securities  as of March 31,
2001.

At the end of the fourth quarter fiscal 2001, the Company  wrote-down several of
its  investments in Alliance  Ventures and  recognized a pre-tax,  non-operating
loss of  approximately  $2.6  million.  This was recorded in the  write-down  of
marketable securities and other investments.

In  January   2001,   the  Company   entered  into  two   derivative   contracts
("Agreements")  with Bear Stearns and received  aggregate cash proceeds of $31.5
million.  The  Agreements  have payment  provisions  that  incorporate  a collar
arrangement  with  respect to 490,000  shares of  Vitesse  Semiconductor  common
stock.  As such,  under the  Agreements,  the Company  must pay Bear  Stearns an
amount  based on the  market  price of  Vitesse  Semiconductor  Common  Stock in
January 2003, the maturity date of the Agreements. If the stock price of Vitesse
Semiconductor  exceeds  the ceiling of the collar,  then the  settlement  amount
increases  by an amount  determined  by a  formula  included  in the  Agreements
(generally equal to the excess of the value of the stock over the ceiling of the
collar). If the stock price of Vitesse Semiconductor declines below the floor of
the collar,  then the settlement  amount also decreases by the amount determined
by a formula  included in the Agreements  (generally  equal to the excess of the
floor of the  collar  over the  value of the  stock).  At March  31,  2001,  the
derivative  contracts  were  in  the  money  to the  Company  based  on  Vitesse
Semiconductor's  market  price  of  $23.81  on  that  date.  Under  the  current
accounting practice, the Company is required to offset the gain on the contracts
with the loss on the Vitesse  stock,  both were  recorded in the  write-down  of
marketable  securities in the fourth quarter of fiscal 2001. The pre-tax gain on
the contracts  amounted to $20.6 million,  representing their intrinsic value at
March 31, 2001.  The Company has adopted SFAS No. 133  effective  April 2, 2001.
Under SFAS No. 133, the  derivative  contracts  must be  accounted  for based on
their fair  value.  These  changes in fair value  contracts  must be reported in
earnings until maturity.

Other Income (Expense), Net

Other  Income  (Expense),   Net  represents   interest  income  from  short-term
investments and interest expense on short and long-term  obligations.  In fiscal
2001, Other Expense, Net was approximately  $200,000 compared to a net income of
$29,000  in  fiscal  2000.  The  change  from  fiscal  2000 to  fiscal  2001 was
attributed  to higher  interest  expense on short and  long-term  borrowing.  In
fiscal 1999 net expense was $1.1 million.

Provision for Income Taxes

The  Company's  effective  tax rate for fiscal  years 2001,  2000,  and 1999 was
(40.3%), 39.1%, and (34.3%), respectively.

During  fiscal  2001,  the  Company  recorded  a  benefit  for  income  taxes of
approximately  $180 million  primarily as a result of a write down of marketable
securities and other investments of $509.4 million in the fourth quarter.

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 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.

                                      -28-
<PAGE>

Equity in Income of Investees

The Company,  through Alliance Venture Management,  invested approximately $62.0
million during fiscal 2001 in five Alliance venture funds,  Alliance Ventures I,
Alliance  Ventures II, Alliance Ventures III, Alliance Ventures IV, and Alliance
Ventures V.  Alliance  Ventures I, whose focus is  investing in  networking  and
communication start-up companies,  has invested $22.0 million in nine companies,
with approximately  $20.0 million allocated to this fund.  Alliance Ventures II,
whose focus is in investing in internet start-up ventures has approximately $9.1
million  invested  to-date in ten companies,  with  approximately  $15.0 million
total  designated  for this  fund.  Alliance  Ventures  III,  whose  focus is on
emerging companies in the networking and communication market areas has invested
approximately  $38.6 million in 14 companies and has been allocated up to $100.0
million for new  investments.  Alliance  Ventures IV, whose focus is on emerging
companies  in  the  networking  and  communication  market  areas  has  invested
approximately  $4.0 million in two companies and has been  allocated up to $40.0
million  for new  investments.  Alliance  Ventures V, whose focus is on emerging
companies  in  the  networking  and  communication  market  areas  has  invested
approximately $6.5 million in three companies and has been allocated up to $60.0
million for new investments.

Several of the Alliance  Venture  investments are accounted for under 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  $5.7 million for the year ended March 31,
2001.

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
is primarily due to lower net income and a decrease in the  Company's  ownership
percentage from approximately 18% to 15%.

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 had experienced  significant  deterioration  in the average
selling  prices for its SRAM and DRAM products  during fiscal years 2001,  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

                                      -29-
<PAGE>

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 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  2001,  1999,  1998 and 1997,  when the Company  recorded
pre-tax  charges  totaling  approximately  $53.9 million,  $20.0 million,  $15.0
million  and $17.0  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.

                                      -30-
<PAGE>

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 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. Effective April 2, 2001, we have adopted SFAS No.
133,  and we are  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.

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.

                                      -31-
<PAGE>

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 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.

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, 2001, the Company had  approximately  $6.1 million in cash and cash
equivalents,  a decrease of $28.7 million from March 31, 2000; and approximately
$289.7  million in net  working  capital,  a decrease  of  approximately  $326.2
million from approximately $615.9 million at March 31, 2000.

Additionally,  the Company had short-term  investments in marketable  securities
whose fair value at March 31,  2001 was  $384.4  million.  Refer to Notes 2-8 of
Notes to the Consolidated Financial Statements for further details.

During fiscal year 2001,  operating  activities used cash of approximately $26.3
million. This was primarily the result of net loss, the impact of non-cash items
such as depreciation  and  amortization and the growth of inventory and accounts
payable,  offset by the  non-cash  investment  losses.  Cash  used in  operating
activities of  approximately  $3.5 million in fiscal year 2000 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 approximately $23.6 million in fiscal year 1999
was primarily due to the operating loss of $22.0 million.

Investing  activities used cash in the amount of approximately  $16.9 million in
fiscal  2001 as  result  of  proceeds  from sale of the  Company's  holdings  in
Chartered in the amount of $45.5 million and Broadcom's $39.0 million, offset in
part,  by the  Company's  purchase  of other  investments  of $66.0  million and
investment in Tower and related wafer credits of approximately $31.0 million. In
addition,  the Company purchased $4.4 million of capital equipment during fiscal
2001.  Investing  activities  during  fiscal 2000 provided cash in the amount of
approximately  $38.9 million.  This was 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

                                      -32-
<PAGE>

part,  by  investments  made by Alliance  Ventures of $28.7  million.  Investing
activities  in fiscal 1999 provided  cash in the amount of  approximately  $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.

