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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED


DECEMBER 31, 2001


Commission File Number 0-25864

Avant! Corporation


(Exact name of registrant as specified in its
charter)




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|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 94-3133226                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)

46871 Bayside Parkway

Fremont, California 94538


(Address of principal executive offices,
including Zip Code)


(510) 413-8000

(Registrants telephone number, including
area code)


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

Securities registered pursuant to section
12(g) of the Act:

Common Stock, $.0001 par value


(Title of Class)


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 þ          No o

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.     o

The aggregate market value of the shares of
voting stock held by non-affiliates of the registrant, as of
March 15, 2002, was approximately $718,479,000 (based on
the last sale price of such stock as reported by the NASDAQ
National Market). For the purposes of this calculation shares of
common stock held by persons who own 10% or more of the shares
of outstanding common stock and shares of common stock held by
each officer and director of the registrant have been excluded
because such persons might be deemed affiliates as
that term is defined under the general rules and regulations of
the Securities Exchange Act of 1934. This determination of
affiliate status is not necessarily a conclusive determination
for other purposes.

The number of shares of the registrants
common stock outstanding as of March 15, 2002, was
38,421,372.



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TABLE OF CONTENTS



|              |                                                                                                           |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.      
|              | Item 1. Business                                                                                         
|              | Item 2. Properties                                                                                       
|              | Item 3. Legal Proceedings                                                                                
|              | Item 4. Submission of Matters to a Vote of Security Holders                                              
|PART II.     
|              | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                             
|              | Item 6. Selected Consolidated Financial Data                                                             
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations            
|              | Item 7A. Quantitative and Qualitative Disclosure About Market Risk, Derivatives and Financial Instruments
|              | Item 8. Consolidated Financial Statements and Supplementary Data                                         
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure             
|PART III.    
|              | Item 10. Directors and Executive Officers of the Registrant                                              
|              | Item 11. Executive Compensation                                                                          
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                                  
|              | Item 13. Certain Relationships and Related Transactions                                                  
|PART IV.     
|              | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                
|EXHIBIT 4.5  
|EXHIBIT 10.24
|EXHIBIT 10.25
|EXHIBIT 10.26
|EXHIBIT 10.27
|EXHIBIT 10.28
|EXHIBIT 10.29
|EXHIBIT 10.30
|EXHIBIT 10.31
|EXHIBIT 10.32
|EXHIBIT 10.33
|EXHIBIT 10.35
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 23.2 
|EXHIBIT 23.3 



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AVANT! CORPORATION FORM 10-K ANNUAL
REPORT

FOR THE YEAR ENDED DECEMBER 31, 2001


TABLE OF CONTENTS

|          |  |                                                                                                  |  |      |    | 
|--------- |  | ------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|          |  |                                                                                                  |  | Page
|          |  |                                                                                                  |  |     
|PART I.  
|Item 1.   |  | Business                                                                                         |  |      | 2  | 
|Item 2.   |  | Properties                                                                                       |  |      | 17 | 
|Item 3.   |  | Legal Proceedings                                                                                |  |      | 17 | 
|Item 4.   |  | Submission of Matters to a Vote of Security
	Holders                                             |  |      | 26 | 
|PART II. 
|Item 5.   |  | Market for Registrants Common Stock and
	Related Stockholder Matters                            |  |      | 26 | 
|Item 6.   |  | Selected Consolidated Financial Data                                                             |  |      | 27 | 
|Item 7.   |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operation            |  |      | 27 | 
|Item 7a.  |  | Quantitative and Qualitative Disclosure About
	Market Risk Derivatives and Financial Instruments |  |      | 40 | 
|Item 8.   |  | Consolidated Financial Statements and
	Supplementary Data                                        |  |      | 40 | 
|Item 9.   |  | Changes in and Disagreements With Accountants on
	Accounting and Financial Disclosure            |  |      | 41 | 
|PART III.
|Item 10.  |  | Directors and Executive Officers of the Registrant                                               |  |      | 41 | 
|Item 11.  |  | Executive Compensation                                                                           |  |      | 44 | 
|Item 12.  |  | Security Ownership of Certain Beneficial Owners
	and Management                                  |  |      | 52 | 
|Item 13.  |  | Certain Relationships and Related Transactions                                                   |  |      | 53 | 
|PART IV. 
|Item 14.  |  | Exhibits, Financial Statement Schedules, and
	Reports on Form 8-K                                |  |      | 56 | 

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PART I.

This annual report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Any
statements contained in this report that are not statements of
historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words believes,
anticipates, plans, expects
and similar expressions are intended to identify forward-looking
statements. These forward-looking statements include, without
limitation, statements about the pending merger of Avant! into a
subsidiary of Synopsys, market opportunity for electronic design
automation, or EDA, software, Avant!s business plans,
future operating results, liquidity and other financial
resources, as well as the outcome of pending material litigation
involving Avant!. These forward-looking statements are subject
to numerous assumptions, risks and uncertainties that may cause
our actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by us in those statements.

Because forward-looking statements are subject to
risks and uncertainties, actual results may differ materially
from those expressed or implied by such statements as a result
of various factors, including the risk factors described in
Risk Factors below and elsewhere in this report. The
cautionary statements contained or referred to in this report
should be considered in connection with any subsequent written
or oral forward-looking statements that we or persons acting on
our behalf might issue. We undertake no obligation to review or
confirm analysts expectations or estimates or to release
publicly any revisions to any forward-looking statements to
reflect events or circumstances after the date of this report or
to reflect the occurrence of unanticipated events.




Item
1.     Business

General

Avant! Corporation develops, markets, licenses
and supports EDA software products that assist design engineers
in the physical layout, design, verification, simulation, timing
and analysis of advanced integrated circuits, or ICs. Our
products offer our customers the opportunity to design ICs that
are optimized for speed, size, power consumption and production
cost, while reducing overall design time. Our products are used
by IC designers in the semiconductor, computer, consumer
electronics, multimedia and telecommunications IC industries to
automate a significant portion of the IC design process. We also
offer reusable silicon libraries, silicon intellectual property,
design blocks and optimized design-flow management and tool
interoperability software products. Our design group also offers
physical design, parasitic extraction, verification, flow
development and library development services, as well as product
maintenance and customer support services.

Our objective is to establish a significant
position as a supplier of IC design software and services for
the EDA market. To achieve this objective, we focus on providing
innovative technology, products and services that enable our
customers to solve the toughest problems in deep-submicron (less
than 0.5-micron feature size), very deep-submicron, or VDSM
(less than 0.25-micron feature size) and ultra deep-submicron,
or UDSM (less than 0.1-micron feature size) IC design, thereby
improving the productivity of IC design engineers and improving
cost effectiveness. We believe that, as designers continue to
create ICs of increasing complexity, advanced design automation
tools that operate with shared algorithms from a common database
will be critical to optimize and close timing, power, and signal
integrity for VDSM and UDSM designs.

Our company resulted from the merger of ArcSys,
Inc. and Integrated Silicon Systems, Inc. on November 27,
1995. Since our founding, we have expanded our technology,
product line and distribution capabilities through the following
acquisitions: Maingate Electronics, KK, or Maingate, on
December 27, 2001; Analogy, Inc. on March 22, 2000;
Chrysalis Symbolic Design Inc. on August 20, 1999; Xynetix
Design Systems, Inc. on August 6, 1999; ACEO Technology
Inc. on November 19, 1998; interHDL Inc. on
November 13, 1998; Technology Modeling Associates, or TMA,
on January 16, 1998; Compass Design Automation, Inc. on
September 12, 1997; Datalink Far East, Ltd. on
September 30, 1997; Nexsyn Design

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Technology Inc. on December 31, 1996;
FrontLine Design Automation on November 27, 1996;
Meta-Software Inc. on October 29, 1996; and Anagram, Inc.
on September 27, 1996.


Agreement and Plan of Merger

On December 3, 2001, we announced that we
had entered into a merger agreement with Synopsys, Inc. under
which we will merge with and into Maple Forest Acquisition
L.L.C., a Delaware limited liability company and a direct wholly
owned subsidiary of Synopsys. Under the merger agreement, our
stockholders will receive 0.371 shares of Synopsys common stock
for each share of Avant! common stock owned. In addition, the
merger agreement provides that upon completion of the merger,
stock options to purchase our common stock granted to our
employees and directors under our stock option plans that are
outstanding and not exercised immediately before completing the
merger will become options to purchase Synopsys common stock,
except for the options granted to non-employee directors and
Gerald C. Hsu. The replacement options issued in the merger
will generally have the same terms and conditions as were
applicable under our stock option plans, except that the number
of common shares subject to such stock options, and the exercise
price of such stock options, will each be adjusted according to
the exchange ratio in the merger agreement. The merger is
subject to certain closing conditions, including, among other
things, the approval of Avant! stockholders of the merger,
approval of Synopsys stockholders of the issuance of Synopsys
common stock in connection with the merger, expiration or
termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act and other customary closing
conditions.

Electronic Design Automation
Industry

The EDA software industry provides tools for
engineers to design electronic products. Originally, because of
their high cost, ICs were used primarily in computer systems and
business applications. As the cost and size of ICs decreased in
the last 25 years, ICs have proliferated to many consumer
electronic products, such as cellular telephones, handheld
devices, video games, digital cameras and camcorders, as well as
medical and automotive applications.

As the number of applications for electronic
designs continues to grow, challenges for design engineers also
increase. The art of IC design has advanced rapidly, with
significant improvements in size, speed, cost and functionality.
A snapshot of an IC today compared to a few years ago shows its
performance now measured by Gigahertz (instead of Megahertz),
20 million gates (instead of 2 million) and 0.15
microns (instead of 0.35). The expansion of the number of
applications utilizing ICs has created a new phenomenon called
system-on-chip design, which combines entire electronic systems
into one integrated circuit. Because of rapid advances in IC
fabrication technology, physical geometries shrink for
individual components on ICs, thereby allowing increased
complexity as more information and functions are placed on each
IC. Additionally, product life cycles are shorter; and new
products must be ready to replace prior ones. Because product
design cycle times have decreased, engineers must generate more
complex designs in less time to keep up with competition.

The enhanced capabilities and increased
complexity of ICs in the current market and the rapid pace of
technological advancement increase the pressures on design
engineers. These trends increase the demand for and utility of
EDA tools that are better able to handle these design challenges
as well as to enable the designer to maximize the benefits of
the continuing technological achievement in the industry.

Integrated Circuit Design Process

The process of designing integrated circuits
typically includes a number of the following steps:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | RTL ANALYSIS AND RTL VERIFICATION: The IC
	designer first develops a register-transfer-level, or RTL,
	description of the digital electronic circuit. Registers store
	intermediate information between clock cycles in a digital
	circuit. An RTL description describes what intermediate
	information is stored, where it is stored within the design and
	how that information moves through the design as it operates.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FORMAL VERIFICATION: The designer verifies the
	logical correctness of a design with EDA tools to formally check
	connections and logic used to design the circuit to ensure that
	the design correctly performs the functions intended by the
	designer within the intended parameters.                                                                                                          
|
| |  | DESIGN PLANNING: The designer analyzes and plans
	the hierarchical decomposition of the design into blocks and
	determines where each major block of circuitry will be placed
	within an IC design. As part of the decomposition planning, the
	designer must accurately analyze and estimate expected timing
	and size for each placed block along with the interconnections
	among those blocks.
|
| |  | OPTIMIZATION, PLACE & ROUTE: The designer
	determines the optimum logic and the best combination for the
	placement of a designs major functional blocks or
	electronic components (place) and the subsequent routing of
	electrical connections to those components (route).                                                                                                                    
|
| |  | FINAL EXTRACTION: The designer identifies the
	signal paths in a circuit and extracts critical circuit
	parameters for those signal paths. The combination of all nets
	and circuit elements (transistors, resistors, capacitors, ICs,
	etc.) of an electronic design completely describes an electronic
	circuit.                                                                                
|
| |  | SIMULATION/ ANALYSIS: The designer conducts
	computer-based modeling of the IC to test the feasibility of the
	design operation before actually fabricating the IC.                                                                                                                                                                                                                               
|
| |  | PHYSICAL VERIFICATION: The designer confirms the
	actual physical correctness of a design using EDA tools to check
	timing, connections and rules used to design the circuit. This
	step is intended to ensure that a design meets manufacturability
	rules before it goes to manufacturing.                                                                                                      
|
| |  | MASK SYNTHESIS: This step provides the
	manufacturing data required by the semiconductor foundry to
	create the masks and mask verification needed to build
	functioning chips.                                                                                                                                                                                                                   

Products

Our products are based on our proprietary
architecture and technology, which provide users a breadth of
automated IC design capabilities. In addition to design tools,
we offer software tools for IC packaging and systems design. Our
product architecture is designed to solve the problems inherent
in deep-submicron, very-deep-submicron and ultra-deep-submicron
IC design and to offer improved time to market, reduced
development and manufacturing costs and enhanced IC performance
when compared to previous generations of EDA software.

Our products are compatible with most commonly
used EDA data formats and can be easily integrated into
customers existing design environments and methodologies
through industry-standard interfaces. Our products are primarily
written in C programming language, run on UNIX
workstations, such as those from Hewlett Packard and Sun
Microsystems, and support industry standards such as GDSII
Stream format, EDIF, VHDL, Verilog, SDF, SPEF, SPF, DSPF and
PDEF.

Our SinglePass-SoC flow and tools enable
designers to build designs that are denser, faster, lower power
and higher quality. SinglePass comprises three key elements:
highly capable point tools, shared algorithms and the common
Milkyway database. Through the use of shared algorithms and
access to the common Milkyway database, the SinglePass flow
minimizes inconsistencies among design steps, allowing
completion of designs with fewer iterations, fewer wasted steps
and significantly less clock and designer time. The point tools
used in the SinglePass flow now include both the logical and
physical domains ranging from RTL to GDSII.

Milkyway enables our products to share and
exchange critical data, algorithms and language, to
automatically analyze and direct power-driven placements and
noise-driven routing. The Milkyway database facilitates faster
convergence of critical design properties including timing,
area, power and signal integrity by allowing point tools direct
access to critical data.

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The following individual point tools may be used
in the SinglePass SoC design flow:

RTL Analysis and RTL Verification

Nova-ExploreRTL offers an interactive RTL
authoring environment that locates design defects in RTL code
before any simulation or synthesis and highlights the
problematic source code. The interactive feedback in the
authoring environment enables designers to fix the RTL while
creating it.

Formal Verification

Design VERIFYer is a high-performance formal
checking method that replaces logic gate-level functional
simulation in a design process. Design VERIFYer audits each RTL,
gate and switch design revision, from RTL to tape out, and
compares it to the verified RTL specification without
simulation. We believe that it is much faster than logic
simulation and provides 100% verification, formally checking
every logic function within the design. Design VERIFYer is
intended to improve overall quality of design by finding bugs
that gate-level simulation misses. These capabilities reduce
time to market by enabling shortened verification cycles.

Hierarchical Design Planning

Our Jupiter product enables chip planners to
design complex application-specific ICs, or ASICs, and
microprocessors and target system-on-chip implementations at
VDSM and UDSM technologies. Jupiter enables timing, area, power
and signal integrity issues to be resolved early in the design
process. Jupiter links RTL design entry and physical layout for
accurate prediction of the impact of physical effects on design
performance and routability early in the design process.

Place and Route Optimization

Our Apollo family of cell-based place and route
products is one of the industrys leading place and route
software tools for very-deep-submicron IC design. Apollo uses
place and route algorithms developed by us and addresses
difficult design issues such as optimization for area, timing,
noise and power-driven placement. For placement algorithms,
Apollo contains hierarchical placement optimization technology,
improved timing optimization and power-driven placement. For
very deep-submicron routing, Apollo includes timing-driven
routing, innovative crosstalk-driven routing, automatic wiring
sizing, multiple clock tree construction methods and clock tree
synthesis with gated clocks.

Our Saturn product is a timing and layout
optimization tool that bridges logic synthesis and place and
route. It optimizes logic and timing during layout to ensure
that user-specified constraints for timing and layout are met.
Performing optimization during the layout stage eliminates
iterations between logic synthesis and place and route.

In January 2001, we announced Astro, our
next-generation, optimization, place and route solution for
ultra-deep-submicron designs. Astro includes significant design
automation advancements including PhySiSys (physically accurate
signal integrity and synthesis optimization) and Milkyway-DUO
(dynamic unified optimization for in-memory data access) to
concurrently address optimization of logic, placement, clock
tree, signal integrity, power rail, and routing. We believe that
Astro will provide predictable design closure, better timing and
greater capacity than other design tools currently on the
market. Astro became available to customers in the third quarter
of 2001.

Full Custom Design

Adding full custom-design capability to
Avant!s product offering is Cosmos, a design solution that
is designed to enable front-to-back mixed-signal, full-custom IC
design, balancing automation and flexibility while shaving weeks
to months off the design cycle. CosmosLE is a complete physical
IC design environment, while CosmosSE offers a comprehensive
schematic and simulation environment. Products in the Cosmos
family became available in third quarter of 2001.

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Chip Assembly

Also introduced in 2001 is Columbia, a
Milkyway-based chip assembly solution designed to quickly handle
the largest designs with a top-level router, layout editor,
extractor and timing analyzer. Columbia uses Avant!s new
proprietary technology which we believe provides better
manufacturability for UDSM designs. Columbia became available in
the second quarter of 2001.

Parasitic Extraction

Star-RC and Star-RCXT address the demand for
accurate, efficient 3D parasitic extraction in VDSM chip
designs. Star-RCXT is a full-chip hierarchical parasitic
capacitance and resistance extractor and a critical net
resistance and capacitance extractor. It is capable of
identifying nets with crosstalk problems.

Simulation/ Analysis

The Mars Family of products includes Mars-Rail
and Mars-Crosstalk, which work in conjunction with Apollo tools
on Milkyway. We believe these products are significant examples
of design automation tools that improve design productivity and
quality of results for VDSM designs.

Astro-Rail and Astro-Crosstalk are available with
Astro to concurrently achieve optimization, placement and
routing to provide early prevention and later sign-off analysis
of power rail and signal crosstalk issues. Concurrent prevention
and optimization for these parasitic effects is critical in UDSM
designs of 0.13 microns and below. We believe that Astro
with Astro-Rail and Astro-Crosstalk are the first design
automation tools to handle all these effects concurrently during
the optimization, place and route process. Astro-Rail and
Astro-Crosstalk became available in the third quarter of 2001.

Our Star-Hspice product is an industry-standard
circuit simulator that validates critical paths, performs
accurate signal analysis and seeks the optimum tradeoff between
IC speed and power prior to commencement of fabrication.
Star-Hspice incorporates special analysis features for
performance and for yield required for optimization, which are
important in deep-submicron IC design.

Our Star-Sim families of products are
high-capacity circuit simulators for deep-submicron processes
and applications such as graphics, memory, communications and
mixed-signal IC designs. The Star-Sim family of products is
designed to help increase IC performance and reliability and
designer productivity by enabling designers to characterize
large blocks. Star-Sim and Star-SimXT simulate mixed-signal,
dynamic logic and memory circuits where performance, signal
integrity and power analyses are essential. Star-Time is a
high-performance, full-chip circuit simulator that provides
transistor-level dynamic analysis for post-layout verification
of timing, signal integrity and reliability for complex designs
with up to 50 million components. All of our Star products
are tightly integrated with our hierarchical layout and
verification tools, Astro/ Apollo and Hercules/ Venus, which is
designed to provide efficient, accurate and predictable IC
performance.

Physical Verification

The Hercules family of design verification
software is one of the industrys most advanced suites of
IC physical verification products. Hercules provides geometric
and electrical verification of physical design layouts, and
handles designs containing hundreds of millions of transistors,
hierarchically, with speed and enhanced ease of use.

The newly announced Venus product is a
verification solution capable of verifying 400 million
transistors overnight. Venus is designed to perform accurate,
efficient hierarchical physical and mask verification for full
chip, high complexity digital, analog and mixed-signal designs.
Venus became available in the first quarter of 2002.

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TCAD

Our TCAD (Technology Computer-Aided Design) tools
simulate the physical effects of individual on-chip elements,
such as transistors and interconnect structures. TCAD tools
simulate process technologies, device electrical characteristics
and interconnect effects. Among our TCAD tools are:
Taurus-Process and TSUPREM-4 for process simulation; Medici and
Taurus-Device for device simulation; Aurora for device
characterization; Raphael for interconnect analysis; and
Taurus-OPC for optical proximity correction.

Packaging

Packaging is now in the critical path of silicon
product delivery. We have developed our Encore product
specifically for designing, analyzing and optimizing the design
flow of advanced IC packages.

EDA validator is designed to quickly identify
discrepancies between schematic, layout and bill of materials
(BOM) data for board-level designs. This sophisticated
expert system highlights connectivity differences that can
affect performance or manufacturability. EDA validator is
designed to ensure accurate implementation of revisions,
engineering change orders (ECOs) and design hand-off from CAE to
CAD to manufacturing. EDAnavigator is a virtual prototyping tool
for electrical engineers that complements CAE/ CAD tools.
Engineers can use EDAnavigator throughout the design process,
from early in the design cycle with just a parts list to do
feasibility studies, partitioning and floor planning, to very
late in the cycle for post-placement and post-layout review.

Systems Design

As a result of our acquisition of Analogy in
March 2000, we license mixed-signal, mixed-technology simulation
tools called Saber and SaberHarness. These products are licensed
to system engineers who design products for the power, test,
automotive, telecommunications and military/aerospace markets.
We believe Saber is the industrys most widely used
mixed-signal product, and the only simulator that handles mixed
technology, such as hydraulic, thermal, digital, optical and
electrical, among others. SaberHarness, a suite of software
tools, provides a complete approach for the design of a
systems wire harness from a purely mechanical one to one
that is electrically correct. Whether used in designing
satellites, washing machines, automobiles or audio/video
systems, the wire harness connects the critical functions.

Design Services

Our Design Services Group was established in the
fourth quarter of 2000 to offer customers direct assistance in
the performance of critical IC design functions. This group
provides consulting services for customers seeking to get to
market quickly without investing heavily in the time and money
required to develop a complete design infrastructure. During the
second half of 2001, the changing economic climate caused us to
reevaluate our design service business. As a result, we decided
to discontinue offering design services in Europe, scale back
significantly in Asia and focus primarily on serving our major
accounts in the U.S.

The Design Services Group provides customers with
design planning, physical design, parasitic extraction, timing
closure, physical verification, flow development and library
development services. Our Design Services Group is an
experienced sales, engineering and project management team
focused on delivering high-quality customer designs quickly.
This group also works directly with our core R&D
organization to provide an integrated approach to VDSM design.

Customer Service and Support

We believe that a high level of customer service
and support is critical to the adoption and successful
utilization of our physical design technology and products. To
support product licensing, we offer our customers support
contracts to provide software updates and product support. Most
of our customers have entered into software support contracts
with us. Our product management group provides customers with
technical support, training and consulting services.

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To address technical issues, we have established
both field and corporate technical application engineering
groups that understand the design methodologies of our customers
and generally have IC design backgrounds. Most of our customers
currently have maintenance agreements that entitle them to
receive software updates, documentation updates and a formal
problem identification and resolution process through a support
hotline. Questions or suggestions may be submitted by facsimile
or by email. We also offer additional training and consulting
services for a fee, and we offer on-site and in-house training
on our products.

Our customer support employees are available to
work closely with customer design engineering teams for all
phases of physical design, from conception through
implementation. Our consultants provide customers with in-depth
technical expertise in the use of our physical design
methodology and products.

Customers

The market for our EDA products and services
encompasses a wide range of industries, including semiconductor,
computer, consumer electronics, multimedia, aerospace,
automotive and telecommunications companies worldwide. End-users
of our products range from small companies to a number of the
worlds largest manufacturing organizations.

We create strategic relationships with technology
leaders in IC design and with early adopters of the most
advanced EDA tools. By creating strong relationships with
industry leaders, we receive critical technical feedback that
enables us to develop and implement proprietary design
technologies and methodologies. In addition, strategic
relationships with these companies can create influential
references for other prospective customers.

During 2001, 2000, and 1999, we derived 35%, 32%
and 28%, respectively, of our total revenue from the licensing
and support of our software products outside of the United
States. In 2001, 2000, and 1999, Asian licenses represented 20%,
20% and 18%, respectively, of our total revenue, and European
licenses represented 15%, 11% and 10%, respectively, of our
total revenue. See Risk Factors  We depend on
international licenses for a significant portion of our
revenue. Additional information relating to domestic and
foreign operations is contained in Note 15 to our Consolidated
Financial Statements.

Intel Corporation accounted for approximately 11%
of our revenue in 2001, primarily in the North America region.
No other customer accounted for 10% or more of our revenue
during 2001. In 2000 and 1999 no single customer accounted for
more than 10% of our revenue. We do not believe that seasonality
is a significant factor in sales.

Competition

The EDA market is very competitive and subject to
rapid change. In order to compete effectively, we need to
respond quickly to new or emerging technologies and changes in
customer requirements, and devote resources to the development,
promotion and licensing of our products.

The EDA industry has undergone consolidation in
recent years. Any further consolidation among competitors could
present even stronger competition to us. Furthermore, because
there are relatively low barriers to entry in the software
industry, we expect additional competition from other
established and emerging companies. We currently face
competition from major EDA vendors, including Cadence Design
Systems, Inc., Synopsys, Inc. and Mentor Graphics Corporation.
Each of these companies has greater financial, technical and
marketing resources. In December 2001, we entered into a merger
agreement with Synopsys. See Agreement and Plan of
Merger above.

We also compete against numerous smaller
companies that market competing products and services and with
the internal EDA development groups of our existing and
potential customers, many of whom design and develop customized
design tools for their particular needs and, therefore, may be
reluctant to license products offered by independent vendors
such as us. Market pressures caused by existing or future
competition in the EDA industry or our failure to increase our
market share and profitability in the face of this competition
could seriously harm our business, operating results and
financial condition.

8



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Proprietary Technology

We rely primarily upon a combination of
copyright, patent, trademark and trade secret laws and license
and nondisclosure agreements to establish and protect
proprietary rights in our products. The source code for our
products is protected both as a trade secret and as an
unpublished copyrighted work. However, it may be possible for
third parties to develop similar technology independently. In
addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. We
currently hold 21 United States and 1 foreign patent on some of
the technologies included in our products, and will continue to
pursue additional patents in the future. Of the Avant! patents,
seven are incorporated in the Apollo product, five are
incorporated in the Saber product, three are incorporated in the
Hercules product, two are incorporated into Star-RC, one is
incorporated into Taurus OPC, LRC, Prospector and Progen and one
is not used in any of our products. The patents incorporated in
Apollo expire between 2012 and 2016. The patents incorporated in
Saber expire between 2006 and 2016. The patents incorporated in
Hercules expire between 2015 and 2016. The patents incorporated
in Star-RC expire between 2013 and 2016. The patent in Proteus
(Taurus) expires in 2017. As of March 2002, we have 26 patent
applications filed and pending. While we believe the pending
applications relate to patentable technology, there can be no
assurance that any patent will be issued or that any patent can
be successfully defended. Although we believe that our products,
trademarks and other proprietary rights do not infringe on the
proprietary rights of third parties, there can be no assurance
that infringement claims will not be asserted against us in the
future or that any such claims will not require us to enter into
licensing arrangements or result in costly and time-consuming
litigation. We presently face infringement claims from Cadence
and Sequence Design, Inc. See Part I Item 3. Legal
Proceedings.

Sales and Marketing

We market our products in North America, Asia and
Europe primarily through our direct licensing and support force.
We employ highly skilled engineers and technically proficient
salespeople capable of serving the sophisticated needs of our
current and prospective customers engineering and
management staff. In addition to our direct sales and marketing
efforts, we participate in industry trade shows and organize
seminars to promote the adoption of our products and
methodologies.

In Asia, we market our products primarily through
a limited number of distributors and manufacturers
representatives that license and service our products in this
market. These distributors, representatives and third-party
sellers also must possess sufficient technical, marketing and
sales resources and must devote these resources to a lengthy
licensing cycle, customer training and product service and
support. We also support these distributors and representatives
and their customers with technical, sales and management
services. A substantial portion of our international license and
service revenue has resulted from a limited number of these
third-party sellers and joint ventures. During 2001, 2000, and
1999 revenue from these channels accounted for an aggregate of
approximately 10%, 13%, and 10%, respectively, of our total
revenue. We believe that partial ownership of our distribution
channel provides more effective distribution for our products
and services in certain Asian markets. Thus, we consolidated our
Japanese sales channel by forming Maingate in 1997 and our
Korean sales channel by forming Davan Tech Co., Ltd., or Davan
Tech, in 1996. In 1997, we acquired the assets of Datalink Far
East Ltd., a Taiwan EDA distribution corporation, pursuant to an
asset purchase agreement. The acquisition of Datalink helped us
consolidate our distribution channels in Taiwan, Hong Kong,
Singapore and China. We own 19.4% of Davan Tech, and
Mr. Gerald C. Hsu, our Chairman of the Board of Directors,
owns 8.2%. We account for these joint ventures by using the
equity method of accounting.

At the end of our fiscal year, we completed our
purchase of Maingate based on a formula agreed to by us and
Synopsys, which was set forth in the Synopsys merger agreement.
The final purchase price was approximately $11.7 million in
cash. We had previously entered into a joint venture with
Maingate for the purpose of consolidating distribution in Japan.
Prior to the acquisition, Avant! had an 18.8% ownership interest
in Maingate and the remaining Maingate interests were owned by
Gerald C. Hsu, our Chairman, Noriko Ando, a former executive
officer, and the Eigen Fund, whose owners include Moriyuki
Chimura, an Avant! director. See Part III Item 13.
Certain Relationships and Related Transactions.

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Since our products are used by highly skilled
professional engineers, in order to be effective, a third-party
seller or a joint venture must possess sufficient technical,
marketing and sales resources and must devote these resources to
a lengthy licensing cycle, customer training and product service
and support.

The license of our software products generally
involves a significant commitment of capital by prospective
customers, with the attendant delays frequently associated with
large capital expenditures and lengthy acceptance procedures.
For these and other reasons, the licensing cycle of our products
is typically lengthy and subject to a number of significant
risks over which we have little or no control and, as a result,
we believe that our quarterly operating results could vary
significantly in the future. Due to the nature of our business,
we do not consider any of our backlog orders to be firm
commitments from our customers.

User manuals and other documentation are
available electronically or on CD-ROM or hard copy format.
Domestic customers typically request the delivery of software
products through electronic means rather than on a physical
medium such as a CD-ROM. Reproduction of our software products
is currently performed in our Fremont, California, Dublin,
Ireland and Hong Kong, China facilities. Product shipments are
typically made within 10 days of acceptance of customer
purchase orders, unless the customer has requested otherwise.

Research and Development

The EDA industry is characterized by extremely
rapid technological change, frequent product introductions and
enhancements, evolving industry standards and rapidly changing
customer requirements. The development of more complex ICs
embodying new technologies will require increasingly
sophisticated design tools. We believe that our future
competitive position and future results of operations will
depend in large part on our ability to develop new products
quickly and on a cost-effective basis, maintain and enhance our
current product line, maintain technological competitiveness and
meet an expanding range of customer requirements. In addition to
supporting and enhancing our existing physical layout, design,
verification, simulation, timing and analysis products, we
maintain an advanced research group that is responsible for
exploring new directions and applications of our proprietary
technologies and migrating new technologies into the existing
product lines. During 2001, 2000 and 1999, research and
development expenses were $86.8 million, $84.2 million
and $71.4 million, respectively. We expect to continue to
commit substantial resources to research and development in the
future.

Another part of our growth strategy has been to
acquire companies that have strong technologies that are
complementary to our business. We have enhanced our research
efforts and new product offerings substantially over the past
three years through the following acquisitions:



| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The acquisition of Analogy in March 2000, which
	brought an entirely new product offering and new market space
	opportunity to us. Analogys mixed-signal, mixed-technology
	simulation products are sold to IC, board and system designers
	in markets ranging from power, test, automotive,
	telecommunications and military/aerospace.
|
| |  | The acquisition of Chrysalis in August 1999,
	expanded our expertise with front-end solutions for
	high-performance, VDSM designs.                                                                                                                                                                                                       
|
| |  | The acquisition of Xynetix, also in August 1999,
	enabled us to broaden our ECAD-to-TCAD product offerings and
	become a leader in advanced IC packaging design software, and
	extended our SinglePass methodology from register transfer level
	to silicon packaging.                                                                   

Employees

As of January 31, 2002, we had approximately
1,500 employees, including approximately 655 in research and
development, 675 in sales, marketing and related customer
support services, and 170 in finance and administration. Of
these employees, approximately 740 were in the United States,
120 in Europe and, 640 in Asia. Except for certain of
employees of our wholly owned French subsidiary, none of our
employees is represented by a labor union or is subject to a
collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to
be good.

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Risk Factors

You should carefully consider the risks
described below and other information in this annual report on
Form 10-K. Our business, financial condition and operating
results could be seriously harmed if any of these risks
materialize. The trading price of our common stock may also
decline due to any of these risks.



| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have been required to pay substantial
	amounts in the recent resolution of criminal litigation, and
	might be required to pay substantial additional amounts under
	pending lawsuits.

Avant! and its subsidiaries are engaged in a
number of material civil litigation matters, including a civil
litigation matter brought by Cadence Design Systems Inc., which
we refer to as the Avant!/ Cadence litigation. The
Avant!/ Cadence litigation generally arises out of the same set
of facts that were the subject of a criminal action brought
against Avant! and several individuals by the District Attorney
of Santa Clara County, California, which action we refer to as
the Santa Clara criminal action. Avant!, Gerald C.
Hsu, Chairman of Avant!, and five former Avant! employees pled
no contest to certain of the charges in the Santa Clara criminal
action. As part of that plea, Avant! paid approximately
$35.5 million in fines and $195.4 million in
restitution.

Cadence seeks compensatory damages and treble or
other exemplary damages from Avant! in the Avant!/ Cadence
litigation under theories of copyright infringement,
misappropriation of trade secrets, inducing breach of contract
and false advertising. Avant! believes it has defenses to all of
Cadences claims in the Avant!/ Cadence litigation and
intends to defend itself vigorously. Should Cadence ultimately
succeed in the prosecution of its claims, however, Avant! could
be required to pay substantial monetary damages to Cadence. Some
or all of these damages may be offset by the $195.4 million
restitution paid to Cadence in the Santa Clara criminal action.
Cadence has not fully quantified the amount of damages it seeks
in the Avant!/ Cadence litigation. However, in the Santa Clara
criminal action, Cadence claimed losses of $683.3 million.
Ultimately, the court in the Santa Clara criminal action
required Avant! to pay Cadence restitution in the amount of
$195.4 million.

Injunctions entered in 1997 and 1998 enjoined
Avant! from marketing its early place and route products,
ArcCell and Aquarius, based on a judicial determination that
they incorporated portions of Cadences Design
Framework II source code, which in this document we refer
to as DFII. The injunctions also prohibit Avant!
from possessing, using, selling or licensing any product or work
copied or derived from DFII and directly or indirectly
marketing, selling, leasing, licensing, copying or transferring
any of the ArcCell or Aquarius products. Avant! ceased
marketing, selling, leasing, licensing or supporting all of the
ArcCell or Aquarius products in 1996 and 1999, respectively. The
DFII code is not incorporated in any current Avant! product.
Although Cadence has not made a claim in the Avant!/ Cadence
litigation against any current Avant! product, including its
Apollo and Astro place and route products, and has not
introduced any evidence that any such product infringes
Cadences intellectual property rights, Cadence has
publicly implied that it intends to assert such claims. Avant!
believes it would have defenses to any such claims, and Avant!
would defend itself vigorously. Nonetheless, should Cadence be
successful at proving that any past or then-current Avant!
product incorporated intellectual property misappropriated from
Cadence, Avant! could be permanently enjoined from further use
of such intellectual property, which might require modification
to existing products and/or suspension of the sale of such
products until such Cadence intellectual property was removed.

Avant! is also engaged in other material
litigation matters. Silvaco International and Silvaco Data
Systems maintain an action against Avant! in which they were
awarded damages of over $26 million by the trial court on
claims for defamation and intentional interference with economic
advantage based on statements made between November 1995 and
June 1996 to Silvaco customers and prospective customers by Meta
Software, Inc., which Avant! acquired in 1996. Additionally,
Avant! may have obligations to indemnify some or all of the
defendants in three shareholder derivative complaints,
purportedly brought on behalf of and for the benefit of Avant!,
against the Avant! board of directors seeking unspecified
damages related to compensation, the Avant!/ Cadence litigation
and the Santa Clara criminal action. Sequence Design, Inc. filed
an action against Avant! alleging that Star-RC and Star-RCXT,
Avant!s key parasitic extraction

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products, infringe a patent owned by Sequence and
seeking unspecified damages. Silicon Valley Research, Inc. filed
an action against Avant! alleging that Avant!s use of
Cadence trade secrets damaged it by allowing Avant! to develop
and market products more quickly and cheaply and that were more
attractive to customers. Renco Investment Company filed an
action against Avant! seeking over $43 million in rental
payments and related damages associated with Avant!s lease
of a property that it assigned to Comdisco, Inc., which
subsequently filed Chapter 11 bankruptcy and rejected the lease.
In addition, Avant! paid $47.5 million in April 2001 to
settle two class actions that alleged securities law violations
related to the Avant!/ Cadence litigation and in February 2002
agreed to pay $5.4 million to settle claims between it and
Dynasty Capital Services LLC and Randolph L. Tom. More
information regarding these litigation matters is found in Part
I, Item 3 Legal Proceedings, to this
Form 10-K, below.


The Avant!/ Cadence litigation, other existing
litigation and other potential litigation, regardless of the
outcome, may continue to result in substantial costs and
expenses and significant diversion of effort by management, and
may negatively impact relationships with customers. An adverse
result in any of these litigation matters could seriously harm
Avant!s business, financial condition and results of
operations.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | The pending merger with Synopsys may not be
	completed, which could negatively impact our stock price, future
	business and operations.

The pending merger with Synopsys is subject to a
number of closing conditions, including, among other things, the
approval by our stockholders of the merger, approval of Synopsys
stockholders of the issuance of Synopsys common stock in
connection with the merger, expiration or termination of the
waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act and other customary closing conditions. There
can be no assurance that these conditions will be met and the
merger will be completed. If the merger is not completed for any
reason, we may be subject to a number of material risks,
including the following:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We would not realize the benefits we expect by
	being part of a combined company with Synopsys;                                                                                                                                                                                                                  
|
| |  | The market price of our common stock may decline
	to the extent that the current market price                                                                                                                                                                                                                    
|
| |  | of our shares reflects a market assumption that
	the proposed merger will be completed; We may be obligated to
	pay Synopsys a fee of $45 million if the merger agreement
	is terminated in certain circumstances in connection with an
	alternative transaction proposal or a settlement proposal from
	Cadence;
|
| |  | We may face difficulties in attracting strategic
	customers and partners, who were expecting to use the integrated
	product suite proposed to be offered by the merged company; and                                                                                                                              
|
| |  | Certain costs relating to the merger, such as
	legal, accounting, financial advisor and printing fees, must be
	paid even if the merger is not completed.                                                                                                                                                        

In addition, whether or not the merger is
completed, our customers, in response to the announcement of the
merger, may delay or defer decisions, which could have a
material adverse effect on our business. Similarly, our current
and prospective employees may experience uncertainty about their
future roles with us. This may adversely affect our ability to
attract and retain key management, sales, marketing and
technical personnel.

In connection with the proposed merger, Synopsys
and Avant! have filed a preliminary joint proxy
statement/prospectus with the Securities and Exchange
Commission. The definitive joint proxy statement/prospectus will
be mailed to all holders of Avant! stock and will contain
important information about Avant!, Synopsys and the proposed
merger, risks relating to the merger and the combined company
and related matters. Avant! urges all of its stockholders to
read the preliminary joint proxy statement/prospectus and the
definitive joint proxy statement/prospectus, when it becomes
available.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Our future success will depend on our
	ability to keep pace with the rapidly evolving technology
	standards of the industry.