Net cash provided by financing activities in fiscal 2001 was approximately $14.6
million  as a result  of  borrowings  from the  Company's  credit  line of $22.2
million,  offset in part, by the Company repurchasing its shares of common stock
of $10.3  million.  Net cash used in  financing  activities  in fiscal  2000 was
approximately $6.8 million.  The use of cash for financing  activities in fiscal
2000 was primarily  the result of repurchase of 720,000  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  of
approximately  $1.8  million 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
we may need to raise additional funds to finance our activities  beyond the next
year or to consummate acquisitions of other businesses, products, wafer capacity
or  technologies.  We could  raise  such funds by  selling  some our  short-term
investments,  selling more stock to the public or to selected  investors,  or by
borrowing  money.  We may not be able to obtain  additional  funds on terms that
would be favorable to our shareholders and us, or at all. If we raise 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,  UMC or Tower, 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 4 and 5 in the Notes to
the Consolidated Financial Statements.

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, 2001. 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, 2001.

Investment Risk

As  of  March  31,  2001,  our  short-term  investment  portfolio  consisted  of
marketable   equity  securities  in  Chartered   Semiconductor,   UMC,  Broadcom
Corporation,  PMC-Sierra and Vitesse Semiconductor, the future value of which is
subject to market value fluctuations.  Refer to Notes 2, 3, 4, 5, 6, 7 and 8 for
further details.

In  the  past  six  months,  marketable  securities  held  by the  Company  have
experienced  significant  declines in their  market value  primarily  due to the
downturn in the semiconductor  sector and general market conditions.  Management
has evaluated the  marketable  securities  for potential  "other-than-temporary"
declines in their value. Such evaluation  included  researching  commentary from
industry experts,  analysts and other companies, all of whom were not optimistic
that the  semiconductor  sector  would  recover in the  quarter or two or three.
Based on the  continuing  depression  in the in  investments'  stock prices from
those originally used to record the investment

                                      -33-
<PAGE>

and coupled with the  expectation  that the stock prices will not  significantly
recover in the next 6 to 9 months,  based on unfavorable business conditions for
the  companies in the  semiconductor  industry in general  (including  lower Fab
capacity  utilization  at  UMC),  management  determined  that a write  down was
necessary as of March 31, 2001. As a result, the Company recorded a pre-tax loss
of $506.8  million  during the fourth  quarter of fiscal 2001 based on the quote
market price of the respective marketable securities as of March 31, 2001

Foreign Currency Risk

Based on our overall currency rate exposure at March 31, 2001, a near term 10.0%
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 22, 2001,  the Company owned  approximately  340.0 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 22, 2001 based on the price per share of NTD 47.40 and
the NTD/US dollar  exchange rate of NTD 34.45 per US$ is US$467.8  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.

                                      -34-
<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.


        (3)  Exhibits - See Exhibit Index on page 36 of this Form 10-K Annual
             Report.

                                      -35-
<PAGE>

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

  Exhibit      Document Description
  Number
-----------  --------------------------------------------------------------
  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
 10.35(N)    Share Purchase Agreement, dated as of July 4, 2000, by and
             between SanDisk Corporation and Tower Semiconductor Ltd.
 10.36(N)    Additional Purchase Obligation Agreement, dated as of July 4,
             2000, by and between SanDisk Corporation and Tower Semiconductor
             Ltd.
 10.37(N)    Registration Rights Agreement, dated as of January 18, 2001,
             by and between Tower Semiconductor Ltd., SanDisk
             Corporation, The Israel Corporation, Registrant, Macronix
             International Co., Ltd.  and QuickLogic Corporation.

                                      -36-
<PAGE>

 10.38(N)    Consolidated Shareholders Agreement, dated as of January 18,
             2001 by and among SanDisk Corporation, The Israel
             Corporation, Registrant  and Macronix International Co., Ltd.
 10.39(N)    Alliance / Tower Joinder Agreement, dated August 29, 2000, by
             and between Registrant and Tower Semiconductor Ltd.
 10.40(N)    Alliance / TIC Joinder Agreement, dated August 29, 2000, by and
             between Registrant and The Israel Corporation
 10.41(O)    Alliance Venture Management, LLC  Amended Limited Liability
             Company Operating Agreement dated January 23, 2001
 10.42(O)    Alliance Ventures IV, LP Agreement of Limited Partnership
             dated January 23, 2001
 10.43(O)    Alliance Ventures V, LP Agreement of Limited Partnership
             dated January 23, 2001
 10.44(O)    Loan Agreement dated May 17, 2001, by and between Registrant
             and Citibank, N.A.
 10.45(O)    Share Pledge Agreement dated May 17, 2001, by and between
             Registrant and Citibank, N.A.
 21.01(O)    Subsidiaries of Registrant
 23.01(O)    Consent of PricewaterhouseCoopers LLP (San Jose, California)


+  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.
** 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 hereby incorporated by reference from
   Registrant's Annual Report on Form 10-K filed with the Commission on June 30,
   2000.
(N)The document referred to is hereby incorporated by reference from
   Registrant's Quarterly Report on Form 10-Q filed with the Commission on
   February 13, 2000.
(O)The document referred to is filed herewith.

                                      -37-
<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 29, 2001             By:  /s/ N. Damodar Reddy
                               ------------------------------------
                          N. Damodar Reddy
                          Chairman of the Board, President, Chief Executive
                          Officer and Acting Chief Financial Officer
                          (Principal Executive Officer, and 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 29, 2001
------------------------ President, Chief Executive
N. Damodar Reddy         Officer and Acting Chief
                         Financial Officer

/s/ C. N. Reddy          Director, Executive Vice           June 29, 2001
------------------------ President for Investments
C. N. Reddy

/s/ Sanford L. Kane      Director                           June 29, 2001
------------------------
Sanford L. Kane

/s/ Jon B. Minnis        Director                           June 29, 2001
------------------------
Jon B. Minnis

                                      -38-
<PAGE>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                   Index to Consolidated Financial Statements


                                                                          Pages
Consolidated Financial Statements:

   Report of Independent Accountants.......................................F-2

   Consolidated Balance Sheets as of March 31, 2001 and 2000...............F-3

   Consolidated Statements of Operations for the years ended
   March 31, 2001, 2000 and 1999...........................................F-4

   Consolidated Statements of Stockholders' Equity for the years
   ended March 31, 2001, 2000 and 1999.....................................F-5

   Consolidated Statements of Cash Flows for the years ended
   March 31, 2001, 2000 and 1999...........................................F-6

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

Financial Statement Schedule:

   Report of Independent Accountants.......................................F-23

   Schedule II - Valuation and Qualifying Accounts.........................F-24

                                       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, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period  ended March 31, 2001 in  conformity  with  accounting  principles
generally accepted in the United States of America.  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 of America  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 our opinion.