Because the semiconductor industry has made
significant technological advances recently, EDA software
providers, such as Avant!, that license design tools to
semiconductor companies have been required to

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continuously develop new products and
enhancements for existing products to keep pace with the
evolving industry standards and rapidly changing customer
requirements. The evolving nature of the EDA software industry
could render our existing products and services obsolete. Our
success will depend, in part, on our ability to:




| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhance our existing products and services;                                                                                                                                    
|
| |  | Develop and introduce new products and services
	on a timely and cost-effective basis that will keep pace with
	technological developments and evolving industry standards; and
|
| |  | Address the increasingly sophisticated needs of
	our customers.                                                                                                                

If we are unable for technical, legal, financial
or other reasons to respond in a timely manner to changing
market conditions or customer requirements, our business,
financial condition and results of operations could be seriously
harmed.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | We may be unable to grow and increase our
	profitability in the highly competitive EDA software
	market.

The EDA software market is intensely competitive
and subject to rapid change. We currently face competition from
major EDA vendors, including Cadence Design Systems, Inc.,
Synopsys, Inc. and Mentor Graphics Corporation. We may not be
able to maintain a competitive position against these
competitors. Each of these companies has a longer operating
history, significantly greater financial, technical and
marketing resources and greater name recognition than us. These
competitors also have established relationships with our current
and potential customers, and they can devote substantial
resources aimed at preventing us from enhancing relationships
with existing customers or establishing relationships with
potential customers. We also compete against numerous smaller
companies that market competing products and services.

Alliances among competitors could present
particularly formidable competition to us. Furthermore, because
there are relatively low barriers to entry in the software
industry, we expect additional competition from other
established and emerging companies. We also compete with the
internal EDA development groups of our existing and potential
customers, many of whom design and develop customized design
tools for their particular needs and, therefore, may be
reluctant to license products offered by independent vendors
such as us.

Additionally, our current or potential
competitors may develop products comparable or superior to those
developed by us or adapt more quickly than us to new
technologies, evolving industry trends or changing customer
requirements. The intense competition in the EDA software
industry could result in price reductions, reduced margins or
loss of market share, any of which could seriously harm our
business, operating results or financial condition. We may not
be able to continue to grow or increase our market share and
profitability if we cannot compete successfully against current
and future competitors. These and other competitive pressures
faced by us could seriously harm our business, operating results
and financial condition.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our profitability depends in large part on
	the health of the semiconductor and electronics
	industries.

We provide software tools and services to
engineers in the semiconductor industry and, more generally, the
electronics industry. Our profitability depends on the strength
of the industries in which our customers do business. Both of
these industries are characterized by rapid technological
change, short product life cycles, fluctuations in manufacturing
capacity and pricing and gross margin pressures. Segments of
these industries have undergone, and currently are undergoing,
significant economic downturns characterized by decreased
product demand, production over-capacity, price erosion, work
slowdowns and layoffs. Because the purchase of new licenses by
our customers are largely dependent upon the commencement of new
design projects, any slowdown in these industries could result
in decreased demand for our products and services and seriously
harm our business, financial condition and results of operations.

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| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | We may be unable to attract and retain the
	key management and technical personnel that we need to
	succeed.

Our future operating results depend in
significant part upon the continued service of key management
and technical personnel. Several of our key personnel, including
Gerald C. Hsu, have recently pleaded no contest on charges in
the Santa Clara criminal action. Effective July 25, 2001,
Mr. Hsu resigned his positions as our Chief Executive
Officer and President. Mr. Hsu continues as Chairman of the
Board and has accepted the newly created position of Chief
Strategist. We have made several personnel changes resulting
from the recent litigation outcome. Several of our key managers,
including our President, are new to their positions, and it may
take time for them to fully and effectively assume and undertake
all the responsibilities associated with their new positions. In
addition, qualified EDA engineers are scarce, and competition
for these individuals is intense. Few of our employees are bound
by employment or non-competition agreements, and, due to the
intense competition for such personnel, as well as the
uncertainty caused by the pending litigation, it is possible
that we will fail to retain such key technical and managerial
personnel. If we are unable to attract, hire and retain
qualified personnel in the future, the development of new
products and the management of our increasingly complex business
would be impaired. Such a failure would seriously harm our
business, operating results and financial condition.



| |                                                           
| | ----------------------------------------------------------
| | Our quarterly operating results are
	difficult to predict.

We are unable to accurately forecast our future
revenues, primarily because of the volatile nature of the market
in which we compete and the unpredictability of the various
litigation matters to which we are a party. Our revenues and
operating results generally depend on the size, timing and
structure of significant licenses, which factors historically
have been, and are likely to continue to be, difficult to
forecast. In particular, we have adopted a flexible pricing
strategy pursuant to which we offer both perpetual and
time-based software licenses to customers, depending on customer
requirements and financial constraints. Because each time-based
license may have a different structure and could be subject to
cancellation, future revenue received under these licenses is
unpredictable. In addition, our current and future expense
levels are based largely on our operating plans and estimates of
future revenues and are, to an extent, fixed. We may be unable
to adjust spending sufficiently quickly to compensate for any
unexpected revenue and/or cash shortfall. Accordingly, any
significant shortfall in revenues in relation to planned
expenditures would seriously harm our business, financial
condition and results of operations. Such shortfalls in our
revenue or operating results from levels expected by public
market analysts and investors could seriously harm the trading
price of our common stock. Additionally, we may not learn of
such revenue shortfalls, earnings shortfalls or other failure to
meet market expectations until late in a fiscal quarter, which
could result in an even more immediate and serious harm to the
trading price of our common stock.

Our quarterly operating results have varied, and
it is anticipated that our quarterly operating results will
vary, substantially from period to period depending on various
factors, many of which are outside our control. In addition to
the factors discussed in the previous paragraph, other factors
that could affect our quarterly operating results include:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased competition;                                                                                                                                                
|
| |  | The ability to finance ongoing operations (see
	Part I  Item 3. Legal Proceedings);                                                                                  
|
| |  | The length of our licensing cycle;                                                                                                                                    
|
| |  | The timing of new or enhanced product
	announcements, introductions, or delays in the introductions of
	new or enhanced versions of products by us or our competitors;
|
| |  | Market acceptance of new and enhanced versions of
	our products;                                                                                                      
|
| |  | The mix of direct and indirect licenses;                                                                                                                              
|
| |  | Changes in pricing policies by us or our
	competitors;                                                                                                                
|
| |  | Cancellation of time-based licenses or
	maintenance agreements;                                                                                                       

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| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | Changes in operating expenses, including
	litigation expenses;                                
|
| |  | Economic conditions in domestic and international
	markets;                                   
|
| |  | Political and economic instability, including the
	impact of recent acts of war and terrorism;
|
| |  | Our ability to market our products successfully
	in domestic and international markets; and   
|
| |  | Foreign currency exchange rates.                                                              

Due to the foregoing factors, we cannot predict
with any significant degree of certainty our quarterly revenue
and operating results. Further, we believe that period-to-period
comparisons of our operating results are not necessarily a
meaningful indication of future performance.



| |                                        
| | ---------------------------------------
| | Our stock price is extremely
	volatile.

The trading price of our common stock has
fluctuated significantly in the past. The high and low prices of
our common stock during 2001 were approximately $27.00 and
$2.63. The trading price of our common stock is likely to
continue to be highly volatile and could be subject to wide
price fluctuations in response to such factors as:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | The outcome of the various litigation matters to
	which we are a party;                    
|
| |  | Actual or anticipated fluctuations in our
	operating results;                              
|
| |  | Announcements of technological innovations and
	new products by us or our competitors;     
|
| |  | New contractual relationships with strategic
	partners by us or our competitors;           
|
| |  | Proposed acquisitions by us or our competitors;                                            
|
| |  | Financial results that fail to meet public market
	analyst expectations of performance; and
|
| |  | The completion of the merger with Synopsys.                                                

In addition, the stock market in general, and the
NASDAQ National Market and the market for technology companies
in particular, have experienced extreme price and volume
fluctuations. These broad market and industry factors may
seriously harm the market price of our common stock in future
periods.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We depend on international licenses for a
	significant percentage of our revenue.

We license our software products and provide
services to customers located throughout the world. Managing
global operations and international sites presents challenges
associated with cultural differences and organizational
alignment. Moreover, each region in the global EDA market
exhibits unique characteristics that can cause purchasing
patterns to vary significantly from period to period.
International revenue accounted for approximately 35.1% and
31.7% of our total revenue for the years ended December 31,
2001 and December 31, 2000, respectively. We expect that
international license and service revenue will continue to
account for a significant portion of our total revenue for the
foreseeable future. Our international business activities are
subject to a variety of potential risks, including:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | The impact of recessionary environments in
	foreign economies;                                  
|
| |  | Longer receivables collection periods and greater
	difficulty in accounts receivable collection;
|
| |  | Difficulties in staffing and managing foreign
	operations;                                      
|
| |  | Political and economic instability;                                                             
|
| |  | Unexpected changes in regulatory requirements; and                                              
|
| |  | Reduced protection of intellectual property
	rights in some countries.                          

Currency exchange fluctuations in countries in
which we license our products could also seriously harm our
business, financial condition and results of operations by
resulting in pricing that is not competitive with products
priced in local currencies. Furthermore, we may not be able to
continue to generally price

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our products and services internationally in U.S.
dollars because of changing sovereign restrictions on the
importation and exportation of foreign currencies as well as
other practical considerations. Moreover, it is possible that we
may fail to sustain or increase revenue derived from
international licensing and service or that the foregoing
factors will seriously harm our future international license and
service revenue, and, consequently, seriously harm our business,
financial condition and results of operations.




| |                                                       
| | ------------------------------------------------------
| | We must successfully manage our expanding
	operations.

We have experienced periods of rapid growth and
significant expansion of our operations that have placed a
significant strain and substantial demands upon our management
systems and resources. Our ability to compete effectively and to
manage any future expansion of our operations will require us to
continue to improve our financial and management controls,
reporting systems and procedures on a timely basis and expand,
train and manage our employee work force. We may not be
successful in addressing such risks, and the failure to do so
would seriously harm our business, financial condition and
results of operations.



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | We may acquire other companies, and may be
	unable to successfully integrate our operations and product
	lines with those acquired companies.

We have employed a strategy of acquiring
companies that provided key technology and other resources to
expand our capabilities. If we acquire other companies in the
future, we may face several of the difficulties that we
encountered in integrating companies we have acquired in the
past. Avant! and its acquired companies each may have different
systems and procedures in various operational areas that must be
integrated. We may not be successful in completing the
integration effectively, expeditiously or efficiently. The
difficulties of such integration may be increased by the
necessity of coordinating geographically separated divisions,
integrating personnel with disparate business backgrounds and
combining different corporate cultures. The integration of
certain operations will require the dedication of management
resources, temporarily distracting attention from our day-to-day
business. The business of the combined companies may also be
disrupted by employee uncertainty and lack of focus during the
integration process. Accordingly, we may not be able to retain
our entire key technical, sales and other key personnel. Our
failure to effectively integrate our operations with any newly
acquired companies could seriously harm our business, financial
condition and results of operations.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may bear increased expenses to protect
	our proprietary rights or defend against claims of infringement,
	and we may lose competitive advantages if our proprietary rights
	are inadequately protected.

We rely on a combination of patents, trade
secrets, copyrights, trademarks and contractual commitments to
protect our proprietary rights in our software products. We
generally enter into confidentiality or license agreements with
our employees, distributors and customers, and limit access to
and distribution of our software, documentation and other
proprietary information. Despite these precautions, a third
party may still copy or otherwise obtain and use our products or
technology without authorization, or develop similar technology
independently. In addition, effective patent, copyright and
trade secret protection may be unavailable or limited in certain
foreign countries. In particular, the current litigation with
Cadence and our current litigation with Sequence involve such
infringement claims. Responding to such claims, regardless of
merit, could consume valuable time, result in costly litigation,
cause product shipment delays or require us to enter into
royalty or licensing agreements. Such royalty or licensing
agreements, if available, may not be available on acceptable
terms. A forced license could seriously harm our business,
financial condition and results of operations.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Errors in our software products could
	result in loss of market share or failure to achieve market
	acceptance.

Software products as complex as those offered by
us may contain defects or failures when introduced or when new
versions are released. We have in the past discovered software
defects in certain of our products and may experience delays,
lost revenue or increased costs to correct defects in the
future. Historically, we

16



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believe errors in our software have not resulted
in loss of market share or failure to achieve market acceptance.
Despite testing by us, errors may still be found in new products
or releases after commencement of commercial shipments,
resulting in loss of market share or failure to achieve market
acceptance. Products that have been announced but havent
been shipped yet may have significant errors. Any such
occurrence could seriously harm our business, financial
condition and results of operations.







|        |           
|------- | ----------
|Item 2. | Properties

We lease four buildings with an aggregate of
approximately 281,000 square feet of space and a total of annual
base rent of approximately $4.5 million for our facility in
Fremont, California. Three of the buildings were occupied as of
December 31, 2001. The lease on the fourth building was
assigned in the third quarter of 2000. The company to which the
fourth building was assigned filed for Chapter 11
bankruptcy protection in July 2001 and rejected the lease in
September 2001. The Company remains liable for rent and related
charges on that building. See Part I Item 3. Legal
Proceedings.

We also lease thirty-four facilities in U.S.
metropolitan areas, the largest of these facilities are in
Research Triangle Park in Durham, North Carolina with 26,500
square feet and in Beaverton, Oregon with 40,400 square feet and
annual base rents of approximately $0.4 million and
$0.3 million, respectively.

We lease twenty-seven sites in major
international IC production countries including the
Peoples Republic of China (4), Taiwan (2), South
Korea, India, United Kingdom (2), France (3),
Japan (4), Germany (3), Israel, Hong Kong, Italy,
Ireland, Canada (2) and Sweden. The two largest facilities
are in Shanghai, PRC with 138,000 square feet and Taipei,
Taiwan with 34,000 square feet.

We believe that our existing facilities are
adequate for our current and future needs.




Item 3.     Legal
Proceedings

Avant!/Cadence
Litigation

On December 6, 1995, Cadence filed an action
against Avant! and certain of its officers in the United States
District Court for the Northern District of California alleging
copyright infringement, unfair competition, misappropriation of
trade secrets, conspiracy, breach of contract, inducing breach
of contract and false advertising. The complaint alleges that
some of Avant!s employees formerly employed by Cadence
misappropriated and improperly copied Cadences source code
for important functions of Avant!s place and route
products, and that Avant! competed unfairly against Cadence by
making false statements about Cadence and its products. The
action also alleges that Avant! induced individuals, who have
been named as defendants, to breach their employment and
confidentiality agreements with Cadence. The same set of facts
alleged in the Avant!/ Cadence litigation was also alleged in
the Santa Clara criminal action. Avant!, Gerald C. Hsu, Chairman
of Avant!, and five former Avant! employees pled no contest to
certain of the charges alleged in the Santa Clara criminal
action. As part of that plea, Avant! paid approximately
$35.5 million in fines and $195.4 million in
restitution.

In the Avant!/ Cadence litigation, Cadence sought
to enjoin the sale of Avant!s ArcCell and Aquarius place
and route products. On December 19, 1997, the District
Court entered a preliminary injunction against continued sales
or licensing of any product or work copied or derived from DFII,
specifically including, but not limited to, the ArcCell
products. The preliminary injunction also bars Avant! from
possessing or using any copies of any portion of the source code
or object code for ArcCell or any other product, to the extent
it had been copied or derived from DFII. Avant! had ceased
licensing its ArcCell products in mid-1996, and Avant! had no
revenue from these products in the last fiscal year or in the
most recent interim period. On December 7, 1998, the
District Court also entered a preliminary injunction against
Avant! prohibiting Avant! from directly or indirectly marketing,
selling, leasing, licensing, copying or transferring the
Aquarius, Aquarius XO and Aquarius BV products. Pending the
outcome of the trial of Cadences action, the injunction
further prohibits Avant! from marketing, selling, leasing,
licensing, copying or transferring any translation code for any
Aquarius product that infringes any protected right of Cadence
and prohibits Avant! from possessing or using any copies of any
portion of the source code or object code

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for the Aquarius products, to the extent that it
has been copied or derived from DFII. Avant! ceased supporting
the Aquarius products in February 1999, and Avant! had no
revenue from these products in the last fiscal year or in the
most recent interim period.


In the Avant!/ Cadence litigation, Cadence seeks
compensatory damages and treble or other exemplary damages from
Avant! under theories of copyright infringement,
misappropriation of trade secrets, inducing breach of contract
and false advertising. Cadence has not fully quantified the
amount of damages it seeks in the Avant!/ Cadence litigation. In
the Santa Clara criminal action, described in the following
section, Cadence claimed losses of $683.3 million. The
court in the Santa Clara criminal action ultimately awarded
Cadence $195.4 million, which included $143.5 million
as Cadences estimated lost gross profit from all Avant!
sales of ArcCell and Aquarius products after a 1994 written
release between Cadence and Avant!. Avant! subsequently paid the
entire restitution amount in full. Under California law, Avant!
may be entitled to credit that amount against any judgment
Cadence obtains in the Avant!/ Cadence civil litigation.
Although Avant! believes any potential liability to Cadence is
neither probable nor estimable, the financial advisors to Avant!
and Synopsys assumed, only for purposes of assessing the
fairness of the proposed Synopsys merger from a financial point
of view, that the potential litigation exposure of the Avant!/
Cadence litigation could be approximately $250 million to
$500 million.

On January 16, 1996, Avant! filed an answer
to the complaint denying wrongdoing. On the same day, Avant!
filed a counterclaim against Cadence and its then-CEO, Joseph
Costello, alleging antitrust violations, racketeering, false
advertising, defamation, trade libel, unfair competition, unfair
trade practices, negligent and intentional interference with
prospective economic advantage, and intentional interference
with contractual relations. The counterclaim alleges, among
other things, that Cadences lawsuit is part of a scheme to
harm Avant! competitively, because of Avant!s success in
the marketplace. Avant! filed its amended counterclaim on
January 29, 1998. Pursuant to a stipulated court order,
Cadence and the other counterclaim defendants have not responded
to the amended counterclaim, and Avant!s counterclaim is
currently stayed.

In April 1999, Avant! and Cadence filed
cross-motions for summary adjudication as to whether a 1994
written release agreement between the two companies extinguished
all Cadence claims regarding Avant!s continued use of
intellectual property claimed by Cadence in any Avant! place and
route product in existence when the release was signed by the
parties. On September 8, 1999, the District Court granted
Avant!s motion in part and ruled that Cadences trade
secret claim regarding use of DFII source code was barred by the
release. The District Court also ruled that the release did not
bar Cadences copyright infringement claims regarding
Avant!s alleged post-release use of DFII source code.
Unless reversed on appeal, Avant! believes that this ruling
makes it likely that Cadence will prevail on its copyright
infringement claims regarding Avant!s use of DFII source
code in the ArcCell products. While this ruling also increases
the likelihood that Cadence will prevail on the same claims as
they might apply to the Aquarius products, Avant! believes that
it possesses additional meritorious defenses with respect to
Aquarius that are not available with respect to ArcCell. On
October 15, 1999, the District Court issued an amended
order certifying its September 8, 1999 order for
interlocutory appeal to the United States Circuit Court of
Appeals for the Ninth Circuit. Cadence and Avant! petitioned for
leave to file an interlocutory appeal, and the Circuit Court
granted their petitions on December 20, 1999. On
June 11, 2001, the Circuit Court certified to the
California Supreme Court the following question: Under the
California Uniform Trade Secrets Act, Cal. Civ. Code sec.3426,
when does a claim for trade secret infringement arise: only
once, when the initial misappropriation occurs, or with each
subsequent misuse of the trade secret? On October 31, 2001,
the California Supreme Court accepted the certified question.
Briefing before the California Supreme Court has not been
completed, and no date for oral argument has been set.

Proceedings in the District Court have been
stayed pending the Circuit Courts decision on appeal,
which will follow the California Supreme Courts decision
on the question certified to it, and no trial date has been set.
Depending upon the timing of the decision of the California
Supreme Court, the disposition of the appeal by the Circuit
Court, the discovery process, jury selection and the judicial
calendar, Avant! expects that, absent a lifting of the current
stay, any trial would likely commence no earlier than mid 2003,
and could commence substantially later.

18



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Avant! believes it has defenses to all of
Cadences claims and intends to defend itself vigorously.
The defenses include, but are not limited to, Avant!s
belief that the 1994 written release bars Cadences claims
based on the use of DFII source code. Avant!s defenses
also include Avant!s belief that Avant! products did not
use or incorporate any Cadence proprietary information or
material allegedly misappropriated after the 1994 written
release. This defense will be based on testimony of the authors
of the source code challenged by Cadence, corroborated by
contemporaneous records of their source code development, and of
experts who have analyzed both Cadences source code and
the Avant! source code challenged by Cadence. Should Cadence
ultimately succeed in the prosecution of its claims, however,
Avant! could be required to pay substantial monetary damages to
Cadence. Some or all of these damages may be offset by the
amounts paid to Cadence as restitution arising out of the Santa
Clara criminal action. An adverse judgment could seriously harm
Avant!s business, financial position and results of
operations. Due to the uncertainty of the ultimate outcome of
this issue, no losses have been accrued in Avant!s
financial statements as of December 31, 2001.

As noted above, preliminary injunctions entered
in 1997 and 1998 enjoined Avant! from marketing its early place
and route products, ArcCell and Aquarius, based on a judicial
determination that they incorporated DFII source code. In
Avant!s current place and route products the functions
supported by Cadences DFII source code are performed by
the MilkWay database, and the DFII code is not incorporated in
any current Avant! product. Avant! developed MilkyWay under the
supervision of an independent expert employing rigorous
screening and record-keeping procedures. Cadence has never
alleged that MilkyWay uses DFII source code in any way. Although
Cadence has not made a claim in the Avant!/ Cadence litigation
against any current Avant! product, including its Apollo and
Astro place and route products, and has not introduced any
evidence that any such product infringes Cadences
intellectual property rights, Cadence has publicly implied that
it intends to assert such claims. If and when such claims are
made, Avant! believes it would have defenses to any such claims
and would defend itself vigorously. Nonetheless, should Cadence
be successful at proving that any past or then-current Avant!
product incorporated intellectual property misappropriated from
Cadence, Avant! could be permanently enjoined from further use
of such intellectual property, which might require modification
to existing products and/or suspension of the sale of such
products until such Cadence intellectual property was removed.

Santa Clara
Criminal Action

On December 16, 1998, after a grand jury
investigation, the Santa Clara County District Attorneys
office filed a criminal indictment alleging felony level
offenses related to the allegations of misappropriation of trade
secrets set forth in Cadences lawsuit. This criminal
action was brought against, among others, Avant! and the
following current or former employees and/or directors of
Avant!: Gerald C. Hsu, then President, Chief Executive
Officer and Chairman of the Board of Directors; Y.Z. Liao,
Stephen Wuu, Leigh Huang, Eric Cheng and Mike Tsai. One former
defendant was dismissed from the action, and the District
Attorney appealed the dismissal order.

The 1998 indictment charged the defendants listed
above with conspiring to commit trade secret theft, inducing the
theft of a trade secret, conspiracy to commit fraudulent
practices in connection with the offer or sale of a security and
fraudulent practices in connection with the offer or sale of a
security. On April 28, 2000, the Santa Clara Superior Court
dismissed all charges in the 1998 indictment against Avant! and
all of the current and former executives charged in the case.
The District Attorney appealed the dismissal of the 1998
indictment and indicated intent to seek another indictment. The
District Attorney dismissed the appeal in favor of the
indictment described below.

On August 10, 2000, a Santa Clara County
grand jury returned an indictment against the same current or
former employees and/or directors of Avant! as the 1998
indictment. This charged defendants with conspiracy to commit
trade secret theft, conspiracy to withhold and conceal stolen
property, conspiracy to commit securities fraud, theft of trade
secrets, withholding or concealing stolen property, making an
unauthorized copy of an article containing a trade secret, and
committing a fraudulent practice in connection with the offer or
sale of a security. Trial proceedings began May 14, 2001.

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On May 22, 2001, Avant! entered pleas of no
contest to conspiracy to misappropriate trade secrets, two
counts of trade secret misappropriation, and a violation of
California corporate securities law. In connection with the plea
agreement, Avant! agreed to pay a fine of $27.0 million and
to pay restitution in an amount to be determined by the Court.
On July 25, 2001, the court fixed the total restitution
amount to be paid to Cadence at $195.4 million, any unpaid
portion of which accrued interest at the statutory rate of 10%
beginning July 25, 2001. We recognized the resulting
expense of $222.4 million in the second quarter of 2001.

During the third quarter of 2001, Avant! paid the
$27.0 million fine and made restitution payments to Cadence
totaling $170.0 million. Avant! made a final payment of
$26.5 million to Cadence on October 3, 2001, to
conclude payment of the restitution owed to Cadence. The
payments above included $1.1 million of interest.

In addition to the plea by Avant!, the individual
defendants resolved the charges against them in the following
manner:

 Gerald Hsu pleaded no contest to
conspiracy to misappropriate trade secrets, failure to return
stolen property, and a violation of California corporate
securities law and agreed to pay a $2.7 million fine.
Mr. Hsus fine was paid on May 22, 2001. The
securities charge is a misdemeanor, and the other charges were
reduced to misdemeanors at sentencing on July 25, 2001. On
July 25, 2001, Mr. Hsu resigned his positions as
Avant!s President and Chief Executive Officer.
Mr. Hsu continues as the Chairman of Board of Directors and
as an employee Avant! in the newly created position of Chief
Strategist, providing strategic direction for Avant!.

 Leigh Huang, Y.Z. Liao, and Eric
Cho pleaded no contest to trade secret conspiracy and a
violation of California corporate securities law. Huang, Liao
and Cho agreed to pay fines of $0.1 million,
$2.7 million, and $0.1 million, respectively, of which
$0.2 million was paid in September 2001 and the remaining
$2.7 million was paid in October 2001. Huang was sentenced
to three years probation. Liao and Cho were each sentenced to
three years probation and one year in county jail. Effective
July 25, 2001, Liao resigned his position at Avant!. Huang
and Cho are former Avant! employees.

 Stephen Wuu pleaded no contest to
trade secret misappropriation and a violation of California
corporate securities law. Wuu agreed to pay a $2.7 million
fine, which was paid by October 23, 2001. On July 25,
2001, Wuu was sentenced to 2 years in prison and three
years probation. Effective July 25, 2001, Wuu resigned his
position at Avant!.

 Eric Cheng pleaded no contest to
trade secret misappropriation. Cheng agreed to pay a $27,000
fine and was sentenced to three years probation and
364 days in county jail. Effective July 25, 2001,
Cheng resigned his position at Avant!.

 All charges were dismissed against
former Avant! executive Mike Tsai.

As part of the settlement, Avant! agreed to
indemnify all of the current and former Avant! employees named
above, with the exception of Mr. Cheng, for the fines
assessed against them, and indemnify them for the taxes levied
as a result of this indemnification. Avant! recognized the
resulting expense of $14.1 million in the second quarter of
2001.

Under the applicable law, Avant! was authorized
to pay the defense expenses and fines of its officers, directors
and employees if the Avant! board found that the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons
conduct was unlawful. The Avant! board having determined
that these criteria were met, Avant! paid, or agreed to

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pay, the following amounts in litigation expenses
and fines for the listed individuals in connection with the
Santa Clara criminal action:


|              |  |          |           |                                    |  |   |           |    
|------------- |  | -------- | --------- | ---------------------------------- |  | - | --------- | ---
|Name          |  | Fines(1) |           | Litigation and Related Expenses(1)
|              |  |          |           |                                   
|Gerald C. Hsu |  | $        | 2,700,000 |                                    |  | $ | 518,019   |    
|Stephen Wuu   |  | $        | 2,700,000 |                                    |  | $ | 1,813,009 |    
|Y.Z. Liao     |  | $        | 2,700,000 |                                    |  | $ | 1,044,457 |    
|Eric Cho      |  | $        | 100,000   |                                    |  | $ | 617,685   |    
|Leigh Huang   |  | $        | 100,000   |                                    |  | $ | 866,765   |    
|Eric Cheng    |  |          |          |                                    |  | $ | 1,410,100 | (2)
|Michael Tsai  |  |          |          |                                    |  | $ | 502,402   |    



---



|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts do not include amounts to indemnify each
	of the individuals for any actual tax liability attributable to
	amounts received from, or paid on their behalf by, Avant!.
|   
|(2) | Amounts include litigation expenses related to
	both the Santa Clara criminal action and the Avant!/ Cadence
	litigation.                                                    

Delaware General Corporation Law,
Section 145 authorizes a corporation to indemnify officers,
directors, employees and agents who were or are parties to a
pending or completed criminal action if the person acted
in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the persons conduct was
unlawful. A finding of good faith is not precluded by a
conviction or plea of no contest. Section 145(a) expressly
states that [t]he termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that the persons conduct was
unlawful.

In determining whether to indemnify the
individual defendants for their expenses and fines incurred in
the Santa Clara criminal action, the Avant! board of directors
was advised by Avant!s corporate counsel, special counsel
to the board of directors and Avant!s criminal defense
counsel. The Avant! board of directors was advised concerning
the requirements and appropriate application of Delaware General
Corporation Law, Section 145, and the facts and
circumstances of the plea bargain negotiated with the District
Attorney for both Avant! and the individual defendants,
including the charges to be dismissed, the agreed-upon sentence
limitations and the fact that the prosecutor conditioned the
plea agreement on acceptance by all the defendants. In
connection with determining whether the individual defendants
acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of Avant!, and had no
reasonable cause to believe that their conduct was unlawful, the
Avant! board was advised concerning:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the elements necessary to establish culpability
	for the violations of securities laws;                                                                                                              
|
| |  | the substance of the allegedly misleading
	statements;                                                                                                                                               
|
| |  | the circumstances and potential legal effect of
	the mutual, general release signed with Cadence in 1994; and                                                                                        
|
| |  | the limited role, if any, the individuals who had
	apparently used Cadence source code had played in connection
	with Avant!s initial public offering and subsequent
	securities-related activities.

Based on this information and the advice of
counsel, the Avant! board determined as to defendants Cho,
Huang, Hsu, Liao and Wuu that the requirements of
Section 145 were satisfied with respect to the fines
assessed against these individuals for violating California
securities laws and resolved to indemnify each of them for the
fines being assessed pursuant to their no contest pleas. The
Avant! board did not address the

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requirements of Section 145 with respect to
any offenses other than violating California securities laws
because no fines were assessed in connection with such other
offenses. With regard to fines being assessed against defendants
Igusa and Cheng, the Avant! board determined that
indemnification for their fines was not appropriate pursuant to
Section 145 because Mr. Igusa had never been an
officer, director, employee or agent of Avant! and because
Mr. Chengs fine was based on a plea of no contest to
an offense predicated on alleged conduct by Mr. Cheng
undertaken before he became an Avant! employee.


In connection with the attorneys fees and
expenses previously advanced by Avant! on behalf of the
individual defendants in the Santa Clara criminal action, except
defendant Igusa, Avant! obtained undertakings by each of the
individual defendants on whose behalf advances were made that
Avant! believes complied with Delaware General Corporation Law,
Section 145. Each of the undertakings provided that, in the
event it was ultimately determined that the defendant was not,
under applicable law, entitled to indemnification by Avant! for
attorneys fees and expenses, the defendant would repay
Avant! the amount of all such payments made by Avant! to the
defendants attorneys. Avant!s board of directors
later determined that Delaware General Corporation Law,
Section 145 would permit Avant! to indemnify each of the
individual defendants, except defendant Igusa, for
attorneys fees and litigation expenses incurred in
connection with defense of the criminal action. In addition to
the factors described above, the Avant! board also was advised
concerning, and considered:



| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | that, in connection with the no contest pleas,
	the prosecutor had dismissed certain charges made against the
	individual defendants,                                                                                                                                                                                 
|
| |  | that each of the defendants had been charged with
	conduct undertaken while a company officer, director, employee
	or agent,                                                                                                                                                                                          
|
| |  | that each defendant had coordinated with Avant!
	in the defense of the criminal action,                                                                                                                                                                                                                               
|
| |  | that it had been in Avant!s best interests
	to coordinate the defense of the criminal action,                                                                                                                                                                                                                        
|
| |  | that Avant!s prior willingness to advance
	attorneys fees and costs to assist the individual
	defendants in their defense of the criminal action had been a
	material inducement in obtaining that coordination by
	eliminating a potential source of financial pressure unrelated
	to the merits of the action, and
|
| |  | that such payments therefore had been for the
	direct benefit of Avant! in addition to being of benefit to the
	individual defendants.                                                                                                                                                                                

Because these attorneys fees and expenses
previously had been advanced by Avant! on behalf of the
aforementioned individual defendants, the board of directors
resolved that Avant! would not require repayment of these fees
and expenses by the individual defendants. As a separate and
further basis for indemnifying Messrs. Hsu, Wuu, Liao and
Cheng for their attorneys fees and expenses, for
substantial business reasons, Avant! negotiated settlements that
involved either revisions to, or termination of, those
individuals existing employment agreements with Avant!,
including Avant!s agreement not to require reimbursement
for the fees and costs incurred in connection with the criminal
action and advanced by Avant! on their behalf. The Avant! board
of directors reviewed, was advised concerning, and approved
settlement agreements with each of these individuals.

Finally, in connection with the indemnification
of the individuals identified above for the fines assessed in
connection with their no contest pleas, the Avant! board of
directors determined that indemnification properly should
encompass amounts sufficient to indemnify each of the
individuals for any actual tax liability attributable to amounts
received by or paid on behalf of the defendants and attributable
to the indemnification of those individuals for the fines
assessed in connection with the criminal action. The Avant!
board of directors therefore resolved to reimburse each of the
individual defendants, except for defendants Igusa and Cheng,
for additional taxes actually incurred and paid as a result of
having been indemnified by Avant! for the fines assessed in
connection with the no contest pleas. As a separate and further
basis for indemnifying Messrs. Hsu, Wuu and Liao for their
actual additional tax liability incurred in connection with
Avant!s indemnification of them for the fines assessed in
the criminal action, the

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settlements described above included
Avant!s agreement to indemnify each of those three
individuals for any actual tax liability incurred and
attributable to Avant!s indemnification of them for the
fines assessed in connection with the no contest pleas and the
attorneys fees and costs advanced by Avant! on their
behalf.


Securities
Class Action Claims

On December 15, 1995, Paul Margetis and
Helen Margetis filed a securities fraud class action complaint
against Avant! in the United States District Court for the
Northern District of California. This lawsuit alleged securities
laws violations, including omissions and/or misrepresentations
of material facts related to the events and transactions which
are the subject of the claims contained in Cadences civil
lawsuit against the Avant!. In addition, on May 30, 1997,
Joanne Hoffman filed a securities fraud class action in the
United States District Court for the Northern District of
California on behalf of purchasers of Avant!s stock
between March 29, 1996 and April 11, 1997, the date of
the filing of a criminal complaint against Avant! and six of its
employees and/or directors. The plaintiffs alleged that Avant!
and its officers misled the market as to the likelihood of the
criminal indictment and as to the validity of the Cadence
allegations. The District Court subsequently certified these two
securities class actions, consolidated them for pretrial
purposes, and stayed most discovery and other proceedings
pending resolution of the criminal proceeding described above.

In March 2001, Avant! reached agreement with
counsel for the plaintiff classes in both securities actions for
a voluntary resolution of the cases. Under that agreement,
Avant! paid a total of $47.5 million in exchange for
dismissal of the actions and a release of claims by members of
the classes. The District Court entered an order on
June 22, 2001, that gave final approval to the settlement
and dismissed the litigation with prejudice. Avant! paid the
full settlement amount of $47.5 million in April 2001.
Avant! recognized the settlement as an expense in the fourth
quarter of 2000.

Silvaco
Litigation

In March 1993, Meta Software Inc.
(Meta), which Avant! acquired in October 1996, filed
a complaint in the Superior Court of California for Santa Clara
County against Silvaco Data Systems, Inc. seeking monetary
damages and injunctive relief. In August 1995, Silvaco
International and Silvaco Data Systems (collectively
Silvaco) filed a cross-complaint against Meta and
Shawn Hailey, then the President and Chief Executive Officer of
Meta, alleging that Meta owed Silvaco royalties and license fees
pursuant to a product development and marketing program and
unpaid commissions related to Silvacos sale of Metas
products and services under such program. In November 1997, a
judgment in the aggregate amount of $31.4 million was
entered against Avant!. Avant! filed appeals on its own behalf
and on behalf of Mr. Hailey. In order to appeal the
judgment, Avant! was required to post a bond, which was
collateralized with a $23.6 million letter of credit.

On June 21, 2001, the California Court of
Appeal for the Sixth Appellate District reversed the judgment.
The Court of Appeal decision gave Silvaco the option of amending
its cross-complaint, in which case defaults that had been
previously entered against Meta and Hailey, and that were the
principal bases for the $31.4 million award, would be
vacated, or holding a new default prove-up hearing on
Silvacos causes of action for intentional interference
with business relationships and defamation and retrial as to the
amount of award on Silvacos cause of action for unfair
business practices. On July 27, 2001, Silvaco petitioned
the California Supreme Court for review of the Court of Appeal
decision reversing the trial court judgment. On
September 19, 2001, the California Supreme Court denied
review of the Court of Appeal decision, and the Court of Appeal
remitted the case to the trial court on September 21, 2001.
At Silvacos request, the Santa Clara County Superior court
held a default prove-up hearing on January 31, 2002, where
the court fixed the combined award to Silvaco at
$26.1 million on its causes of action for defamation and
intentional interference with economic relations based on
conduct occurring between November 1995 and June 1996. Judgment
against Avant! will not be entered until its claims against
Silvaco and Silvacos remaining claim against Avant! are
resolved, and the amount of the award in Silvacos favor
will be reduced by any current and future awards in
Avant!s favor in the same action. On

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February 6, 2002, the court entered judgment
against Mr. Hailey for the amount of the award, but the
court ordered, with the parties consent, that enforcement
of that judgment be stayed. Mr. Hailey has written
indemnity agreements with Meta Software and with Avant!, and
Avant! is providing him with a defense. As part of the agreement
to stay enforcement of the judgment against Mr. Hailey in
February 2002, Avant! set aside funds in the amount of the
award. Consequently, Avant! has accrued $26.1 million as a
one-time charge as of December 31, 2001. Following the
entry of judgment against Mr. Hailey, Avant! filed on
behalf of Mr. Hailey notice of intention for move for new
trial, which motion was denied on March 22, 2002. Avant!
will file on behalf of Mr. Hailey an appeal to challenge
the basis and amount of the judgment. Following the entry of any
judgment against Avant!, it will have an opportunity on its own
behalf to file a motion for new trial and, if appropriate, an
appeal. Avant! intends to pursue all remedies available to it in
connection with the litigation with Silvaco, and Avant! believes
it has substantial issues that could cause the trial court to
grant a new trial or that could cause any judgment to be
remanded to the trial court for further proceedings. However,
there can be no assurance that any such remedies will be
successful. Payment of the damage award, or damages that may be
awarded in the future, would have a material effect on
Avant!s financial condition and cash flows.


Shareholder
Derivative Actions

Between July and October 2001, three derivative
actions were filed against Avant! and certain of its officers
and directors: Scott v. Muraki, et al., No. 01-017548 (Cal.
Superior Ct.); Louisiana School Employees Retirement
System v. Muraki, et al., C.A. No. 19091 (Del. Chancery
Ct.); and Peterson v. Hsu, et al., C.A. No. 19178
(Del. Chancery Ct.). The actions allege, in substance, that
certain present and former Avant! officers and directors caused
damage to Avant! by misappropriating trade secrets from
competitors, making false representations to investors and the
public, and causing Avant! to award lucrative employment
contracts, bonuses, stock option grants, and valuable consulting
contracts and ownership interests in companies affiliated with
Avant!. The plaintiffs in the actions have agreed to several
extensions of the defendants deadline for responding to
their respective complaints. Accordingly, the defendants have
not moved to dismiss the actions or otherwise responded to
plaintiffs allegations. None of the parties to the actions
has initiated any discovery requests, and no depositions have
been taken. The defendants believe they have meritorious legal
and factual defenses to the actions but, because the cases are
in their initial stages, and because no court appearances have
occurred, no motions have been heard, and no discovery has been
taken, the ultimate outcome of the cases is uncertain. In
addition, the individual officers and directors may have
indemnification rights against the company which may reduce or
eliminate any recovery by the company from the litigation. Due
to the uncertainty of the ultimate outcome of this issue, no
losses have been accrued in Avant!s financial statements
as of December 31, 2001.

Sequence
Litigation

On August 9, 2001, Sequence Design, Inc.
(Sequence) filed an action against Avant! Corporation
No. CV-01-3064JL, in the United States District Court for
the Northern District of California. Sequence alleges that
Avant!s Star-RC and Star-RCXT products infringe patent
5,901,063 owned by Sequence. The complaint seeks monetary and
injunctive relief. Avant! has answered the complaint and
counterclaimed for declaratory relief, for violations of the
Sherman Antitrust Act and for statutory unfair competition in
violation of California Business and Professions Code section
17200. The court held a case management conference on
December 13, 2001, and subsequently scheduled trial for
June 2, 2003. Avant! believes it has defenses to
Sequences claim and intends to defend itself vigorously.
Avant!s defenses and counterclaims include, but are not
limited to, Avant!s belief that the 063 patent is
invalid over the prior art pursuant to 35 U.S.C. sections 102
and 103 and, independently, that Avant!s Star-RC and
Star-RCXT products do not infringe Sequences 063
patent. Should Sequences claim succeed, however, Avant!
could be permanently enjoined from using and marketing any
products held to incorporate the inventions claimed in the
patent at issue, and it may be required to pay monetary damages
to Sequence. Although Sequence has not made a claim against any
Avant! products other than Star-RC and Star-RCXT, Sequence may
assert such claims. If such claims are made, Avant! believes it
would have defenses to any such claims and would defend itself
vigorously. Nonetheless, should Sequence be successful at
proving that any Avant! product infringes the 063

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patent, Avant! could be permanently enjoined from
further infringing that patent, which might require modification
to existing products and/or suspension of the sale of such
products until they no longer infringed the Sequence patent.
Accordingly, an adverse judgment could seriously harm
Avant!s business, financial position and results of
operations. Due to the uncertainty of the ultimate outcome of
this issue, no losses have been accrued in Avant!s
financial statements as of December 31, 2001.


Silicon
Valley Research Litigation

On August 10, 2001, Silicon Valley Research,
Inc. (SVR) filed an action against Avant! Corporation in
the United States District Court for the Northern District of
California. The complaint purports to state claims for statutory
unfair competition, receipt, sale and concealment of stolen
property, interference with prospective economic advantage,
conspiracy, false advertising, violation of the Lanham Act and
violation of 18 U.S.C.A. § 1962 (R.I.C.O.). In
the complaint, SVR alleges that Avant!s use of Cadence
trade secrets damaged SVR by allowing Avant! to develop and
market products more quickly and cheaply than it could have
otherwise and that more closely tracked Cadences approach
and interface. The complaint seeks an accounting, the imposition
of a constructive trust, and actual and exemplary damages.
Avant! has moved to dismiss the claims for statutory unfair
competition, receipt, sale and concealment of stolen property,
negligent interference with prospective economic advantage,
conspiracy, and violation of 18 U.S.C.A. § 1962
(R.I.C.O.). Avant! has filed an answer in response to the
remaining claims. Co-defendant Stephen Wuu moved to dismiss all
claims. The court held a hearing on the motions to dismiss on
December 14, 2001, and it took both motions under
submission. Avant! believes it has defenses to SVRs claims
and intends to defend itself vigorously. These defenses include,
but are not limited to, defenses based on the authority granted
to Avant! by the written release agreement signed between
Cadence and Avant! in 1994, Avant!s denial of any
post-release misappropriation of Cadence trade secrets,
Avant!s belief that any use by Avant! of Cadence trade
secrets did not confer any competitive advantage on Avant! over
SVR, and Avant!s belief that SVRs loss of market
share resulted from factors other than any use by Avant! of
Cadence trade secrets. Should SVRs claims succeed,
however, Avant! could be required to pay monetary damages to
SVR. Accordingly, an adverse judgment could seriously harm
Avant!s business, financial position and results of
operations. Due to the uncertainty of the ultimate outcome of
this issue no losses have been accrued in Avant!s
financial statements as of December 31, 2001.

Dynasty
Capital Services Arbitration

On October 18, 2001, Dynasty Capital
Services LLC submitted a Notice of Submission of Dispute against
Avant! to the American Arbitration Association, and Randolph L.
Tom subsequently submitted a Notice of Submission of Dispute
against Avant! to the American Arbitration Association. The
dispute stems from an advisory services agreement between Avant!
and Dynasty Capital Services LLC and a legal services agreement
between Avant! and Mr. Tom. In February 2002, Avant!
resolved all claims between it and Dynasty Capital Services LLC
and Randolph L. Tom. Under the terms of the settlement
agreement, Avant! will pay a total of
$5.4 million  $2.7 million was paid at the
time of the settlement and an additional $2.7 million will
be paid upon the closing of the proposed merger with Synopsys
Inc. If the Synopsys merger does not close and Avant! does not
merge with any other entity, or sell or transfer 40% or more of
its assets, on or before September 14, 2003, Avant!s
payment obligation is limited to the initial $2.7 million
payment. Consequently, Avant! accrued $5.4 million as a
one-time charge as of December 31, 2001.

Comdisco

On October 24, 2000, Avant! entered into an
assignment of a lease dated February 27, 1997 between it as
tenant and Renco Investment Company as landlord for premises
known as Renco 48 at 46897 Bayside Parkway, Fremont, CA. The
assignee was Comdisco, Inc. Avant! retained no possessory
interest but was not released from any obligations under the
lease. Renco is also the landlord under the leases covering
Avant!s facilities at 46871 Bayside Parkway. Those leases
contain cross default provisions that apply to defaults under
the Renco 48 lease.

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In July 2001, Comdisco filed Chapter 11
bankruptcy. Shortly thereafter the general contractor who was
modifying the leased premises filed a mechanics lien
against the Renco 48 property. After having been notified of the
filing of the lien, the landlord, Renco, demanded that pursuant
to the requirements of the lease Avant! release or bond around
the lien. Avant! discharged the lien by payment of
$4.2 million. Avant! recognized this cost in the third
quarter of 2001. Subsequently, on September 8, 2001,
Comdisco rejected the Renco 48 lease in the bankruptcy
proceeding. Based upon the assignment of that lease, Avant! has
the obligation to pay rent and common area maintenance (CAM)
charges.

Avant! has been negotiating with Renco to resolve
the issues related to Comdiscos rejection of the lease.
However, on February 7, 2002 Renco filed suit in the
Alameda County Superior Court claiming damages against Avant! on
account of Comdiscos rejection of the lease. The complaint
asks for rent damages in the sum of approximately
$37.2 million, which is the amount through the end of the
lease term that Comdisco would have been required to pay, and
approximately $5.9 million build out damages. Renco has not
declared any default of any of the other Avant! leases based on
the cross-default provisions in those leases. Avant! is
vigorously defending the rent damages and build out damages
claim. In addition, Avant! is asserting its claim against
Comdisco regarding payment of the mechanics lien and rent
in the Comdisco bankruptcy proceeding.

The pending litigation and any future litigation
against Avant! and its employees, regardless of the outcome, are
expected to result in substantial costs and expenses to Avant!.
Avant!s legal expenses for all litigation matters were
$14.6 million, $5.8 million and $14.7 million for
the years ended December 31, 2001, 2000 and 1999,
respectively. Avant! currently expects continued substantial
legal costs in the future as a result of its current litigation
issues. Thus, current litigation issues could seriously harm
Avant!s business, financial condition and results of
operations.

In addition, from time to time, Avant! is subject
to legal proceedings and claims in the ordinary course of
business that, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
Aside from the matters described above, Avant! does not believe
that it is a party to any legal proceedings or claims that it
believes would materially harm its business, financial condition
and results of operations.






|        |                                                     
|------- | ----------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
	Holders

The Company did not submit any matters to a vote
of its stockholders during the fourth quarter of the fiscal year
ended December 31, 2001.




PART II.






|        |                                                                      
|------- | ---------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock
	and Related Stockholder Matters

Our common stock has traded on the NASDAQ
National Market under the NASDAQ symbol AVNT since
November 27, 1995. We have not paid cash dividends in the
past and none are expected to be paid in the future. As of
March 15, 2002, we had approximately 205 stockholders of
record. We believe that a significant number of beneficial
owners of our common stock hold their shares in the name of a
brokerage firm or bank.

26



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The following table sets forth the high and low
sales of our common stock from January 1, 2000 through
December 31, 2001.

|               |  |      |       |     |  |  |       | 
|-------------- |  | ---- | ----- | --- |  |  | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|FISCAL 2000    |  |      |       |     |  |  |       | 
|First Quarter  |  |      | 20.25 |     |  |  | 12.38 | 
|Second Quarter |  |      | 19.00 |     |  |  | 8.91  | 
|Third Quarter  |  |      | 20.63 |     |  |  | 12.56 | 
|Fourth Quarter |  |      | 20.50 |     |  |  | 14.38 | 
|FISCAL 2001    |  |      |       |     |  |  |       | 
|First Quarter  |  |      | 27.00 |     |  |  | 15.69 | 
|Second Quarter |  |      | 20.91 |     |  |  | 11.09 | 
|Third Quarter  |  |      | 15.59 |     |  |  | 2.63  | 
|Fourth Quarter |  |      | 20.98 |     |  |  | 3.05  | 




Item
6.     Selected Consolidated
Financial Data

|                                         |         |                                          |          |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|---------------------------------------- | ------- | ---------------------------------------- | -------- | ------ | - | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                         |         |                                         
|                                         |         | Years Ended December 31,                
|                                         |         |                                         
|                                         |         | 2001                                     |          | 2000   |   | 1999 |         | 1998   |  | 1997
|                                         |         |                                          |          |        |   |      |         |        |  |     
|                                         |         |                                         
|                                         |         | (In thousands, except per share amounts)
|Consolidated Statement of Earnings Data: |         |                                          |          |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Total revenue                            |         | $                                        | 398,670  |        |   | $    | 358,100 |        |  | $    | 303,620 |        |  | $ | 248,330 |        |  | $ | 181,150 |       
|Earnings (losses) from operations        |         |                                          | (131,939 | )      |   |      | 58,443  |        |  |      | 80,646  |        |  |   | 42,342  |        |  |   | (3,081  | )     
|Net earnings (loss)                      |         |                                          | (177,717 | )      |   |      | 52,859  |        |  |      | 56,620  |        |  |   | 22,578  |        |  |   | 2,390   |       
|Earnings (loss) per share:               |         |                                          |          |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                         | Basic   |                                          | $        | (4.72  | ) |      | $       | 1.36   |  |      | $       | 1.49   |  |   | $       | 0.62   |  |   | $       | 0.07   | 
|                                         | Diluted |                                          | $        | (4.72  | ) |      | $       | 1.32   |  |      | $       | 1.42   |  |   | $       | 0.59   |  |   | $       | 0.07   | 
|Weighted average shares outstanding:     |         |                                          |          |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                         | Basic   |                                          |          | 37,637 |   |      |         | 38,880 |  |      |         | 38,084 |  |   |         | 36,504 |  |   |         | 34,315 | 
|                                         | Diluted |                                          |          | 37,637 |   |      |         | 39,966 |  |      |         | 39,746 |  |   |         | 38,454 |  |   |         | 36,697 | 

|                                 |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------------- |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |  |             
|                                 |  | December 31,
|                                 |  |             
|                                 |  | 2001         |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                 |  |              |         |      |  |      |         |      |  |     
|Consolidated Balance Sheet Data: |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents        |  | $            | 121,814 |      |  | $    | 106,545 |      |  | $    | 79,766  |  |  | $ | 126,180 |  |  | $ | 81,982  | 
|Working capital                  |  |              | 62,424  |      |  |      | 203,418 |      |  |      | 216,246 |  |  |   | 135,399 |  |  |   | 132,284 | 
|Total assets                     |  |              | 374,402 |      |  |      | 561,890 |      |  |      | 435,527 |  |  |   | 337,508 |  |  |   | 272,896 | 
|Long-term obligations            |  |              | 10,563  |      |  |      | 7,918   |      |  |      | 1,668   |  |  |   | 2,535   |  |  |   | 2,026   | 
|Stockholders equity             |  |              | 180,063 |      |  |      | 345,901 |      |  |      | 314,301 |  |  |   | 245,834 |  |  |   | 208,208 | 






|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
	of Financial Condition and Results of Operations

This Managements Discussion and Analysis of
Financial Condition and Results of Operations should be read in
conjunction with the summary of selected financial data and the
accompanying consolidated financial statements and notes
included in this report. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those expressed
or implied by these forward-looking statements as a result of
various factors. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in
this annual report on Form 10-K and other risks detailed
from time to time in our reports filed with the Securities and
Exchange Commission. Because of these identified risk factors
and general business risks, past results and trends should not
be considered by investors as necessarily indicative of future
results and trends.

27



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Overview

We develop, market and support EDA software
products that assist design engineers in the physical layout,
design, verification, simulation, timing and analysis of ICs.
These automated design software products enable IC design
engineers to reduce overall design time, and therefore time to
market for the products utilizing the IC, while optimizing the
speed, size, cost and power consumption of the IC. Our products
are used by IC designers in the semiconductor, computer,
consumer electronics, multimedia and telecommunications
industries to automate a significant portion of the IC design
process. We also offer physical design, parasitic extraction,
verification, flow development and library development services,
as well as product maintenance and customer support services.

A majority of our revenue is derived from fees
for licenses of our software products. Perpetual license fees
accounted for 27.7%, 39.6% and 43.1% of total revenue in 2001,
2000 and 1999, respectively. Time-based license fees, which
include both product license fees and service, accounted for
43.9%, 31.6% and 28.1% of total revenue in 2001, 2000 and 1999,
respectively. We also generate service revenue from perpetual
licenses consisting of fees for maintenance and customer
support, which represented 28.4%, 28.8% and 28.8% of total
revenue in 2001, 2000 and 1999, respectively. A majority of our
revenue was generated by licenses and services provided in the
United States. Revenue from non-U.S. sources was 35.1%, 31.7%
and 28.5% in 2001, 2000 and 1999, respectively.

Our growth strategy has included acquisitions of
key technology, product lines, and distributors. During the past
three fiscal years, we have completed four corporate
acquisitions. Two of these acquisitions were accounted for as
poolings of interests, and our consolidated financial statements
have been restated to reflect the effect of the mergers with
Chrysalis and Xynetix. The Maingate and Analogy acquisitions
were accounted for under the purchase method. Accordingly, our
consolidated financial statements do not include the results of
operations, financial position or cash flows prior to their
acquisition:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In December 2001, we completed our purchase of
	Maingate, our distributor in Japan, for approximately
	$11.7 million in cash. We had previously entered into a
	joint venture with Maingate for the purpose of consolidating
	distribution in Japan. Prior to the acquisition, we had an 18.8%
	ownership in Maingate and accounted for the investment using the
	equity method. See Recent Developments below and
	Part III Item 13. Certain Relationships and Related
	Transactions.                                                                             
|
| |  | In March 2000, we completed our acquisition of
	Analogy Inc. for approximately $32.1 million, including
	$7.3 million of liabilities assumed and $0.8 million
	related to the fair value of options assumed. As part of the
	acquisition, we expensed $0.9 million of acquired
	in-process research and development expenses and paid
	$0.9 million in severance. The in-process research and
	development amount was expensed, as the underlying technology
	had not reached technological feasibility and, in our opinion,
	had no probable alternative future use.
|
| |  | In August 1999, we acquired Chrysalis for
	approximately $42 million by issuing approximately
	3,042,000 shares of our common stock in a merger exchange for
	all of the outstanding stock of Chrysalis. We also assumed
	Chrysalis stock options representing the right to purchase
	446,370 shares of our common stock and assumed Chrysalis
	warrants representing the right to purchase 116,213 shares of
	our common stock.                                                                                                                                     
|
| |  | In August 1999, we acquired Xynetix for
	approximately $19 million by issuing approximately
	1,441,000 shares of our common stock in a merger exchange for
	all of the outstanding stock of Xynetix. We also assumed
	outstanding Xynetix stock options representing the right to
	purchase 126,492 shares of our common stock.                                                                                                                                                                                                                                      

In 1998, we invested $10 million into
Forefront Venture Partners L.P., or Forefront, a venture capital
limited partnership that invests in technology start-up
companies. We hold a limited partnership interest representing
53.9% of the equity of the partnership. The partnership is
controlled and managed by a general partnership, a principal of
which, Kenneth Tai, is a member of our board of directors. We
have no voting control of Forefront. We account for this
investment using the equity method of accounting. The investment
in Forefront resulted in an equity loss to us of
$11.4 million in 2001, and equity income of

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$18.8 million in 2000 and $5.7 million
in 1999. During 2001, we received cash distributions from
Forefront totaling $2.5 million. We believe that, due to the
nature of venture capital investing, our investment in Forefront
will be subject to significant fluctuations, which will result
in our recording significant income or losses in the future.


Critical Accounting Policies and
Estimates

Our discussion and analysis of our financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those
related to bad debts, impairment of investments and other
long-lived assets, income taxes, contingencies and litigation.
We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. Our estimates are guided by observing the following
critical accounting policies.

Revenue
Recognition

Revenue consists primarily of fees for perpetual
and time-based licenses (TBL) of our software products and
post-contract customer support (PCS) arrangements. We
classify revenues as perpetual license, TBL, service or revenue
from affiliates. Perpetual revenue consists of software license
revenue from products sold under perpetual license arrangements.
TBL revenue consists of software and PCS revenue from TBL
arrangements. Service revenue consists primarily of PCS sold
under perpetual licenses arrangements. Revenue from affiliates
consists of products sold under perpetual licenses, TBL and PCS
arrangements.

We recognize revenue using the residual method
pursuant to the requirements of Statement of Position
No. 97-2 Software Revenue Recognition
(SOP 97-2), as amended by Statement of Position
No. 98-9, Software Revenue Recognition with Respect
to Certain Arrangements (SOP 98-9).

Under SOP 97-2, revenue attributable to an
element in a customer arrangement is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collectibility is probable.



| |                                        
| | ---------------------------------------
| | Persuasive Evidence of an
	Arrangement:

It is Avant!s standard practice to have a
software licensing agreement (SLA) with each of its customers
that is signed by both Avant! and the customer. The SLA can be
used on its own or as a blanket agreement that governs all
purchase orders (PO) received from a customer. Under this
arrangement, a PO or the SLA can serve as persuasive evidence
that an arrangement exists.



| |                       
| | ----------------------
| | Delivery Has Occurred:

Avant!s software may be either physically
or electronically delivered to its customers. For those products
that are delivered physically, Avant!s standard transfer
terms are FOB shipping point. For electronic delivery of
software, delivery is considered to have occurred when the
customer has been provided with the activation keys that allow
the customer to utilize the software licenses on its hardware.
Avant! does not accept returns of software from customers once
delivery has occurred.

If undelivered elements or services exist in an
arrangement that are essential to the functionality of the
delivered licenses, delivery is not considered to have occurred.

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| |                                  
| | ---------------------------------
| | The Fee is Fixed or Determinable:

The fee Avant! customers pay for its products is
negotiated at the outset of an arrangement, and is based on the
specific volume of product to be delivered. Once contractually
agreed upon, Avant!s license fees are not variable.
Therefore, except in cases where Avant! grants extended payment
terms to a specific customer, Avant!s fees are considered
to be fixed and determinable at the inception of an arrangement.

Prior to July 2001, Avant! considered any payment
terms agreed upon with customers that were, in total, due within
one year, fixed or determinable. A significant majority of
Avant!s perpetual license arrangements total fees
were due within one year or less from the signing date. Any
payment terms granted to customers that exceeded one year were
considered extended payment terms, and therefore, were not
considered to be fixed or determinable. Revenue from
arrangements not considered to be fixed or determinable was
recognized at the lesser of the aggregate amounts due and
payable or the amount of the arrangement fee if the fees had
been fixed or determinable.

Beginning in the third quarter of 2001, Avant!
determined that the risk of future concessions on perpetual
license arrangements with payment terms in excess of
90 days had increased. This determination was made as a
result of the continuing economic downturn in general and the
semiconductor industry in particular as well as the pending and
recently settled litigation against Avant!. As a consequence,
Avant! revised its business practice to consider perpetual
license arrangements with payment terms in excess of
90 days to be extended payment terms.



| |                            
| | ---------------------------
| | Collectibility is Probable:

Avant! typically sells to customers for which
there is a history of successful collection in full. New
customers are subjected to a review of their credit and
financial condition to determine their ability to pay. Existing
customers are reviewed for past collection history before
approval for a new order is granted. Collectibility is assessed
on a customer-by-customer basis. In circumstances where Avant!
believes that collection is risky or not probable it will either
not accept the order or will recognize the related revenue as
cash is received.

Under the residual method, as per SOP 98-9,
revenue is recognized in a multiple element arrangement for
perpetual licenses when company-specific objective evidence of
fair value exists for all of the undelivered elements in the
arrangement, but does not exist for one or more of the delivered
elements in the arrangement. Most of Avant!s perpetual
license arrangements include the first year of PCS in the
contract. Avant! has determined that it has sufficient evidence
to support vendor specific objective evidence (VSOE) for
the PCS portion in perpetual license arrangements. Accordingly,
at the outset of a new perpetual license arrangement with a
customer, Avant! defers revenue for the fair value of its
undelivered elements (i.e., PCS) and recognizes revenue for the
remainder of the arrangement fee attributable to the elements
initially delivered in the arrangement (i.e., software product)
when the basic criteria in SOP 97-2 have been met.

Revenues from TBL arrangements are generally
recognized ratably over the term of the license, as the product
and PCS portions of the TBL arrangements are bundled and not
sold separately. Certain of Avant!s TBL arrangements
include extended payment terms. Revenues from these contracts
are recognized upon delivery of the products at the lesser of
aggregate amounts due and payable or the ratable portion of the
entire fee.

PCS arrangements for perpetual licenses generally
call for Avant! to provide technical support and software
updates. Service revenue is recognized ratably over the term of
the PCS agreement, on a straight-line basis when all revenue
recognition requirements are met.

During the fourth quarter of 2000, Avant! adopted
Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101). The
adoption of SAB 101 did not have a material effect on
Avant!s consolidated financial position or results of
operations.

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Avant! recognized revenue from its affiliate,
Maingate, in the quarter subsequent to the quarter in which
Maingate collected cash from the end users. Avant! recognizes
revenue from its affiliate, Davan Tech, when Avant! receives
cash from Davan Tech.

Accounts
Receivable and Deferred Revenue

Accounts receivable primarily includes amounts
due from customers for which revenue has been recognized. We
maintain an allowance for doubtful accounts for estimated losses
from the inability of our customers to make required payments.
We evaluate our allowance for doubtful accounts based on the
aging of our accounts receivable, the financial condition of our
customers and their payment history, our historical write-off
experience and other assumptions. If the financial condition of
our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.

Deferred revenue includes amounts received from
customers for which revenue has not been recognized. We believe
these amounts represent our contractual obligations for future
performance. We do not recognize deferred revenue for the
unbilled portion of PCS for perpetual licenses because we
believe that these contracts are a form of executory contract in
which we have delivery obligations for software updates and
customer support only if the customer pays fees when due and
payable. Similarly, we do not recognize deferred revenue for the
unbilled portion of our TBLs because we believe that these
contracts are a form of executory contract in which we have a
delivery obligation for new products, software updates and
customer support only if the customer pays fees when due and
payable. Avant!s backlog on December 31, 2001 was
approximately $171 million, compared to approximately
$235 million on December 31, 2000. This backlog
consists primarily of the unbilled portion of TBLs and PCS for
perpetual licenses. Due to the nature of Avant!s business,
we do not consider any of our backlog orders to be firm
commitments from our customers. An increase or decrease in the
backlog should not be considered as an indicator of future
revenues to be recognized by the Company.

Income
Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.

If appropriate, a valuation allowance is recorded
against deferred tax assets if it is more likely than not that
all or a portion of the deferred tax assets will not be
realized. While we have considered future taxable income and tax
planning strategies in assessing the need for a valuation
allowance, in the event we determined that we would not be able
to realize all or a portion of our deferred tax assets in the
future, an adjustment to the deferred tax asset would be charged
to earnings in the period the determination was made.

Impairment of
Long-Lived Assets

We assess the recoverability of our identifiable
tangible and intangible assets under Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of. This statement requires
identifiable tangible and intangible assets to be evaluated for
impairment whenever events or changes in circumstances indicate
that the carrying value of the assets may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net
cash flows expected to be generated by the assets. If an asset
is considered to be impaired, the carrying amount of that asset
is reduced to the fair value, based on discounted future cash
flows, resulting in a charge to earnings.

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Valuation of
Investments

We have an investment in a company that is a
developer and supplier of integrated circuits for personal
computers and personal computer peripheral and multimedia
devices, as well as other investments. We record an investment
impairment charge when we believe an investment has experienced
a decline in value that is other than temporary. We review each
investment for indicators of impairment on a quarterly basis
based primarily on achievement of business plan objectives and
current market conditions, among other factors. The primary
business plan objectives we consider include, among others,
those related to financial performance such as achievement of
planned financial results, liquidity or completion of capital
raising activities, and those that are not primarily financial
in nature, such as the introduction of technology. If it is
determined that an impairment has occurred with respect to an
investment, in the absence of quantitative valuation metrics,
management estimates the impairment and/or the net realizable
value of the investment based upon available information, such
as public- and private-company market comparable information and
valuations completed for similar companies or investments.

Litigation
Costs

The pending litigation and any future litigation
against us and our employees, regardless of the outcome, are
expected to result in substantial costs and expenses to us. Our
legal expenses for all litigation matters were
$14.6 million, $5.8 million and $14.7 million for
the years ended December 31, 2001, 2000 and 1999,
respectively. We record a litigation loss when we determine the
negative outcome of litigation matters to be probable and
reasonably estimable. At December 31, 2001 and 2000, we
accrued $31.5 million and $47.5 million for litigation
issues, respectively.

We currently expect continued substantial legal
costs in the future as a result of our current litigation
issues. Thus, current litigation issues could seriously harm our
business, financial condition and results of operations. In
addition, from time to time, we are subject to legal proceedings
and claims in the ordinary course of business that, even if not
meritorious, could result in the expenditure of significant
financial and managerial resources.

Results of Operations

Revenue.Revenue
consists primarily of fees for perpetual and time-based licenses
of our software products and post-contract customer support
arrangements. We classify revenues as perpetual license, TBL,
service or revenue from affiliates. Perpetual license revenue
consists of software license revenue from products sold under
perpetual license arrangements. TBL revenue consists of software
and PCS revenue from TBL arrangements. Service revenue consists
primarily of PCS sold under perpetual licenses arrangements.
Revenue from affiliates consists of products sold under
perpetual licenses, TBL and PCS arrangements.

For perpetual licenses, revenue is recognized at
the point in time when the basic criteria of SOP 97-2 as
amended by SOP 98-9 have been met. Under a TBL, in
accordance with SOP 97-2, revenue is generally recognized
ratably over the term of the license period.

We are continuing to shift our business model
from emphasizing perpetual license arrangements to emphasizing
TBL arrangements. The shift from perpetual license arrangements
to TBL arrangements is directly related to our emphasis on a
business model that provides a more predictable revenue stream.
This is also the trend in the EDA industry and a preference
among our larger customers. We typically sell TBLs with terms
from one to three years.

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The following table summarizes our revenue mix
over the past three years (in thousands):

|                                          |  |      |         |   |  |      |       |   |  |      |         |   |  |  |       |  |  |   |         |  |  |  |       | 
|----------------------------------------- |  | ---- | ------- | - |  | ---- | ----- | - |  | ---- | ------- | - |  |  | ----- |  |  | - | ------- |  |  |  | ----- | 
|                                          |  | 2001 |         | % |  | 2000 |       | % |  | 1999 |         | %
|                                          |  |      |         |   |  |      |       |   |  |      |         |  
|Revenue from unaffiliated customers       |  |      |         |   |  |      |       |   |  |      |         |   |  |  |       |  |  |   |         |  |  |  |       | 
|Perpetual license revenue                 |  | $    | 95,515  |   |  |      | 24.0  |   |  | $    | 127,439 |   |  |  | 35.6  |  |  | $ | 119,525 |  |  |  | 39.4  | 
|Time-based license revenue                |  |      | 167,302 |   |  |      | 42.0  |   |  |      | 110,437 |   |  |  | 30.8  |  |  |   | 84,784  |  |  |  | 27.9  | 
|Service revenue                           |  |      | 101,326 |   |  |      | 25.4  |   |  |      | 90,138  |   |  |  | 25.2  |  |  |   | 80,346  |  |  |  | 26.5  | 
|                                          |  |      |         |   |  |      |       |   |  |      |         |   |  |  |       |  |  |   |         |  |  |  |       | 
|Total revenue from unaffiliated customers |  |      | 364,143 |   |  |      | 91.4  |   |  |      | 328,014 |   |  |  | 91.6  |  |  |   | 284,655 |  |  |  | 93.8  | 
|                                          |  |      |         |   |  |      |       |   |  |      |         |   |  |  |       |  |  |   |         |  |  |  |       | 
|Revenue from affiliates                   |  |      | 34,527  |   |  |      | 8.6   |   |  |      | 30,086  |   |  |  | 8.4   |  |  |   | 18,965  |  |  |  | 6.2   | 
|                                          |  |      |         |   |  |      |       |   |  |      |         |   |  |  |       |  |  |   |         |  |  |  |       | 
|Total Revenue                             |  | $    | 398,670 |   |  |      | 100.0 |   |  | $    | 358,100 |   |  |  | 100.0 |  |  | $ | 303,620 |  |  |  | 100.0 | 
|                                          |  |      |         |   |  |      |       |   |  |      |         |   |  |  |       |  |  |   |         |  |  |  |       | 

Our total revenue increased 11.3 % in 2001 to
$398.7 million from $358.1 million in 2000, and from
$303.6 million in 1999. Through December 31, 2001,
software price increases have not been a material factor in
Avant!s revenue growth.

Perpetual license revenue decreased by 25.1% to
$95.5 million in 2001 from $127.4 million in 2000.
This decrease in perpetual license revenue is due to the shift
in our business model from sales of perpetual licenses to TBLs.
As a percentage of total revenue, perpetual license revenue
decreased to 24.0% in 2001 from 35.6% in 2000 and 39.4% in 1999.
Compared to 1999, 2000 perpetual license revenue increased from
$119.5 million to $127.4 million.

Beginning in the third quarter of 2001, Avant!
determined that the risk of future concessions on perpetual
license arrangements with payment terms in excess of
90 days had increased. This determination was made as the
result of the continuing economic downturn in general and the
semiconductor industry in particular as well as the pending and
recently settled litigation against Avant!. As a consequence,
Avant! revised its business practice to consider license
arrangements with payment terms in excess of 90 days to be
extended payment term contracts. Prior to this, Avant!
considered any payment terms agreed upon with customers that
were, in total, due within one year, fixed or determinable. As a
result of this change in business practice, Avant! recognized
$5.1 million less of perpetual license revenue in 2001 than
it would have recognized had it not changed this practice.

TBL revenue increased by 51.5% to
$167.3 million, as compared to $110.4 million in 2000
and increased by 30.3% from $84.8 million in 1999 compared
to 2000. The increase in both years is primarily due to
continued demand for our full range of software products and the
shift from sales of perpetual licenses to TBLs. As a percentage
of total revenue, TBL revenue was 42.0%, 30.8% and 27.9% for
2001, 2000 and 1999 respectively.

Services revenue increased 12.4% to
$101.3 million during 2001 from $90.1 million in 2000
and from $80.3 million in 1999. The percentage of
Avant!s total revenue attributable to services increased
to 25.4% in 2001, compared to 25.2% in 2000 and 26.5% in 1999.
The increase was primarily due to continued sales of perpetual
licenses and continuing maintenance renewals from our installed
customer base.

Included in total revenue are sales to two
affiliates, Maingate and Davan Tech. For the years ended
December 31, 2001, 2000 and 1999, revenue from Maingate was
$31.3 million, $25.5 million and $16.8 million,
respectively. Revenue from Davan Tech was $3.2 million,
$4.5 million and $2.2 million for the same periods.
Prior to the acquisition of Maingate at the end of 2001, Avant!
recognized revenue from sales to Maingate in the quarter
subsequent to the quarter in which Maingate collected cash from
the end users. Avant! recognizes revenue from sales to Davan
Tech when Avant! receives cash from Davan Tech.

Costs of Software and
Services.Costs of software consist
primarily of expenses associated with product documentation,
production, personnel and amortization. Costs of software
decreased slightly in 2001 to $5.2 million from
$5.6 million in 2000. As a percentage of software revenue,
costs of software amounted to

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2.2% in 2001, compared with 2.5% in 2000. The
decrease in cost of software resulted primarily from a decrease
in third-party contract maintenance expense. Costs of software
in 1999 were $5.7 million, or 2.8% of software revenue.


Costs of services consist of personnel costs and
other direct and indirect costs associated with maintenance,
customer support and other services. Maintenance includes
activities undertaken after the product is available for general
release to customers to correct errors, make routine changes and
provide additional features. Customer support includes training
classes, telephone product support services, newsletters,
on-site visits and software or data modifications. Costs of
services increased to $24.2 million in 2001 from
$20.1 million in 2000, compared to $17.6 million in
1999, representing 15.4%, 14.8% and 17.7% of services revenue
for 2001, 2000 and 1999, respectively. The increase in costs of
services as a percentage of service revenue in 2001 resulted
primarily from an increase in personnel costs related to an
increase in headcount. The increase in headcount is a result of
the Design Services Group that was established in the first
quarter of 2001 to offer customers direct assistance in the
performance of critical IC design functions. The decrease in
costs of services as a percentage of service revenue in 2000
from 1999 resulted primarily from the reduction in emphasis on
certain design-related consulting services and the related
personnel support. In addition, for 2000 the reduction in costs
of services as a percentage of services revenue reflected higher
revenue growth and improved productivity of our customer support
resources while serving an increasing customer base.

Selling and
Marketing.Selling and marketing
expenses consist primarily of costs, including sales
commissions, of sales representatives, marketing associates,
application engineers and other personnel involved in the sales
process. Selling and marketing expenses also include costs of
advertising, public relations, conferences and trade shows,
facilities, as well as bad debt expense. Selling and marketing
expenses decreased to $98.7 million in 2001 from
$103.0 million in 2000 and $84.7 million in 1999. In
2001, the decrease resulted primarily from decreases in
distributor commissions, incentive compensation and bad debt
expense, offset by sales commission increases. In 2000, the
increase from 1999 resulted primarily from increased headcount,
compensation expense and distributor commissions. In addition,
selling and marketing expenses increased to support the Analogy
products acquired in 2000. Selling and marketing expenses
represented 24.8%, 28.7% and 27.9% of total revenue in 2001,
2000 and 1999, respectively.

Research and
Development.Research and development
expenses consist of company sponsored costs associated with the
development of new products and the enhancement of existing
products. These costs consist primarily of personnel, facilities
and amortization. Research and development expenses increased to
$86.8 million in 2001 from $84.2 million in 2000 and
$71.4 million in 1999. We did not capitalize any software
development costs during 2001, 2000 and 1999. In 2001, the
increase resulted primarily from an increase in headcount,
amortization and consulting expenses offset by a decrease in
incentive compensation. In 2000, the increase was primarily due
to increased headcount and higher incentive compensation for
research and development employees. In addition, research and
development expenses increased in 2000 due to the continued
research and development activities associated with the
acquisition of Analogy. Research and development expenses
represented 21.8% of total revenue in 2001, and 23.5% of total
revenue in both 2000 and 1999. Our policy is to invest heavily
in research and development with the goal of providing
leading-edge products that could generate significant revenue.
In 2001, we continued to expand our international research and
development activities, particularly in China.

General and
Administrative.General and
administrative expenses increased to $47.6 million in 2001
from $39.6 million in 2000 and $37.7 million in 1999.
As a percentage of revenue, general and administrative expenses
were 11.9% in 2001, 11.0% in 2000 and 12.4% in 1999. In 2001,
the increase resulted primarily from increases in legal
expenses, increased leasehold expenses, including a
$4.2 million leasehold write-off, and increases in
severance paid to former employees. The increase was partially
offset by a decrease in facilities and services cost. In 2000,
the increase resulted primarily from hiring additional personnel
and related costs necessary to support our growth. These
increases were partially offset by a decrease in litigation
expenses. Included in general and administrative expenses are
legal fees totaling approximately $14.6 million,
$5.8 million and $14.7 million for the years 2001,
2000, and 1999, respectively, related to

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the various litigation matters. We expect to
incur significant legal costs in the future as a result of our
current litigation matters. See Part I Item 3. Legal
Proceedings.


Merger and In-Process Research and Development
Expenses.In March 2000, we completed
our acquisition of Analogy, Inc. for approximately
$32.1 million, including $7.3 million of liabilities
assumed and $0.8 million related to the fair value of
options assumed. As part of the acquisition, we expensed
$0.9 million of acquired in-process research and
development expenses and paid $0.9 million in severance. The
in-process research and development amount was expensed, as the
underlying technology had not reached technological feasibility
and, in managements opinion, had no probable alternative
future use. The acquisition of Analogy was recorded under the
purchase method of accounting, and, accordingly, the results of
operations of Analogy are included in the consolidated financial
statements from the date of acquisition.

In connection with the August 1999 acquisition of
Chrysalis, we incurred expenses of $4.4 million, which
consisted of fees to professional advisors and others totaling
$2.0 million, $1.2 million of personnel-related costs
and $1.2 million other costs. Substantially all of the our
expenses related to the Chrysalis acquisition consisted of cash
expenditures. There were no unpaid merger expenses from the
acquisition at December 31, 2000, and $3.2 million of
merger-related expenses at December 31, 1999.

In connection with the August 1999 acquisition of
Xynetix, we incurred expenses of approximately
$1.5 million, which consisted of professional fees totaling
$0.6 million, and facilities costs of $0.5 million and
other costs of $0.4 million. Substantially all of our
expenses related to the Xynetix acquisition consisted of cash
expenditures. There were no unpaid merger expenses from the
acquisition at December 31, 2000 and $1.0 million of
merger-related expenses at December 31, 1999.

During the quarter ended June 30, 2000, we
completed our analysis of the remaining liabilities that related
to the August 1999 acquisitions of Chrysalis and Xynetix and
determined that $2.2 million of accrued merger related
expenses related to these acquisitions were no longer required.
Accordingly, these amounts were reversed in the second quarter
of 2000.

Litigation
Settlements.In connection with the
plea agreement to settle the criminal action brought against us
and certain of our current and former employees who were
defendants in this action, we paid $27.0 million in fines
and $195.4 million in restitution in 2001. In connection
with the settlement, we agreed to indemnify certain of the
current and former Avant! employees who were defendants in the
action for the fines assessed against them and to indemnify them
for taxes levied as a result of this indemnification. These
amounts totaled $14.1 million. As a result of the
January 31, 2002, default prove-up hearing the Santa Clara
County Superior court fixed the combined award to Silvaco
International and Silvaco Data Systems at $26.1 million. In
accordance with Statement of Financial Accounting Standards
(SFAS) 5, we recorded this charge as of December 31,
2001. In addition, based on the February 2002 settlement of all
claims between Avant! and Dynasty Capital Services and Randolph
Tom in the amount of $5.4 million, we also recorded this
charge as of December 31, 2001.

In March 2001, agreements to settle the two
securities class action lawsuits established a probable and
estimable loss of $47.5 million. In accordance with
SFAS 5, this loss was recorded as of December 31,
2000. We did not record losses of this nature in 1999. See
Part I Item 3. Legal Proceedings.

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The following table summarizes the litigation
settlement activities for the years ended December 31 (in
thousands):

|                                                      |  |         |         |          |  |         |         |          |  |   |        |  |  |  |   | 
|----------------------------------------------------- |  | ------- | ------- | -------- |  | ------- | ------- | -------- |  | - | ------ |  |  |  | - | 
|                                                      |  |         |         |         
|                                                      |  | 2001    |         | 2000    
|                                                      |  |         |         |         
|                                                      |  | Expense |         | Payments |  | Expense |         | Payments
|                                                      |  |         |         |          |  |         |         |         
|Securities class action                               |  | $       |        |          |  | $       | 47,500  |          |  | $ | 47,500 |  |  |  |  | 
|Santa Clara criminal action restitution               |  |         | 195,400 |          |  |         | 195,400 |          |  |   |       |  |  |  |  | 
|Santa Clara criminal action company fines             |  |         | 27,000  |          |  |         | 27,000  |          |  |   |       |  |  |  |  | 
|Santa Clara criminal action individual fines and
	tax |  |         | 14,137  |          |  |         | 8,534   |          |  |   |       |  |  |  |  | 
|Silvaco                                               |  |         | 26,148  |          |  |         |        |          |  |   |       |  |  |  |  | 
|Dynasty Capital Services and Randolph Tom             |  |         | 5,400   |          |  |         |        |          |  |   |       |  |  |  |  | 
|                                                      |  |         |         |          |  |         |         |          |  |   |        |  |  |  |   | 
|Total                                                 |  | $       | 268,085 |          |  | $       | 278,434 |          |  | $ | 47,500 |  |  |  |  | 
|                                                      |  |         |         |          |  |         |         |          |  |   |        |  |  |  |   | 

Equity Income (Loss) From Unconsolidated
Subsidiaries.We had an equity loss
from unconsolidated subsidiaries of $13.4 million in 2001,
and equity income of $22.3 million and $6.1 million in
2000 and 1999, respectively. Equity income and loss represents
our share of net income and loss from our investments in
Forefront, Maingate and Davan Tech. The equity loss in 2001 and
equity income in 2000 and 1999 was primarily from unrealized
losses and gains in our venture capital investment in Forefront.
We believe that, due to the nature of venture capital investing,
the value of our investment in Forefront may be subject to
significant fluctuation, which may result in recording
significant gains or losses in the future.