/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 25, 2001

                                       F-2
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                           Consolidated Balance Sheets
                                 (in thousands)

                                                       March 31,
                                               -------------------------
                                                  2001         2000
                                               -----------  ------------
                      ASSETS
     Current assets:
<S>                                            <C>          <C>
       Cash and cash equivalents                   $6,109       $34,770
       Restricted cash                              1,925         2,804
       Short term investments (Notes              384,374       883,300
           2,3,4,5, 6, 7 and 8)
       Accounts receivable, net (Note 2)           18,001        15,858
       Inventory (Note 2)                          84,797        37,439
       Related party receivables (Note 18)          2,369         1,778
       Other current assets                         1,079         1,958
                                               -----------  ------------
            Total current assets                  498,654       977,907

     Property and equipment, net  (Note 2)         10,183         9,990
     Investment in United Microelectronics
       Corp. (excluding short term portion)       228,633       505,478
       (Notes 2 and 5)
     Investment in Tower Semiconductor             16,327             -
       Corporation (Note 2 and 11)                 80,461        26,646
     Alliance Ventures and other investments
       (Note 2, 9 and 10)
     Other assets                                  14,981           421
                                               -----------  ------------
            Total assets                         $849,239    $1,520,442
                                               ===========  ============

       LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Short term borrowings (Note 2)             $22,234            $-
       Accounts payable                            76,130        27,133
       Accrued liabilities                          5,415        10,388
       Income taxes payable                         3,215         6,641
       Deferred income taxes (Note 13)            101,143       316,903
       Current portion of capital lease               858           905
         obligation (Note 12)
                                               -----------  ------------
            Total current liabilities             208,995       361,970
     Long term obligations (Note 12)               11,882         1,517
     Long term capital lease obligation (Note         686         1,197
       12)
     Deferred income taxes (Note 13)               80,387       191,803
                                               -----------  ------------
            Total  liabilities                    301,950       556,487
                                               -----------  ------------
     Commitments and contingencies (Notes
       12,16 and 17)

     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; 42,725 and 42,406         427           424
         shares issued and 41,440 and 41,686
         shares outstanding
       Additional paid-in capital                 197,350       193,260
       Treasury stock (1,285 and 720 shares       (22,762)      (12,468)
         at cost)
       Retained earnings (deficit)                372,274       644,595
       Accumulated other comprehensive                  -       138,144
         income  (Note 2)
                                               -----------  ------------
           Total stockholders' equity             547,289       963,955
                                               -----------  ------------
           Total liabilities and
             stockholders' equity                $849,239    $1,520,442
                                               ===========  ============
</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,
                             ----------------------------------------
                                 2001          2000          1999
                             ------------  ------------  ------------
<S>                          <C>            <C>           <C>
 Net revenues                   $208,678       $89,153       $47,783
 Cost of revenues                187,913        58,428        60,231
                             ------------  ------------  ------------
   Gross profit (loss)            20,765        30,725       (12,448)
 Operating expenses:
   Research and development       13,766        14,568        14,099
   Selling, general and           19,691        15,962        12,652
     administrative
                             ------------  ------------  ------------
 Income (loss) from              (12,692)          195       (39,199)
   operations
 Gain on investments              75,801     1,049,130        15,823
 Write-down of marketabl        (509,449)            -             -
   securities and
   other investments
 Other income (loss), net           (200)           29        (1,126)
                             ------------  ------------  ------------
 Income (loss) before           (446,540)    1,049,354       (24,502)
   income taxes
 Provision (benefit) for        (179,956)      410,348         8,397
   income taxes
                             ------------  ------------  ------------
 Income (loss) before
   equity in income (loss)      (266,584)      639,006       (32,899)
   of investees
 Equity in income (loss) of       (5,737)        9,094        10,856
   investees
                             ------------  ------------  ------------
 Net income (loss)             $(272,321)     $648,100      $(22,043)
                             ============  ============  ============
 Net income (loss) per share:
     Basic
                                  $(6.58)       $15.49        $(0.53)
                             ============  ============  ============
     Diluted
                                  $(6.58)       $15.07        $(0.53)
                             ============  ============  ============
 Weighted average number of common shares:
     Basic                        41,376        41,829        41,378
                             ============  ============  ============
    Diluted                       41,376        42,992        41,378
                             ============  ============  ============
</TABLE>

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

                                       F-4
<PAGE>

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                 Consolidated Statements of Stockholders' Equity
                                 (in thousands)

                                                                             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 March    40,449,988          $404      $183,099            $-      $(12,930)      $18,538      $189,111
  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                         -             -             -             -             -             -       (27,479)
  comprehensive loss
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------
Balances at March    41,608,623           416       185,025             -       (18,366)       (3,505)      163,570
  31, 1999

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

Issuance of common
  stock under           319,246             3         2,349             -             -             -         2,352
  employee stock
  plans
Repurchase of                 -             -             -       (10,294)            -             -       (10,294)
  common stock (1)
Tax benefit on                -             -         1,741             -             -             -         1,741
  exercise of stock
  options
Unrealized loss on            -             -             -             -      (138,144)            -
  investments
Net income                    -             -             -             -             -      (272,321)
Total                         -             -             -             -             -             -      (410,465)
  comprehensive
  income
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------
Balances at March    42,725,351          $427      $197,350      $(22,762)           $-      $372,274      $547,289
  31, 2001
                    ============  ============  ============  ============  ============  ============  ============
</TABLE>

(1)  At March 31, 2000 and 2001,  the Company held 720,000 and 1,285,000  shares
     in treasury,  which have not been retired.  After taking into account these
     treasury shares,  the net outstanding shares at March 31, 2000 and 2001 was
     41,686,105 and 41,440,351, respectively.

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

                                       F-5
<PAGE>

<TABLE>
<CAPTION>
               ALLIANCE SEMICONDUCTOR CORPORATION
              Consolidated Statements of Cash Flows
                         (in thousands)
                                          Year Ended March 31,
                                    ---------------------------------
                                      2001        2000        1999
                                    ----------  ---------  ----------

Cash flows from operating activities:
<S>                                 <C>         <C>        <C>
  Net Income (loss)                 $(272,321)  $648,100    $(22,043)
  Adjustments to reconcile net
    income (loss) to net cash
    provided by (used in)
    operating activities:
   Depreciation and amortization        4,202      4,417       3,789
   Inventory write-downs               53,945        742      20,437
   Non-recurring compensation               -      3,655           -
     charge
   Equity in income of investees        5,737     (9,094)    (10,856)
   (Gain)/ loss on investments        (75,801 (1,049,130)    (15,823)
   Write-down of marketable           509,449          -           -
     securities and other investments
   Changes in assets and liabilities:
    Accounts receivable                (2,143)    (6,915)      6,773
    Inventory                        (101,303)   (25,254)       (989)
    Related party receivables            (591)        37      (1,815)
    Other assets                          993        (99)      1,622
    Accounts payable                   48,997     19,087     (27,668)
    Accrued liabilities                (4,973)        92      (2,446)
    Deferred income taxes            (221,877)   399,168      25,466
    Income tax payable                 (1,685)    10,157           -
    Long-term obligations              31,035      1,517           -
                                    ----------  ---------  ----------
Net cash provided by (used in)        (26,336)    (3,520)    (23,553)
operating activities
                                    ----------  ---------  ----------

Cash provided by (used in) investing activities:
  Purchase of property and             (4,395)    (2,816)     (2,609)
    equipment
  Proceeds from sale of
    securities of United                    -     21,481      31,662
    Semiconductor Corporation
  Proceeds from sale of                38,965     48,911           -
    securities of Broadcom
  Proceeds from sale of
    securities of Chartered            45,500          -           -
    Semiconductor, Co.
  Purchase of securities of                 -          -      (3,098)
    United Silicon, Inc.
  Investment in Tower                 (16,327)         -           -
     Semiconductor Corporation
  Other assets                        (14,674)         -           -

  Purchase of Alliance Venture        (66,007)   (28,696)     (1,000)
    and other investments
                                    ----------  ---------  ----------
Net cash provided by (used in)        (16,938)    38,880      24,955
  investing activities
                                    ----------  ---------  ----------

Cash flows from financing activities:
  Net proceeds from the issuance        2,352      4,727       1,938
    of common stock
  Principal payments on lease            (558)    (1,439)     (1,468)
    obligation
  Repurchase of common stock          (10,294)   (12,468)          -
  Short-term borrowings                22,234          -           -
  Restricted cash                         879      2,371       1,337
                                    ----------  ---------  ----------
Net cash provided by (used in)         14,613     (6,809)      1,807
  financing activities
                                    ----------  ---------  ----------
Net increase (decrease) in cash       (28,661)    28,551       3,209
  and cash equivalents
Cash and cash equivalents at           34,770      6,219       3,010
  beginning of the period
                                    ----------  ---------  ----------
Cash and cash equivalents at end       $6,109    $34,770      $6,219
  of the period
                                    ==========  =========  ==========

Supplemental disclosures of cash flow information:
  Cash paid (refunded) for income     $29,501       $355    $(17,736)
    taxes
                                    ==========  =========  ==========
  Cash paid for interest                 $733        $99        $214
                                    ==========  =========  ==========
</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  under-capacity  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 the fourth
quarter of fiscal year 2001,  as well as,  fiscal  years  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, III, IV and V. (See Note 9). All significant
inter-company 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  years ended March 31, 2001 and
2000 contained 52 weeks, while March 31, 1999 contained 53 weeks.  Certain items
previously   reported  in  specific  financial   statement  captions  have  been
reclassified to conform to the fiscal year 2001 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  categorization of investment  securities at the time
of purchase and reevaluates  such  designation as of each balance sheet date. At
March  31,  2001,  all  short-term  investment  securities  were  designated  as
available-for-sale in accordance with SFAS 115.

                                       F-7
<PAGE>

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

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 or current replacement cost. 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 results 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 years
2000 and 2001,  the  Company  entered  into a number of  "cashless  collar"  and
"covered call" option  transactions  to partially hedge its holdings in Broadcom
Corporation.  In  addition,  during  fiscal  2001,  the Company  entered into an
"indexed  debt"   transaction  to  partially   hedge  its  holdings  in  Vitesse
Semiconductor Corporation. The Company may enter into other similar transactions
in the future.

                                       F-8
<PAGE>

Since Chartered, UMC, Broadcom,  Vitesse and PMC-Sierra are in the semiconductor
business,  as is the Company,  they 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 these
companies. In addition, because they are semiconductor  manufacturers,  they are
subject  to  additional  risks,  such  as  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 these companies will
increase in value or even maintain their value.  Because of the cyclical  nature
of the semiconductor  industry, it is possible that these investments,  like the
Company,  will experience a significant  business downturn in the future,  which
will significantly depress the value of these stocks.  Additionally,  because of
the loss of its wafer production  capacity rights if the Company sells more than
50% of its original holdings in Chartered or UMC, there can be no assurance that
the Company can sell sufficient  stock to realize its value on its investment in
them.

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.  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,  2001,  no
customers  accounted  for 10% or more of the  Company's  net  revenues.  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.

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  $131.5 million,  $53.0 million,
and $24.0  million of net revenues for the years ended March 31, 2001,  2000 and
1999, 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"  and related  interpretations.  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").

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,
                                ------------------------------
                                 2001        2000       1999
                                --------   --------   --------
<S>                            <C>         <C>        <C>
Net income/(loss) available to $(272,321)  $648,100   $(22,043)
  common shareholders
                                ========   ========   ========
Weighed average common shares   41,376       41,829     41,378
  outstanding (basic)
Effect of dilutive options           -        1,163          -
                                --------   --------   --------
Weighed average common shares     41,376     42,992     41,378
  outstanding (diluted)
                                ========   ========   ========

Net income/(loss) per share:
   Basic                         $(6.58)    $15.49     $(0.53)
                                ========   ========   ========
   Diluted                       $(6.58)    $15.07     $(0.53)
                                ========   ========   ========
</TABLE>

                                       F-9
<PAGE>

Due to the Company  incurring a net loss in 2001 and 1999, a calculation  of EPS
assuming  dilution is not required  for those years.  At March 31, 2001 and 1999
there were 2,720,687 and 2,741,298 options  outstanding to purchase common stock
with respective  weighted  average  purchase price of $11.11 and $5.37 that were
excluded from the diluted loss per share computations because their effect would
be anti-dilutive.

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 loss
for  fiscal  year  2001  and  1999  was  $410.5   million  and  $27.5   million,
respectively,  compared  to total  accumulated  comprehensive  income  of $804.6
million for fiscal 2000.  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 Company has adopted SFAS No. 133 effective April 2, 2001 and as
a result, the Company is required to adjust hedging instruments to fair value in
the balance sheet,  and recognize the  offsetting  gains or losses 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.

NOTE 2.  Balance Sheet Components

Short-term Investments

Short-term  investments include the following  available-for-sale  securities at
March 31, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                     March 31, 2001             March 31, 2000
                --------------------------  ------------------------
                  Number of      Market       Number of     Market
                    Shares       Value         Shares       Value
                -------------  -----------  ------------  ----------
<S>                <C>         <C>            <C>         <C>
UMC                198,315     $320,086       141,650     $548,752
Chartered            1,642       39,481         2,141      201,789
  Semiconductor
Broadcom               200        5,780           488       62,831
  Corporation
Vitesse                728       17,341           852       69,928
  Semiconductor
PMC-Sierra              68        1,686             -            -
                               -----------                ----------
Total                          $384,374                   $883,300
                               ===========                ==========
</TABLE>

Long-term Investments

At March 31, 2001 and 2000, the Company's long-term  investments were as follows
(in thousands):

<TABLE>
<CAPTION>
                         March 31, 2001             March 31, 2000
                    -------------------------  -------------------------
                      Number of      Cost        Number of       Cost
                        Shares       basis        Shares         basis
                    -------------  ----------  ------------   ----------
<S>                     <C>         <C>            <C>         <C>
UMC                     141,653     $228,633       141,650     $505,478
Tower Semiconductor       1,233       16,327             -            -
Alliance Venture                      67,961                     26,646
  Investments
Solar Venture                         12,500                          -
  Partners, LP
                                   ----------                 ----------
Total                               $325,421                   $532,124
                                   ==========                 ==========
</TABLE>