Interest Income and Other,
Net.Interest income and other, net
was $6.1 million, $4.4 million and $7.7 million in
2001, 2000 and 1999, respectively. During 2001, interest income
and other, net included $8.2 million of interest income
offset by $2.1 million of interest expense. Interest income
decreased $5.5 million in 2001 from 2000 primarily from a
decrease in short-term investments as a result of the
restitution payments made to Cadence and a decrease in yields on
short-term investments. Interest expense increased by
$2.0 million in 2001 primarily from interest charges
related to the Cadence restitution payments and interest expense
related to the investment in Semiconductor Manufacturing
International Corporation, or SMIC. See Recent
Developments below. Interest income and other, net
included $13.7 million of interest income and
$8.1 million in charitable expenses in 2000.

Income Taxes.For
2001, we reported a loss before income taxes of
$139 million. Included in this loss were
$236.5 million of restitution and other costs related to
the settlement of the Santa Clara criminal action. An additional
$5.4 million of expenses were incurred to settle a dispute
with Dynasty Capital Services, LLP (see Part I Item 3.
Legal Proceedings). Without regard to these expenses, we had
income subject to tax of $103 million and a provision for
income taxes as a percentage of pre-tax income of 37.5%. This
rate was higher than the statutory rate of 35.0% primarily due
the effect of state income taxes, certain merger costs and the
taxation of foreign income repatriated into the U.S.

For 2000 and 1999, income taxes as a percentage
of pre-tax income was 37.9% and 40.1%, respectively. These rates
were higher than the statutory federal rate due primarily to the
effect of state income taxes, certain merger expenses and
in-process research and development expenses that were
non-deductible for income tax purposes.

Liquidity and Capital
Resources.As of December 31,
2001, we had $151.6 million of cash and short-term and
restricted investments, compared to $288.2 million as of
December 31, 2000. We had $62.4 million in working
capital as of December 31, 2001, compared to $203.4 million
as of December 31, 2000. Cash, short-term investments and
working capital decreased in 2001 primarily due to payments of
$278.4 million related to the Santa Clara criminal action
and the settlement of two class action lawsuits.

Net cash used in operating activities was
$106.4 million in 2001 and cash provided by operating
activities was $110.6 million and $95.0 million in
2000 and 1999, respectively. Net loss for the year ended
December 31, 2001 of $177.7 million included non-cash
charges for deferred income taxes of

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$14.2 million, depreciation and amortization
of $27.8 million and equity losses from investments and
joint ventures of $13.4 million.


Cash flows from changes in operating assets and
liabilities in 2001 compared to 2000 included a decrease in
accounts receivable, accrued compensation and accrued
litigation. The decrease in accounts receivable of
$30.2 million in 2001, from $76.6 million in 2000,
resulted from significant cash collections. We believe that our
allowance for doubtful accounts is adequate. The decrease in
accrued compensation primarily resulted from a decrease in
incentive compensation. The decrease in accrued litigation of
$16 million is due to payments for various legal
settlements. See Part I, Item 3. Legal Proceedings.

Cash provided by investing activities was
$116.4 million in 2001. Cash used for investing was
$59.9 million and $147.8 million in 2000 and 1999,
respectively. In 2001, $151.2 million of cash was provided
by the excess cash from the net proceeds from the sale and
maturities of short-term investments. Cash provided by investing
activities included proceeds from the net investment in SMIC of
$7.5 million and a $2.5 million distribution of
capital from Forefront. Cash used in investing activities
included the purchase of zero coupon convertible bonds in the
amount of $30 million issued by Acer Laboratories, Inc.
(Ali) in March 2001. ALi is a Taiwanese developer and supplier
of integrated circuits for personal computers and personal
computer peripheral and multimedia devices. ALi was established
in 1993 through a spin-off by Acer Incorporated, which remains
the major shareholder of ALi. In addition to ALi, cash used in
investing activities included investments and joint ventures of
$8.1 and capital expenditures of $6.1 million.

Net cash provided by financing activities was
$5.2 million and $6.4 million in 2001 and 1999,
respectively. Net cash used in financing activities was
$24.0 million in 2000. Cash of $11.9 million was
received in 2001 from the exercise of stock options and the sale
of stock through our employee stock purchase plan. During the
first quarter of 2000, we announced a stock repurchase program
to buy back up to 6 million shares, or 15%, of our
outstanding common stock. As of December 31, 2000, cash of
$66.3 million was used to purchase 4.1 million shares
of our common stock. In January 2001, we purchased an additional
357,000 shares for $6.5 million.

In connection with the Silvaco litigation, we had
previously been required to post two bonds. One of the bonds was
collateralized by a $23.6 million irrevocable standby
letter of credit. In December 2001, the collateralized bond was
released, and the standby letter of credit was cancelled.
Subsequent to year-end, the Santa Clara County Superior Court
held a default prove-up hearing, where the court fixed the
combined award to Silvaco at $26.1 million. In February
2002, we placed $26.1 million in a restricted escrow
account. See Part I Item 3. Legal Proceedings.

Avant! generally leases all its facilities under
noncancelable operating lease agreements, which expire over the
next eleven years.

The following table sets forth Avant!s
commitments under the terms of its operating leases (in
thousands):

|                 |  |      |       |      |  |      |       |      |  |      |       |            |  |   |       |  |  |   |       |  |  |   |        | 
|---------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                 |  | 2002 |       | 2003 |  | 2004 |       | 2005 |  | 2006 |       | Thereafter
|                 |  |      |       |      |  |      |       |      |  |      |       |           
|Operating leases |  | $    | 9,861 |      |  | $    | 9,577 |      |  | $    | 8,431 |            |  | $ | 6,960 |  |  | $ | 6,592 |  |  | $ | 27,776 | 

In addition, Avant! has certain employment and
severance agreements with several of its executives and key
employees. These agreements have provisions relating to a
voluntary resignation or involuntary termination of employment
that occurs within six months after a change of control event,
which includes, under the terms of certain employment
agreements, if Gerald C. Hsu ceases to be the Chairman and Chief
Executive Officer of Avant!. In the case of a termination of
employment after such a change of control, the employee will
receive a cash termination payment based on a multiple of the
employees base salary in effect at that time. In addition,
certain agreements provide for acceleration of all unvested
stock options and an additional payment in consideration of
covenants not to compete. If all such termination payments were
payable as of December 31, 2001, the aggregate cash payout
under employment/or severance agreements to the executives and
employees would be approximately $55 million.

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We believe that our existing cash balances and
short-term investments, together with cash flow from operations,
will be sufficient to meet our liquidity requirements through at
least the end of 2002, without regard to the potential
consequences of any adverse judgments in any pending litigation
matters.

Recent Developments

Purchase of
Maingate.At the end of 2001, we
completed our purchase of Maingate based on a formula agreed to
by us and Synopsys, which was set forth in the Synopsys merger
agreement. The final purchase price was approximately
$11.7 million in cash. We had previously entered into a
joint venture with Maingate for the purpose of consolidating
distribution in Japan. Prior to the acquisition, Avant! had an
18.8% ownership interest in Maingate and the remaining Maingate
interests were owned by Gerald C. Hsu, our Chairman, Noriko
Ando, a former executive officer, and the Eigen Fund, whose
owners include Moriyuki Chimura, an Avant! director. Prior to
the acquisition, we accounted for our investment using the
equity method. Avant!s share of equity earnings are
included in the accompanying consolidated statement of earnings
as equity income from investments and joint ventures. See Part
III Item 13. Certain Relationships and Related Transactions.

Agreement and Plan of
Merger.On December 3, 2001, we
announced that we had entered into a merger agreement with
Synopsys, Inc. under which we will merge with and into Maple
Forest Acquisition L.L.C., a Delaware limited liability company
and a direct wholly owned subsidiary of Synopsys. Under the
merger agreement, our stockholders will receive 0.371 shares of
Synopsys common stock for each share of Avant! common stock
owned. In addition, the merger agreement provides that upon
completion of the merger, stock options to purchase our common
stock granted to our employees and directors under our stock
option plans that are outstanding and not exercised immediately
before completing the merger will become options to purchase
Synopsys common stock, except for the options granted to
non-employee directors and Gerald C. Hsu. The replacement
options issued in the merger will generally have the same terms
and conditions as were applicable under our stock option plans,
except that the number of common shares subject to such stock
options, and the exercise price of such stock options, will each
be adjusted according to the exchange ratio in the merger
agreement. The merger is subject to certain closing conditions,
including, among other things, the approval of Avant!
stockholders of the merger, approval of Synopsys stockholders of
the issuance of Synopsys common stock in connection with the
merger, expiration or termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act and other
customary closing conditions.

Investment in SMIC.We invested an additional $55 million in the first quarter
of 2001 in SMIC, a development stage company in the process of
establishing a semiconductor fabrication facility in China, for
a total investment of $62.5 million. We were scheduled to
make further investments of $12.5 million on
December 15, 2001, and $25.0 million on June 15,
2002. In October 2001, we terminated our investment in SMIC.
Pursuant to the agreement terminating our investment, the entire
$62.5 million invested by us was returned to us and we were
relieved of any obligation to invest additional funds in SMIC.

Investment in ACER Laboratories,
Inc.We purchased zero coupon
convertible bonds in the amount of $30 million issued by
ALi. The bonds mature on March 30, 2004, and are redeemable
on that date for an amount equal to 107% of the original
principal amount.

The bonds are convertible until February 29,
2004, into ordinary shares of ALi at the our option, subject to
certain periods during which, under Taiwanese law, ALis
stock transfer records are required to be closed. The conversion
price is US$1.835 per share, subject to certain events set out
in the bond agreement including the making of a free
distribution or bonus issue of shares, the subdivisions,
consolidations or reclassifications of ALis ordinary
shares, and the declaration of a dividend of shares. The
conversion price is also subject to downward adjustment on
March 30, 2002 and March 30, 2003, if the average
closing price of the ordinary shares is less than the applicable
conversion price on such date. If we were to convert the bonds
at the current conversion price, we would receive approximately
10.4% of the outstanding shares of ALi.

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We have the right to cause ALi to redeem the
bonds on March 30, 2003, for the principal amount of the
bonds. ALi has the right to redeem the bonds, in whole or in
part, for the principal amount if the closing price of ALi
common shares on the trading stock market, the Republic of China
Over-the-Counter Securities Exchange, in U.S. dollars,
calculated at the then prevailing exchange rate, is at least
140% of the conversion price for 30 consecutive days. ALi may
exercise its right to redeem the bonds by giving notice at least
30 days, but not more than 60 days, prior to the date
of redemption. Notice may not be given prior to ten days
following the end of the 30-consecutive-day period described
above, and not before the first anniversary of the date of the
purchase of the bonds.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statements of Financial Accounting
Standards No. 141, Business Combinations (SFAS
141) and No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 requires that the purchase
method of accounting be used for all business combinations
initiated after June 30, 2001, and specifies criteria
intangible assets acquired in a purchase method business
combination must meet to be recognized apart from goodwill. SFAS
142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions
of SFAS 142.

We adopted the provisions of SFAS 141 effective
July 1, 2001. Under SFAS 141, goodwill and intangible
assets determined to have indefinite useful lives acquired in a
purchase business combination completed after June 30,
2001, but before SFAS 142 is adopted will not be amortized, but
will continue to be evaluated for impairment in accordance with
SFAS 121. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001, will continue
to be amortized and tested for impairment in accordance with
current accounting guidance until the date of adoption of SFAS
142.

Upon adoption of SFAS 142, we will evaluate
existing intangible assets and goodwill that were acquired in
prior purchase business combinations, and make any necessary
reclassifications in order to conform with the new criteria in
SFAS 142 for recognition of intangible assets apart from
goodwill. Upon adoption of SFAS 142, we will be required to
reassess the useful lives and residual values of all intangible
assets acquired, and make any necessary amortization period
adjustments. In addition, we will be required to test intangible
assets with indefinite useful lives and goodwill for impairment
in accordance with the provisions of SFAS 142 within the
six-month period following adoption. Any impairment loss will be
measured as of the date of adoption and recognized as the
cumulative effect of a change in accounting principle. Any
subsequent impairment losses will be included in operating
activities.

We will adopt SFAS 142 on January 1, 2002.
As of December 31, 2001, unamortized goodwill is
$14.6 million, which will no longer be amortized subsequent
to the adoption of SFAS 142. Related goodwill amortization
expense for 2001, 2000 and 1999 was $11.8 million,
$12.9 million and $8.6 million, respectively. Because
of the extensive effort needed to comply with adopting SFAS 142,
it is not practicable to reasonably estimate the impact of
adopting these statements on our financial statements at the
date of this report, including whether we will be required to
recognize any transitional impairment losses.

In October 2001, the FASB issued Statement of
Financial Accounting Standards No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS
144). SFAS 144 supersedes SFAS 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30, Reporting
Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS
144 develops one accounting model for long-lived assets that are
to be disposed of by sale. SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell.
Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with
operations that (1) can be distinguished from the rest of
the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal

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transaction. The provisions of this Statement are
effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods
within those fiscal years, with early application encouraged. We
do not expect a significant impact on our financial condition or
results of operations from the adoption of this statement
because the impairment assessment under SFAS 144 is largely
unchanged from SFAS 121.







|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure
	About Market Risk, Derivatives and Financial
	Instruments

Foreign Currency Hedging Instruments

We transact business in various foreign
currencies. Accordingly, we are subject to exposure from adverse
movements in foreign currency exchange rates. There were no
hedging contracts outstanding as of December 31, 2001. Net
losses related to hedging contracts and foreign exchange
transactions were minimal in 2001, 2000, and 1999.

We assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis. We
do not use derivative financial instruments for speculative
trading purposes, nor do we hedge our foreign currency exposure
in a manner that entirely offsets the effects of changes in
foreign exchange rates. We regularly review our hedging program
and may as part of this review determine at any time to change
our hedging program.

Fixed Income Investments

We place our investments with high-credit,
quality issuers and endeavor to limit the amount of our credit
exposure to any one issuer. Our general policy is to limit the
risk of principal loss and ensure the safety of invested funds
by limiting market and credit risk. Our exposure to market risks
for changes in interest rates arises from our investments in
debt securities issued by U.S. government agencies and corporate
debt securities. All highly liquid investments with maturity of
90 days or less at the date of purchase are considered to
be cash equivalents. We do not expect any material loss with
respect to our investment portfolio.

The following table presents the carrying value
and related weighted average annualized return rates for our
investment portfolio. The carrying value approximates fair value
at December 31, 2001, in thousands:

|                                      |  |          |        |             |  |  |      |  
|------------------------------------- |  | -------- | ------ | ----------- |  |  | ---- | -
|                                      |  | Carrying |        | Average    
|                                      |  | Amount   |        | Return Rate
|                                      |  |          |        |            
|Cash equivalents-variable rates       |  | $        | 66,527 |             |  |  | 2.38 | %
|Short-term investments-variable rates |  |          | 29,747 |             |  |  | 2.72 | %
|                                      |  |          |        |             |  |  |      |  
|                                      |  | $        | 96,274 |             |  |  | 2.50 | %

As of December 31, 2001, we had an
investment portfolio of fixed income securities, excluding those
classified as cash and cash equivalents, of $29.7 million. These
securities, like all fixed income instruments, are subject to
interest rate risk and will fall in value if market interest
rates increase. If market interest rates were to increase
immediately and uniformly by 100 basis points from levels as of
December 31, 2001, the fair value of the portfolio would
decline by approximately $0.8 million.

As of December 31, 2001, the underlying
maturities of financial instruments are $72.7 million
within one year and $23.6 million from 2003 to 2007.






|        |                                                          
|------- | ---------------------------------------------------------
|Item 8. | Consolidated Financial Statements and
	Supplementary Data

Reference is made to the financial statements
listed under the heading (a)(1) Consolidated Financial
Statements of Item 14 hereof, which financial
statements are incorporated herein by reference in response to
this Item 8, and to the schedule listed under the heading
(a)(2) Financial Statement Schedule, which is
incorporated herein by reference in response to this Item 8.

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial Disclosure

None.




PART III.






|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the
	Registrant

Our executive officers and directors on
December 31, 2001 were:

|                     |  |     |    |          |  |                                                         
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Gerald C. Hsu        |  |     | 56 |          |  | Chairman of the Board of Directors and Chief
	Strategist
|Paul Lo              |  |     | 42 |          |  | President                                               
|Howard Ko            |  |     | 46 |          |  | Executive Operating Officer                             
|Amy Sakasegawa       |  |     | 42 |          |  | Executive Operating Officer of Sales                    
|Viraj J. Patel       |  |     | 39 |          |  | Head of Finance                                         
|Scott Spangenberg    |  |     | 49 |          |  | Head of Corporate Accounting                            
|Moriyuki Chimura     |  |     | 53 |          |  | Director                                                
|Nelson Lane Kelley   |  |     | 64 |          |  | Director                                                
|Toyohiko Muraki      |  |     | 59 |          |  | Director                                                
|Charles L. St. Clair |  |     | 71 |          |  | Director                                                
|Kenneth Tai          |  |     | 51 |          |  | Director                                                
|Dan Taylor           |  |     | 63 |          |  | Director                                                

Gerald C. Hsu joined Avant! in March 1994 and
served as our President and Chief Executive Officer until June
2001when he resigned these positions and took on the position of
Chief Strategist. Mr. Hsu has served as a director since
March 1994 and has been Chairman of the Board since November
1995. From July 1991 to March 1994, Mr. Hsu was employed by
Cadence Design Systems, Inc., an electronic design automation
company, where his last position was President and General
Manager of the IC Design Group. Mr. Hsu is the father of
John H. Hsu who served as Avant! Asia President and General
Manager from April 2000 through May 2001. Mr. Hsu holds an
M.S. in Oceanic Engineering from the Massachusetts Institute of
Technology, an M.S. in Mechanics and Hydraulics from the
University of Iowa and a B.S. in Applied Mathematics from the
National Chung-Hsing University. The Santa Clara District
Attorney filed a criminal complaint against Mr. Hsu, Avant!
and certain other of Avant!s former employees alleging
conspiracy to commit trade secret theft, conspiracy to withhold
and conceal stolen property, conspiracy to commit securities
fraud, theft of trade secrets, withholding or concealing stolen
property, making an unauthorized copy of an article containing a
trade secret, and committing a fraudulent practice in connection
with the offer or sale of a security. On May 22, 2001, Avant!
entered pleas of no contest to conspiracy to misappropriate
trade secrets, two counts of trade secret misappropriation, and
a violation of California corporate securities law. In addition,
Mr. Hsu pled no contest to conspiracy to misappropriate
trade secrets, failure to return stolen property, and a
violation of California corporate securities law. See Part I
Item 3. Legal Proceedings.

Paul Lo has served as our President since July
2001. From September 2000 to July 2001, Dr. Lo served our
West Chief Operating Officer. In addition, he served as the Head
of Western Engineering from April 2000 through July 2001.
Dr. Lo also served as Head of Research and Development in
Taiwan from March 1997 to April 2000, while concurrently serving
as Head of Engineering in Asia from October 1999 to April 2000.
Dr. Lo joined Avant! in 1995 from Quickturn Design Systems,
where he worked on an HDL based logic emulation product. Dr. Lo
holds a Ph.D. and an M.S. degree in Electrical Engineering from
University of Southern California.

Howard Ko has served as our Executive Operating
Officer since July 2001. From February 2001 to July 2001,
Dr. Ko served as our General Manager of the Mixed
Technology Division and from March 2000 to

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February 2001 served as Head of the System
Product Line. From November 1996 to March 2000, Dr. Ko was
Vice President of Engineering at Analogy, Inc., before its
acquisition by Avant!. Prior to Analogy, Dr. Ko served as
Director of Engineering at Mentor Graphics Inc., having various
responsibilities such as analog and mixed signal, hardware
modeling, and emulation hardware at various times.
Dr. Howard Ko received his Ph.D. in Electrical Engineering
& Computer Science from UC Berkeley, and graduated with a
B.S. degree in Electrical Engineering from the National Taiwan
University.


Amy Sakasegawa has served as our Executive
Operating Officer of Sales since September 2001 and as Head of
Global Sales since May 2001. From October 2000 to May 2001,
Ms. Sakasegawa served as Head of West Sales which includes
North America and Europe Sales and Support. Prior to that time,
Ms. Sakasegawa served as a Sales Section Manger in the
Silicon Valley territory. Ms. Sakasegawa has been with Avant!
since September, 1993,through the acquisition of ISS.Prior to working for Avant!, Ms. Sakasegawa held both
technical support and sales positions within the EDA industry,
serving at companies including Daisy Systems, ECAD, Cadence
Design Systems, and ISS. Ms. Sakasegawa received her
bachelors degree in business administration from San Jose
State University.

Viraj J. Patel has served as Head of Finance
since August 2000. Between November 1999 and August 2000, he
served as our Controller. Prior to joining Avant!,
Mr. Patel worked for Pall Corporation, a leader in the
filtration, separations and purification industry where he
worked as the Group Controller and Chief Accounting Officer from
1989 to October 1999. Mr. Patel worked for
PricewaterhouseCoopers LLP prior to 1989. Mr. Patel
received his B.B.A in Accounting in 1983 from Pace University in
New York. Mr. Patel is also a Certified Public Accountant.

Scott Spangenberg has served as Head of Corporate
Accounting since July 2001. From September 2000 to February
2001, Mr. Spangenberg was Avant!s Corporate
Controller. Prior to joining Avant!, he served as Chief
Financial Officer for Communications Product Development Inc., a
global software and systems company from April 1999 to September
of 2000. From June 1988 to April 1999, Mr. Spangenberg worked
for Cascade Corporation, a manufacturer of materials handling
equipment and related technologies, where he served as Corporate
Controller. Mr. Spangenberg received his MBA from the
University of Portland and graduated with a bachelors
degree in business from Oregon State University.
Mr. Spangenberg is also a Certified Public Accountant.

Moriyuki Chimura has served as one of our
directors since March 1998. Since December 2001,
Mr. Chimura has served on the Presidents staff.Mr. Chimura previously served as the President of
Maingate from September 2000 to December 2001. Prior to that, he
served as CEO Staff of Avant! from May 2000 to September 2000,
Executive Operating Officer, Engineering from April 1999 to May
2000 and Executive Staff, Customers from August 1998 to March
1999. Prior to joining us, he was General Manager of Galax!,
Inc., a subsidiary of Avant!, from April 1998 to July 1998.
Prior to joining Galax!, from April 1997 to March 1998,
Mr. Chimura served as President of Panasonic Semiconductor
Development Company, a division of Matsushita Semiconductor
Corporation of America and a developer of micro controller
systems and ASIC products. From April 1992 to March 1997,
Mr. Chimura served as General Manager of the Semiconductor
Group of Matsushita Electronics Corporation. Mr. Chimura
holds an M.S. in Electrical Engineering from Gifu University.

Nelson Lane Kelley has been one of our directors
and has served as a member of the Audit Committee since
September 2000. Dr. Kelley has been a Professor of
International Management at the University of Hawaii since 1981.
At the University of Hawaii, he currently serves as the Chair of
the International Management Department, a position that he also
held from 1981 to 1988. In 1996, Dr. Kelley was a visiting
scholar under the Fullbright program at Korea University. From
1992 to 1993, Dr. Kelley was a visiting professor at the
Chinese University of Hong Kong and is now serving as its
External Examiner. In 1990, he was a visiting fellow at KDI, a
Korean think-tank. Dr. Kelley was the University of
Hawaiis Director of Graduate Studies from 1986-1990 and
Director and Founder of the Pacific Asia Consortium for Business
Education and Research. He has also served as president of the
Association for Business Simulation and Experiential Learning
and as a consultant and executive trainer for many U.S.,
Polynesian and Asian firms. Dr. Kelley holds a Ph.D. in
Management from North Texas State University.

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Toyohiko Muraki has been a director of Avant! and
has served as a member of both the Audit Committee and
Compensation Committee since September 2000. Dr. Muraki has
served as the President of Advanced Technology Transfer, Inc.,
an engineering consulting services provider, since he founded
that corporation in 1985. Dr. Muraki also serves as a
member of the Nuclear Quality Assurance Committee of the
American Society of Mechanical Engineers. From 1975 to 1985, he
served as engineer and later as manager at Atomic Energy of
Canada, EDS Nuclear and Computech Engineering. From 1972 to
1974, he was a researcher at the Massachusetts Institute of
Technology. Dr. Muraki holds an M.S. and a Ph.D. in Naval
Architecture from the University of Tokyo.

Charles St. Clair served us as Director of
Administration at our RTP Facility in Durham, North Carolina,
from June 1996 to April 1997 and was employed by us as a
consultant from April 1997 to September 2000. He has been a
director since September 1997 and served as a member of the
Audit Committee and the Compensation Committee until
October 1, 2000. Mr. St. Clair served as Secretary of
Avant! from September 1998 until September 2000. From February
1995 to March 1996, Mr. St. Clair was employed by Interkiln
Corporation of America as Director, Southern Africa Operations.
From January 1993 to January 1995, he was employed by
Deloitte & Touche as an Industrial Advisor to the
Botswana Development Corporation Ltd. Mr. St. Clair holds a
B.S. in Economics and Management from Arizona State University
and a B.F.T., Latin America from the American Graduate School
for International Management.

Kenneth Tai has served as a director since
October 1999, Mr. Tai has also served as a member of the
Audit Committee since December 15, 1999. Mr. Tai has
been the Chairman of InveStar Capital, Inc., a venture capital
management firm based in Taiwan, since March 1996. Since April
1998, he also has served as the Chairman of DigiTimes
Publication, Inc., a daily newspaper addressing technology
issues in Taiwan. Mr. Tai is a member of Forefront Venture
Partners, L.P., a limited partnership that invests primarily in
technology start-up companies, in which we hold 53.9% of the
limited partnership interests. From January 1995 to February
1998, Mr. Tai served as the Chairman of interNex
Information Services, Inc., a California-based Internet service
provider. Mr. Tai is currently a director of AltiGen
Communications, Inc. and eleven private companies in the
semiconductor, software and telecommunication fields both in the
United States and in Taiwan. Mr. Tai was a co-founder of
the Acer Group, and held various positions with the Acer Group,
including Vice President of Worldwide Sales and Marketing, and
President of the Acer Group USA from 1990 to March 1993.
Mr. Tai holds a B.S. degree in Electrical Engineering from
the National Chiau Tung University in Taiwan and an MBA from
Tam-kang University in Taiwan.

Daniel Taylor has been a director of Avant! since
January 1999. Mr. Taylor became a member of the
Compensation Committee on April 1, 1999. He also served as
a member of the Audit Committee from April 1, 1999 to
November 29, 1999. Mr. Taylor has served as a planning
and management consultant for the Associates in Rural
Development, a community development and environmental
protection firm, with headquarters in Vermont. His work has
taken him to China, Burma, Indonesia, Pakistan and Uganda. He
intermittently lectured in Geography and Natural Resources
management at the University of Hawaii and at the Santa Rosa
Junior College since 1998. He served as a natural and cultural
resource manager for the U.S. National Park Service from 1968 to
1995. Mr. Taylor holds an M.A. in Geography from San Francisco
State University.

Section 16(a) Beneficial Ownership Reporting
Compliance

The members of the Board, the executive officers
of Avant! and persons who hold more than 10% of Avant!s
outstanding common stock are subject to the reporting
requirements of Section 16(a) of the Securities Exchange
Act of 1934, which require them to file reports with respect to
their ownership of Avant!s common stock and their
transactions in such common stock. Based solely on our review of
the copies of such reports and written representations from
certain reporting persons that certain reports were not required
to be filed by such persons, we believe that all of our
directors, officers and beneficial owners complied with all of
the filing requirements applicable to them with respect to
transactions during the year ended December 31, 2001,
except that: Mr. Spangenberg inadvertently failed to timely
file a Form 3 upon becoming an officer, and a Form 4
in respect of one transaction involving the companys
common stock

43



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##### Table of Contents



affected in 2001; Ms. Sakasegawa
inadvertently failed to timely file a Form 3 upon becoming
an officer; Dr. Ko timely filed a Form 3 upon becoming
an officer, however he inadvertently failed to report the number
of shares of the companys common stock beneficially owned
at that time; Mr. Taylor inadvertently failed to timely
file a Form 5 in respect of one transaction involving the
companys common stock affected in 2001; and
Mr. Kelley inadvertently failed to timely file a
Form 5 in respect of one transaction involving the
companys common stock affected in 2001. The foregoing
officers and directors subsequently made the appropriate filings
to report or correct these transactions.





Item
11.     Executive
Compensation

Summary of Executive Compensation

The following Summary Compensation Table sets
forth the compensation earned by the President of Avant!, the
four most highly compensated persons who were serving as
executive officers of Avant! as of December 31, 2001, and
two other individuals who would have been among the most highly
compensated officers if they had been executive officers at year
end (collectively, the Named Officers), each of
whose salary and bonus for 2001 exceeded $100,000 for services
rendered in all capacities to Avant! and our subsidiaries for
that fiscal year. Salary and bonus figures include amounts
deferred under Avant!s 401(k) plan as well as amounts
earned in the stated year but not yet paid or paid in the
subsequent year. Avant! did not grant any stock appreciation
rights or make any long-term incentive payments during the years
covered by the table.

|                             |                                |      |      |            |  |                     |           |                  |  |             |           |              |  |  |           |     |  |  |         |           |  |  |           |        | 
|---------------------------- | ------------------------------ | ---- | ---- | ---------- |  | ------------------- | --------- | ---------------- |  | ----------- | --------- | ------------ |  |  | --------- | --- |  |  | ------- | --------- |  |  | --------- | ------ | 
|                             |                                |      |      |            |  |                     |           |                  |  | Long Term   |           |             
|                             |                                |      |      |            |  |                     |           | Compensation     |  |            
|                             |                                |      |      |            |  | Annual Compensation |           |                  |  |            
|                             |                                |      |      |            |  |                     |           | Securities       |  | All Other  
|Name and Principal Positions |                                |      |      |            |  |                     |           | Other Annual     |  | Underlying  |           | Compensation
|as of December 31, 2001      |                                | Year |      | Salary ($) |  | Bonus ($)           |           | Compensation ($) |  | Options (#) |           | ($)(1)      
|                             |                                |      |      |            |  |                     |           |                  |  |             |           |             
|Gerald C. Hsu                |                                |      | 2001 |            |  |                     | 1,600,000 |                  |  |             | 2,373,000 |              |  |  | 4,590,000 | (2) |  |  |        |           |  |  | 5,250     |       
|                             | Chairman and Chief Strategist  |      |      | 2000       |  |                     |           | 1,200,000        |  |             |           | 2,800,000    |  |  |           |     |  |  |         | 1,100,000 |  |  |           | 5,250  | 
|                             |                                |      |      | 1999       |  |                     |           | 800,000          |  |             |           | 1,600,000    |  |  |           |     |  |  |         | 300,000   |  |  |           | 5,000  | 
|Paul Lo                      |                                |      | 2001 |            |  |                     | 347,500   |                  |  |             | 248,180   |              |  |  |           |     |  |  | 180,000 |           |  |  | 5,250     |       
|                             | President                      |      |      | 2000       |  |                     |           | 198,735          |  |             |           | 530,878      |  |  |           |     |  |  |         | 20,000    |  |  |           | 5,250  | 
|                             |                                |      |      | 1999       |  |                     |           | 147,769          |  |             |           | 91,659       |  |  |           |     |  |  |         |          |  |  |           |       | 
|Howard Ko(3)                 |                                |      | 2001 |            |  |                     | 277,270   |                  |  |             | 273,119   |              |  |  |           |     |  |  | 50,000  |           |  |  | 5,250     |       
|                             | Executive Operating Officer    |      |      | 2000       |  |                     |           | 204,000          |  |             |           | 144,000      |  |  |           |     |  |  |         | 10,000    |  |  |           | 2,350  | 
|                             |                                |      |      | 1999       |  |                     |           |                 |  |             |           |             |  |  |           |     |  |  |         |          |  |  |           |       | 
|Amy Sakasegawa               |                                |      | 2001 |            |  |                     | 181,000   |                  |  |             | 323,771   |              |  |  |           |     |  |  | 31,000  |           |  |  | 5,250     |       
|                             | Executive Operating Officer of |      |      | 2000       |  |                     |           | 111,500          |  |             |           | 290,530      |  |  |           |     |  |  |         |          |  |  |           | 5,250  | 
|                             | Sales                          |      |      | 1999       |  |                     |           | 72,500           |  |             |           | 183,822      |  |  |           |     |  |  |         |          |  |  |           | 5,000  | 
|Viraj J. Patel(4)            |                                |      | 2001 |            |  |                     | 172,000   |                  |  |             | 110,437   |              |  |  |           |     |  |  | 32,000  |           |  |  | 5,250     |       
|                             | Head of Finance                |      |      | 2000       |  |                     |           | 172,000          |  |             |           | 81,305       |  |  |           |     |  |  |         |          |  |  |           | 5,250  | 
|                             |                                |      |      | 1999       |  |                     |           | 17,780           |  |             |           | 10,000       |  |  |           |     |  |  |         | 4,000     |  |  |           |       | 
|Noriko Ando(5)               |                                |      | 2001 |            |  |                     | 378,771   |                  |  |             | 182,500   |              |  |  |           |     |  |  | 176,000 |           |  |  | 1,051,532 | (5)   
|                             | Former Executive Operating     |      |      | 2000       |  |                     |           | 350,000          |  |             |           | 1,110,000    |  |  |           |     |  |  |         | 50,000    |  |  |           |       | 
|                             | Officer, Operations            |      |      | 1999       |  |                     |           | 270,942          |  |             |           | 517,451      |  |  |           |     |  |  |         |          |  |  |           |       | 
|John H. Hsu(6)               |                                |      | 2001 |            |  |                     | 304,967   |                  |  |             | 222,773   |              |  |  |           |     |  |  | 178,000 |           |  |  | 1,096,621 | (1)(6)
|                             | Former Asia President and      |      |      | 2000       |  |                     |           | 209,996          |  |             |           | 778,629      |  |  |           |     |  |  |         | 90,000    |  |  |           | 5,250  | 
|                             | General Manager                |      |      | 1999       |  |                     |           | 107,882          |  |             |           | 7,000        |  |  |           |     |  |  |         |          |  |  |           | 2400   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents amounts contributed to the
	executives 401K-plan account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Represents payment by Avant! of the
	$2.7 million fine assessed against Mr. Hsu in the
	Santa Clara criminal action, plus $1,890,000 accrued for
	reimbursement of taxes estimated to be payable by Mr. Hsu
	as a result of Avant!s payment of this fine. Amounts do
	not include $0.2 million, $0.1 million and
	$0.1 million of litigation and related expenses paid by
	Avant! in 2001, 2000 and 1999, respectively, in connection with
	the Santa Clara criminal action, the Avant!/ Cadence litigation
	and other matters. Avant! has agreed to indemnify Mr. Hsu
	for any actual tax liability attributable to

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | payment of these amounts. See Part I
	Item 3. Legal Proceedings and Part III Item 13.
	Certain Relationships and Related Transactions.                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Dr. Ko joined Avant! through the acquisition
	of Analogy in March 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Mr. Patels employment with Avant!
	began in November 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(5) | Ms. Ando resigned as Executive Operating
	Officer, Operations in July 2001, but remained an employee of
	Avant! until December 3, 2001. Concurrently with the
	execution of the Synopsys merger agreement, Ms. Ando
	entered into a separation agreement with Avant! pursuant to
	which Ms. Ando voluntarily terminated her employment with
	Avant! effective December 3, 2001. Under the separation
	agreement, Ms. Ando received (1) $1,050,000 representing a
	severance payment and (2) $1,523 representing unpaid salary
	and vacation pay.
|   
|(6) | Mr. John Hsu resigned as Asia President and
	General Manager in May 2001, but remained an employee of Avant!
	until December 3, 2001. Concurrently with the execution of
	the Synopsys merger agreement, Mr. Hsu entered into a
	separation agreement with Avant! pursuant to which Mr. Hsu
	voluntarily terminated his employment with Avant! effective
	December 3, 2001. Under the separation agreement,
	Mr. Hsu received (1) $1,050,000 representing a severance
	payment and (2) $43,621 representing unpaid salary and
	vacation pay.    

Summary Of Option Grants

The following table provides certain summary
information concerning grants of options to the Named Executive
Officers of Avant! during the year ended December 31, 2001.

Option Grants in the Last Fiscal
Year

|                  |  |            |         |              |  |                |     |            |  |                        |       |     |  |  |           |  |  |  |           |  |  |  |           | 
|----------------- |  | ---------- | ------- | ------------ |  | -------------- | --- | ---------- |  | ---------------------- | ----- | --- |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                  |  |            |         |              |  |                |     |            |  |                       
|                  |  |            |         |              |  |                |     |            |  | Potential Realizable  
|                  |  |            |         | % of Total   |  |                |     |            |  | Value at Assumed      
|                  |  | Number of  |         | Options      |  |                |     |            |  | Annual Rates of Stock 
|                  |  | Securities |         | Granted to   |  |                |     |            |  | Price Appreciation for
|                  |  | Underlying |         | Employees in |  |                |     |            |  | Option Term(4)        
|                  |  | Options    |         | Fiscal       |  | Exercise Price |     | Expiration |  |                       
|                  |  | Granted(1) |         | Year(2)      |  | per Share(3)   |     | Date       |  | 5%                     |       | 10%
|                  |  |            |         |              |  |                |     |            |  |                        |       |    
|Gerald C. Hsu     |  |            |        |              |  |                |    |            |  |                        |      |     |  |  |          |  |  |  |          |  |  |  |          | 
|Paul Lo           |  |            | 180,000 |              |  |                | 4.0 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 2,082,899 |  |  |  | 5,278,475 | 
|Howard Ko         |  |            | 50,000  |              |  |                | 1.1 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 578,583   |  |  |  | 1,466,243 | 
|Amy Sakasegawa    |  |            | 16,000  |              |  |                | 0.4 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 185,147   |  |  |  | 469,198   | 
|Amy Sakasegawa    |  |            | 15,000  |              |  |                | 0.4 |            |  |                        | 5.90  |     |  |  | 8/31/2011 |  |  |  | 55,657    |  |  |  | 141,046   | 
|Viraj J. Patel    |  |            | 26,000  |              |  |                | 0.6 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 300,863   |  |  |  | 762,446   | 
|Viraj J. Patel    |  |            | 6,000   |              |  |                | 0.1 |            |  |                        | 5.90  |     |  |  | 8/31/2011 |  |  |  | 22,263    |  |  |  | 56,418    | 
|Mark Chimura      |  |            | 38,000  |              |  |                | 0.8 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 439,723   |  |  |  | 1,114,345 | 
|Scott Spangenberg |  |            | 24,000  |              |  |                | 0.5 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 277,720   |  |  |  | 703,797   | 
|Scott Spangenberg |  |            | 6,000   |              |  |                | 0.1 |            |  |                        | 5.90  |     |  |  | 8/31/2011 |  |  |  | 22,263    |  |  |  | 56,418    | 
|Noriko Ando(5)    |  |            | 176,000 |              |  |                | 4.1 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 2,036,612 |  |  |  | 5,161,176 | 
|John Hsu(5)       |  |            | 178,000 |              |  |                | 4.0 |            |  |                        | 18.40 |     |  |  | 5/18/2011 |  |  |  | 2,059,756 |  |  |  | 5,219,825 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Except as otherwise indicated, 25% of the option
	shares vest after the first 12 months of service to Avant!
	measured from the vesting commencement date, and the remaining
	75% of the option shares vest in a series of successive equal
	monthly installments upon the optionees completion of each
	of the following thirty-six months of service to Avant!.
|   
|(2) | Based on options to purchase 4,377,049 shares of
	common stock granted in 2001.                                                                                                                                                                                                                                                                                   
|   
|(3) | The exercise price for the options may be paid in
	cash, in shares of common stock valued at fair market value on
	the exercise date or through a cashless exercise procedure
	involving a same-day sale of the purchased shares. Avant! may
	also finance the option exercise by loaning the optionee
	sufficient                                                

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | funds to pay the exercise price for the purchased
	shares, together with any federal and state income tax liability
	incurred by the optionee in connection with such exercise. The
	plan administrator has the discretionary authority to reprice
	the options through the cancellation of those options and the
	grant of replacement options with an exercise price based on the
	fair market value of the option shares on the grant date. The
	options have a maximum term of 10 years, measured from the
	option grant date, subject to earlier termination in the event
	of the optionees cessation of service with Avant!. The
	options will vest upon an acquisition of Avant! by merger or
	asset sale, unless Avant!s repurchase right with respect
	to the unvested option shares is transferred to the acquiring
	entity.                                                                                                                                                         
|   
|(4) | The potential realizable value of the options
	reported above was calculated by assuming that the market price
	of the common stock of Avant! appreciates 5% and 10% from the
	date of grant of the options until the expiration of the
	options. These assumed annual rates of appreciation were used in
	compliance with the rules of the Securities and Exchange
	Commission and are not intended to forecast future price
	appreciation of the common stock of Avant!. The actual value
	realized from the options could be substantially higher or lower
	than the values reported above, depending upon the future
	appreciation or depreciation of the common stock during the
	option period and the timing of exercise of the options. Unless
	the executive officer remains employed until he vests in the
	option shares and the market price of the common stock
	appreciates over the option term, no value will be realized from
	the option grants made to the executive officers.
|   
|(5) | Pursuant to their separation agreements with
	Avant!, all of Ms. Andos and Mr. Hsus
	options to purchase Avant! common stock vested upon termination
	of their employment on December 3, 2001. See
	Employment Agreements and Change in Control
	Agreements below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Summary of Options Exercised

The following sets forth certain summary
information concerning the exercise of stock options by the
Named Executive Officers during the year ended December 31,
2001, together with the fiscal year-end value of unexercised
options.

Aggregated Option Exercises in the Last Fiscal
Year and Fiscal Year-End Option Values

|               |  |             |         |             |  |                            |         |                       |  |             |         |               |  |  |         |  |  |   |           |  |  |   |           | 
|-------------- |  | ----------- | ------- | ----------- |  | -------------------------- | ------- | --------------------- |  | ----------- | ------- | ------------- |  |  | ------- |  |  | - | --------- |  |  | - | --------- | 
|               |  |             |         |             |  |                            |         |                      
|               |  |             |         |             |  | Number of Securities       |         | Value of Unexercised 
|               |  |             |         |             |  | Underlying Unexercised     |         | In-The-Money Options 
|               |  | Shares      |         |             |  | Options at Fiscal Year End |         | at Fiscal Year End(1)
|               |  | Acquired    |         | Value       |  |                            |         |                      
|               |  | on Exercise |         | Realized(3) |  | Exercisable                |         | Unexercisable         |  | Exercisable |         | Unexercisable
|               |  |             |         |             |  |                            |         |                       |  |             |         |              
|Gerald C. Hsu  |  |             |        |             |  | $                          |        |                       |  |             | 347,001 |               |  |  | 837,500 |  |  | $ | 8,037,914 |  |  | $ | 4,945,922 | 
|Paul Lo        |  |             |        |             |  |                            |        |                       |  |             | 59,647  |               |  |  | 196,853 |  |  |   | 610,040   |  |  |   | 489,238   | 
|Howard Ko      |  |             |        |             |  |                            |        |                       |  |             | 14,422  |               |  |  | 56,458  |  |  |   | 10,591    |  |  |   | 123,809   | 
|Amy Sakasegawa |  |             |        |             |  |                            |        |                       |  |             | 7,875   |               |  |  | 31,000  |  |  |   | 57,259    |  |  |   | 252,290   | 
|Viraj J. Patel |  |             |        |             |  |                            |        |                       |  |             | 2,083   |               |  |  | 33,917  |  |  |   | 11,175    |  |  |   | 152,165   | 
|Noriko Ando(2) |  |             |        |             |  |                            |        |                       |  |             | 347,001 |               |  |  |        |  |  |   | 1,616,115 |  |  |   |          | 
|John Hsu(2)    |  |             | 270,000 |             |  |                            | 683,570 |                       |  |             |        |               |  |  |        |  |  |   |          |  |  |   |          | 



---



|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Value of the securities underlying the in
	the money options at year-end minus the exercise price of
	the options.                                                                            
|   
|(2) | Pursuant to their separation agreements with
	Avant!, all of Ms. Andos and Mr. Hsus
	options to purchase Avant! common stock vested upon termination
	of their employment on December 3, 2001.
|   
|(3) | Value realized is the aggregate market value on
	the date of exercise of the shares acquired less the aggregate
	exercise price paid for such shares.                                           

Director Compensation

Except for grants of stock options, directors of
Avant! who are executives generally do not receive compensation
for services provided as a director. Beginning fiscal year 2000,
non-executive directors are

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paid $30,000 annually as compensation for their
services provided as a director. In addition, each non-executive
director is paid $1,500 for each regular and special meeting of
the Board attended. Each non-executive director is also paid an
attendance fee of $500 for each meeting of any committee of the
Board on which a non-executive director is a member, or a $1,000
attendance fee if such director serves as chairman of such
committee. Mr. St. Clair received compensation for
consulting services to Avant! in the amount of $4,500 during the
year ended December 31, 2000, and does not anticipate
providing consulting services to Avant! in the future.
Mr. Chimura received salary and bonus as an employee of
Avant! in the amount of $413,290 during the year ended
December 31, 2001.


Non-employee directors are eligible for option
grants under the automatic option grant program under our stock
option plans. Under this program, each individual who first
becomes a non-employee director after the date of Avant!s
initial public offering receives an option grant for the
purchase of 20,000 shares on the date such individual joins the
Board, if the individual has not been previously employed by
Avant!. In addition, at each annual meeting of stockholders,
each individual who continues to serve and has served as a
non-employee Board member for at least six months prior to the
annual meeting is entitled to an additional option grant to
purchase 5,000 shares of common stock, whether or not such
individual has been in the prior employ of Avant!.

Non-employee Board members and directors who are
also employees of Avant! are eligible to receive options and be
issued shares of common stock directly under our option plans.
Employee-directors also are eligible to participate in
Avant!s Employee Stock Purchase Plan.

Compensation Committee Interlocks and Insider
Participation

During fiscal 2001, the members of the
Compensation Committee were Mr. Taylor and Dr. Muraki.
No executive officer of Avant! serves as a member of the board
of directors or compensation committee of any entity that has
one or more executive officers serving as a member of
Avant!s Board or Compensation Committee.

Employment Agreements and Change in Control
Arrangements



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Gerald C. Hsu Employment Agreement, dated
	August 24, 2000, and Modification Agreement, dated
	July 25, 2001

Avant! entered into an amended and restated
employment agreement with Mr. Hsu in August 2000. Under the
terms of the employment agreement, which expires on
December 31, 2008, Avant! will pay Mr. Hsu an annual
salary of no less than $1,200,000, which amount is adjusted
annually at the discretion of the Compensation Committee (as
adjusted, the Minimum Salary). In addition,
Mr. Hsu is entitled to receive a discretionary annual cash
bonus based on the performance of Avant! and Mr. Hsu, which
amount is determined by the Compensation Committee but in no
event shall be less than 50% of the Minimum Salary per year.

Avant! may only terminate Mr. Hsus
employment for cause, in the event of his mental or physical
disability or death, or upon expiration of the employment
agreement or any renewal term. Mr. Hsu may terminate his
employment at any time for any reason. In the event of
termination of Mr. Hsus employment without cause,
Mr. Hsu is entitled to, among other things,
(a) deferred compensation for a number of months equal to
one month for each year he was employed by Avant! at a rate
calculated by taking the sum of the Minimum Salary on such
termination date plus 110% of the amount of the bonus paid
during the year preceding such termination, (b) a cash
payment equal to his annual Minimum Salary multiplied by the
greater of: (1) the number of years remaining in the
balance of the term of his employment under the employment
agreement, or (2) five years, as of the date of the
termination, and (c) at Mr. Hsus election, a
cash payment equal to the excess of the market value at the
termination date of all shares of Avant! stock that Mr. Hsu
had the option to acquire over the option price for such shares
(these options will vest in their entirety and will thereafter
be terminated). In addition, upon termination of
Mr. Hsus employment, except for death, disability or
cause, Mr. Hsu has the right, but not the obligation, to
serve for a period of up to five years as a consultant to
Avant!. During this period, Mr. Hsu

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is entitled to receive, among other things,
annual compensation at a rate of 60% of his Minimum Salary at
the time of his termination.


Mr. Hsus employment agreement defines
termination without cause as a termination of employment by
reason of (a) Avant!s failure to comply with the
terms of the employment agreement after having received five
days notice of such non-compliance, (b) the assignment to
Mr. Hsu of any duties inconsistent with the offices of
Chairman, President and Chief Executive, (c) the
involuntary relocation of Mr. Hsus office to any
place other than Fremont, California or requiring
Mr. Hsus services to be rendered at a place other
than Avant!s executive offices as determined by
Mr. Hsu, (d) a charge of material breach by Avant! of
the terms of the employment agreement which have been determined
by final judgment to have been made without adequate basis in
law or fact, (e) the sale by Avant! of all or substantially
all of its assets and business or a merger or consolidation of
Avant! with a Company other than a subsidiary of Avant!, in
which the shareholders of the Corporation, prior to the merger
or consolidation, own less than a majority of the company
surviving such merger or consolidation, (f) after a
change in control, as defined below, (g) any
attempt to reduce the Minimum Salary paid to Mr. Hsu or
(h) Avant!s failure to cause any successor to all or
substantially all of its assets to expressly assume the role of
Avant! in the employment agreement.

Under Mr. Hsus employment agreement, a
change of control shall be deemed to have occurred
if, at any time prior to the expiration of the employment
agreement, voting power representing more than 25% of
Avant!s outstanding common stock is acquired, directly or
indirectly, by any person, other than persons who are members of
Avant!s Board as of the date of the employment agreement.
A change of control shall not include increases in the
percentage of voting power of persons who beneficially own or
control stock on the date of the employment agreement, which
occur solely as a result of a reduction in the number of shares
outstanding.

Avant! modified Mr. Hsus employment
agreement pursuant to a modification agreement dated
July 25, 2001. Included in the modification were changes to
Mr. Hsus position and responsibilities, changes in
his compensation and changes in events that constitute
termination of his employment without cause under this
employment agreement. Effective July 25, 2001, Mr. Hsu
was no longer Avant!s President and Chief Executive
Officer. He has continued to serve as Chairman of the Board of
Directors and Chief Strategist and remains an employee of Avant!.

Under the modification agreement, Mr. Hsu
continued to receive his Minimum Salary, payable as of
December 31, 2001, at $1.6 million per year.
Commencing January 1, 2002, his minimum salary will be
increased 5% as of January 1 each year through the end of
his employment agreement. The modification agreement also
provided that for the year ended December 31, 2001,
Mr. Hsu was guaranteed a bonus of $1.5 million and was
entitled to receive the remaining amount of the full bonus for
2001 that he would have received had he remained Chief Executive
Officer and an additional amount based on Avant! achieving its
revenue and operating income targets for the last six months of
2001. Under the modification agreement, Mr. Hsu will also
be entitled to a bonus based on the extent Avant! achieves its
revenue and operating income targets for each subsequent year
through the end of his employment agreement.

The modification agreement also provides that in
the event Mr. Hsu is not reelected as a director of Avant!
or is removed as a director of Avant! without his consent, or is
not reappointed Chairman of the Board or removed as Chairman
without his consent, he will be entitled to all rights and
obligations that are granted under his employment agreement in
the event of a termination of his employment agreement without
cause.



| |                                                            
| | -----------------------------------------------------------
| | Gerald C. Hsu Separation Agreement, dated
	December 3, 2001

For purposes of this description of
Mr. Hsus separation agreement, we refer to
Mr. Hsus August 2000 employment agreement and his
July 2001 modification agreement collectively as his employment
agreement. Concurrently with the execution of the merger
agreement with Synopsys, Mr. Hsu, Synopsys and Avant!
entered into a separation agreement, which supplemented and
amended Mr. Hsus employment agreement to provide for
Mr. Hsus resignation upon the completion of the
merger and to describe the

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terms and conditions of his termination upon
completion of the merger. The execution of the separation
agreement was a condition to Synopsys entering into the merger
agreement. In order to ensure that the terms of the separation
agreement and not Mr. Hsus employment agreement were
applicable upon completion of the merger, the separation
agreement provided that Mr. Hsu would not voluntarily
terminate his employment or make an election under his
employment agreement that he had been terminated without cause
prior to the earlier to occur of the completion of the merger
and the termination of the merger agreement. If the merger
agreement terminates prior to the completion of the merger, the
separation agreement will automatically terminate, and
Mr. Hsus employment agreement will remain in place.


Under the separation agreement, at the completion
of the merger Mr. Hsu will receive: (1) a cash payment
of approximately $30.6 million, representing the estimated
value of the severance amounts that would have been payable to
Mr. Hsu at the completion of the merger under his employment
agreement, (2) a cash payment equal to the excess of the
market value at the close of business on the trading day prior
to the completion of the merger of all Avant! common shares that
Mr. Hsu had the option to acquire over the exercise price
for such shares, to which Mr. Hsu would be entitled under
his existing employment agreement, and (3) any unpaid
salary, bonus, expense reimbursement, previously deferred
compensation or vacation pay to which Mr. Hsu would be
entitled under his existing employment agreement. Assuming the
January 16, 2002, market price of Synopsys common shares
and of Avant! common shares, Mr. Hsu would be entitled to a
cash payment of approximately $12.9 million for his stock
options on the date of the completion of the merger. The
separation agreement provides that no other termination or
severance payment will be paid to Mr. Hsu at the completion
of the merger under his employment agreement, any Avant! benefit
plan or otherwise.



| |                                                                    
| | -------------------------------------------------------------------
| | Severance Agreements with Certain Executive
	Officers and Directors



| |                                         
| | ----------------------------------------
| | Other Executive Officers and
	Directors.

Avant! has entered into employment and severance
agreements with certain of its executive officers, directors and
employees, including Paul Lo, Moriyuki Chimura, Howard Ko and
Amy Sakasegawa. The employment agreements for Dr. Lo,
Dr. Ko and Ms. Sakasegawa were entered into as of
October 1, 2000 and provide that the agreements will be
renewed for successive periods of three years unless Avant!
notifies the employee of its intention not to renew at least one
month prior to expiration of the agreement. The agreements for
Dr. Lo, Dr. Ko and Ms. Sakasegawa provide for a
minimum salary as fixed from time to time by Avant!. In addition
to minimum salary, each employee is entitled to receive an
annual cash bonus based on the performance of Avant! and the
employee, as determined by Avant!. These agreements also provide
that in the case of a termination of employment relating to a
voluntary resignation or involuntary termination of employment
that occurs within six months after a change of control event,
such as the completion of the Synopsys merger, the employee will
receive a cash termination payment based on two or three times
the employees base salary in effect at that time. Pursuant
to the terms of Dr. Los employment agreement with
Avant!, in connection with a change of control Dr. Lo would
also receive a $2 million payment upon termination of his
employment in consideration for an agreement not to compete with
Avant! after his termination. In addition, certain of these
agreements provide for acceleration of all unvested stock
options after a change in control event.

Certain of these agreements were amended on
December 3, 2001, as a condition to Synopsys signing the
merger agreement to provide, among other things, for a mutual
release between the employees and Avant!. The amendments to the
employment agreements with Dr. Ko and Ms. Sakasegawa
also extended the period of time after the consummation of the
merger during which a severance payment could be triggered due
to a termination of employment from six months to two years. In
connection with the Synopsys merger, Avant! advanced
Mr. Chimura $750,000 toward his severance agreement. In the
event that the merger with Synopsys is not consummated,
Mr. Chimura will reimburse Avant! for this advance together
with interest at the short-term federal rate.

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In connection with the Synopsys merger, Avant!
also entered into agreements with Viraj J. Patel and Scott
Spangenberg, which provide that Avant! will pay a bonus of
$280,000 and $200,000, respectively, to each of these officers
if he has not resigned or been terminated for cause on or before
the three month anniversary of the completion of the merger.

Avant! loaned Mr. Chimura $300,000 pursuant
to a promissory note, dated June 5, 1998. This note bears
interest at an annual rate of 3% and provides that the
outstanding principal and accrued interest under the note will
be forgiven in the event that Mr. Hsu is no longer the
President and Chief Executive Officer of Avant



| |                                                    
| | ---------------------------------------------------
| | Noriko Ando and John H. Hsu Separation
	Agreements.

Each of Noriko Ando and John Hsu were parties to
employment agreements with Avant!, each dated October 1,
2000. These employment agreements would have provided severance
payments and other benefits to Ms. Ando and Mr. Hsu if
they had voluntarily resigned or been terminated during the six
month period following a change of control event, such as the
Synopsys merger.

Concurrently with the execution of the merger
agreement, each of Ms. Ando and Mr. John Hsu entered
into a separation agreement with Avant!, under which both
Ms. Ando and Mr. John Hsu voluntarily terminated their
employment with Avant! effective December 3, 2001. The
execution of these agreements was a condition to Synopsys
signing the merger agreement. Under the separation agreement,
Ms. Ando and Mr. John Hsu each agreed to an extension of
the scope and duration of the non-competition covenant in their
employment agreements and relinquished the right they each would
have had under their employment agreements to receive $2,000,000
as compensation for this covenant. Ms. Ando and
Mr. John Hsu also released Avant! from any claim they would
have had under their employment agreements for constructive
termination due to a change in control of Avant! at the
completion of the merger. In consideration, Ms. Ando and
Mr. John Hsu each received (1) a payment of
$1,050,000, representing the severance amounts payable to each
of Ms. Ando and Mr. Hsu under their employment
agreements, and (2) any unpaid salary, expense
reimbursement, previously deferred compensation, vacation pay,
or other regular employee benefits to which they were entitled
to under their employment agreements. In addition, all of
Ms. Andos and Mr. John Hsus options to
purchase Avant! common shares vested upon the termination of
their employment as provided under their employment agreement
and will be exercisable at any time until their respective
expiration dates or, if earlier, the completion of the Synopsys
merger. Each of their separation agreements also contained a
mutual release and reaffirmed the indemnification provisions and
non-competition agreement contained in their employment
agreements with Avant!.



| |                                                      
| | -----------------------------------------------------
| | Stephen Wuu General Release and Settlement
	Agreement

Avant! entered into a general release and
settlement agreement with Stephen Wuu, a former executive
officer of Avant!. Under this agreement, Mr. Wuu agreed,
among other things, to resign from Avant! effective
July 25, 2001, to revoke his rights under his employment
agreement with Avant! and to release Avant! from any and all
claims arising out of his employment and the termination of his
employment with Avant!, including any claims associated with the
Santa Clara criminal action. In exchange, Avant! agreed, among
other things, to pay Mr. Wuu $350,000 on or about each of
January 2, 2002, January 2, 2003 and January 2,
2004, to indemnify Mr. Wuu for the taxability of any fines
or attorneys fees paid on his behalf as a result of the
Santa Clara criminal action and to indemnify him for acts or
omissions that were within the course and scope of his
employment with Avant!. The unpaid amounts owed to Mr. Wuu
under this general release and settlement agreement will become
immediately due and payable upon a change of control of Avant!,
which includes the completion of the Synopsys merger.
Mr. Wuu pled no contest to trade secret misappropriation
and a violation of California corporate securities law. The
court fined Mr. Wuu $2.7 million, which Avant! paid by
October 23, 2001, and on July 25, 2001, he was
sentenced to two years in prison and three years probation. See
Part I Item 3. Legal Proceedings.

50



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Other Change
in Control Arrangements

Our board of directors, our Compensation
Committee and the Secondary Option Committee each have the
authority to accelerate the vesting of shares of common stock
subject to outstanding options held by executive officers under
Avant!s 1995 and 2000 option plans, in the event of the
termination of their employment (whether involuntarily or
through a forced resignation) following a hostile takeover of
Avant! effected through a successful tender offer for more than
50% of Avant!s outstanding common stock or through a
change in the majority of the Board as a result of one or more
contested elections for Board membership. Upon the occurrence of
either of the following transactions, referred to as a
corporate transaction:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) the sale, transfer or other disposition
	of all or substantially all of Avant!s assets in complete
	liquidation or dissolution of Avant!, or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (ii) a merger or consolidation in which
	securities possessing more than 50% of the total combined voting
	power of Avant!s outstanding securities are transferred to
	a person or persons different from the person holding those
	securities immediately prior to such transaction, each
	outstanding option under such option plan will, immediately
	prior to the effective date of the corporate transaction, become
	fully exercisable. However, an outstanding option will not
	accelerate if and to the extent: (1) such option is, in
	connection with the corporate transaction, either to be assumed
	by the successor corporation (or parent) or to be replaced with
	a comparable option to purchase shares of the capital stock of
	the successor corporation (or parent); (2) such option is
	to be replaced with a cash incentive program of the successor
	corporation which preserves the spread existing on the unvested
	option shares at the time of the corporate transaction and
	provides for subsequent payout in accordance with the same
	vesting schedule applicable to such option; or (3) the
	acceleration of such option is subject to other limitations
	imposed by the Board of Committee at the time of the option
	grant. Immediately following the consummation of the corporate
	transaction, all outstanding options will terminate and cease to
	be exercisable, except to the extent assumed by the successor
	corporation.

In addition, upon a corporate transaction,
Avant!s outstanding repurchase rights applicable to
options granted under the Discretionary Option Grant Program
will terminate automatically unless assigned to the successor
corporation. Any options which are assumed or replaced in the
corporate transaction and do not otherwise accelerate at that
time will automatically accelerate (and any of Avant!s
outstanding repurchase rights which do not otherwise terminate
at the time of the corporate transaction will automatically
terminate and the shares of common stock subject to those
terminated rights will immediately vest in full) in the event
the optionees service should subsequently terminate by
reason of an involuntary termination within 18 months
following the effective date of such corporate transaction. Any
options so accelerated will remain exercisable until the earlier
of (1) the expiration of the option term or (2) the
expiration of the one-year period measured from the effective
date of the involuntary termination. Upon the occurrence of the
following transactions, each referred to as a change in
control:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) any person or related group of persons
	(other than Avant! or a person that directly or indirectly
	controls, is controlled by, or is under common control with,
	Avant!) acquires beneficial ownership of more than 50% of
	Avant!s outstanding voting stock without the Boards
	recommendation, or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (b) there is a change in the composition of
	the Board over a period of 24 consecutive months or less such
	that a majority of the Board members ceases, by reason of a
	proxy contest, to be comprised of individuals who (a) have
	been Board members continuously since the beginning of such
	period or (b) have been elected or nominated for election
	as Board members by a majority of the Board in (a) who were
	still in office at the time such election or nomination was
	approved by the Board, the Board or Committee has the discretion
	to accelerate outstanding options and terminate Avant!s
	outstanding repurchase rights. The Board or Committee also has
	the discretion to terminate Avant!s outstanding repurchase
	rights upon the subsequent termination of the optionees
	service within a specified period following the change in
	control.

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Item
12.     Security Ownership of
Certain Beneficial Owners and Management

The following table sets forth information
regarding the beneficial ownership of Avant! common stock as of
March 15, 2002, for (a) each person who beneficially
owns more than 5% of Avant!s outstanding shares of common
stock, (b) each Avant! director, (c) each Named
Executive Officer, and (d) all executive officers and
directors as a group. Beneficial ownership is determined in
accordance with Rule 13d-3 of the Securities Exchange Act
of 1934, and includes all shares over which the beneficial owner
exercises voting or investment power. Options to purchase Avant!
common stock that are presently exercisable or exercisable
within 60 days of March 15, 2002, are considered
outstanding for the purpose of calculating percentage ownership
and are included in the total number of shares beneficially
owned for the person holding those options. Except as otherwise
indicated, and subject to community property laws where
applicable, Avant! believes, based on information provided by
these persons, that the persons named in the table below have
sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them.

|                                                                  |  |                      |           |             |  |  |      |  
|----------------------------------------------------------------- |  | -------------------- | --------- | ----------- |  |  | ---- | -
|                                                                  |  |                      |           | Percentage 
|Name and Address of Beneficial Owner                              |  | Beneficial Ownership |           | of Class(1)
|                                                                  |  |                      |           |            
|FMR Corp.(2)                                                      |  |                      |           |             |  |  |      |  
|82 Devonshire Street
	Boston, MA 02109                            |  |                      | 5,004,200 |             |  |  | 13.0 | %
|J.&W. Seligman and Co.(2)                                         |  |                      |           |             |  |  |      |  
|100 Park Avenue, Eighth Floor
	New York, NY 10017                 |  |                      | 3,184,000 |             |  |  | 8.3  |  
|Wellington Management Co., LLP(2)                                 |  |                      |           |             |  |  |      |  
|75 State Street
	Boston, MA 02109                                 |  |                      | 2,558,700 |             |  |  | 6.7  |  
|Becker Capital Management(2)                                      |  |                      |           |             |  |  |      |  
|1211 Southwest Fifth Avenue
	Suite 2185
	Portland, OR 97204       |  |                      | 2,087,875 |             |  |  | 5.4  |  
|Gerald C. Hsu(3)                                                  |  |                      | 2,296,453 |             |  |  | 6.0  |  
|Moriyuki Chimura(4)                                               |  |                      | 148,752   |             |  |  | *    |  
|Charles St. Clair(5)                                              |  |                      | 55,019    |             |  |  | *    |  
|Dan Taylor(6)                                                     |  |                      | 17,396    |             |  |  | *    |  
|Kenneth Tai(7)                                                    |  |                      | 11,667    |             |  |  | *    |  
|Nelson Lane Kelley(8)                                             |  |                      | 5,000     |             |  |  | *    |  
|Toyohiko Muraki(9)                                                |  |                      | 5,000     |             |  |  | *    |  
|Howard Ko(10)                                                     |  |                      | 20,103    |             |  |  | *    |  
|Paul Lo(11)                                                       |  |                      | 73,557    |             |  |  | *    |  
|Viraj J. Patel(12)                                                |  |                      | 5,104     |             |  |  | *    |  
|Amy Sakasegawa(13)                                                |  |                      | 39,576    |             |  |  | *    |  
|Scott Spangenberg(14)                                             |  |                      | 3,514     |             |  |  | *    |  
|Noriko Ando(15)                                                   |  |                      | 483,001   |             |  |  | 1.3  |  
|John H. Hsu(16)                                                   |  |                      | 11,341    |             |  |  | *    |  
|All directors and executive officers as a group
	(12 persons)(17) |  |                      | 2,681,141 |             |  |  | 7.0  |  



---



|  |                                                                  
|- | -----------------------------------------------------------------
|* | Less than 1.0% of the outstanding shares of
	Avant! common stock.



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 38,421,372 shares of Avant! common stock
	outstanding as of March 15, 2002.                                                                    
|   
|(2) | Based on filings made with the SEC and
	information from third party reporting services.                                                                
|   
|(3) | Includes options to acquire 1,906,250 shares
	which could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.

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|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Includes options to acquire 144,166 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.
|   
|(5) | Includes options to acquire 52,104 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options. 
|   
|(6) | Includes options to acquire 17,396 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options. 
|   
|(7) | Includes options to acquire 11,667 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options. 
|   
|(8) | Includes options to acquire 5,000 shares that
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.   
|   
|(9) | Includes options to acquire 5,000 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.  



|     |                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes options to acquire 15,255 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.   
|    
|(11) | Includes options to acquire 63,875 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.   
|    
|(12) | Includes options to acquire 2,417 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.    
|    
|(13) | Includes options to acquire 19,334 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of stock options.       
|    
|(14) | Includes options to acquire 1,667 shares which
	could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.    
|    
|(15) | Ms. Ando resigned as Executive Operating
	Officer, Operations on July 25, 2001 and resigned from the
	Company December 3, 2001.                         
|    
|(16) | Mr. Hsu resigned as Asia President and
	General Manager in May 2001.                                                                                    
|    
|(17) | Includes options to acquire 2,244,131 shares
	which could be purchased from Avant! within 60 days of
	March 15, 2002 upon exercise of the stock options.




Item
13.     Certain Relationships and
Related Transactions

Legal Fees

In 2001, 2000 and 1999, Avant! paid on behalf of
Gerald C. Hsu litigation and related expense of
$0.2 million, $0.1 million and $0.1 million,
respectively, in connection with the Santa Clara criminal
action, the Avant!/ Cadence litigation and other matters. In
addition, on May 22, 2001, Avant! paid a fine of
$2.7 million, which was assessed against Mr. Hsu in
the Santa Clara criminal action. Avant! has agreed to indemnify
Mr. Hsu for any actual tax liability attributable to
payment of these amounts.

Joint Ventures

During 1997 and 1996, respectively, Avant!
entered into joint ventures with Maingate and Davan Tech. The
joint ventures were formed for the purpose of consolidating
distribution of Avant!s products in Japan and Korea,
respectively.

Avant! recognizes software license revenue sold
to these joint ventures when cash is collected by the joint
ventures from the end users or by Avant!. Revenues from sales to
Maingate and Davan Tech during 2001 were $31.3 million and
$3.2 million, respectively, up from $25.5 million and
$4.5 million, respectively, in 2000. At December 31,
2001, there were no amounts due from Maingate or Davan Tech. At
December 31, 2000, the amount due from affiliates included
trade receivables of $0.8 million from Davan Tech.

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In November 2001, Avant! amended its long-term
distribution and product lease agreements with Maingate and its
long-term distribution agreement with Davan Tech, each to
provide that upon termination of such agreement, Maingate or
Davan Tech, as the case may be, is not entitled to any
compensation or fee of any sort from Avant! or any of its
affiliates, whether such termination occurs as a result of
insolvency of Avant!, a material change of control of Avant! or
otherwise. In consideration for these amendments, Avant! paid
$2,000 and $250,000, respectively, to Maingate and Davan Tech.

As of December 31, 2001, Avant! and
Mr. Hsu owned 19.4% and 8.2% of Davan Tech, respectively.
Director Charles St. Clair served as a consultant to
Davan Tech between January 1998 and November 2001, providing
consulting services on organizational development.
Mr. St. Clair was compensated at a rate of $60,000 per
year. As an Avant! director, Mr. St. Clair has not
participated in the consideration of, or voted upon, any matter
concerning Davan Tech.

Prior to the beginning of Avant!s 2001
fiscal year, Avant!, Gerald C. Hsu, Avant!s Chairman,
Noriko Ando, a former executive officer of Avant!, and the Eigen
Fund, a private equity fund, owned respectively, 35%, 40%, 2%
and 23% of the ownership interests of Maingate. In the first
quarter of 2001, Maingate purchased 20% of its outstanding
shares from Avant! for approximately $1 million, which had
the effect of reducing Avant!s ownership interest in
Maingate to 18.8% and increasing the ownership interests of
Mr. Hsu, Ms. Ando and the Eigen Fund to 50%, 2.5% and
28.7%, respectively.

At the end of its 2001 fiscal year, Avant!
acquired the shares of Maingate owned by Mr. Hsu,
Ms. Ando and the Eigen Fund based on a formula agreed to by
Avant! and Synopsys set forth in the Synopsys merger agreement.
The formula provided that the aggregate Maingate purchase price
would not exceed $14 million, $1 million of which was
based on the same per-share price that Avant! had received from
Maingate in the first quarter of 2001 in exchange for 20% of the
then-outstanding Maingate shares. The formula provided that the
purchase price for the balance of the Maingate shares would be
initially set at $13 million, subject to downward
adjustment based on the amount of cash, other assets and
liabilities on the balance sheet of Maingate at the time of
closing the Maingate acquisition and, in any event, would not
exceed a valuation of Maingate prepared by an independent third
party appraiser.

In accordance with the formula set forth in the
Synopsys merger agreement, the Maingate stock purchase agreement
provided that Avant! pay an aggregate purchase price of
$13.6 million for the Maingate shares it did not own,
$13.0 million of which was subject to adjustment based on
Maingates balance sheet as of the closing, as described
above. The balance of the purchase price, $0.6 million
represented the portion of the purchase price based on the
shares repurchased from Avant! in the first quarter of 2001. The
Maingate stock purchase agreement provided that 30% of the
purchase price would be paid to the selling Maingate
shareholders at the closing. This closing payment was made by
Avant! based on the unadjusted $13.6 million purchase price
stated in the Maingate stock purchase agreement, and was
allocated among the selling Maingate shareholders based on their
respective percentage ownership interests in Maingate
immediately prior to the closing. At that time, Mr. Hsu,
Ms. Ando and the Eigen Fund owned 50%, 10% and 21.2% of
Maingate, respectively, which represented 61.5%, 12.3% and
26.2%, respectively, of the Maingate shares not already owned by
Avant!, and as such Mr. Hsu, Ms. Ando and the Eigen
Fund received at the closing, respectively, $2.5 million,
$0.5 million and $1.1 million. The balance of the
Maingate purchase price is being held by Avant! in escrow as
security for indemnification obligations of Mr. Hsu,
Ms. Ando and the Eigen Fund under the Maingate stock
purchase agreement as well as for any reduction in the purchase
price to be paid by Avant! based on a post-closing adjustment
tied to the closing balance sheet of Maingate. In March 2002,
the aggregate Maingate purchase price was reduced by
approximately $1.9 million, to approximately
$11.7 million as a result of this adjustment, subject to
completion of the fiscal closing balance sheet of Maingate. This
purchase price was lower than the valuation of Maingate prepared
by an independent third party appraiser pursuant to the Maingate
stock purchase agreement. As a result of this acquisition,
Maingate became a wholly owned subsidiary of Avant!. The fair
value of the net assets acquired did not exceed the purchase
price, therefore no goodwill was recorded in this transaction.

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The Eigen Fund is a private equity fund whose
owners have included Avant! directors Moriyuki Chimura and
Charles St. Clair, and Paul Lo, Avant!s President. In June
and July 2001, Mr. Chimura purchased the Eigen Fund
interests owned by each of Mr. Lo and another Eigen Fund
member at the same price paid by the sellers for these
interests. In September 2001, the Eigen Fund transferred a 7.5%
ownership interest in Maingate to Ms. Ando in exchange for
a cash payment of approximately $50,000, and in October 2001,
the Eigen Fund purchased the Eigen Fund interest owned by
Mr. St. Clair at the same price paid by Mr. St. Clair
for this interest. As of the date of Avant!s acquisition
of Maingate, Mr. Chimura owned 60% of the outstanding
interests in the Eigen Fund, but had the right to receive
approximately 27% of the Eigen Funds Maingate sales
proceeds. Mr. Hsu served as the manager of the Eigen Fund
until his resignation shortly before Avant!s purchase of
Maingate. Mr. Hsu at no time held any ownership interest in
the Eigen Fund or received any compensation for his services as
manager.

Mr. Chimura served as president of Maingate
between September 2000 and December 2001, and Mr. Hsu and
Ms. Ando served as directors of Maingate until December
2001. In connection with Mr. Chimuras services to
Maingate, Maingate paid Mr. Chimura approximately $151,000
and $38,400 in 2001 and 2000, respectively. Ms. Ando also
served as an employee of Maingate until December 2001. In
connection with these services, in 2001, 2000 and 1999, Maingate
paid Ms. Ando approximately $39,000, $562,185 and $38,393,
respectively.

Forefront Venture Partners

During 1998, Avant! invested $10.0 million
in Forefront, which represents a 53.9% ownership of the
partnership. The partnership is controlled and managed by a
general partnership of which Kenneth Tai, a director of Avant!,
is a member. Avant! accounts for this investment by the equity
method because Avant! does not control Forefront. During 2001
and 2000, Avant! recorded $11.4 million of equity loss and
$18.8 million of equity income.

Semiconductor Manufacturing International
Corporation

In August 2000, the Avant! board of directors
authorized a subsidiary of Avant! to invest up to
$100 million in SMIC, a development stage company in the
process of establishing a semiconductor fabrication facility in
Shanghai, China, which would result in the acquisition of shares
totaling approximately 11% of the equity interests in SMIC.
Avant! invested $7.5 million on December 31, 2000,
$15.0 million on January 15, 2001 and
$40.0 million on March 15, 2001. Mr. Hsu invested
$1.0 million in SMIC prior to Avant!s initial
investment in SMIC. In September 2001, Avant! terminated its
investment in SMIC. Pursuant to an agreement between Avant! and
SMIC, SMIC repaid Avant! the entire $62.5 million invested
by Avant!, and relieved Avant! of any further obligations. SMIC
also repaid Mr. Hsu his $1 million investment.

Avant! Hi Tech

In 2000, Avant! Hi Tech, Corp., a Taiwan
corporation and formerly wholly-owned subsidiary of Avant!, sold
common shares representing a minority interest to certain of its
current and former officers, directors and employees, including
Ms. Ando, Mr. Chimura, Paul Lo and John Hsu. In 2001,
Avant!, through other wholly-owned subsidiaries, entered into
agreements with these individuals to repurchase all of these
common shares at the same price paid by these individuals for
these shares, plus in most cases, accrued interest at an annual
rate of 6%. As of December 31, 2001, Avant!s
subsidiaries had completed the repurchase of substantially all
of these shares.

55



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PART IV.




Item
14.     Exhibits, Financial
Statement Schedules, and Reports on Form 8-K

|      |  |                                                                                                                                                                                                                                                                                                                          
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)1. |  | Financial Statements:                                                                                                                                                                                                                                                                                                    
|      |  | Report of Independent Accountants                                                                                                                                                                                                                                                                                        
|      |  | Independent Auditors Report                                                                                                                                                                                                                                                                                             
|      |  | Consolidated Statements of Earnings for the Years
	Ended December 31, 2001, 2000 and 1999
	Consolidated Balance Sheets as of December 31, 2001 and 2000                                                                                                                                                                  
|      |  | Consolidated Statements of Stockholders
	Equity And Comprehensive Income (Loss) for
	the Years Ended December 31, 2001, 2000 and 1999                                                                                                                                                                                   
|      |  | Consolidated Statements of Cash Flows for the
	Years Ended December 31, 2001, 2000 and 1999                                                                                                                                                                                                                              
|      |  | Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                              
|(a)2. |  | Financial Statement Schedule:                                                                                                                                                                                                                                                                                            
|      |  | Schedule II-Valuation and Qualifying
	Accounts for the Years Ended December 31, 2001, 2000 and
	1999                                                                                                                                                                                                                     
|      |  | The Schedule is included in this Form 10-K
	following the Index to Exhibits. All other schedules are omitted
	because they are not required or the required information is
	shown in the financial statements or notes thereto.                                                                                          
|(a)3. |  | Exhibits:                                                                                                                                                                                                                                                                                                                
|      |  | Included as page 59 of this form 10-K.                                                                                                                                                                                                                                                                                   
|(b)   |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                     
|      |  | On October 4, 2001 Avant! filed a report on
	Form 8-K under Items 2 announcing it had terminated its
	investment in Semiconductor Manufacturing International
	Corporation, and under Item 5 announcing that it had
	completed payment in full of the restitution amount awarded to
	Cadence Design Systems, Inc.        
|      |  | On December 5, 2001 Avant! filed a report on
	Form 8-K under Item 5 announcing it had entered into a
	merger agreement with Synopsys, Inc, and announcing that it had
	amended its long-term distribution agreement and product lease
	agreement with Maingate and its long term distribution agreement
	with Davan Tech.
|(c)   |  | Exhibits:                                                                                                                                                                                                                                                                                                                
|      |  | Included as page 59 of this Form 10-K.                                                                                                                                                                                                                                                                                   

(d) Separate financial statements of
subsidiaries not consolidated and 50-percent-or-less owned
persons.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | This schedule is included in this Form 10-K
	following the Consolidated Financial Statements.