                                      F-10
<PAGE>

Accounts Receivable

<TABLE>
<CAPTION>
                                    March 31,
                             -----------------------
                                2001        2000
                             ----------- -----------
                                 (in thousands)
Accounts receivable:
<S>                            <C>         <C>
  Trade receivables            $21,582     $16,812
  Less allowance for            (3,581)       (954)
    doubtful accounts and
    sales related reserves
                             ----------- -----------
                               $18,001     $15,858
                             =========== ===========
</TABLE>

Inventories

<TABLE>
<CAPTION>
                                    March 31,
                             -----------------------
                                2001        2000
                             ----------- -----------
                                 (in thousands)
Inventory:
<S>                             <C>         <C>
  Work in process               $41,350     $20,737
  Finished goods                 43,447      16,702
                             ----------- -----------
                                $84,797     $37,439
                             =========== ===========
</TABLE>

Property and Equipment

<TABLE>
<CAPTION>
                                    March 31,
                             -----------------------
                                2001        2000
                             ----------- -----------
                                 (in thousands)

<S>                             <C>         <C>
Engineering and test            $16,715     $13,756
  equipment
Computers and software           11,769       9,474
Furniture and office                689       1,599
  equipment
Leasehold improvements            1,350       1,299
Land                                288         288
                             ----------- -----------
                                 30,811      26,416
Less:  Accumulated              (20,628)    (16,426)
  depreciation and
  amortization
                             ----------- -----------
                                $10,183      $9,990
                             =========== ===========
</TABLE>

Depreciation and amortization expense for fiscal yeFars 2001, 2000 and 1999 were
$4.2 million, $4.4 million and $3.8 million, respectively.

Property and  equipment  includes  $2.2 million and $2.5 million of assets under
capital   leases  at  March  31,  2001  and  2000,   respectively.   Accumulated
depreciation  of assets under capital leases totaled  $1,048,000 and $700,000 at
March 31, 2001 and 2000, respectively.

Accumulated Other Comprehensive Income

Components of accumulated other comprehensivFe 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>

Short-term borrowings

At March 31, 2001, the Company had short-term  borrowings  from a brokerage firm
of  approximately  $22.2 million dollars secured by a portion of its holdings in
Chartered Semiconductor, bearing interest at a rate of 6.5% per annum.

NOTE 3. Write-Down of Marketable Securities

In  the  past  six  months,  marketable  securities  held  by the  Company  have
experienced  significant  declines  in their  market  value  primary  due to the
downturn in the semiconductor  sector and general market conditions.  Management
has evaluated the  marketable  securities  for potential  "other-than-temporary"
declines in their fair

                                      F-11
<PAGE>

value. Such evaluation  included  researching  commentary from industry experts,
analysts,  and  other  companies,  all of whom  were  not  optimistic  that  the
semiconductor sector would recover in the next quarter or two or three. Based on
the continuing depression in the investments' stock prices from those originally
used to record the investment and coupled with the expectation that stock prices
will not significantly  recover in the next 6 to 9 months,  based on unfavorable
business  conditions  for  companies in the  semiconductor  industry in general,
management determined that a write-down was necessary as of March 31, 2001. As a
result,  the Company  recorded a pre-tax,  non-operating  loss of  approximately
$509.4  million  during  the fourth  quarter of fiscal  2001 based on the quoted
price of the respective marketable securities as of March 31, 2001 as follows:

<TABLE>
<CAPTION>
                             Pre-Tax
                            Write-Down
                             --------
                          (in thousands)
<S>                          <C>
         UMC                 $460,014
         Broadcom              3,778
           Corporation
         Vitesse              32,298
         PMC-Sierra           10,777
         Other                 2,582
                             --------
         Total               $509,449
                             ========
</TABLE>

At the end of the fourth quarter fiscal 2001, the Company  wrote-down several of
its  investments in Alliance  Ventures and  recognized a pre-tax,  non-operating
loss of  approximately  $2.6  million.  This was recorded in the  write-down  of
marketable securities and other investments.

NOTE  4.  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,  in which the Company decided
not  to  participate.  The  Companies  shares  were  subject  to  an  additional
three-month   "lock-up"  which  expired  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.  During fiscal 2001, the Company
sold 500,000 shares and recognized a pre-tax non-operating gain of approximately
$33.5 million.  At March 31, 2001, the Company owned  approximately 16.4 million
ordinary shares or 1.64 million ADSs 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 than 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.

NOTE 5. 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% 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.

                                      F-12
<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 and the board seat,  Alliance had  participated  in both
strategic and operating  decisions of USC on a routine basis 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 and 1999 the Company  reported  its  proportionate
share of equity  income of USC of $9.5  million  and $10.9  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. 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 does not have 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  expired 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 accounted for a portion
(approximately  50% at March 31, 2000) of its  investment  in UMC,  which became
unrestricted on January 3, 2001, as an available-for-sale marketable security in
accordance with SFAS 115. At March 31, 2000, the Company  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% and 42% of the Company's  holdings at
March 31,  2000 and  2001,  respectively),  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.

                                      F-13
<PAGE>

At the end of the  fourth  quarter of fiscal  2001 the  Company  wrote-down  its
investment in UMC and recognized a pre-tax,  non-operating loss of approximately
$460.0 million. (See Note 3). At March 31, 2001, the Company owned approximately
340.0 million shares of UMC. (See Note 2).

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.

Note 6. Investment in Broadcom Corporation

In 1998, the Company was  approached by a startup  company,  Maverick  Networks,
Inc.  ("Maverick"),  regarding  their need for  embedded  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. During fiscal 2001, the Company sold 287,522 shares and
realized a pre-tax,  non-operating gain of approximately  $31.3 million.  At the
end of the fourth quarter fiscal 2001, the Company  wrote-down its investment in
Broadcom and  recognized a pre-tax,  non-operating  loss of  approximately  $3.8
million.  (See Note 3). At March  31,  2001,  the  Company  owned  approximately
200,000 shares of Broadcom. (See Note 2).

Note 7. Investment in 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 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.  The  Company  records  its  investment  in Vitesse  Semiconductor
Corporation as an available-for-sale marketable security in accordance with SFAS
115.