56



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SIGNATURES

Pursuant to the requirements of the
Section 13 or 15(d) of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 1st
day of April 2002.



| |                                       
| | --------------------------------------
| | /s/ PAUL LO                           
| | Paul Lo                               
| | President and Chief Operating
	Officer
| | (principal executive officer)         
|
| | /s/ VIRAJ J. PATEL                    
| | Viraj J. Patel                        
| | Head of Finance and Treasurer         
| | (principal financial officer)         

April 1st, 2002

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Paul Lo and Viraj J. Patel, and each of them, as his true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all
amendments (including post-effective 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 any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:

|                                        |  |                                                              |  |                
|--------------------------------------- |  | ------------------------------------------------------------ |  | ---------------
|Signature                               |  | Capacity                                                     |  | Date           
|                                        |  |                                                              |  |                
|/s/ GERALD C. HSU Gerald C. Hsu         |  | Chairman of the Board of Directors                           |  | April 1st, 2002
|                                       
|/s/ SCOTT SPANGENBERG Scott Spangenberg |  | Head of Corporate Accounting (principal
	accounting officer) |  | April 1st, 2002
|                                       
|/s/ KENNETH TAI Kenneth Tai             |  | Director                                                     |  | April 1st, 2002
|                                       
|/s/ CHARLES ST. CLAIR Charles St. Clair |  | Director                                                     |  | April 1st, 2002
|                                       
|/s/ MORIYUKI CHIMURA Moriyuki Chimura   |  | Director                                                     |  | April 1st, 2002

57



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|                                          |  |          |  |                
|----------------------------------------- |  | -------- |  | ---------------
|Signature                                 |  | Capacity |  | Date           
|                                          |  |          |  |                
|/s/ DANIEL D. TAYLOR Daniel D. Taylor     |  | Director |  | April 1st, 2002
|                                         
|/s/ NELSON LANE KELLEY Nelson Lane Kelley |  | Director |  | April 1st, 2002
|                                         
|/s/ TOYOHIKO MURAKI Toyohiko Muraki       |  | Director |  | April 1st, 2002

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INDEX TO EXHIBITS

|            |       |             |  |                                                                                                                                                                                                                                                                     
|----------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 2.1   |             |  | Agreement and Plan of Reorganization dated as of
	August 18, 1996, among the Company, AGM Acquisition
	Corporation and Anagram, Inc.(2)                                                                                                                             
|            | 2.2   |             |  | Agreement and Plan of Reorganization dated as of
	August 22, 1996, among the Company, Natasha Merger
	Corporation and Meta-Software, Inc.(2)                                                                                                                        
|            | 2.3   |             |  | Agreement and Plan of Reorganization dated as of
	October 9, 1996, among the Company, DSM Acquisition
	Corporation and FrontLine Design Automation, Inc.(3)                                                                                                         
|            | 2.4   |             |  | Agreement and Plan of Reorganization dated as of
	July 31, 1997, as amended on August 27, 1997, among
	the Company, GB Acquisition Corporation, VLSI Technology, Inc.
	and Compass Design Automation, Inc.(6)                                                       
|            | 2.5   |             |  | Agreement and Plan of Reorganization dated as of
	September 10, 1997, among the Company, Cardinal Merger
	Corporation and Technology Modeling Associates, Inc.(5)                                                                                                   
|            | 2.6   |             |  | Agreement and Plan of Reorganization dated as of
	November 4, 1998, as amended on November 12, 1998,
	among the Company, Artemis Corporation and interHDL, Inc.(10)                                                                                                 
|            | 2.7   |             |  | Agreement and Plan of Merger, dated as of
	December 3, 2001, as amended, among Synopsys, Inc., a
	Delaware corporation, Maple Forest Acquisition L.L.C., a
	Delaware limited liability company and direct wholly owned
	subsidiary of Synopsys, and the Company.(20)
|            | 3.1   |             |  | Restated Certificate of Incorporation(1)                                                                                                                                                                                                                            
|            | 3.1.1 |             |  | Certificate of Amendment of the Restated
	Certificate of Incorporation of Avant! Corporation(1)                                                                                                                                                                     
|            | 3.1.2 |             |  | Certificate of Designations of Series A
	Junior Participating Preferred Stock(8)                                                                                                                                                                                    
|            | 3.2   |             |  | Amended and Restated Bylaws(16)                                                                                                                                                                                                                                     
|            | 4.1   |             |  | Amended and Restated Investors Rights Agreement
	between the Company and the Investors specified therein-dated
	September 24, 1993.(1)                                                                                                                              
|            | 4.2   |             |  | Specimen Common Stock Certificate(1)                                                                                                                                                                                                                                
|            | 4.3   |             |  | Registration Rights Agreement between the
	Registrant and certain investors dated November 27, 1996,(4)                                                                                                                                                             
|            | 4.4   |             |  | Rights Agreement dated September 4, 1998,
	between the Registrant and Harris Trust Company of California.(8)                                                                                                                                                        
|            | 4.5   |             |  | First Amendment to Rights Agreement dated as of
	December 3, 2001, between the Registrant and Harris Trust
	Company of California.                                                                                                                                  
|            | 4.6   |             |  | Voting Agreement dated as of December 3,
	2001, by and among Moriyuki Chimura, Gerald C. Hsu, Paul
	Lo, Howard Ko, Amy Sakasegawa, Viraj J. Patel, Scott
	Spangenberg, Charles St. Clair, and Synopsys, Inc.(18)                                                    
|            | 10.1  |             |  | 1995 Stock Option/ Stock Issuance Plan, as
	amended.(7)*                                                                                                                                                                                                            
|            | 10.2  |             |  | Employee Stock Purchase Plan, as amended.(7)                                                                                                                                                                                                                        
|            | 10.3  |             |  | Form of Indemnification Agreement.(1)                                                                                                                                                                                                                               
|            | 10.4  |             |  | Indemnification Agreement entered into between
	the Company and Gerald C. Hsu dated May 24, 1994.(1)                                                                                                                                                                
|            | 10.5  |             |  | Employment Agreement with Gerald C. Hsu dated
	July 21, 1998.(12)*                                                                                                                                                                                                  
|            | 10.6  |             |  | Executive Deferred Compensation Plan.(12)*                                                                                                                                                                                                                          
|            | 10.7  |             |  | Form of Confidential Severance Agreement.(12)*                                                                                                                                                                                                                      
|            | 10.8  |             |  | 2000 Stock Option/ Stock Issuance Plan.(13)*                                                                                                                                                                                                                        
|            | 10.9  |             |  | Employment Agreement with Gerald C. Hsu dated
	August 24, 2000.(14)*                                                                                                                                                                                                
|            | 10.10 |             |  | Form of Series A Preference Shares Purchase
	Agreement between Semiconductor Manufacturing International
	Corporation and Certain Investors, including the Company, dated
	March 8, 2001.(15)                                                                       

59



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|            |        |             |  |                                                                                                                                                                            
|----------- | ------ | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |        | Description
|            |        |            
|            | 10.11 |             |  | Form of Shareholders Agreement by and among
	Semiconductor Manufacturing International Corporation and
	certain of its shareholders dated as of March 2001.(15)            
|            | 10.12  |             |  | Form of Registration Rights Agreement between
	Semiconductor Manufacturing International Corporation and
	certain other shareholders dated as of March 15, 2001.(15)       
|            | 10.13  |             |  | Modification Agreement with Gerald C. Hsu dated
	July 25, 2001.(16)                                                                                                        
|            | 10.14  |             |  | Form of Employment Agreement for Officers and Key
	Employees.(16)*                                                                                                         
|            | 10.15  |             |  | Employment Agreement with Noriko Ando dated
	October 1, 2000.(17)*                                                                                                         
|            | 10.16  |             |  | Employment Agreement with John Hsu dated
	October 1, 2000.(17)*                                                                                                            
|            | 10.17  |             |  | Severance Agreement with Moriyuki Chimura dated
	December 8, 1998, as amended December 15, 1999.(17)*                                                                      
|            | 10.18  |             |  | Distribution Agreement between Avant! Japan
	Corporation and Maingate Electronics KK dated October 1,
	2000. (17)*                                                         
|            | 10.19  |             |  | Distribution Agreement between Avanticorp Hong
	Kong Limited and Davan Tech Co., Ltd., dated October 1,
	2000.(17)*                                                        
|            | 10.20  |             |  | Promissory Note dated June 5, 1998, from
	Moriyuki Chimura in favor of the Company.(17)*                                                                                   
|            | 10.21  |             |  | First Amendment, dated as of November 20,
	2001, to the Distribution Agreement, dated October 1, 2000,
	between Avanticorp Hong Kong Limited and Davan Tech Co., Ltd.(18)  
|            | 10.22  |             |  | First Amendment, dated as of November 20,
	2001, to the Distribution Agreement, dated October 1, 2000,
	between Avant! Japan Corporation and Maingate Electronics KK.(18)  
|            | 10.23  |             |  | First Amendment, dated as of November 20,
	2001, to the Product Lease Agreement, dated October 1,
	2000, between Avant! Japan Corporation and Maingate Electronics
	KK.(18)
|            | 10.24  |             |  | Stock Purchase Agreement, dated December 27,
	2001, among the Company, Gerald C. Hsu, Noriko Ando, and the
	Eigen Fund                                                     
|            | 10.25  |             |  | Termination Agreement with Semiconductor
	Manufacturing International Corporation, dated
	September 25, 2001.                                                              
|            | 10.26  |             |  | Separation Agreement, General Release, and
	Waiver, dated December 3, 2001, by and among Synopsys,
	Inc., Gerald C. Hsu, and the Company.(19)*                             
|            | 10.27  |             |  | Separation Agreement, General Release, and
	Waiver, dated December 3, 2001, by and among Synopsys,
	Inc., John Hsu, and the Company.(19)*                                  
|            | 10.28  |             |  | Separation Agreement, General Release, and
	Waiver, dated December 3, 2001, by and among Synopsys,
	Inc., Noriko Ando, and the Company.(19)*                               
|            | 10.29  |             |  | Amendment to Employment Agreement, dated as of
	December 3, 2001, between the Company and Paul Lo.(19)*                                                                    
|            | 10.30  |             |  | Form of Amendment to Employment Agreement, dated
	as of December 3, 2001, by and between the Company and each
	of Howard Ko and Amy Sakasegawa.(19)*                       
|            | 10.31  |             |  | Agreement with Moriyuki Chimura, dated
	December 31, 2001.*                                                                                                                
|            | 10.32  |             |  | Form of Bonus Agreement, dated September 19,
	2001, by and between the Company and Scott Spangenberg.*                                                                     
|            | 10.33  |             |  | Form of Bonus Agreement, dated September 20,
	2001, by and between the Company and Viraj J. Patel.*                                                                        
|            | 10.34  |             |  | Employment Agreement with Paul Lo dated
	October 1, 2000.(16)*                                                                                                             
|            | 10.35  |             |  | General Release and Settlement Agreement dated
	July 25, 2001, between the Company and Stephen Wuu.*                                                                       
|            | 21.1   |             |  | List of Subsidiaries of the Company.                                                                                                                                       
|            | 23.1   |             |  | Consent of PricewaterhouseCoopers LLP,
	Independent Accountants.                                                                                                           
|            | 23.2   |             |  | Consent of KPMG LLP, Independent Auditors.                                                                                                                                 
|            | 23.3   |             |  | Consent of BDO Seidman, LLP, Independent Auditors
	of Subsidiary Not Consolidated, and 50-percent-or-less-owned
	Person.                                                   

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---



|  |                                                                                              
|- | ---------------------------------------------------------------------------------------------
| | Portions of this exhibit have been omitted
	pursuant to a request for confidential treatment.



|  |                                                          
|- | ---------------------------------------------------------
|* | Management contract or compensatory plan or
	arrangement.



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from the Companys
	Registration Statement on Form S-1 (File No. 33-91128)
	as declared effective on June 6, 1995.        
|   
|(2) | Incorporated by reference from the Companys
	Registration Statement on Form S-4 (File
	No. 333-11659) as declared effective on September 30,
	1996.
|   
|(3) | Incorporated by reference from the Companys
	current Report on Form 8-K filed with the SEC on
	October 24, 1996.                                   
|   
|(4) | Incorporated by reference from the Companys
	Registration Statement on Form S-3 (File
	No. 333-18445) as filed on January 27, 1997.                
|   
|(5) | Incorporated by reference from the Companys
	Registration Statement on Form S-4 (File
	No. 333-42923) as filed on December 22, 1997.               
|   
|(6) | Incorporated by reference from the Companys
	Registration Statement on Form S-3 (File
	No. 333-43087) as filed on January 13, 1998.                
|   
|(7) | Incorporated by reference from the Companys
	Definitive Proxy Statement on Schedule 14A filed with the
	SEC on April 7, 1998.                      
|   
|(8) | Incorporated by reference from the Companys
	Current Report on Form 8-K filed with the SEC on
	September 18, 1998.                                 
|   
|(9) | Incorporated by reference from the Companys
	Registration Statement on Form 8-A12G filed with the SEC on
	September 18, 1998.                      



|     |                                                                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from the Company
	Current Report on Form 8-K filed with the SEC on
	November 19, 1998.                                                                                                        
|    
|(11) | Incorporated by reference from the Companys
	Registration Statement on Form S-3 (File
	No. 333-67629) as declared effective on March 9, 1999.                                                                          
|    
|(12) | Previously filed as Exhibits 10.5, 10.6 and 10.7
	to the Companys Annual Report on Form 10-K for the
	fiscal year ended December 31, 1999 (File No. 0-25864).                                                          
|    
|(13) | Previously filed as Exhibit 10.1 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended June 30, 2000 (File
	No. 0-25864).                                                                     
|    
|(14) | Previously filed as Exhibit 10.8 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly prior ended September 30, 2000 (File No. 0-25864).                                                                  
|    
|(15) | Previously filed as Exhibits 10.10, 10.11 and
	10.12 to the Companys Annual Report on Form 10-K for
	the year ended December 31, 2000 (File No. 0-258684).                                                             
|    
|(16) | Previously filed as Exhibits 3.2.1, 10.9.1, 10.13
	and 10.14 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended June 30, 2001
	(File No. 0-25864).                                          
|    
|(17) | Previously filed as Exhibits 10.15, 10.16, 10.17,
	10.18, 10.19 and 10.20 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended September 30,
	2001 (File No. 0-25864).                        
|    
|(18) | Previously filed as Exhibits 9.1, 10.1, 10.2 and
	10.3 to the Companys Current Report on Form 8-K dated
	December 3, 2001 (File No. 0-25864).                                                                          
|    
|(19) | Previously filed as Exhibits 10.2, 10.3, 10.4,
	10.5 and 10.6 to the Registration Statement on Form S-4 of
	Synopsys, Inc. (File No. 333-75638) filed with the
	Securities and Exchange Commission on December 21, 2001.
|    
|(20) | Previously filed as Annex A to Amendment
	No. 2 to the Registration Statement of Form S-4 of
	Synopsys, Inc. (File No. 333-75638) filed with the
	Securities and Exchange Commission on March 18, 2002.                 

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SCHEDULE II

AVANT! CORPORATION

Valuation and Qualifying Accounts Allowance
for Doubtful Accounts


|                             |  |                |        |            |  |            |       |             |  |           |         |   |  |  |   |  |  |   |        | 
|---------------------------- |  | -------------- | ------ | ---------- |  | ---------- | ----- | ----------- |  | --------- | ------- | - |  |  | - |  |  | - | ------ | 
|                             |  | Balance        |        | Additions  |  |            |       |             |  | Balance  
|                             |  | at Beginning   |        | Charged    |  |            |       |             |  | at End   
|                             |  | of Period      |        | to Expense |  | Deductions |       | Adjustments |  | of Period
|                             |  |                |        |            |  |            |       |             |  |          
|                             |  |               
|                             |  | (In thousands)
|Year ended December 31, 1999 |  | $              | 9,277  |            |  | $          | 7,282 |             |  | $         | (3,787  | ) |  |  |  |  |  | $ | 12,772 | 
|Year ended December 31, 2000 |  |                | 12,772 |            |  |            | 5,876 |             |  |           | (2,515  | ) |  |  |  |  |  |   | 16,133 | 
|Year ended December 31, 2001 |  | $              | 16,133 |            |  | $          | 4,210 |             |  | $         | (10,085 | ) |  |  |  |  |  | $ | 10,258 | 

62



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AVANT! CORPORATION

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                 |  |      |     | 
|-------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                 |  | Page
|                                                                                 |  |     
|Report of Independent Accountants                                                |  |      | 64  | 
|Independent Auditors Report                                                     |  |      | 65  | 
|Consolidated Statements of Earnings                                              |  |      | 66  | 
|Consolidated Balance Sheets                                                      |  |      | 67  | 
|Consolidated Statements of Stockholders
	Equity and Comprehensive Income (Loss) |  |      | 68  | 
|Consolidated Statements of Cash Flows                                            |  |      | 69  | 
|Notes to Consolidated Financial Statements                                       |  |      | 70  | 
|Selected Unaudited Quarterly Financial Data                                      |  |      | 100 | 

63



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and Shareholders

of Avant! Corporation:


In our opinion, the consolidated financial
statements listed in the index appearing under
Item 14(a)(1) on page 56 present fairly, in all
material respects, the financial position of Avant! Corporation
and its subsidiaries at December 31, 2001, and the results
of their operations and their cash flows for the year ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 56
presents fairly, in all material respects, the information set
forth therein for the year ended December 31, 2001 when
read in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audit. We conducted our audit 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 audit provides a reasonable
basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

February 6, 2002


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INDEPENDENT AUDITORS REPORT

The Board of Directors Avant! Corporation:

We have audited the accompanying consolidated
balance sheet of Avant! Corporation and subsidiaries as of
December 31, 2000, and the related consolidated statements
of earnings, stockholders equity and comprehensive income,
and cash flows for each of the years in the two-year period
ended December 31, 2000. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Avant! Corporation and
subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for each of the years in
the two-year period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United
States of America.



| |             
| | ------------
| | /s/ KPMG LLP

Mountain View, California

February 12, 2001, except as to Note 7,


which is as of March 23, 2001


65



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##### Table of Contents



CONSOLIDATED STATEMENTS OF EARNINGS

|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |         |         | 
|-------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------- | ------- | ------- | -------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                                               |                                                          | 2001                                |         | 2000    |          | 1999
|                                                               |                                                          |                                     |         |         |          |     
|                                                               |                                                          |                                    
|                                                               |                                                          | (In thousands, except per          
|                                                               |                                                          | share data)                        
|Revenue:                                                       |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               | Revenue from unaffiliated customers:                     |                                     |         |         |          |      |        |         |         |   |        |         |        
|                                                               | Perpetual license                                        |                                     | $       | 95,515  |          |      | $      | 127,439 |         |   | $      | 119,525 |        
|                                                               | Time-based license                                       |                                     |         | 167,302 |          |      |        | 110,437 |         |   |        | 84,784  |        
|                                                               | Service                                                  |                                     |         | 101,326 |          |      |        | 90,138  |         |   |        | 80,346  |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               | Total revenue from unaffiliated customers                |                                     |         | 364,143 |          |      |        | 328,014 |         |   |        | 284,655 |        
|                                                               | Revenue from affiliates                                  |                                     |         | 34,527  |          |      |        | 30,086  |         |   |        | 18,965  |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               |                                                          | Total revenue                       |         |         | 398,670  |      |        |         | 358,100 |   |        |         | 303,620 | 
|Costs and expenses:                                            |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               | Costs of software                                        |                                     |         | 5,203   |          |      |        | 5,623   |         |   |        | 5,664   |        
|                                                               | Costs of services                                        |                                     |         | 24,243  |          |      |        | 20,131  |         |   |        | 17,627  |        
|                                                               | Selling and marketing                                    |                                     |         | 98,744  |          |      |        | 102,953 |         |   |        | 84,698  |        
|                                                               | Research and development                                 |                                     |         | 86,768  |          |      |        | 84,237  |         |   |        | 71,430  |        
|                                                               | General and administrative                               |                                     |         | 47,566  |          |      |        | 39,556  |         |   |        | 37,653  |        
|                                                               | Litigation settlements                                   |                                     |         | 268,085 |          |      |        | 47,500  |         |   |        |        |        
|                                                               | Merger and in-process research and development
	expenses |                                     |         |        |          |      |        | (343    | )       |   |        | 5,902   |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               |                                                          | Total operating expenses            |         |         | 530,609  |      |        |         | 299,657 |   |        |         | 222,974 | 
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               |                                                          | Earnings (loss) from operations     |         |         | (131,939 | )    |        |         | 58,443  |   |        |         | 80,646  | 
|Equity income (loss) from investments and
	joint ventures, net |                                                          |                                     | (13,354 | )       |          |      | 22,262 |         |         |   | 6,122  |        
|Interest income and other, net                                 |                                                          |                                     | 6,124   |         |          |      | 4,434  |         |         |   | 7,716  |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               |                                                          | Earnings (loss) before income taxes |         |         | (139,169 | )    |        |         | 85,139  |   |        |         | 94,484  | 
|Income taxes                                                   |                                                          |                                     | 38,548  |         |          |      | 32,280 |         |         |   | 37,864 |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|                                                               |                                                          | Net earnings (loss)                 |         | $       | (177,717 | )    |        | $       | 52,859  |   |        | $       | 56,620  | 
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|Earnings (loss) per share:                                     |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|Basic                                                          |                                                          | $                                   | (4.72   | )       |          | $    | 1.36   |         |         | $ | 1.49   |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|Diluted                                                        |                                                          | $                                   | (4.72   | )       |          | $    | 1.32   |         |         | $ | 1.42   |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|Weighted average shares outstanding:                           |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|Basic                                                          |                                                          |                                     | 37,637  |         |          |      | 38,880 |         |         |   | 38,084 |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        
|Diluted                                                        |                                                          |                                     | 37,637  |         |          |      | 39,966 |         |         |   | 39,746 |        
|                                                               |                                                          |                                     |         |         |          |      |        |         |         |   |        |        

See accompanying notes to consolidated financial
statements.

66



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##### Table of Contents



CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                                                                                                                                                    |                                                                              | December 31,                               |         | December 31,
|                                                                                                                                                                    |                                                                              | 2001                                       |         | 2000        
|                                                                                                                                                                    |                                                                              |                                            |         |             
|                                                                                                                                                                    |                                                                              |                                           
|                                                                                                                                                                    |                                                                              | (In thousands, except per                 
|                                                                                                                                                                    |                                                                              | share data)                               
|ASSETS                                                                                                                                                             
|Current assets:                                                                                                                                                     |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    | Cash and cash equivalents                                                    |                                            | $       | 121,814      |         |  | $       | 106,545 |        
|                                                                                                                                                                    | Short-term investments                                                       |                                            |         | 23,740       |         |  |         | 143,871 |        
|                                                                                                                                                                    | Restricted investments                                                       |                                            |         | 6,007        |         |  |         | 37,800  |        
|                                                                                                                                                                    | Accounts receivable, net of allowances of $10,258
	and $16,133, respectively |                                            |         | 47,410       |         |  |         | 76,572  |        
|                                                                                                                                                                    | Due from affiliates                                                          |                                            |         |             |         |  |         | 812     |        
|                                                                                                                                                                    | Deferred income taxes                                                        |                                            |         | 29,201       |         |  |         | 34,036  |        
|                                                                                                                                                                    | Prepaid expenses and other current assets                                    |                                            |         | 18,028       |         |  |         | 11,853  |        
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    |                                                                              | Total current assets                       |         |              | 246,200 |  |         |         | 411,489 | 
|Equipment, furniture and fixtures, net                                                                                                                              |                                                                              |                                            | 23,645  |              |         |  | 26,821  |        
|Deferred income taxes                                                                                                                                               |                                                                              |                                            | 15,413  |              |         |  | 25,994  |        
|Goodwill and other intangibles, net                                                                                                                                 |                                                                              |                                            | 17,960  |              |         |  | 35,124  |        
|Investments and joint ventures                                                                                                                                      |                                                                              |                                            | 26,465  |              |         |  | 49,144  |        
|Other assets                                                                                                                                                        |                                                                              |                                            | 44,719  |              |         |  | 13,318  |        
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    |                                                                              | Total assets                               |         | $            | 374,402 |  |         | $       | 561,890 | 
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                                                                              
|Current liabilities:                                                                                                                                                |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    | Accounts payable                                                             |                                            | $       | 6,265        |         |  | $       | 9,982   |        
|                                                                                                                                                                    | Accrued compensation                                                         |                                            |         | 20,104       |         |  |         | 27,909  |        
|                                                                                                                                                                    | Accrued income taxes                                                         |                                            |         | 32,849       |         |  |         | 33,165  |        
|                                                                                                                                                                    | Other accrued liabilities                                                    |                                            |         | 24,839       |         |  |         | 19,056  |        
|                                                                                                                                                                    | Accrued litigation                                                           |                                            |         | 31,548       |         |  |         | 47,500  |        
|                                                                                                                                                                    | Deferred revenue                                                             |                                            |         | 68,171       |         |  |         | 70,459  |        
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    |                                                                              | Total current liabilities                  |         |              | 183,776 |  |         |         | 208,071 | 
|Other noncurrent liabilities                                                                                                                                        |                                                                              |                                            | 10,563  |              |         |  | 7,918   |        
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    |                                                                              | Total liabilities                          |         |              | 194,339 |  |         |         | 215,989 | 
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|COMMITMENTS AND CONTINGENCIES                                                                                                                                       |                                                                              |                                            |         |              |         |  |         |        
|Stockholders equity:                                                                                                                                               |                                                                              |                                            |         |              |         |  |         |        
|Preferred stock, $.0001 par value; 5,000,000
	shares authorized; none issued and outstanding                                                                        |                                                                              |                                            |        |              |         |  |        |        
|Common stock, $.0001 par value; 70,000,000 shares
	authorized; 38,322,078 and 37,576,000 shares issued and
	outstanding at December 31, 2001 and 2000, respectively |                                                                              |                                            | 4       |              |         |  | 4       |        
|Additional paid-in capital                                                                                                                                          |                                                                              |                                            | 293,018 |              |         |  | 276,219 |        
|Stock-based compensation                                                                                                                                            |                                                                              |                                            | (2,865  | )            |         |  | (2,770  | )      
|Retained earnings (accumulated deficit)                                                                                                                             |                                                                              |                                            | (39,287 | )            |         |  | 138,430 |        
|Accumulated other comprehensive income                                                                                                                              |                                                                              |                                            | 2,049   |              |         |  | 327     |        
|Treasury stock, at cost; 4,457,000 and 4,100,000
	common shares at December 31, 2001 and 2000, respectively                                                         |                                                                              |                                            | (72,856 | )            |         |  | (66,309 | )      
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|Total stockholders equity                                                                                                                                          |                                                                              |                                            | 180,063 |              |         |  | 345,901 |        
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        
|                                                                                                                                                                    |                                                                              | Total liabilities and stockholders equity |         | $            | 374,402 |  |         | $       | 561,890 | 
|                                                                                                                                                                    |                                                                              |                                            |         |              |         |  |         |        

See accompanying notes to consolidated financial
statements.

67



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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2001, 2000 and
1999


|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |          |  
|-------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------ | ---------- | - | ----------- | - | ------------- |  | ------------- | ------- | -------- |  | ------------- | ------ | ------------- | - | ------ | ------ | - | ------ | - | ------- | - | -------- | - | ------- | ------- | - | - | ------- | ------- | -------- | - | - | -------- | -------- | -
|                                 |                                                                              |                                                                          |        |            |   |             |   | Accumulated   |  | Retained      |         |          |  |               |        |              
|                                 |                                                                              | Common Stock                                                             |        | Additional |   |             |   | Other         |  | Earnings      |         | Total    |  |               |        | Comprehensive
|                                 |                                                                              |                                                                          |        | Paid-in    |   | Stock-based |   | Comprehensive |  | (Accumulated  |         | Treasury |  | Stockholders |        | Income       
|                                 |                                                                              | Shares                                                                   |        | Amount     |   | Capital     |   | Compensation  |  | Income/(Loss) |         | Deficit) |  | Stock         |        | Equity        |   | (Loss)
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |       
|                                 |                                                                              |                                                                         
|                                 |                                                                              | (In thousands)                                                          
|Balances as of December 31, 1998 |                                                                              |                                                                          | 37,474 |            |   | $           | 4 |               |  | $             | 218,204 |          |  | $             | (1,306 | )             |   | $      | (19    | ) |        | $ | 28,951  |   |          | $ |        |         |   | $ | 245,834 |         |          |   |   |         
|                                 | Comprehensive income:                                                        |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |         
|                                 |                                                                              | Net earnings                                                             |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   | 56,620   |   |         |         |   |   |         |         | 56,620   |   |   | $        | 56,620   |  
|                                 |                                                                              | Unrealized loss on short-term investments, net of
	tax effects of $479   |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   | (1,659 | ) |         |   |          |   |         |         |   |   |         |         | (1,659   | ) |   |          | (1,659   | )
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|                                 | Comprehensive income                                                         |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   | $ | 54,961   |         
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|                                 | Stock issued under stock option plans, including
	tax benefits of $3,687     |                                                                          |        | 870        |   |             |   |               |  |               |         | 9,698    |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 9,698   |          |   |   |          |         
|                                 | Stock issued under stock purchase plan                                       |                                                                          |        | 163        |   |             |   |               |  |               |         | 1,685    |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 1,685   |          |   |   |          |         
|                                 | Issuance of common stock                                                     |                                                                          |        | 367        |   |             |   |               |  |               |         | 876      |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 876     |          |   |   |          |         
|                                 | Employee stock-based compensation                                            |                                                                          |        |            |   |             |   |               |  |               |         | 270      |  |               |        | (270          | ) |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |         
|                                 | Amortization of employee stock-based compensation                            |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        | 1,247         |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 1,247   |          |   |   |          |         
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|Balances as of December 31, 1999 |                                                                              |                                                                          | 38,874 |            |   | $           | 4 |               |  | $             | 230,733 |          |  | $             | (329   | )             |   | $      | (1,678 | ) |        | $ | 85,571  |   |          | $ |        |         |   | $ | 314,301 |         |          |   |   |         
|                                 | Comprehensive income:                                                        |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |         
|                                 |                                                                              | Net earnings                                                             |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   | 52,859   |   |         |         |   |   |         |         | 52,859   |   |   | $        | 52,859   |  
|                                 |                                                                              | Unrealized gain on short-term investments, net of
	tax effects of $1,203 |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   | 2,005  |   |         |   |          |   |         |         |   |   |         |         | 2,005    |   |   |          | 2,005    |  
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|                                 | Comprehensive income                                                         |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   | $ | 54,864   |         
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|                                 | Stock issued under stock option plans, net,
	including tax expense of $260   |                                                                          |        | 575        |   |             |   |               |  |               |         | 5,474    |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 5,474   |          |   |   |          |         
|                                 | Stock issued under stock purchase plan                                       |                                                                          |        | 227        |   |             |   |               |  |               |         | 3,017    |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 3,017   |          |   |   |          |         
|                                 | Repurchase of common stock                                                   |                                                                          |        | (4,100     | ) |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         | (66,309 | ) |   |         | (66,309 | )        |   |   |          |         
|                                 | Private placement of common stock                                            |                                                                          |        | 2,000      |   |             |   |               |  |               |         | 32,846   |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 32,846  |          |   |   |          |         
|                                 | Stock options assumed in connection with
	acquisition                        |                                                                          |        |            |   |             |   |               |  |               |         | 831      |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 831     |          |   |   |          |         
|                                 | Employee stock-based compensation                                            |                                                                          |        |            |   |             |   |               |  |               |         | 3,318    |  |               |        | (3,318        | ) |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |         
|                                 | Amortization of employee stock-based compensation                            |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        | 877           |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 877     |          |   |   |          |         
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|Balances as of December 31, 2000 |                                                                              |                                                                          | 37,576 |            |   | $           | 4 |               |  | $             | 276,219 |          |  | $             | (2,770 | )             |   | $      | 327    |   |        | $ | 138,430 |   |          | $ | (66,309 | )       |   | $ | 345,901 |         |          |   |   |         
|                                 | Comprehensive loss:                                                          |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |         
|                                 |                                                                              | Net loss                                                                 |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   | (177,717 | ) |         |         |   |   |         |         | (177,717 | ) |   | $        | (177,717 | )
|                                 |                                                                              | Unrealized gain on short-term investments, net of
	tax effects of $389   |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   | 1,722  |   |         |   |          |   |         |         |   |   |         |         | 1,722    |   |   |          | 1,722    |  
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|                                 | Comprehensive loss                                                           |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   | $ | (175,995 | )       
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|                                 | Stock issued under stock option plans, net,
	including tax benefit of $2,253 |                                                                          |        | 679        |   |             |   |               |  |               |         | 11,137   |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 11,137  |          |   |   |          |         
|                                 | Stock issued under stock purchase plan                                       |                                                                          |        | 271        |   |             |   |               |  |               |         | 3,018    |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 3,018   |          |   |   |          |         
|                                 | Stock issued under stock bonus plan                                          |                                                                          |        | 153        |   |             |   |               |  |               |         | 842      |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 842     |          |   |   |          |         
|                                 | Repurchase of common stock                                                   |                                                                          |        | (357       | ) |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         | (6,547  | ) |   |         | (6,547  | )        |   |   |          |         
|                                 | Employee stock-based compensation                                            |                                                                          |        |            |   |             |   |               |  |               |         | 1,159    |  |               |        | (1,159        | ) |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |          |         
|                                 | Stock-based compensation to non-employees                                    |                                                                          |        |            |   |             |   |               |  |               |         | 643      |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 643     |          |   |   |          |         
|                                 | Amortization of stock-based compensation                                     |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        | 1,064         |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         | 1,064   |          |   |   |          |         
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         
|Balances as of December 31, 2001 |                                                                              |                                                                          | 38,322 |            |   | $           | 4 |               |  | $             | 293,018 |          |  | $             | (2,865 | )             |   | $      | 2,049  |   |        | $ | (39,287 | ) |          | $ | (72,856 | )       |   | $ | 180,063 |         |          |   |   |         
|                                 |                                                                              |                                                                          |        |            |   |             |   |               |  |               |         |          |  |               |        |               |   |        |        |   |        |   |         |   |          |   |         |         |   |   |         |         |          |   |   |         

See accompanying notes to consolidated financial
statements

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CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years Ended December 31, 2001, 2000 and
1999


|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |          |         |          |  
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------- | -------- | ------- | -------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | -------- | -
|                                                                                                      |                                                                                 | 2001                              |                                                      | 2000     |         | 1999    
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |         
|                                                                                                      |                                                                                 |                                  
|                                                                                                      |                                                                                 | (In thousands)                   
|Cash flows from operating activities:                                                                 |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Net (loss) earnings                                                                                   |                                                                                 | $                                 | (177,717                                             | )        |         | $        | 52,859  |          |         | $       | 56,620  |         
|Adjustments to reconcile net (loss) earnings
	to net cash (used in) provided by operating activities: |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      | Depreciation and amortization                                                   |                                   |                                                      | 27,792   |         |          |         | 28,508   |         |         |         | 20,656   |        
|                                                                                                      | Acquired in-process research and development                                    |                                   |                                                      |         |         |          |         | 940      |         |         |         |         |        
|                                                                                                      | Merger accruals                                                                 |                                   |                                                      |         |         |          |         | (2,165   | )       |         |         |         |        
|                                                                                                      | Impaired goodwill                                                               |                                   |                                                      | 767      |         |          |         |         |         |         |         |         |        
|                                                                                                      | Amortization of stock-based compensation                                        |                                   |                                                      | 1,064    |         |          |         | 877      |         |         |         | 1,247    |        
|                                                                                                      | Compensation under stock plans                                                  |                                   |                                                      | 1,485    |         |          |         |         |         |         |         |         |        
|                                                                                                      | Loss on disposal of assets                                                      |                                   |                                                      |         |         |          |         | 275      |         |         |         | 517      |        
|                                                                                                      | Equity (income) loss from investments and
	joint ventures                       |                                   |                                                      | 13,354   |         |          |         | (22,262  | )       |         |         | (6,122   | )      
|                                                                                                      | Deferred income taxes                                                           |                                   |                                                      | 14,218   |         |          |         | (15,975  | )       |         |         | (5,068   | )      
|                                                                                                      | Tax benefit (expense) related to stock
	options                                 |                                   |                                                      | 2,253    |         |          |         | (260     | )       |         |         | 3,687    |        
|                                                                                                      | Deferred rent                                                                   |                                   |                                                      | (542     | )       |          |         | 1,455    |         |         |         | 648      |        
|                                                                                                      | Provision for doubtful accounts                                                 |                                   |                                                      | 4,210    |         |          |         | 5,876    |         |         |         | 7,282    |        
|                                                                                                      | Changes in operating assets and liabilities, net
	of effects from acquisitions: |                                   |                                                      |          |         |          |         |          |         |         |         |          |        
|                                                                                                      |                                                                                 | Accounts receivable               |                                                      |          | 30,237  |          |         |          | (24,366 | )       |         |          | (22,047 | )       
|                                                                                                      |                                                                                 | Due from affiliates               |                                                      |          | 812     |          |         |          | 3,743   |         |         |          | 4,392   |         
|                                                                                                      |                                                                                 | Prepaid expenses and other assets |                                                      |          | 1,225   |          |         |          | (9,625  | )       |         |          | 1,748   |         
|                                                                                                      |                                                                                 | Accounts payable                  |                                                      |          | (3,717  | )        |         |          | (2,220  | )       |         |          | 4,783   |         
|                                                                                                      |                                                                                 | Accrued compensation              |                                                      |          | (8,406  | )        |         |          | 8,612   |         |         |          | 9,188   |         
|                                                                                                      |                                                                                 | Accrued income taxes              |                                                      |          | (316    | )        |         |          | 7,250   |         |         |          | 157     |         
|                                                                                                      |                                                                                 | Other accrued liabilities         |                                                      |          | 5,165   |          |         |          | 6,084   |         |         |          | 3,981   |         
|                                                                                                      |                                                                                 | Accrued litigation                |                                                      |          | (15,952 | )        |         |          | 47,500  |         |         |          |        |         
|                                                                                                      |                                                                                 | Deferred revenue                  |                                                      |          | (2,288  | )        |         |          | 23,538  |         |         |          | 13,302  |         
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      |                                                                                 |                                   | Net cash (used in) provided by operating
	activities |          |         | (106,356 | )       |          |         | 110,644 |         |          |         | 94,971   |  
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Cash flows from investing activities:                                                                 |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      | Purchases of short-term investments                                             |                                   |                                                      | (233,467 | )       |          |         | (382,306 | )       |         |         | (591,857 | )      
|                                                                                                      | Maturities and sales of short-term investments                                  |                                   |                                                      | 384,714  |         |          |         | 363,271  |         |         |         | 451,354  |        
|                                                                                                      | Investments and joint ventures                                                  |                                   |                                                      | (8,102   | )       |          |         | (1,251   | )       |         |         |         |        
|                                                                                                      | Investment in ALi Bonds                                                         |                                   |                                                      | (30,000  | )       |          |         |         |         |         |         |         |        
|                                                                                                      | Investment in SMIC                                                              |                                   |                                                      | (55,000  | )       |          |         | (7,500   | )       |         |         |         |        
|                                                                                                      | Proceeds from sale of investment in SMIC                                        |                                   |                                                      | 62,500   |         |          |         |         |         |         |         |         |        
|                                                                                                      | Distribution of capital from Forefront                                          |                                   |                                                      | 2,500    |         |          |         |         |         |         |         |         |        
|                                                                                                      | Purchases of equipment, furniture, fixtures and
	other assets                   |                                   |                                                      | (6,100   | )       |          |         | (10,210  | )       |         |         | (7,249   | )      
|                                                                                                      | Purchases of acquired entities, net of cash
	acquired                           |                                   |                                                      | (600     | )       |          |         | (21,914  | )       |         |         |         |        
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      |                                                                                 |                                   | Net cash provided by (used in) investing
	activities |          |         | 116,445  |         |          |         | (59,910 | )       |          |         | (147,752 | )
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Cash flows from financing activities:                                                                 |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      | Principal payments under capital lease obligations                              |                                   |                                                      |         |         |          |         |         |         |         |         | (602     | )      
|                                                                                                      | Payments on notes payable, net                                                  |                                   |                                                      |         |         |          |         |         |         |         |         | (1,905   | )      
|                                                                                                      | Repurchase of common stock                                                      |                                   |                                                      | (6,547   | )       |          |         | (66,309  | )       |         |         |         |        
|                                                                                                      | Loans to employees, officers and directors, net                                 |                                   |                                                      | (175     | )       |          |         | 757      |         |         |         | 700      |        
|                                                                                                      | Exercise of stock options                                                       |                                   |                                                      | 8,884    |         |          |         | 5,734    |         |         |         | 6,011    |        
|                                                                                                      | Issuance of common stock under employee stock
	purchase plan                    |                                   |                                                      | 3,018    |         |          |         | 3,017    |         |         |         | 1,685    |        
|                                                                                                      | Issuance of common stock, net                                                   |                                   |                                                      |         |         |          |         | 32,846   |         |         |         | 478      |        
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      |                                                                                 |                                   | Net cash provided by (used in) financing
	activities |          |         | 5,180    |         |          |         | (23,955 | )       |          |         | 6,367    |  
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Net increase (decrease) in cash and cash
	equivalents                                                 |                                                                                 |                                   | 15,269                                               |          |         |          | 26,779  |          |         |         | (46,414 | )       
|Cash and cash equivalents, beginning of year                                                          |                                                                                 |                                   | 106,545                                              |          |         |          | 79,766  |          |         |         | 126,180 |         
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Cash and cash equivalents, end of year                                                                |                                                                                 | $                                 | 121,814                                              |          |         | $        | 106,545 |          |         | $       | 79,766  |         
|                                                                                                      |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Supplemental disclosures:                                                                             |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|Cash paid during the year for:                                                                        |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      | Interest                                                                        |                                   | $                                                    | 2,127    |         |          | $       | 149      |         |         | $       | 335      |        
|                                                                                                      | Income taxes                                                                    |                                   | $                                                    | 16,843   |         |          | $       | 37,384   |         |         | $       | 35,003   |        
|Noncash investing activities:                                                                         |                                                                                 |                                   |                                                      |          |         |          |         |          |         |         |         |         
|                                                                                                      | Issuance of options to acquire Analogy                                          |                                   | $                                                    |         |         |          | $       | 831      |         |         | $       |         |        

See accompanying notes to consolidated financial
statements.

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1 Nature of Business and Summary of
Significant Accounting Policies

Nature of
Business

Avant! Corporation (the Company or
Avant!) develops, markets, licenses and supports
electronic design automation (EDA) software products
that assist design engineers in the physical layout, design,
verification, simulation, timing and analysis of advanced
integrated circuits. Its primary customers are semiconductor
companies in the United States, Asia and Europe.

Principles of
Presentation

The accompanying consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Maingate
Electronics, KK (Maingate) became a wholly-owned
subsidiary of the Company in December 2001, and is consolidated
in the accompanying balance sheet as of December 31, 2001.
Previously, the Company accounted for its investment in Maingate
under the equity method. The consolidated financial statements
have been restated to reflect the effect of the merger in 1999
with Chrysalis Symbolic Design, Inc. (Chrysalis),
and Xynetix Design Systems Inc. (Xynetix) as pooling
of interests. The Maingate and Analogy, Inc.
(Analogy) acquisitions were accounted for under the
purchase method. Analogy was acquired in 2000. Accordingly, the
Companys consolidated financial statements do not include
the results of operations, financial position or cash flows
prior to their acquisitions.

Use of
Estimates in Preparation of Financial Statements

The accompanying consolidated financial
statements, have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, including those
related to bad debts, impairment of investments and other
long-lived assets, income taxes, and contingencies and
litigation. The Company bases its estimates on historical
experience and on various other assumptions that it believes to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.

Revenue
Recognition

Revenue consists primarily of fees for perpetual
and time-based licenses (TBL) of our software products and
post-contract customer support (PCS) arrangements. The
Company classifies revenues as perpetual license, TBL, service
or revenue from affiliates. Perpetual revenue consists of
software license revenue from products sold under perpetual
license arrangements. TBL revenue consists of software and PCS
revenue from TBL arrangements. Service revenue consists
primarily of PCS sold under perpetual licenses arrangements.
Revenue from affiliates consists of products sold to affiliates
under perpetual licenses, TBL and PCS arrangements.

The Company recognizes revenue using the residual
method pursuant to the requirements of Statement of Position
No. 97-2 Software Revenue Recognition
(SOP 97-2), as amended by Statement of Position
No. 98-9, Software Revenue Recognition with Respect
to Certain Arrangements (SOP 98-9).

Under SOP 97-2, revenue attributable to an
element in a customer arrangement is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collectibility is probable.

Under the residual method, as per SOP 98-9,
revenue is recognized in a multiple element arrangement for
perpetual licenses when Company-specific objective evidence of
fair value exists for all of the undelivered elements in the
arrangement, but does not exist for one or more of the delivered
elements in the

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arrangement. Most of the Companys perpetual
license arrangements include the first year of PCS in the
contract. The Company has determined that it has sufficient
evidence to support vendor specific objective evidence
(VSOE) for the PCS portion in perpetual license
arrangements. Accordingly, at the outset of a new perpetual
license arrangement with a customer, the Company defers revenue
for the fair value of its undelivered elements (i.e., PCS) and
recognizes revenue for the remainder of the arrangement fee
attributable to the elements initially delivered in the
arrangement (i.e., software product) when the basic criteria in
SOP 97-2 have been met.


Revenues from TBL arrangements are generally
recognized ratably over the term of the license, as the product
and PCS portions of the TBL arrangements are bundled and not
sold separately. Certain of the Companys TBL arrangements
include extended payment terms. Revenues from these contracts
are recognized upon delivery of the products at the lesser of
aggregate amounts due and payable or the ratable portion of the
entire fee.

PCS arrangements for perpetual licenses generally
call for the Company to provide technical support and software
updates. Service revenue is recognized ratably over the term of
the PCS agreement, on a straight-line basis when all revenue
recognition requirements are met.

During the fourth quarter of 2000, the Company
adopted Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements
(SAB 101). The adoption of SAB 101 did not
have a material effect on the Companys consolidated
financial position or results of operations.

The Company recognized revenue from its affiliate
Maingate Electronics KK (Maingate), in the quarter
subsequent to the quarter in which Maingate collected cash from
the end users. The company recognizes revenue from its
affiliate, Davan Tech Co., Ltd, (Davan Tech) when
the Company receives cash from Davan Tech.

Advertising
Expense

The cost of advertising is expensed as incurred.
Such costs are included in selling and marketing expense and
totaled approximately $4.7 million, $3.2 million and
$4.9 million during the years ended December 31, 2001,
2000, and 1999, respectively.

Foreign
Currency Translation

The functional currency of the Companys
foreign subsidiaries is the U.S. dollar. Accordingly, the
financial statements of those subsidiaries, which are maintained
in the local currency, are remeasured into U.S. dollars in
accordance with SFAS No. 52, Foreign Currency
Translation. Exchange gains or losses from remeasurement
of monetary assets and liabilities that are not denominated in
U.S. dollars were not material for any period presented and
are included in the statement of earnings.

Cash and Cash
Equivalents

The Company considers all highly liquid
investments with a remaining maturity of three months or less at
the date of acquisition to be cash equivalents. Cash equivalents
are stated at cost and consist of money market funds,
certificates of deposit and commercial paper. The carrying
amount of cash and cash equivalents approximates fair value.

Short-Term
Investments

Short-term investments, which are classified as
available-for-sale, consist of demand deposit investments in
short-term debt securities, U.S. Government Agency debt
securities, municipal/ corporate auction preferred stock and
municipal bonds, and are reported at fair value. The cost of
securities sold is determined using the specific identification
method when computing realized gains and losses. Fair value is
determined using available market information.

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Foreign
Currency Hedging Instruments

The Company transacts business in various foreign
currencies. Accordingly, the Company is subject to exposure from
adverse movements in foreign currency exchange rates. There was
no foreign currency hedging contracts outstanding as of
December 31, 2001. Net gains and losses related to hedging
contracts and foreign exchange transactions were minimal in
2001, 2000 and 1999.

The Company assesses the need to utilize
financial instruments to hedge currency exposures on an ongoing
basis. The Company does not use derivative financial instruments
for speculative trading purposes, nor does the Company hedge its
foreign currency exposure in a manner that entirely offsets the
effects of changes in foreign exchange rates. The Company
regularly reviews its hedging program and may as part of this
review determine at any time to change its hedging program.

Effective January 1, 2001, the Company
adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. Adoption
of this statement did not have a significant impact on the
Companys results of operations or financial position.

Income
Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.

If appropriate, a valuation allowance is recorded
against deferred tax assets if it is more likely than not that
all or a portion of the deferred tax assets will not be
realized. While the Company has considered future taxable income
and tax planning strategies in assessing the need for a
valuation allowance, in the event it determines that it would
not be able to realize all or a portion of the deferred tax
assets in the future, an adjustment to the deferred tax asset
would be charged to earnings in the period the determination was
made.

Equipment,
Furniture and Fixtures

Equipment, furniture and fixtures are stated at
cost. Equipment, furniture and fixtures are depreciated using
the straight-line method over the estimated useful lives of the
assets, which range from three to five years. Leasehold
improvements are amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of
the asset. Expenditures for repairs and maintenance are charged
to expense as incurred. Upon disposal, costs and related
accumulated depreciation are removed from the accounts and the
resulting gains or losses are reflected in operations.

Goodwill and
Other Intangibles

Intangibles consist principally of goodwill
representing the excess of the cost of a purchased business over
the fair value of the net tangible and intangible assets
acquired. Generally, goodwill and other intangibles are
amortized using the straight-line method over three to five
years. As of December 31, 2001 and 2000, goodwill and
related intangibles totaled $66.9 million and
$67.7 million, respectively, and accumulated amortization
was $49.0 million and $32.6 million, respectively.
Amortization expense was $18.5 million, $18.3 million,
and $10.4 million for the years ended December 31,
2001, 2000 and 1999, respectively. The Company periodically
evaluates whether changes have occurred that would require
revision of the remaining estimated useful life of the assigned
goodwill or render the goodwill not recoverable. If such
circumstances arise, the Company would use an estimate of the
undiscounted value of expected future operating cash flows to
determine whether the goodwill is recoverable. If the goodwill
is not recoverable,

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the carrying amount of the goodwill will be
reduced to the discounted amount of expected future operating
cash flows resulting in a charge to earnings.


Impairment of
Long-Lived Assets

The Company assesses the recoverability of our
identifiable tangible and intangible assets under Statement of
Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of. This statement
requires identifiable tangible and intangible assets to be
evaluated for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the asset
to future net cash flows expected to be generated by the assets.
If an asset is considered to be impaired, the carrying amount of
that asset is reduced to the fair value, based on discounted
future cash flows, resulting in a charge to earnings.

Valuation of
Investments

The Company has an investment in a company, which
is a developer and supplier of integrated circuits for personal
computers and personal computer peripheral and multimedia
devices as well as other investments. The Company records an
investment impairment charge when we believe an investment has
experienced a decline in value that is other than temporary. The
Company reviews each investment for indicators of impairment on
a quarterly basis based, primarily on achievement of business
plan objectives and current market conditions, among other
factors. The primary business plan objectives the Company
considers include, among others, those related to financial
performance such as achievement of planned financial results,
liquidity or completion of capital raising activities, and those
that are not primarily financial in nature such as the
introduction of technology. If it is determined that an
impairment has occurred with respect to an investment, in the
absence of quantitative valuation metrics, management estimates
the impairment and/or the net realizable value of the investment
based upon available information such as public- and
private-company market comparable information and valuations
completed for similar companies or investments.

Litigation
Costs

The pending litigation and any future litigation
against the Company and its employees, regardless of the
outcome, are expected to result in substantial costs and
expenses to the Company. The Companys legal expenses for
all litigation matters were $14.6 million,
$5.8 million and $14.7 million for the years ended
December 31, 2001, 2000 and 1999, respectively. The Company
records a litigation loss when it determines the negative
outcome of litigation matters to be probable and reasonably
estimable. At December 31, 2001 and 2000, Avant! accrued
$31.5 million and $47.5 million, respectively for
litigation issues.

The Company currently expects continued
substantial legal costs in the future as a result of its current
litigation issues. Thus, current litigation issues could
seriously harm our business, financial condition and results of
operations.

Net Earnings
and Earnings Per Share

Basic earnings (loss) per share is computed
by dividing the net earnings (loss) available to common
shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per
share is computed by dividing net earnings (loss) available
to common shareholders by the weighted average number of common
shares outstanding after giving effect to all dilutive potential
common shares that were outstanding during the period.

Potential common shares are not included in the
computation of dilutive earnings per share if they are
antidilutive. The net loss per share as reported in 2001 was not
adjusted, since potential common shares were antidilutive.
Excluded from the computation of diluted earnings per share for
the years ended December 31, 2000 and 1999, are options to
acquire 1,374,902 and 2,159,285 shares respectively, of

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common stock with weighted-average exercise
prices of $22.27 and $19.72, respectively, because their effects
would be antidilutive.


The following is a reconciliation of the
numerators and denominators of the basic and diluted EPS
computations for the years presented (in thousands, except per
share data):

|     |                     |               |   |                |   |           |  |        |       |  |   |       |   | 
|---- | ------------------- | ------------- | - | -------------- | - | --------- |  | ------ | ----- |  | - | ----- | - | 
|     |                     |               |   | Weighted       |   | Earnings 
|     |                     | Net Earnings  |   | Average Shares |   | (Loss)   
|     |                     | (Loss)        |   | Outstanding    |   | Per Share
|     |                     |               |   |                |   |          
|2001 |                     |               |   |                |   |           |  |        |       |  |   |      
|     | Basic               |               | $ | (177,717       | ) |           |  | 37,637 |       |  | $ | (4.72 | )
|     | Effect of dilution: |               |   |                |   |           |  |        |       |  |   |       |  
|     |                     | Stock options |   |                |  |           |  |        |      |  |   |       |  | 
|     |                     |               |   |                |   |           |  |        |       |  |   |      
|     | Diluted             |               | $ | (177,717       | ) |           |  | 37,637 |       |  | $ | (4.72 | )
|     |                     |               |   |                |   |           |  |        |       |  |   |      
|2000 |                     |               |   |                |   |           |  |        |       |  |   |      
|     | Basic               |               | $ | 52,859         |   |           |  | 38,880 |       |  | $ | 1.36  |  
|     | Effect of dilution: |               |   |                |   |           |  |        |       |  |   |       |  
|     |                     | Stock options |   |                |  |           |  |        | 1,086 |  |   |       |  | 
|     |                     |               |   |                |   |           |  |        |       |  |   |      
|     | Diluted             |               | $ | 52,859         |   |           |  | 39,966 |       |  | $ | 1.32  |  
|     |                     |               |   |                |   |           |  |        |       |  |   |      
|1999 |                     |               |   |                |   |           |  |        |       |  |   |      
|     | Basic               |               | $ | 56,620         |   |           |  | 38,084 |       |  | $ | 1.49  |  
|     | Effect of dilution: |               |   |                |   |           |  |        |       |  |   |       |  
|     |                     | Stock options |   |                |  |           |  |        | 1,662 |  |   |       |  | 
|     |                     |               |   |                |   |           |  |        |       |  |   |      
|     | Diluted             |               | $ | 56,620         |   |           |  | 39,746 |       |  | $ | 1.42  |  
|     |                     |               |   |                |   |           |  |        |       |  |   |      

Stock Option
and Stock Purchase Plans

The Company accounts for its stock-based
compensation plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant when the
current market price of the underlying stock exceeds the
exercise price. Pursuant to Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, the Company discloses the pro
forma effects of using the fair value method of accounting for
stock-based compensation arrangements.

In March 2000, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation (FIN) 44,
Accounting for Certain Transactions involving Stock
Compensation, which clarifies the application of
APB 25 for certain issues. There was no material impact on
the Companys consolidated financial statements as a result
of adopting this interpretation.

Stock-Based
Compensation

The Company accounts for stock and stock options
issued to non-employees in accordance with the provisions of
Emerging Issues Task Force Consensus on Issue No. 96-18,
Accounting for Equity Instruments that are Issued to Other
than Employees for Acquiring or in Conjunction with Selling,
Goods or Services. Expense is recognized over the vesting
period of the options or the periods the related services are
rendered, as appropriate.

Recent
Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statements of Financial
Accounting Standards No. 141, Business
Combinations (SFAS 141), and No. 142,
Goodwill and

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Other Intangible Assets (SFAS 142).
SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30,
2001 and specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized
apart from goodwill. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually in accordance with the provisions of SFAS 142.


The Company adopted the provisions of
SFAS 141 effective July 1, 2001. Under SFAS 141,
goodwill and intangible assets determined to have indefinite
useful lives acquired in a purchase business combination
completed after June 30, 2001, but before SFAS 142 is
adopted will not be amortized, but will continue to be evaluated
for impairment in accordance with SFAS 121. Goodwill and
intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized and
tested for impairment in accordance with current accounting
guidance until the date of adoption of SFAS 142.

Upon adoption of SFAS 142, the Company will
evaluate existing intangible assets and goodwill that were
acquired in prior purchase business combinations, and make any
necessary reclassifications in order to conform with the new
criteria in SFAS 142 for recognition of intangible assets
apart from goodwill. Upon adoption of SFAS 142, the Company
will be required to reassess the useful lives and residual
values of all intangible assets acquired, and make any necessary
amortization period adjustments. In addition, the Company will
be required to test intangible assets with indefinite useful
lives and goodwill for impairment in accordance with the
provisions of SFAS 142 within the six-month period
following adoption. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of
a change in accounting principle. Any subsequent impairment
losses will be included in operating activities.

The Company will adopt SFAS 142 on
January 1, 2002. As of December 31, 2001, unamortized
goodwill is $14.6 million, which will no longer be
amortized subsequent to the adoption of SFAS 142. Related
goodwill amortization expense for 2001, 2000 and 1999 was
$11.8 million, $12.9 million and $8.6 million,
respectively. Because of the extensive effort needed to comply
with adopting SFAS 142, it is not practicable to reasonably
estimate the impact of adopting this Statement on the financial
statements at the date of this report, including whether the
Company will be required to recognize any transitional
impairment losses.

In October 2001, the FASB issued Statement of
Financial Accounting Standards No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 supersedes SFAS 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS 144 applies to all
long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion
No. 30, Reporting Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS 144 develops one accounting model
for long-lived assets that are to be disposed of by sale.
SFAS 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS 144
expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a
disposal transaction. The provisions of this Statement are
effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods
within those fiscal years, with early application encouraged.
The Company is in the process of evaluating the effect of
SFAS 144 on its financial statements. The Company does not
expect a significant impact on its financial condition or
results of operation because the impairment assessment under
SFAS 144 is largely unchanged from SFAS 121.

2     Agreement and
Plan of Merger

On December 3, 2001, the Company announced
that it had entered into a merger agreement with Synopsys, Inc.
under which it will merge with and into Maple Forest Acquisition
L.L.C., a Delaware limited liability company and a direct wholly
owned subsidiary of Synopsys. Under the merger agreement, the
Companys stockholders will receive 0.371 shares of
Synopsys common stock for each share of Avant! common stock
owned. In addition, the merger agreement provides that upon
completion of the merger,

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stock options to purchase the Companys
common stock granted to the Companys employees and
directors under the Companys stock option plans that are
outstanding and not exercised immediately before completing the
merger will become options to purchase Synopsys common stock,
except for the options granted to non-employee directors and
Gerald C. Hsu. The replacement options issued in the merger will
generally have the same terms and conditions as were applicable
under the Companys stock option plans, except that the
number of common shares subject to such stock options, and the
exercise price of such stock options, will each be adjusted
according to the exchange ratio in the merger agreement. The
merger is subject to certain closing conditions, including,
among other things, the approval of Avant! stockholders of the
merger, approval of Synopsys stockholders of the issuance of
Synopsys common stock in connection with the merger, expiration
or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act and other customary closing
conditions.


3     Financial
Instruments

Cash
Equivalents and Investments

All short-term and restricted investments have
been classified as available-for-sale securities. As of
December 31, 2001, cash equivalents consist primarily of
money market funds. Cash equivalents and short-term investments
consist of the following as of December 31, (in thousands):

|                                       |  |      |        |      |  |   |         | 
|-------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | 
|                                       |  | 2001 |        | 2000
|                                       |  |      |        |     
|Cash equivalents                       |  | $    | 66,527 |      |  | $ | 86,195  | 
|Short-term debt securities             |  |      | 2,947  |      |  |   | 11,120  | 
|U.S. government agency debt securities |  |      | 22,550 |      |  |   | 19,234  | 
|Municipal bonds                        |  |      | 4,250  |      |  |   | 151,317 | 
|                                       |  |      |        |      |  |   |         | 
|Total financial instruments            |  | $    | 96,274 |      |  | $ | 267,866 | 
|                                       |  |      |        |      |  |   |         | 
|Reported as:                           |  |      |        |      |  |   |         | 
|Cash equivalents                       |  | $    | 66,527 |      |  | $ | 86,195  | 
|Short-term investments                 |  |      | 23,740 |      |  |   | 143,871 | 
|Restricted investments                 |  |      | 6,007  |      |  |   | 37,800  | 
|                                       |  |      |        |      |  |   |         | 
|                                       |  | $    | 96,274 |      |  | $ | 267,866 | 
|                                       |  |      |        |      |  |   |         | 

In connection with the legal proceedings
disclosed in Note 18, the Company is required to maintain
short-term investments and has classified these as restricted
investments.

The cost of the securities held is based on the
specific identification method. The carrying value of cash and
cash equivalents and short-term investments approximate the fair
value (based on quoted market prices) of such investments.
Accordingly, net unrealized gains, at December 31, 2001,
were $67,000 and net unrealized losses at December 31,
2000, were $0.7 million, respectively. As of
December 31, 2001, the underlying maturities of financial
instruments were $72.7 million within one year, and
$23.6 million from 2003 to 2007.

The following table summarizes sales of
available-for-sale securities for the years ended
December 31, 2001, 2000, and 1999 (in thousands):

|                      |  |      |         |      |  |      |         |  |  |   |         | 
|--------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                      |  | 2001 |         | 2000 |  | 1999
|                      |  |      |         |      |  |     
|Proceeds from sales   |  | $    | 384,714 |      |  | $    | 363,271 |  |  | $ | 451,354 | 
|Gross realized gains  |  | $    | 2,343   |      |  | $    | 375     |  |  | $ | 334     | 
|Gross realized losses |  | $    | 207     |      |  | $    | 791     |  |  | $ | 1,286   | 

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4     Equipment,
Furniture and Fixtures

As of December 31 equipment, furniture and
fixtures consisted of the following (in thousands):

|                                               |  |      |         |      |  |   |         |  
|---------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                               |  | 2001 |         | 2000
|                                               |  |      |         |     
|Furniture and fixtures                         |  | $    | 9,372   |      |  | $ | 9,854   |  
|Equipment                                      |  |      | 44,575  |      |  |   | 47,341  |  
|Leasehold improvements                         |  |      | 10,540  |      |  |   | 12,172  |  
|                                               |  |      |         |      |  |   |         |  
|                                               |  |      | 64,487  |      |  |   | 69,367  |  
|Less accumulated depreciation and amortization |  |      | (40,842 | )    |  |   | (42,546 | )
|                                               |  |      |         |      |  |   |         |  
|                                               |  | $    | 23,645  |      |  | $ | 26,821  |  
|                                               |  |      |         |      |  |   |         |  

Depreciation expense on equipment, furniture and
fixtures was $9.3 million, $9.4 million and
$10.4 million for the years ended December 31, 2001,
2000, and 1999, respectively.

5     Mergers and
Acquisitions

At the end of 2001, the Company completed its
purchase of Maingate based on a formula agreed to by the Company
and Synopsys, which was set forth in the Synopsys merger
agreement. The purchase price was approximately
$11.7 million in cash, subject to completion of the final
closing balance sheet of Maingate. The purchase price has been
allocated to the assets acquired and liabilities assumed based
upon their fair market values at the date of acquisition. The
Maingate assets and liabilities acquired did not have a
significant impact on Avant!s assets and liabilities and
no goodwill was recorded in this transaction. The Company had
previously entered into a joint venture with Maingate for the
purpose of consolidating distribution in Japan. Prior to the
acquisition, the Company had an 18.8% ownership interest in
Maingate and the remaining Maingate interests were owned by
Gerald C. Hsu, the Companys Chairman, Noriko Ando, a
former executive officer, and the Eigen Fund, whose owners
included Moriyuki Chimura, a Company director. Prior to the
acquisition, the Company accounted for its investment using the
equity method. The Companys share of equity earnings are
included in the accompanying consolidated statement of earnings
as equity income from investments and joint ventures.

In July 1998, the initially agreed upon
capitalization of Maingate was accomplished by several transfers
of Maingate common stock: Avant! transferred 25.0% of Maingate
common stock to The Eigen Fund and 40.0% of Maingate common
stock to Gerald Hsu for approximately $177,000 and $283,000,
respectively, and the Eigen Fund sold 2% of Maingate common
stock to Noriko Ando for approximately $17,000.

In the first quarter of 2001, Maingate
repurchased 20% of its outstanding shares from the Company that
had the effect of reducing the Companys ownership interest
in Maingate to 18.8%, and increasing Mr. Hsus,
Ms. Andos and the Eigen Funds ownership to
50.0%, 2.5% and 28.7%, respectively. Immediately prior to the
Companys acquisition of Maingate, Mr. Hsu,
Ms. Ando and the Eigen Fund owned 50%, 10%, and 21.2% of
Maingate, respectively.

The Eigen Fund is a private equity fund whose
owners have included Company directors Moriyuki Chimura and
Charles St. Clair and Paul Lo, the Companys
President. In June and July 2001, Mr. Chimura purchased the
Eigen Fund interests owned by each of Dr. Lo and another
Eigen Fund member at the same price paid by the sellers for
these interests. In September 2001, the Eigen Fund transferred a
7.5% ownership interest in Maingate to Ms. Ando in exchange
for a cash payment of approximately $50,000, and in October
2001, the Eigen Fund purchased the Eigen Fund interest owned by
Mr. St. Clair at the same price paid by
Mr. St. Clair for this interest. As of the date of
Avant!s acquisition of Maingate, Mr. Chimura owned
60% of the outstanding interests in the Eigen Fund, but had the
right to receive approximately 27% of the Eigen Funds
Maingate sales proceeds. Mr. Hsu served as the manager of
the Eigen Fund until his resignation shortly before
Avant!s purchase of Maingate. Mr. Hsu at no time held
any ownership interest in the Eigen Fund or received any
compensation for his services as manager.

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The unaudited pro forma consolidated results of
operations of the Company and Maingate for 2001 and 2000 are
summarized below (in thousands):

|                        |  |      |          |      |  |   |         | 
|----------------------- |  | ---- | -------- | ---- |  | - | ------- | 
|                        |  | 2001 |          | 2000
|                        |  |      |          |     
|Revenue                 |  | $    | 405,016  |      |  | $ | 379,598 | 
|Net income (loss)       |  |      | (173,778 | )    |  |   | 56,206  | 
|Basic earnings (loss)   |  | $    | (4.62    | )    |  | $ | 1.45    | 
|Diluted earnings (loss) |  |      | (4.62    | )    |  |   | 1.41    | 

On March 22, 2000, the Company completed its
acquisition of Analogy for approximately $32.1 million
including $7.3 million of liabilities assumed and
$0.8 million related to the fair value of options assumed.
Analogy is a leader in mixed-signal and mixed-technology
simulation, analysis and design. The Company paid
$24.0 million in cash to acquire all of the outstanding
shares of Analogy. As part of the acquisition, the Company
expensed $0.9 million of acquired in-process research and
development expenses and paid $0.9 million in severance.
The in-process research and development amount was expensed, as
the underlying technology had not reached technological
feasibility and, in managements opinion, had no
alternative future use.

The acquisition was recorded under the purchase
method of accounting, and accordingly, the results of operations
of Analogy are included in the consolidated financial statements
from the date of acquisition. Pro forma consolidated information
is not presented, as it is not material. The purchase price has
been allocated to the assets acquired and liabilities assumed
based upon their fair market values at the date of acquisition,
as summarized below (in thousands):

|                                                                |  |   |        | 
|--------------------------------------------------------------- |  | - | ------ | 
|Current assets (including cash and cash
	equivalents of $2,086) |  | $ | 8,057  | 
|Long term asset                                                 |  |   | 2,473  | 
|In-process research and development                             |  |   | 940    | 
|Developed technology and other intangibles                      |  |   | 9,609  | 
|Goodwill                                                        |  |   | 11,060 | 
|                                                                |  |   |        | 
|                                                                |  | $ | 32,139 | 
|                                                                |  |   |        | 

The amounts allocated to technology were
estimated using an income approach applied to specifically
identified technologies acquired. In-process technology was
expensed upon acquisition because technological feasibility had
not been established and no alternative future uses existed.
Amounts allocated to developed technology and other intangibles
are amortized on a straight-line basis over three years.
Goodwill is being amortized on a straight-line basis over five
years. All merger expenses were paid as of June 30, 2000.

On August 20, 1999, Avant! acquired
Chrysalis, which designs, develops and sells software products
that assist designers of complex and application-specific
integrated circuits in the validation and verification of
electronic designs, for approximately $42 million by
issuing approximately 3,042,000 shares of Avant! common stock in
a merger exchange for all of the outstanding stock of Chrysalis.
The Company also assumed Chrysalis stock options representing
the right to purchase 446,370 shares of Avant! common stock at a
weighted average exercise price of $3.99 per share and assumed
Chrysalis warrants representing the right to purchase 116,213
shares of Avant! common stock at a weighted average exercise
price of $14.25 per share. As of December 31, 1999, all the
related warrants had been exercised or expired.

In connection with the acquisition, the Company
incurred expenses of $4.4 million, including fees to
professional advisors and others totaling $2.0 million,
$1.2 million of personnel-related costs and
$1.2 million of other costs. Substantially all of the
Companys expenses related to the Chrysalis acquisition
consisted of cash expenditures. As of December 31, 1999,
the unpaid merger related expenses were $3.2 million of
which $1.6 million was related to professional advisors
costs and $1.6 million was related to personnel and other
costs. All merger expenses were paid as of December 31,
2000.

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On August 6, 1999, Avant! acquired Xynetix,
which develops electronic design automation software for
advanced integrated circuits packaging and complex system
design, for approximately $19 million by issuing
approximately 1,441,000 shares of Avant! common stock in a
merger exchange for all of the outstanding stock of Xynetix. The
Company also assumed outstanding Xynetix stock options
representing the right to purchase 126,492 shares of Avant!
common stock at a weighted average exercise price of $1.86 per
share.

In connection with the acquisition, the Company
incurred expenses of approximately $1.5 million, including
professional fees totaling $0.6 million, facilities costs
of $0.5 million and other costs of $0.4 million.
Substantially all of the Companys expenses related to the
Xynetix acquisition consisted of cash expenditures. As of
December 31, 1999, the unpaid merger related expenses were
$1.0 million of which $0.4 million was related to
professional fees and $0.6 million was related to
facilities and other costs. All merger expenses were paid as of
December 31, 2000.

During the quarter ended June 30, 2000, the
Company completed its analysis of the remaining liabilities that
related to the August 1999 acquisitions of Chrysalis and Xynetix
and determined that $2.2 million of accrued merger related
expenses related to these acquisitions were no longer required.
Accordingly, these amounts were reversed in the second quarter
of 2000.

Both acquisitions were accounted for using the
pooling of interests accounting method. Accordingly, the
Companys consolidated financial statements have been
restated to include the financial position and results of
operations for Chrysalis and Xynetix for all periods presented
prior to their acquisition. Summarized below are revenue and net
earnings for the separate entities, Avant!, Chrysalis and
Xynetix, and combined amounts presented in the accompanying
consolidated financial statements (in thousands):

|                              |  |                   |         |  
|----------------------------- |  | ----------------- | ------- | -
|                              |  | Nine Months Ended
|                              |  | September 30,    
|                              |  | 1999             
|                              |  |                  
|                              |  | (Unaudited)      
|Revenue:                      |  |                   |         |  
|Avant!                        |  | $                 | 207,911 |  
|Chrysalis                     |  |                   | 10,608  |  
|Xynetix                       |  |                   | 3,994   |  
|                              |  |                   |         |  
|                              |  | $                 | 222,513 |  
|                              |  |                   |         |  
|Net earnings (losses):        |  |                   |         |  
|Avant!                        |  | $                 | 39,586  |  
|Chrysalis                     |  |                   | (632    | )
|Xynetix                       |  |                   | (2,955  | )
|                              |  |                   |         |  
|                              |  |                   | 35,999  |  
|Adjustment for deferred taxes |  |                   | 602     |  
|                              |  |                   |         |  
|Net earnings                  |  | $                 | 36,601  |  
|                              |  |                   |         |  

6     Other
Assets

The Companys other assets consisted of the
following as of December 31 (in thousands):

|                        |                    |      |        |        |  |   |        |        | 
|----------------------- | ------------------ | ---- | ------ | ------ |  | - | ------ | ------ | 
|                        |                    | 2001 |        | 2000  
|                        |                    |      |        |       
|Investment in ALi Bonds |                    | $    | 32,400 |        |  | $ |       |       
|Other                   |                    |      | 12,319 |        |  |   | 13,318 |       
|                        |                    |      |        |        |  |   |        |       
|                        | Total other assets |      | $      | 44,719 |  |   | $      | 13,318 | 
|                        |                    |      |        |        |  |   |        |       

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The Company purchased zero coupon convertible
bonds in the amount of $30 million issued by Acer Laboratories,
Inc. (Ali) in March 2001. The bonds mature on March 30,
2004 and are redeemable on that date for an amount equal to 107%
of the original principal amount. The bonds are accounted for as
available-for-sale securities in accordance with FASB
No. 115 Accounting for Certain Investments in
Debt and Equity Securities, and recorded at fair value
based on an independent valuation. The Company intends to hold
these bonds until maturity.

ALi is a Taiwanese developer and supplier of
integrated circuits for personal computers and personal computer
peripheral and multimedia devices. ALi was established in 1993
through a spin-off by Acer Incorporated, which remains the major
shareholder of ALi.

The bonds are convertible until February 29,
2004, into ordinary shares of ALi at the Companys option,
subject to certain periods during which, under Taiwanese law,
ALis stock transfer records are required to be closed. The
conversion price is US$1.835 per share, subject to adjustment
for certain events set out in the bond agreement including:
(1) the making of a free distribution or bonus issue of
shares; (2) the subdivisions, consolidations or
reclassifications of ALis ordinary shares; and
(3) the declaration of a dividend of shares. The conversion
price is also subject to downward adjustment on March 30,
2002 and March 30, 2003, if the average closing price of
the ordinary shares is less than the applicable conversion price
on such date. At December 31, 2001, if the Company were to
convert the bonds at the current conversion price, it would
receive approximately 10.4% of the outstanding shares of ALi.

The Company will have the right to cause ALi to
redeem the bonds on March 30, 2003, for the principal
amount of the bonds. ALi has the right to redeem the bonds, in
whole or in part, for the principal amount if the closing price
of ALi common shares on the trading stock market, the Republic
of China Over-the-Counter Securities Exchange (the Exchange), in
U.S. dollars, calculated at the then prevailing exchange rate,
is at least 140% of the conversion price for 30 consecutive
days. ALi may exercise its right to redeem the bonds by giving
notice at least 30 days, but not more than 60 days,
prior to the date of redemption. Notice may not be given prior
to ten days following the end of the 30-consecutive-day period
described above, and not before the first anniversary of the
date of the purchase of the bonds.

7     Litigation
Settlements

As discussed in Note 18, in 1998, the Santa
Clara County District Attorneys office filed a criminal
indictment alleging felony level offenses related to allegations
of misappropriation of trade secrets set forth in the Avant!/
Cadence lawsuit. In 2001, Avant! entered pleas of no contest. In
connection with the plea agreement to settle the criminal action
brought against the Company and certain current and former
employees, the Company paid fines and restitution. In connection
with the settlement, the Company agreed to indemnify certain
current and former Avant! employees who were defendants in this
action for the fines assessed against them and to indemnify them
for taxes levied as a result of this indemnification. The
Company recognized $236.5 million of expense related to
these matters in the second quarter of 2001.

In February 2002, in a default prove-up hearing,
a Santa Clara County Superior Court fixed the combined award to
Silvaco International and Silvaco Data Systems
(Silvaco) at $26.1 million on two of
Silvacos three remaining causes of action filed in 1995
against Meta Software Inc., which Avant! acquired in late 1996,
and Shawn Hailey, former President and Chief Executive Officer
of Meta Software, Inc. In accordance with Statement of Financial
Accounting Standards No. 5 (SFAS 5) Accounting
for Contingencies, the Company recognized a loss related
to this award in the fourth quarter of 2001.

In February 2002, Avant! resolved all claims
between it and Dynasty Capital Services LLC and Randolph L.
Tom. Under the terms of the settlement agreement, Avant! will
pay a total of $5.4 million. In accordance with
SFAS 5, the Company recognized a loss as a result of this
agreement in the fourth quarter of 2001.

In March 2001, the Company reached an agreement
to settle the two class action stockholder lawsuits that were
pending against the Company. Under the terms of the two
settlements, Avant! paid $47.5 million in cash to the
plaintiffs classes, which dismissed all of their claims
against the Company with prejudice. The

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two lawsuits, brought by Paul and Helen Margetis
and by Joanne Hoffman on behalf of certain purchasers of Avant!
common stock, were filed in the United States District Court for
the Northern District of California in 1995 and 1997,
respectively. In accordance with SFAS 5, the Company
recognized a loss related to this agreement in the fourth
quarter of 2000.


The following table summarizes the litigation
settlement activities for the years ended December 31 (in
thousands):

|                                                      |  |         |         |          |  |         |         |          |  |   |        |  |  |  |   | 
|----------------------------------------------------- |  | ------- | ------- | -------- |  | ------- | ------- | -------- |  | - | ------ |  |  |  | - | 
|                                                      |  |         |         |         
|                                                      |  | 2001    |         | 2000    
|                                                      |  |         |         |         
|                                                      |  | Expense |         | Payments |  | Expense |         | Payments
|                                                      |  |         |         |          |  |         |         |         
|Securities class action                               |  | $       |        |          |  | $       | 47,500  |          |  | $ | 47,500 |  |  |  |  | 
|Santa Clara criminal action restitution               |  |         | 195,400 |          |  |         | 195,400 |          |  |   |       |  |  |  |  | 
|Santa Clara criminal action company fines             |  |         | 27,000  |          |  |         | 27,000  |          |  |   |       |  |  |  |  | 
|Santa Clara criminal action individual fines and
	tax |  |         | 14,137  |          |  |         | 8,534   |          |  |   |       |  |  |  |  | 
|Silvaco                                               |  |         | 26,148  |          |  |         |        |          |  |   |       |  |  |  |  | 
|Dynasty Capital Services and Randolph Tom             |  |         | 5,400   |          |  |         |        |          |  |   |       |  |  |  |  | 
|                                                      |  |         |         |          |  |         |         |          |  |   |        |  |  |  |   | 
|Total                                                 |  | $       | 268,085 |          |  | $       | 278,434 |          |  | $ | 47,500 |  |  |  |  | 
|                                                      |  |         |         |          |  |         |         |          |  |   |        |  |  |  |   | 

As of December 31, 2001 and 2000, the
remaining accrual balances related to the above matters were
$37.2 million and $47.5 million, respectively. There
were no comparable expenses for the year ended December 31,
1999.

8     Deferred
Revenue

Deferred revenue includes amounts received from
customers for which revenue has not been recognized. The Company
believes these amounts represent our contractual obligations for
future performance. The Company does not recognize deferred
revenue for the unbilled portion of PCS for perpetual licenses
because it believes that these contracts are a form of executory
contract in which it has delivery obligations for software
updates and customer support only if the customer pays fees when
due and payable. Similarly, the Company does not recognize
deferred revenue for the unbilled portion of its TBLs because it
believes that these contracts are a form of executory contract
in which it has a delivery obligation for new products, software
updates and customer support only if the customer pays fees when
due and payable. Due to the nature of the Companys
business, the Company does not consider any of its backlog
orders to be firm commitments from its customers.

The components of deferred revenues for the years
ended December 31, are as follows (in thousands):

|                   |  |      |        |      |  |   |        | 
|------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                   |  | 2001 |        | 2000
|                   |  |      |        |     
|Perpetual license  |  | $    | 14,187 |      |  | $ | 9,677  | 
|Time-based license |  |      | 34,118 |      |  |   | 34,070 | 
|Service            |  |      | 19,866 |      |  |   | 26,712 | 
|                   |  |      |        |      |  |   |        | 
|Total              |  | $    | 68,171 |      |  | $ | 70,459 | 
|                   |  |      |        |      |  |   |        | 

9     Stockholders
Equity

Stock
Repurchase Programs

On April 18, 2000, the Board of Directors
approved a stock repurchase program to purchase up to
6 million shares of its outstanding common stock in the
open market or in privately negotiated transactions. As of
December 31, 2001 the Company had repurchased
4.5 million shares of its common stock for an aggregate
amount of approximately $72.9 million.