In  January   2001,   the  Company   entered  into  two   derivative   contracts
("Agreements")  with Bear Stearns and received  aggregate cash proceeds of $31.5
million.  The  Agreements  have payment  provisions  that  incorporate  a collar
arrangement  with  respect to 490,000  shares of  Vitesse  Semiconductor  common
stock.  As such,  under the  Agreements,  the Company  must pay Bear  Stearns an
amount  based on the  market  price of  Vitesse  Semiconductor  Common  Stock in
January 2003, the maturity date of the Agreements. If the stock price of Vitesse
Semiconductor  exceeds  the ceiling of the collar,  then the  settlement  amount
increases  by an amount  determined  by a  formula  included  in the  Agreements
(generally equal to the excess of the value of the stock over the ceiling of the
collar). If the stock price of Vitesse Semiconductor declines below the floor of
the collar,  then the settlement  amount also decreases by the amount determined
by a formula  included in the Agreements  (generally  equal to the excess of the
floor of the  collar  over the  value of the  stock).  At March  31,  2001,  the
derivative  contracts  were  in  the  money  to the  Company  based  on  Vitesse
Semiconductor's  market price of $23.81 on that date.  Under current  accounting
practice,  the Company  offsets the gain on the  contracts  with the loss on the
Vitesse  stock,  both of which were  recorded in the  write-down  of  marketable
securities in the fourth quarter of fiscal 2001. The pre-tax, non-operating gain
on the contracts  amounted to $20.6 million,  representing their intrinsic value
at March 31, 2001.  At the end of the fourth  quarter  fiscal 2001,  the Company
wrote-down  its  investment in Vitesse and  recognized a pre-tax,  non-operating
loss of  approximately  $52.9  million.  (See Note 3). At March  31,  2001,  the
Company owned 728,293 shares of Vitesse. (See Note 2).

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

                                      F-14
<PAGE>

fiscal 2001.  Thus,  there can be no assurance that the Company's  investment in
Vitesse will increase in value or even maintain its value.

Note 8. Investment in PMC-Sierra Corporation

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.  On June 27, 2000,  PMC-Sierra,  Inc.  ("PMC")
acquired  Malleable.  PMC  exchanged  1.25  million  shares of PMC stock for the
remaining 85% interest of Malleable  that PMC did not already own. In connection
with the merger,  Alliance  Ventures I received  68,152 shares of PMC for its 7%
interest in Malleable. Upon the completion of the merger, the Company reported a
gain of approximately $11.0 million based on the closing share price of $182.875
of PMC on the date of the merger.  At the end of the fourth quarter fiscal 2001,
the  Company  wrote-down  its  investment  in  PMC  and  recognized  a  pre-tax,
non-operating  loss of approximately  $10.8 million.  (See Note 3). At March 31,
2001, the Company owned 68,152 shares of PMC. (See Note 2).

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 fiscal 2001.  Thus,
there can be no assurance that the Company's  investment in PMC will increase in
value or even maintain its value.

Note 9. 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.

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. In January  2001,  upon the creation of Alliance  Ventures IV, LP
("Alliance  Ventures IV") and Alliance  Ventures V, LP ("Alliance  Ventures V"),
the management  agreement for Alliance Venture  Management was amended to create
series D and E member units which are  entitled to receive a  management  fee of
15% of investment gains realized by Alliance  Ventures IV and Alliance  Ventures
V, respectively.

Each of the owners of the series A, B, C, D and E 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, C, D or E 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 series A, B, C, D or E member 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,  2001,  Alliance  Ventures I, whose focus is  investing  in  networking  and
communication start-up companies,  has invested $22.0 million in nine companies,
with a fund allocation of $20.0 million. Alliance Ventures II, whose focus is in
investing in internet start-up ventures has invested  approximately $9.1 million
in ten

                                      F-15
<PAGE>

companies,  with a total fund allocation of $15.0 million. As of March 31, 2001,
Alliance  Ventures  III,  whose focus is investing in emerging  companies in the
networking  and  communication  market areas,  has invested  $38.6 million in 14
companies, with a total fund allocation of $100.0 million. As of March 31, 2001,
Alliance  Ventures IV,  whose focus is  investing  in emerging  companies in the
semiconductor  market areas, has invested $4.0 million in two companies,  with a
total fund allocation of $40.0 million.  As of March 31, 2001, Alliance Ventures
V,  whose  focus is  investing  in  emerging  companies  in the  networking  and
communication market areas, has invested $6.5 million in three companies, with a
total fund allocation of $60.0 million.

At the end of the fourth quarter fiscal 2001, the Company  wrote-down certain of
its  investments in Alliance  Ventures and  recognized a pre-tax,  non-operating
loss of approximately $2.6 million.  (See Note 3). Also, several of the Alliance
Venture  investments  are  accounted  for under  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  $5.7 million for the year ended March 31,
2001.

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 has been formed in which  certain of the  Company's  officers  and
employees,  as well as the Company itself, has made similar venture investments,
including investment in some of the same companies as Alliance Ventures.

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. 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.  The market for these types of investments  has, in
the past, 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 possible 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.  It is
possible  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.

Note 10. Investment in Solar Venture Partners, LP

In August  2000,  the  Company  agreed to invest $20  million  in Solar  Venture
Partners,  LP  ("Solar"),  a  venture  capital  partnership  whose  focus  is in
investing   in   early   stage   companies   in   the   areas   of   networking,
telecommunications,  wireless,  software infrastructure enabling efficiencies of
the  Web  and  e-commerce,   semiconductors  for  emerging  markets  and  design
automation.  The Company has invested $12.5 million, $9.5 million is in the form
of three promissory notes, which on March 31, 2001 were converted into a limited
partnership  interest in Solar.  Due to changes in the venture  capital  market,
Alliance has decided to limit its  investment in Solar to $12.5 million  already
invested.

Certain of the  Company's  officers and  employees  have also invested in Solar.
Solar has made investments in some of the same companies as Alliance Ventures.

Note 11. Investment in Tower Semiconductor Corporation

In August 2000, the Company  entered into a share purchase  agreement with Tower
Semiconductor  ("Tower")  under which  Alliance  committed to make a $75 million
strategic  investment  in Tower as part of Tower's plan to build its new fab. In
return  for  its  investment,   Alliance  will  receive  equity,   corresponding
representation on Tower's Board of Director and committed production capacity in
the advanced fab, which Tower intends to build.  Pursuant to the agreement,  the
Company purchased  1,233,241  ordinary shares of Tower for an aggregate purchase
price of $31 million in the fourth  quarter of fiscal  2001.  The Company has an
obligation to purchase an  additional  1,466,760  ordinary  shares in four equal
increments upon  occurrence of events relating to Tower's  construction of FAB 2
as  specified  in the  agreement.  These  additional  shares are  expected to be
purchased by the Company during fiscal 2002 and 2003.

In connection  with the share  purchase  agreement,  the Company  entered into a
foundry  agreement  under which the  Company is entitled to a certain  amount of
credits  towards  future wafer  purchases  from Tower.  The amount of credits is
determined  upon each share  purchase  transaction by Alliance and is calculated
based on the

                                      F-16
<PAGE>

difference  between Tower's average stock price for 30 days preceding a purchase
transaction  and Alliance's  share purchase  exercise  price. At March 31, 2001,
such wafer  credits from Tower  totaled  $14.7 million and are included in other
assets on the balance  sheet.  The wafer credits will be utilized as the Company
purchases  wafers  from  Tower in the  future  where 15% of order  value will be
applied against the wafer credits. Under the terms of the foundry agreement, the
Company is guaranteed a capacity of up to 15% of available  wafer starts but not
to exceed 5,000 wafers starts per month. The guaranteed  capacity may be reduced
if the Company elects not to exercise its additional share purchase  obligation.
The Company  accounts for its investment in Tower under the cost method based on
the  Company's  inability  to  exercise   significant   influence  over  Tower's
operations.

NOTE 12.  Long Term Obligations, Leases and Commitments

In  January   2001,   the  Company   entered  into  two   derivative   contracts
("Agreements")  with Bear Stearns and received  aggregate cash proceeds of $31.5
million.  The  Agreements  have payment  provisions  that  incorporate  a collar
arrangement  with  respect to 490,000  shares of  Vitesse  Semiconductor  common
stock.  As such,  under the  Agreements,  the Company  must pay Bear  Stearns an
amount  based on the  market  price of  Vitesse  Semiconductor  Common  Stock in
January 2003, the maturity date of the Agreements. If the stock price of Vitesse
Semiconductor  exceeds  the ceiling of the collar,  then the  settlement  amount
increases  by an amount  determined  by a  formula  included  in the  Agreements
(generally equal to the excess of the value of the stock over the ceiling of the
collar). If the stock price of Vitesse Semiconductor declines below the floor of
the collar,  then the settlement  amount also decreases by the amount determined
by a formula  included in the Agreements  (generally  equal to the excess of the
floor of the  collar  over the  value of the  stock).  At March  31,  2001,  the
derivative  contracts  were  in  the  money  to the  Company  based  on  Vitesse
Semiconductor's  market price of $23.81 on that date and pre-tax,  non-operating
gain on the contracts of $20.6 million,  representing  their  intrinsic value at
March 31, 2001, was recorded.  As a result, the Company's  obligations under the
Agreements  were  reduced to $10.9  million,  which was  included  in  long-term
obligations at March 31, 2001.

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 2001 and 2007.

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

<TABLE>
<CAPTION>
Fiscal Year  (in thousands)
-----------  --------------
<S>              <C>
   2002          $1,645
   2003           1,607
   2004           1,636
   2005           1,696
   2006           1,754
Thereafter          550
             -------------
Total payments   $8,888
             =============
</TABLE>

Rent expense for fiscal 2001,  2000,  and 1999 was  $1,799,000,  $1,386,000  and
$635,000 respectively.

Capital Leases

At March 31, 2001, equipment under capital leases amounted to approximately $2.2
million  compared to $2.5  million at March 31, 2000.  The original  lease terms
ranged 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>
2002                         $908
2003                          686
2004                          100
                           ----------
Total payments minimum      1,694
  lease payments
Amount representing          (150)
  interest
                           ----------
                            1,544
Less current portion         (858)
                           ----------
Long-term capital lease      $686
  obligations
                           ==========
</TABLE>

                                      F-17
<PAGE>

Letters of Credit

At March 31, 2001,  approximately $1.9 million in standby letters of credit were
outstanding and expire through April 1, 2002, secured by restricted cash.


NOTE 13.  Provision (benefit) for income taxes

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

<TABLE>
<CAPTION>
                             March 31,
                  ------------------------------
                   2001       2000       1999
                  --------  ---------  ---------
                         (in thousands)
Current:
<S>               <C>        <C>             <C>
  Federal         $28,969    $14,340         $-
  State             5,291        228          -
  Foreign              34          -          -
                  --------  ---------  ---------
                   34,294     14,568          -
                  --------  ---------  ---------
Deferred:
  Federal        (185,070)   340,351      8,397
  State           (29,180)    55,429          -
                  --------  ---------  ---------
                 (214,250)   395,780      8,397
                  --------  ---------  ---------
   Total        $(179,956)  $410,348     $8,397
provision
(benefit)
                  ========  =========  =========
</TABLE>

Deferred tax assets (liabilities) comprise the following:

<TABLE>
<CAPTION>
                              March 31,
                        ------------------
                          2001      2000
                         -------  ---------
                          (in thousands)
<S>                      <C>         <C>
Inventory reserves       $14,743     $1,982
Accrued expenses and       1,839      4,198
  reserves
Other                      3,866          -
                         -------  ---------
  Gross deferred tax      20,448      6,180
assets
Investment in UMC       (193,102)  (398,851)
Investment in Broadcom    (2,254)   (25,127)
Investment in Chartered        -    (61,129)
Investment in Vitesse     (6,549)   (27,952)
Investment in PMC-Sierra     (73)         -
Other                          -     (1,827)
                         -------  ---------
  Gross deferred tax    (201,978)  (514,886)
liabilities
                         -------  ---------
                       $(181,530) $(508,706)
                         =======  =========
</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,
                         -----------------------------------
                            2001       2000         1999
                         ----------  ----------  -----------
                          (in thousands, except percentages)
<S>                      <C>         <C>         <C>
Federal statutory rate       35%         35%         35%
Tax at federal            $(156,289)   $367,274     $(8,531)
  statutory rate
State taxes, net of         (25,893)     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                    2,226       1,076           -
                         ----------  ----------  -----------
  Total                   $(179,956)   $410,348      $8,397
                         ==========  ==========  ===========
</TABLE>

The tax benefit associated with the exercises of non-qualified stock options and
disqualifying  dispositions  of incentive  stock options reduced taxes currently
payable  by $1.7  million  and $3.5  million  in  fiscal  years  2001 and  2000,
respectively.

                                      F-18
<PAGE>

Note 14.  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.  On
September 8, 2000, the number of shares reserved for issuance under the Plan was
increased by 2,000,000 to 13,000,000.  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 2001, 2000, and 1999:

<TABLE>
<CAPTION>
                               Options        Options Outstanding
                             ------------  --------------------------
                              Available     Shares       Weighted
                              for Grant               Average Prices
                             ------------  ---------- ---------------
<S>                          <C>           <C>            <C>
Balance at March 31, 1998      1,358,489    3,675,431      $5.81
  Options granted             (1,405,150)   1,405,150       3.52
  Options canceled             1,352,324   (1,352,324)      7.23
  Options exercised                    -     (986,959)      1.56
                             ------------  ---------- ---------------
Balance at March 31, 1999      1,305,663    2,741,298      $5.37
  Options authorized           2,000,000            -
  Options granted             (1,150,950)   1,150,950     $11.91
  Options canceled               925,374     (925,374)     $5.49
  Options exercised                    -     (677,717)     $5.85
                             ------------  ---------- ---------------
Balance at March 31, 2000      3,080,087    2,289,157      $8.44
  Options authorized           2,000,000            -
  Options granted               (627,250)     627,250     $19.46
  Options canceled               267,850     (267,850)    $13.93
  Options exercised                    -     (274,195)     $5.51
                             ------------  ---------- ---------------
Balance at March 31, 2001      4,720,687    2,374,362     $11.11
                             ============  ========== ===============
</TABLE>

As of March 31, 2001, options to purchase approximately 523,772 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 2001,  2000,and 1999 was $14.69,  $8.57,
and $2.44  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,

                                      F-19
<PAGE>

which  greatly  affect  the  calculated   values.   Significant   option  groups
outstanding at March 31, 2001, and related  weighted  average exercise price and
contractual life information are as follows:

<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
                 2001         Life                   31, 2001
------------- ------------ ------------ ---------- -------------  ---------
<S>            <C>             <C>        <C>       <C>             <C>
  $2.09 -      573,230         3.66       $2.94     189,710         $3.18
   $4.06
  $4.50 -      475,082         2.56       $6.97     175,862         $7.08
   $10.94
  $11.06 -     270,620         4.41      $11.18      54,124        $11.18
   $11.19
  $11.25 -     551,430         4.84      $13.06      80,776        $12.98
   $17.25
  $17.94 -     275,500         5.11      $19.71       1,000        $18.50
   $20.50
  $20.75 -     228,500         5.18      $25.07      22,300        $25.52
   $29.13
------------- ------------ ------------ ---------- -------------  ---------
  $2.09 -     2,374,362        4.11      $11.11     523,772         $7.81
   $29.13
============= ============ ============ ========== =============  =========
</TABLE>

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

<TABLE>
<CAPTION>
                2001        2000         1999
              ---------   ----------  ------------
<S>             <C>         <C>          <C>
Expected life   5.00        5.00         5.00
                years       years        years
Risk-free       4.8%        6.7%          5.7%
  interest rate
Volatility     87.6%        86.0%        88.0%
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,  45,051,  119,765,  and 171,676 shares were issued during fiscal
2001, 2000, and 1999, respectively. At March 31, 2001, there were 280,579 shares
available under the ESPP.

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>
                2001        2000         1999
              ---------  -----------  -----------
<S>           <C>         <C>          <C>
Expected life 6 months    6 months     6 months
Risk-free       3.6%        6.4%         4.9%
  interest rate
Volatility     87.6%       78.0%        88.0%
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 2001, 2000, and
1999 was $8.43, $2.24, and $2.55 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, 2001,  2000, and
1999, would have been as follows (in thousands, except per share data):

                                      F-20
<PAGE>

<TABLE>
<CAPTION>
                              March 31,
                  -------------------------------
                    2001       2000       1999
                  ---------  ---------  ---------
<S>               <C>         <C>        <C>
Pro forma income  $(274,635)  $646,905   $(23,231)
(loss):
Pro forma net
  loss per share:
  Basic             $(6.64)     $15.47     $(0.56)
  Diluted           $(6.64)     $15.05     $(0.56)
</TABLE>

NOTE 15.  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  2001,  2000 and  1999  the  Company
contributed approximately $115,000, $131,000 and $0, respectively.

NOTE 16.  Legal Matters

In July 1998, the Company  learned that a default  judgment was entered  against
the Company in Canada,  in the amount of approximately  $170 million (USD), 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.  Oral
arguments  were made before the Court of Appeals in June 2000.  In July 2000 the
Court of  Appeals  instructed  the  lower  Court to allow  the  parties  to take
depositions regarding the issue of service of process,  while also setting aside
the default  judgment against the Company.  The plaintiffs  appealed the setting
aside of the default judgment against the Company to the Canadian Supreme Court.
In June  2001,  the  Canadian  Supreme  Court  refused to hear the appeal of the
setting aside of the default judgment against the Company.  The Company believes
the  resolution  of this matter will not have a material  adverse  effect on its
financial conditions and its results of operations.

NOTE 17. 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 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  was  transmitted  to the CIT on June 26, 2000 for
consideration.  Micron  has  appealed  the  decision  of the CIT to the Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal,  although it is expected to take a year or
more to  conclude.  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  unsuccessful,  the antidumping
order will be terminated  and cash deposits will be refunded with  interest.  If
the appeal is successful,  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.

                                      F-21
<PAGE>

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.  At March 31,
2001,  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.

NOTE 18.  Related Party Transactions

On May 18,  1998,  the  Company  provided  loans  to two of its  officers  and a
director aggregating  $1,735,000.  The officers' 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 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, 2001. As of March 31, 2001,  $1,616,000 was outstanding under these
loans with accrued interest of $252,000.

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 19.  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,
                    -------------------------------
                      2001       2000       1999
                    ---------  ---------  ---------
                            (in thousands)
<S>                  <C>        <C>         <C>
United States        $77,114    $36,088     $23,770
Taiwan                35,666     11,310       6,061
Japan                 36,775     10,251       3,269
Asia (except          19,069      6,211       5,807
Taiwan and Japan)
Europe (except UK)    18,724     15,042       8,196
UK                    20,363     10,251         371
Rest of world            967          -         309
                    ---------  ---------  ---------
   Total            $208,678    $89,153     $47,783
                    =========  =========  =========
</TABLE>

International  net  revenues in fiscal 2001  increased by 148% over fiscal 2000.
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 Asia,  which  increased  approximately  236% over fiscal year 2000.
This  increase  was due to an  overall  increase  in  product  demand and higher
average  selling  prices  during the first  three  fiscal  quarters of the year.
International  revenues  increased  195% in fiscal 2000 compared to fiscal 1999.
The largest increase in  international  net revenues was to customers in Europe,
which was  attributable to overall increase in product demand and higher average
selling prices.

NOTE 20.  Subsequent Events (unaudited)

In May  2001,  the  Company  paid  $11.0  million  to  Tower  Semiconductor,  in
accordance  with the  terms of the  share  purchase  agreement  between  the two
companies.

In May 2001,  the  Company  entered  into a secured  loan  agreement  (the "Loan
Agreement")  with  Citibank,  N.A for up to $60 million.  Under the terms of the
Loan Agreement,  the loan will mature on November 19, 2001 and bears interest at
a per annum rate equal to LIBO Rate plus one  percent.  Both the  principal  and
accrued  interest  are payable  upon  maturity.  The  borrowings  under the Loan
Agreement  are  secured by  181,670,000  shares of UMC common  stock held by the
Company.

                                      F-22
<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, 2001, 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, 2001

                                      F-23
<PAGE>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                 Schedule II: Valuation and Qualifying Accounts
                                 (in thousands)


<TABLE>
<CAPTION>
                                  Balance at                         Balance
           Description             beginning   Additions Reduction   at end
                                   of period                        of period
---------------------------------  ----------  --------- ---------  ---------
Year ended March 31, 2001
<S>                                <C>         <C>        <C>       <C>
  Allowance for  doubtful              $954      $3,310     $(683)    $3,581
    accounts and sales-related
    reserves
  Inventory related reserves for     $8,270     $37,886   $(8,216)   $37,940
    excess and obsolescence; and
    lower of cost or market issues
Year ended March 31, 2000
  Allowance for doubtful             $2,527      $6,209   $(7,782)      $954
    accounts and sales-related
    reserves
  Inventory related reserves for    $15,701      $5,862  $(13,293)    $8,270
    excess and obsolescence;
    and  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    $14,967     $20,437  $(19,703)   $15,701
    excess and obsolescence; and
    lower of cost or market issues
</TABLE>

                                      F-24