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Stockholder
Rights Plan

The Companys Stockholder Rights Plan
(The Rights Plan) adopted September 4, 1998, is
intended to protect stockholders from unfair or unfriendly
takeover practices. In accordance with this plan, the Board of
Directors declared a dividend distribution of one preferred
stock purchase right on each outstanding share of its common
stock held as of October 2, 1998, and on each share of
common stock issued by the Company thereafter. Each right
entitles the registered holder to purchase from the Company a
one one-thousandth share of preferred stock at $100. The rights
become exercisable in certain circumstances, including upon an
entity acquiring or announcing the intention to acquire
beneficial ownership of 15 percent or more of the
Companys common stock without the approval of the Board of
Directors or upon the Company being acquired by any person in a
merger or business combination transaction. The rights are
redeemable by the Company prior to exercise at $0.01 per right
and expire on September 4, 2008.

On December 3, 2001, the Companys
Board of Directors amended the Rights Plan to exempt Synopsys
and its affiliates from triggering the Rights Plan in connection
with the execution of the Synopsys merger agreement and to
provide that the Rights Plan will terminate immediately prior to
the effective date of the Synopsys merger.

Stock Bonus
Plan

In September 2001, the Company adopted the 2001
Stock Bonus Plan (the Bonus Plan). The purpose of
the Bonus Plan is to provide a means by which selected
directors, employees and consultants to the Company, and its
affiliates may be given an opportunity to benefit from increases
in value of the stock of the Company through the granting of
stock bonuses and rights to purchase restricted stock. The
Company, by means of the Bonus Plan, seeks to retain the
services of persons who are now directors, employees or
consultants to the Company or an affiliate and to provide
incentives for such persons to exert maximum efforts for the
success of the Company and its affiliates.

Under the terms of the Bonus Plan, the Company
may issue up to 5 million shares of the Companys
common stock. The number of shares may be increased based on the
terms of the Plan. During the third quarter of 2001,
approximately 200,000 shares were granted as bonuses under the
Bonus Plan, and the Company recognized $1.2 million of
expense.

Stock Option/
Issuance Plan

In April 1995, the Company approved the 1995
Stock Option/ Stock Issuance Plan (the 1995 Plan).
The 1995 Plan is a qualified plan and is the successor to the
1993 Stock Option/ Stock Issuance Plan and has terms similar to
those of the 1993 Plan.

The 1995 Plan has three separate equity programs:
the Discretionary Option Grant Program, the Stock Issuance
Program and the Automatic Option Grant Program. Eligible
participants in the Discretionary Option Grant and Stock
Issuance Programs are employees, non-employee members of the
Board of Directors or the Board of Directors of any subsidiary
and consultants and other independent advisors who provide
services to the Company. The term of the options granted under
the Discretionary Option Grant Program is generally ten years
with a typical vesting requirement of 25% after one year of
service and monthly thereafter, fully vesting upon completion of
the fourth year of service.

The 1995 Plan Automatic Option Grant Program
provides for automatic nonstatutory option grants to
non-employee members of the Board of Directors. Eligible
directors receive an option to purchase 20,000 shares on the
date of his appointment to the Board of Directors. In addition,
at each annual stockholders meeting, each individual who
continues to serve as a non-employee member of the Board of
Directors after the meeting receives an option grant to purchase
5,000 shares of common stock provided such individual has served
as an non-employee director for at least six months prior to the
date of the meeting. Options granted under the Automatic Grant
Program are immediately exercisable. However, any shares
purchased under an option granted under the Automatic Grant
Program are subject to a repurchase right

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by the Company upon termination of the
grantees service to the Company. With respect to a
non-employee directors initial grant of an option to
purchase 20,000 shares, the Companys repurchase right
lapses with respect to 25% of the shares on each of the four
anniversaries of the directors continued service to the
Company after the option grant date. As of December 31,
2001, 2000 and 1999, there were no shares of common stock
subject to repurchase.


In July 2000, the Company approved the 2000 Stock
Option/ Stock Issuance Plan (the 2000 Plan). The
2000 Plan is a non-qualified plan and is the successor to the
1995 Plan and has terms similar to those of the 1995 Plan.

The 2000 Plan has two separate equity programs:
the Discretionary Option Grant Program and the Stock Issuance
Program. Eligible participants in the Discretionary Option Grant
and Stock Issuance Programs are employees, non-employee members
of the Board of Directors or the Board of Directors of any
subsidiary and consultants and other independent advisors who
provide services to the Company (or any subsidiary). The terms
of the options granted under the Discretionary Option Grant
Program are generally the same as the terms established in the
1995 Plan.

In connection with the mergers and acquisitions
discussed in Note 5, various option plans were assumed by the
Company, thereby allowing participants to purchase Avant! stock
in amounts and at prices adjusted to reflect the relative
exchange ratios of the mergers.

For the years ended December 31 2001, 2000,
and 1999, the Company recorded compensation expense for options
to employees and other expense for options to non-employees of
$1.7 million, $0.9 million, and $1.2 million. In
addition, the Company has $2.9 million of deferred
compensation in stockholders equity, which will be
amortized to compensation expense over the period during which
the options become exercisable, generally four years. Had the
Company determined compensation expense based on the fair value
at the grant date for its stock plans under SFAS No. 123,
the Companys net earnings (loss) and earnings
(loss) per share would have been reduced to the pro forma
amounts indicated below for the years ended December 31 (in
thousands, except per share data):

|                                             |             |      |          |       |   |      |         |      |  |   |         |      | 
|-------------------------------------------- | ----------- | ---- | -------- | ----- | - | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                             |             | 2001 |          | 2000  |   | 1999
|                                             |             |      |          |       |   |     
|Net earnings (loss) as reported              |             | $    | (177,717 | )     |   | $    | 52,859  |      |  | $ | 56,620  |     
|Additional compensation cost resulting from: |             |      |          |       |   |      |         |      |  |   |         |     
|Stock options                                |             |      | (14,629  | )     |   |      | (12,781 | )    |  |   | (11,178 | )   
|Employee stock purchase plan (Note 11)       |             |      | (174     | )     |   |      | (597    | )    |  |   | (664    | )   
|                                             |             |      |          |       |   |      |         |      |  |   |         |     
|Pro forma                                    |             | $    | (192,520 | )     |   | $    | 39,481  |      |  | $ | 44,778  |     
|                                             |             |      |          |       |   |      |         |      |  |   |         |     
|Basic earnings (loss) per share:             |             |      |          |       |   |      |         |      |  |   |         |     
|                                             | As reported |      | $        | (4.72 | ) |      | $       | 1.36 |  |   | $       | 1.49 | 
|                                             | Pro forma   |      | $        | (5.12 | ) |      | $       | 1.02 |  |   | $       | 1.18 | 
|Diluted earnings (loss) per share:           |             |      |          |       |   |      |         |      |  |   |         |     
|                                             | As reported |      | $        | (4.72 | ) |      | $       | 1.32 |  |   | $       | 1.42 | 
|                                             | Pro forma   |      | $        | (5.12 | ) |      | $       | 0.99 |  |   | $       | 1.13 | 

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The fair value of each option and purchase right
is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:

|                     |                         |      |  |      |   |      |  |      |   |  |  |      |  
|-------------------- | ----------------------- | ---- |  | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|                     |                         | 2001 |  | 2000 |   | 1999
|                     |                         |      |  |      |   |     
|Stock Option Plan:   |                         |      |  |      |   |      |  |      |   |  |  |     
|                     | Expected life (years)   |      |  | 3.62 |   |      |  | 3.77 |   |  |  | 4.32 |  
|                     | Risk-free interest rate |      |  | 3.59 | % |      |  | 6.22 | % |  |  | 5.61 | %
|                     | Volatility              |      |  | 81   | % |      |  | 87   | % |  |  | 72   | %
|                     | Dividend yield          |      |  | 0    | % |      |  | 0    | % |  |  | 0    | %
|Stock Purchase Plan: |                         |      |  |      |   |      |  |      |   |  |  |     
|                     | Expected life (years)   |      |  | 0.5  |   |      |  | 0.5  |   |  |  | 0.5  |  
|                     | Risk-free interest rate |      |  | 1.83 | % |      |  | 5.73 | % |  |  | 4.86 | %
|                     | Volatility              |      |  | 81   | % |      |  | 87   | % |  |  | 72   | %
|                     | Dividend yield          |      |  | 0    | % |      |  | 0    | % |  |  | 0    | %

The following table summarizes options
outstanding under the various stock option plans at
December 31, 2001, 2000 and 1999 and changes during the
years then ended (in thousands, except per share data):

|                            |                     |                     |       |                |   |   |       |       | 
|--------------------------- | ------------------- | ------------------- | ----- | -------------- | - | - | ----- | ----- | 
|                            |                     |                    
|                            |                     | Options Outstanding
|                            |                     |                    
|                            |                     |                     |       | Weighted-     
|                            |                     |                     |       | average       
|                            |                     | Options             |       | exercise price
|                            |                     |                     |       |               
|Balances, December 31, 1998 |                     |                     | 6,916 |                |   | $ | 12.44 |      
|                            | Granted and assumed |                     |       | 882            |   |   |       | 14.84 | 
|                            | Exercised           |                     |       | (898           | ) |   |       | 6.73  | 
|                            | Canceled            |                     |       | (1,096         | ) |   |       | 10.53 | 
|                            |                     |                     |       |                |   |   |       |      
|Balances, December 31, 1999 |                     |                     | 5,804 |                |   | $ | 14.06 |      
|                            | Granted and assumed |                     |       | 2,199          |   |   |       | 14.05 | 
|                            | Exercised           |                     |       | (742           | ) |   |       | 7.58  | 
|                            | Canceled            |                     |       | (821           | ) |   |       | 15.55 | 
|                            |                     |                     |       |                |   |   |       |      
|Balances, December 31, 2000 |                     |                     | 6,440 |                |   | $ | 14.99 |      
|                            | Granted             |                     |       | 4,377          |   |   |       | 14.93 | 
|                            | Exercised           |                     |       | (679           | ) |   |       | 12.41 | 
|                            | Canceled            |                     |       | (626           | ) |   |       | 15.81 | 
|                            |                     |                     |       |                |   |   |       |      
|Balance, December 31, 2001  |                     |                     | 9,512 |                |   | $ | 14.95 |      
|                            |                     |                     |       |                |   |   |       |      

|                                               |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                               |  | 2001 |      | 2000 |  | 1999
|                                               |  |      |      |      |  |     
|Weighted average fair value of options granted |  | $    | 9.41 |      |  | $    | 8.98 |  |  | $ | 8.90 | 

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The following table summarizes information about
stock options outstanding as of December 31, 2001:

|               |                 |                     |  |             |       |           |  |                     |      |           |  |   |       |  |  |  |       |  |  |   |       | 
|-------------- | --------------- | ------------------- |  | ----------- | ----- | --------- |  | ------------------- | ---- | --------- |  | - | ----- |  |  |  | ----- |  |  | - | ----- | 
|               |                 |                     |  |             |       |          
|               |                 | Options outstanding |  |             |       |          
|               |                 |                     |  |             |       |          
|               |                 |                     |  | Weighted-   |       |           |  |                    
|               |                 |                     |  | Average     |       |           |  | Options exercisable
|               |                 |                     |  | Remaining   |       |           |  |                    
|Range of       |                 | Number              |  | Contractual |       | Weighted- |  | Number              |      | Weighted-
|Exercise Price |                 | Outstanding         |  | Life        |       | Average   |  | Exercisable         |      | Average  
|               |                 |                     |  |             |       |           |  |                     |      |          
|               |                 | (In thousands)      |  |             |       |           |  | (In thousands)      |      |          
|               | Below $5.90     |                     |  |             | 1,127 |           |  |                     | 9.19 |           |  | $ | 5.44  |  |  |  | 95    |  |  | $ | .98   | 
|               | $ 6.68 - $12.75 |                     |  |             | 1,289 |           |  |                     | 7.80 |           |  |   | 10.81 |  |  |  | 792   |  |  |   | 11.46 | 
|               | 12.94 - 13.94   |                     |  |             | 1,526 |           |  |                     | 6.00 |           |  |   | 13.70 |  |  |  | 1,390 |  |  |   | 13.71 | 
|               | 14.19 - 15.00   |                     |  |             | 976   |           |  |                     | 8.73 |           |  |   | 14.75 |  |  |  | 255   |  |  |   | 14.41 | 
|               | 15.08 - 17.84   |                     |  |             | 1,492 |           |  |                     | 6.74 |           |  |   | 15.72 |  |  |  | 1,081 |  |  |   | 15.69 | 
|               | 18.17 - 19.44   |                     |  |             | 2,468 |           |  |                     | 8.87 |           |  |   | 18.49 |  |  |  | 508   |  |  |   | 18.79 | 
|               | 21.60 - 41.50   |                     |  |             | 634   |           |  |                     | 5.95 |           |  |   | 28.06 |  |  |  | 516   |  |  |   | 29.27 | 
|               |                 |                     |  |             |       |           |  |                     |      |           |  |   |       |  |  |  |       |  |  |   |       | 
|               | 0.01 - 41.50    |                     |  |             | 9,512 |           |  |                     | 7.76 |           |  | $ | 14.95 |  |  |  | 4,637 |  |  | $ | 15.85 | 
|               |                 |                     |  |             |       |           |  |                     |      |           |  |   |       |  |  |  |       |  |  |   |       | 

10     Share
Placement

On July 17, 2000, the Company completed a
private placement of two million shares of common stock to
Metchem Engineering S.A. The shares were priced at $17.03 per
share, reflecting a 5% discount from the average closing price
of the five trading days prior to the date of the sale and
purchase agreement. Net proceeds from the placement were
$32.8 million.

11     Employee
Benefit Plans



| |                           
| | --------------------------
| | Deferred Compensation Plan

The Company maintains a deferred compensation
plan which permits certain employees to defer their annual cash
compensation. Distributions from the plan are generally payable
upon cessation of employment in equal annual installments not to
exceed 10 years or as a lump sum payment, at the option of
the employee. Undistributed amounts under the plan are subject
to the claims of the Companys creditors. As of
December 31, 2001 and 2000, the invested amounts under the
plan totaled $4.2 million and $4.0 million,
respectively, and are recorded as long-term other assets on the
Companys balance sheet. Included in other noncurrent
liabilities is $5.3 million and $4.7 million at
December 31, 2001 and 2000, respectively for undistributed
amounts due to employees.



| |            
| | -----------
| | 401(k) Plan

The Company has a 401(k) retirement savings plan
covering substantially all employees in the United States. The
Companys matching contributions amounted to
$2.8 million, $3.3 million and $2.3 million for
2001, 2000 and 1999, respectively.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Company has a Qualified Employee Stock
Purchase Plan (Stock Purchase Plan), which currently
permits eligible employees to purchase common stock of the
Company. The Stock Purchase Plan is qualified under
Section 423 of the Internal Revenue Code of 1986, as
amended. Under the Stock Purchase Plan, during six-month
offering periods, employees may purchase from the Company a
designated number of shares through payroll deductions at a
price per share equal to 85% of the lesser of the fair market
value of the Companys common stock as of the date of the
grant or the date the right to purchase is exercised. Under the
Stock Purchase Plan, the Company sold 271,000, 227,000, and
163,000 shares to employees in 2001, 2000 and 1999, respectively.

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The fair value of employee purchase rights, for
purposes of SFAS No. 123 disclosure was estimated using the
Black-Scholes model. The weighted average fair value of those
purchase rights (including the 15% discount to the fair value of
the Companys common stock) granted in 2001, 2000 and 1999
were $3.90, $6.77, and $4.26, respectively (see Note 9).

12     Income
Taxes

The components of the Companys earnings
before income taxes for the years ended December 31, are as
follows (in thousands):

|              |  |      |          |      |  |      |        |  |  |   |        | 
|------------- |  | ---- | -------- | ---- |  | ---- | ------ |  |  | - | ------ | 
|              |  | 2001 |          | 2000 |  | 1999
|              |  |      |          |      |  |     
|United States |  | $    | (168,651 | )    |  | $    | 76,476 |  |  | $ | 89,781 | 
|Foreign       |  |      | 29,482   |      |  |      | 8,663  |  |  |   | 4,703  | 
|              |  |      |          |      |  |      |        |  |  |   |        | 
|Total         |  | $    | (139,169 | )    |  | $    | 85,139 |  |  | $ | 94,484 | 
|              |  |      |          |      |  |      |        |  |  |   |        | 

The components of income tax expense (benefit),
as presented in the accompanying consolidated statements of
earnings, are comprised of federal taxes, state taxes and
certain foreign taxes. The components of income taxes as of
December 31, are as follows (in thousands):

|                                                              |         |       |        |        |        |      |        |         |         |   |        |        |        |  
|------------------------------------------------------------- | ------- | ----- | ------ | ------ | ------ | ---- | ------ | ------- | ------- | - | ------ | ------ | ------ | -
|                                                              |         | 2001  |        | 2000   |        | 1999
|                                                              |         |       |        |        |        |     
|Provision for income taxes:                                   |         |       |        |        |        |      |        |         |         |   |        |       
|Current:                                                      |         |       |        |        |        |      |        |         |         |   |        |       
|                                                              | Federal |       | $      | 7,312  |        |      | $      | 34,817  |         |   | $      | 29,896 |       
|                                                              | Foreign |       |        | 11,854 |        |      |        | 5,237   |         |   |        | 2,591  |       
|                                                              | State   |       |        | 1,713  |        |      |        | 7,941   |         |   |        | 6,757  |       
|                                                              |         |       |        |        |        |      |        |         |         |   |        |       
|                                                              |         | Total |        |        | 20,879 |      |        |         | 47,995  |   |        |        | 39,244 |  
|                                                              |         |       |        |        |        |      |        |         |         |   |        |       
|Deferred:                                                     |         |       |        |        |        |      |        |         |         |   |        |       
|                                                              | Federal |       |        | 12,171 |        |      |        | (12,948 | )       |   |        | (1,653 | )     
|                                                              | State   |       |        | 3,245  |        |      |        | (3,027  | )       |   |        | (3,415 | )     
|                                                              |         |       |        |        |        |      |        |         |         |   |        |       
|                                                              |         | Total |        |        | 15,416 |      |        |         | (15,975 | ) |        |        | (5,068 | )
|                                                              |         |       |        |        |        |      |        |         |         |   |        |       
|Charge in lieu of taxes attributable to employee
	stock plans |         |       | 2,253  |        |        |      | 260    |         |         |   | 3,688  |       
|                                                              |         |       |        |        |        |      |        |         |         |   |        |       
|Total provision for income taxes                              |         | $     | 38,548 |        |        | $    | 32,280 |         |         | $ | 37,864 |       
|                                                              |         |       |        |        |        |      |        |         |         |   |        |       

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The Companys effective tax rate differs
from the federal statutory income tax rate of 35.0% as follows
(in thousands):

|                                       |                           |      |         |        |  |      |        |        |  |   |        |        | 
|-------------------------------------- | ------------------------- | ---- | ------- | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                       |                           | 2001 |         | 2000   |  | 1999
|                                       |                           |      |         |        |  |     
|Income tax expense at statutory rate   |                           | $    | (48,709 | )      |  | $    | 29,799 |        |  | $ | 33,068 |       
|State tax expense, net                 |                           |      | 1,621   |        |  |      | 4,862  |        |  |   | 5,745  |       
|Settlement of lawsuits                 |                           |      | 80,117  |        |  |      |       |        |  |   |       |       
|Merger costs                           |                           |      | 2,773   |        |  |      | 2,894  |        |  |   | 3,698  |       
|Tax exempt income                      |                           |      | (898    | )      |  |      | (1,670 | )      |  |   | ( 996  | )     
|Tax credits                            |                           |      | (2,365  | )      |  |      | (3,851 | )      |  |   | (2,548 | )     
|Foreign sales corporation              |                           |      | (380    | )      |  |      | (1,453 | )      |  |   | (1,514 | )     
|Foreign taxes                          |                           |      | 5,070   |        |  |      | (183   | )      |  |   | 58     |       
|Non-cash stock compensation            |                           |      |        |        |  |      | 534    |        |  |   | 227    |       
|Equity investment in foreign companies |                           |      | 465     |        |  |      | (1,197 | )      |  |   | (272   | )     
|Other                                  |                           |      | 854     |        |  |      | 2,545  |        |  |   | 398    |       
|                                       |                           |      |         |        |  |      |        |        |  |   |        |       
|                                       | Actual Income Tax Expense |      | $       | 38,548 |  |      | $      | 32,280 |  |   | $      | 37,864 | 
|                                       |                           |      |         |        |  |      |        |        |  |   |        |       

The tax effects of the temporary differences that
give rise to significant portions of the deferred tax assets and
liabilities as of December 31, are as follows (in
thousands):

|                          |                                                          |                                        |        |        |        |   |        |         |        |  
|------------------------- | -------------------------------------------------------- | -------------------------------------- | ------ | ------ | ------ | - | ------ | ------- | ------ | -
|                          |                                                          | 2001                                   |        | 2000  
|                          |                                                          |                                        |        |       
|Deferred tax assets:      |                                                          |                                        |        |        |        |   |        |        
|                          | Accrued liabilities                                      |                                        | $      | 16,812 |        |   | $      | 28,556  |       
|                          | Allowance for doubtful accounts                          |                                        |        | 3,556  |        |   |        | 5,966   |       
|                          | Net operating loss carryforwards                         |                                        |        | 4,277  |        |   |        | 5,090   |       
|                          | Deferred revenue                                         |                                        |        | 8,562  |        |   |        | 9,821   |       
|                          | Property and equipment, principally due to
	depreciation |                                        |        | 309    |        |   |        | 164     |       
|                          | Purchased technology                                     |                                        |        | 16,230 |        |   |        | 19,287  |       
|                          | Tax credit carryforwards                                 |                                        |        | 1,110  |        |   |        | 1,210   |       
|                          | Other                                                    |                                        |        | 381    |        |   |        |        |       
|                          |                                                          |                                        |        |        |        |   |        |        
|                          |                                                          | Total gross deferred tax assets        |        |        | 51,237 |   |        |         | 70,094 |  
|                          |                                                          | Deferred tax asset valuation allowance |        |        | (57    | ) |        |         | (57    | )
|                          |                                                          |                                        |        |        |        |   |        |        
|                          |                                                          |                                        | 51,180 |        |        |   | 70,037 |        
|                          |                                                          |                                        |        |        |        |   |        |        
|Deferred tax liabilities: |                                                          |                                        |        |        |        |   |        |        
|                          | Unrealized gain on venture capital investments           |                                        |        | (5,368 | )      |   |        | (10,007 | )     
|                          | Property and equipment, principally due to
	depreciation |                                        |        | (1,198 | )      |   |        |        |       
|                          |                                                          |                                        |        |        |        |   |        |        
|Net deferred tax assets   |                                                          | $                                      | 44,614 |        |        | $ | 60,030 |        
|                          |                                                          |                                        |        |        |        |   |        |        

The Company had net operating loss carryforwards
of $13.8 million for U.S. federal income tax purposes as of
December 31, 2001, expiring through the year 2019. The
Company acquired these net operating loss carryforwards as a
result of the mergers with Chrysalis and Xynetix. The Company
also acquired state net operating loss carryforwards for various
states in various amounts as a result of the mergers with
Chrysalis and Xynetix.

As of December 31, 2001, the Company had
foreign tax credit carryforwards of $0.1 million. The
Company also had research and development credit carryforwards
of approximately $1.0 million.

Under the Tax Reform Act of 1986, the amounts of
and the benefit from net operating losses and research and
development credits that can be carried forward may be impaired
or limited in certain circumstances.

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Events which may cause changes in the
Companys net operating loss and research and development
credit carryovers include, but are not limited to, a cumulative
stock ownership change of greater than 50%, as defined, over a
three year period. The use of, or benefit from, tax attributes
of certain acquired subsidiaries, as described above, may be
subject to such limitations.


U.S. income taxes have not been provided for
approximately $14.0 million of undistributed earnings of
various non-U.S. subsidiaries. The Company intends to reinvest
these earnings indefinitely in operations outside of the U.S.

13     Concentrations
of Credit Risk

Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of investments and trade accounts receivable.

The Company invests cash, cash equivalents and
short-term investments in a variety of financial instruments
issued by high credit quality institutions. Markets for these
securities generally are highly liquid, and therefore bear
minimal risk. Management regularly monitors the composition and
maturity of these securities. The Company, by policy, limits the
amount of credit exposure to any one financial institution, or
commercial or municipal issuer. The Company has not experienced
any material losses on these investments.

To reduce credit risk, the Company performs
ongoing credit evaluations of its customers financial
condition. The Company maintains reserves for potential credit
losses, but historically has not experienced any significant
losses related to individual customers or groups of customers in
any geographic area. The Companys allowance for doubtful
accounts was $10.3 million and $16.1 million as of
December 31, 2001 and 2000, respectively.

14     Related Party
Transactions

Included in prepaid expenses and other current
assets, as of December 31, 2001 and 2000 was
$1.1 million and $0.8 million, respectively, of notes
receivable due from officers, former officers and a director.

The Company entered into certain joint ventures
in Japan and Korea for the purpose of consolidating distribution
in the two countries and entered into a limited partnership that
invests primarily in technology start up companies. See Note 16.

In December 2001, the Company acquired the shares
of Maingate owned by Gerald C. Hsu, Noriko Ando, and The
Eigen Fund. See Note 5.

15     Segment
Information

The Company has adopted the provisions of SFAS
No. 131, Disclosure About Segments of an Enterprise
and Related Information. SFAS No. 131 establishes
standards for the reporting by public business enterprises of
information about operating segments, products and services,
geographic areas, and major customers. The method for
determining what information to report is based on the way that
management organizes the operating segments within the Company
for making operating decisions and assessing financial
performance.

The Companys chief operating decision-maker
(CODM) is considered to be the President. The CODM reviews
financial information presented on a consolidated basis
accompanied by disaggregated information about revenues by
geographic region for purposes of making operating decisions and
assessing financial performance. The consolidated financial
information reviewed by the CODM is identical to the information
presented in the accompanying consolidated statement of
earnings. Therefore, the Company operates in a single operating
segment: electronic design automation software and services.

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Revenue and asset information regarding
operations in the different geographic regions is as follows (in
thousands):

|                     |                         |               |   |         |  |      |   |              |  |  |   |        |  |  |   |         | 
|-------------------- | ----------------------- | ------------- | - | ------- |  | ---- | - | ------------ |  |  | - | ------ |  |  | - | ------- | 
|                     |                         | North America |   | Europe  |  | Asia |   | Consolidated
|                     |                         |               |   |         |  |      |   |             
|Revenues:            |                         |               |   |         |  |      |   |              |  |  |   |        |  |  |   |        
|                     | 2001                    |               | $ | 258,798 |  |      | $ | 59,259       |  |  | $ | 80,613 |  |  | $ | 398,670 | 
|                     | 2000                    |               |   | 244,704 |  |      |   | 40,739       |  |  |   | 72,657 |  |  |   | 358,100 | 
|                     | 1999                    |               |   | 217,224 |  |      |   | 31,262       |  |  |   | 55,134 |  |  |   | 303,620 | 
|Identifiable assets: |                         |               |   |         |  |      |   |              |  |  |   |        |  |  |   |        
|                     | As of December 31, 2001 |               | $ | 250,184 |  |      | $ | 75,440       |  |  | $ | 48,778 |  |  | $ | 374,402 | 
|                     | As of December 31, 2000 |               |   | 420,827 |  |      |   | 77,543       |  |  |   | 63,520 |  |  |   | 561,890 | 
|Long-lived assets:   |                         |               |   |         |  |      |   |              |  |  |   |        |  |  |   |        
|                     | As of December 31, 2001 |               | $ | 15,496  |  |      | $ | 1,420        |  |  | $ | 6,729  |  |  | $ | 23,645  | 
|                     | As of December 31, 2000 |               |   | 20,898  |  |      |   | 1,546        |  |  |   | 4,377  |  |  |   | 26,821  | 

In fiscal 2001 one customer accounted for
approximately 11% of the Companys revenues. The
customers revenues were primarily in North America. In
fiscal 2000 and 1999, no single customer accounted for 10% or
more of the Companys revenues.

16     Investments
and Joint Ventures

The Companys investments and joint ventures
consisted of the following as of December 31:

|                        |                                      |      |        |        |  |   |        |        | 
|----------------------- | ------------------------------------ | ---- | ------ | ------ |  | - | ------ | ------ | 
|                        |                                      | 2001 |        | 2000  
|                        |                                      |      |        |       
|Investment in Forefront |                                      | $    | 19,010 |        |  | $ | 34,416 |       
|Investment in SMIC      |                                      |      |       |        |  |   | 7,500  |       
|Other                   |                                      |      | 7,455  |        |  |   | 7,228  |       
|                        |                                      |      |        |        |  |   |        |       
|                        | Total investments and joint ventures |      | $      | 26,465 |  |   | $      | 49,144 | 
|                        |                                      |      |        |        |  |   |        |       

The Company invested an additional
$55 million in the first quarter of 2001 in Semiconductor
Manufacturing International Corporation (SMIC), a
development stage company in the process of establishing a
semiconductor fabrication facility in China. The Company was
scheduled to make further investments of $12.5 million on
December 15, 2001, and $25.0 million on June 15,
2002. In October 2001, the Company sold its ownership investment
back to SMIC. Pursuant to the agreement terminating the
Companys investment, the entire $62.5 million paid by
the Company was returned and the Company was relieved of any
obligation to invest additional funds in SMIC.

The Company has a joint venture with Davan Tech
Co., Ltd, (Davan Tech) of Korea. The Company also
had a joint venture with Maingate until December 2001, when the
Company purchased Maingate (See Note 5). The joint ventures were
formed for the purpose of consolidating distribution in their
respective countries. At December 31, 2001, the Company
owned 100% and 19.4% of Maingate and Davan Tech, respectively.
Prior to December, 2001, the company owned 18.8% of Maingate.
Both joint ventures were accounted for by the equity method
during 2001. The Companys share of equity earnings is
included in the accompanying consolidated statement of earnings
as equity income from investments and joint ventures. The
Chairman of the Companys Board of Directors owns 8.2% of
Davan Tech and owned 50% of Maingate prior to its acquisition.

Prior to the acquisition of Maingate, the Company
recognized revenue from sales to Maingate in the quarter
subsequent to the quarter in which Maingate collected cash from
the end users. The Company recognizes revenue from sales to
Davan Tech when the Company receives cash from Davan Tech. At
December 31, 2001, the Company did not have a balance due
from affiliates. At December 31, 2000, due from affiliates
included trade receivables of $0.8 million from Davan Tech.
The terms on the due from affiliates balances are consistent
with all other trade receivables.

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The following table presents the sources of
related party revenues from Maingate and Davan Tech (in
thousands):

|                   |  |      |        |      |  |      |        |  |  |   |        | 
|------------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                   |  | 2001 |        | 2000 |  | 1999
|                   |  |      |        |      |  |     
|Maingate Revenue   |  | $    | 31,329 |      |  | $    | 25,537 |  |  | $ | 16,765 | 
|Davan Tech Revenue |  |      | 3,198  |      |  |      | 4,549  |  |  |   | 2,200  | 
|                   |  |      |        |      |  |      |        |  |  |   |        | 
|Total              |  | $    | 34,527 |      |  | $    | 30,086 |  |  | $ | 18,965 | 
|                   |  |      |        |      |  |      |        |  |  |   |        | 

During 1998, the Company invested
$10 million into Forefront Venture Partners L.P.
(Forefront), a limited partnership that invests
primarily in high technology start-up companies. This investment
represented 53.9% ownership of the partnership. The partnership
is controlled and managed by a General Partnership. A member of
this partnership is a board member of the Company. The Company
accounts for this investment by the equity method because the
Company does not control Forefront. During the year ended
December 31, 2001 the Company recorded $11.4 million
equity loss related to Forefront. Equity income from Forefront
for the years ended December 31, 2000 and 1999 was
$18.8 million and $5.7 million, respectively. The
equity income and loss resulted primarily from unrealized
fluctuations of the portfolio value of the underlying venture
capital investments. During 2001, the Company received cash
distributions from Forefront totaling $2.5 million. The
Company believes that due to the nature of venture capital
investing, its investment in Forefront will be subject to
significant fluctuation, which may result in the Company
recording significant income and losses in the future.

Each quarter, the Company receives financial
information from each of these companies. The Companys
management reviews this financial information and also discusses
with management of the respective companies the results of their
operations, the general business climate and expectations about
future results. In assessing the performance of these
investments and determining whether or not impairment has
occurred, the Company considers whether events or changes in
circumstances have occurred that might indicate that the
carrying amount of the investment may not be recoverable. None
of these reviews and discussions has led the Company to believe
that the carrying amounts of its investments have been
permanently impaired.

The Companys equity loss of
$13.4 million in 2001 and income of $22.3 million and
$6.1 million in 2000 and 1999, respectively, primarily
represented the Companys share of equity interest in
investments in Maingate, Davan Tech and Forefront.

17     Commitments

The Company generally leases all its facilities
under noncancelable operating lease agreements, which expire
over the next eleven years. Rental expense incurred by the
Company under operating lease agreements totaled $9.9,
$10.8 million, and $7.8 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

Future annual minimum lease payments under
noncancelable operating leases for the years ended
December 31, are as follows (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2002       |  | $ | 9,861  | 
|2003       |  |   | 9,577  | 
|2004       |  |   | 8,431  | 
|2005       |  |   | 6,960  | 
|2006       |  |   | 6,592  | 
|Thereafter |  |   | 27,776 | 
|           |  |   |        | 
|           |  | $ | 69,197 | 
|           |  |   |        | 

The Company subleases certain of its facilities
under noncancelable operating sublease agreements that expire
over the next four years. The minimum operating lease payments
have not been reduced by the minimum sublease rentals of
$3.8 million due under the noncancelable subleases. (See
Note 18)

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The Company has employment and/or severance
agreements with several of its executives and key employees,
including Gerald C. Hsu, Paul Lo, and Moriyuki Chimura.
These agreements have provisions relating to a voluntary
resignation or involuntary termination of employment that occurs
within six months after a change of control event, which
includes, under the terms of certain employment agreements, if
Gerald C. Hsu ceases to be the Chairman and Chief Executive
Officer of the Company. In the case of a termination of
employment after such a change of control, the employee will
receive a cash termination payment based on a multiple of the
employees base salary in effect at that time. In addition,
certain agreements provide for acceleration of all unvested
stock options and an additional payment in consideration of
covenants not to compete. If all such termination payments were
payable as of December 31, 2001, the aggregate cash payout
under employment/ or severance agreements to the executives and
employees would be approximately $55 million. In addition,
the Company has loaned Mr. Chimura $300,000 pursuant to a
promissory note, dated June 5, 1998. This note bears
interest at an annual rate of 3% and provides that the
outstanding principal and accrued interest under the note will
be forgiven in the event Mr. Hsu is no longer the President
and Chief Executive Officer of the Company. As of
December 31, 2001, the note to Mr. Chimura has not
been forgiven.

18     Legal
Proceedings

Avant!/
Cadence Litigation

On December 6, 1995, Cadence filed an action
against Avant! and certain of its officers in the United States
District Court for the Northern District of California alleging
copyright infringement, unfair competition, misappropriation of
trade secrets, conspiracy, breach of contract, inducing breach
of contract and false advertising. The complaint alleges that
some of Avant!s employees formerly employed by Cadence
misappropriated and improperly copied Cadences source code
for important functions of Avant!s place and route
products, and that Avant! competed unfairly against Cadence by
making false statements about Cadence and its products. The
action also alleges that Avant! induced individuals, who have
been named as defendants, to breach their employment and
confidentiality agreements with Cadence. The same set of facts
alleged in the Avant!/ Cadence litigation was also alleged in
the Santa Clara criminal action. Avant!, Gerald C. Hsu,
Chairman of Avant!, and five former Avant! employees pled no
contest to certain of the charges alleged in the Santa Clara
criminal action. As part of that plea, Avant! paid approximately
$35.3 million in fines and $195.4 million in
restitution.

In the Avant!/ Cadence litigation, Cadence sought
to enjoin the sale of Avant!s ArcCell and Aquarius place
and route products. On December 19, 1997, the District
Court entered a preliminary injunction against continued sales
or licensing of any product or work copied or derived from DFII,
specifically including, but not limited to, the ArcCell
products. The preliminary injunction also bars Avant! from
possessing or using any copies of any portion of the source code
or object code for ArcCell or any other product, to the extent
it had been copied or derived from DFII. Avant! had ceased
licensing its ArcCell products in mid-1996, and Avant! had no
revenue from these products in the last fiscal year or in the
most recent interim period. On December 7, 1998, the
District Court also entered a preliminary injunction against
Avant! prohibiting Avant! from directly or indirectly marketing,
selling, leasing, licensing, copying or transferring the
Aquarius, Aquarius XO and Aquarius BV products. Pending the
outcome of the trial of Cadences action, the injunction
further prohibits Avant! from marketing, selling, leasing,
licensing, copying or transferring any translation code for any
Aquarius product that infringes any protected right of Cadence
and prohibits Avant! from possessing or using any copies of any
portion of the source code or object code for the Aquarius
products, to the extent that it has been copied or derived from
DFII. Avant! ceased supporting the Aquarius products in February
1999, and Avant! had no revenue from these products in the last
fiscal year or in the most recent interim period.

In the Avant!/ Cadence litigation, Cadence seeks
compensatory damages and treble or other exemplary damages from
Avant! under theories of copyright infringement,
misappropriation of trade secrets, inducing breach of contract
and false advertising. Cadence has not fully quantified the
amount of damages it seeks in the Avant!/ Cadence litigation. In
the Santa Clara criminal action, described in the following
section, Cadence claimed losses of $683.3 million. The
court in the Santa Clara criminal action ultimately awarded

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Cadence $195.4 million, which included
$143.5 million as Cadences estimated lost gross
profit from all Avant! sales of ArcCell and Aquarius products
after a 1994 written release between Cadence and Avant!. Avant!
subsequently paid the entire restitution amount in full. Under
California law, Avant! may be entitled to credit that amount
against any judgment Cadence obtains in the Avant!/ Cadence
civil litigation. Avant! believes any potential liability to
Cadence is neither probable nor estimable.


On January 16, 1996, Avant! filed an answer
to the complaint denying wrongdoing. On the same day, Avant!
filed a counterclaim against Cadence and its then-CEO, Joseph
Costello, alleging antitrust violations, racketeering, false
advertising, defamation, trade libel, unfair competition, unfair
trade practices, negligent and intentional interference with
prospective economic advantage, and intentional interference
with contractual relations. The counterclaim alleges, among
other things, that Cadences lawsuit is part of a scheme to
harm Avant! competitively, because of Avant!s success in
the marketplace. Avant! filed its amended counterclaim on
January 29, 1998. Pursuant to a stipulated court order,
Cadence and the other counterclaim defendants have not responded
to the amended counterclaim, and Avant!s counterclaim is
currently stayed.

In April 1999, Avant! and Cadence filed
cross-motions for summary adjudication as to whether a 1994
written release agreement between the two companies extinguished
all Cadence claims regarding Avant!s continued use of
intellectual property claimed by Cadence in any Avant! place and
route product in existence when the release was signed by the
parties. On September 8, 1999, the District Court granted
Avant!s motion in part and ruled that Cadences trade
secret claim regarding use of DFII source code was barred by the
release. The District Court also ruled that the release did not
bar Cadences copyright infringement claims regarding
Avant!s alleged post-release use of DFII source code.
Unless reversed on appeal, Avant! believes that this ruling
makes it likely that Cadence will prevail on its copyright
infringement claims regarding Avant!s use of DFII source
code in the ArcCell products. While this ruling also increases
the likelihood that Cadence will prevail on the same claims as
they might apply to the Aquarius products, Avant! believes that
it possesses additional meritorious defenses with respect to
Aquarius that are not available with respect to ArcCell. On
October 15, 1999, the District Court issued an amended
order certifying its September 8, 1999 order for
interlocutory appeal to the United States Circuit Court of
Appeals for the Ninth Circuit. Cadence and Avant! petitioned for
leave to file an interlocutory appeal, and the Circuit Court
granted their petitions on December 20, 1999. On
June 11, 2001, the Circuit Court certified to the
California Supreme Court the following question: Under the
California Uniform Trade Secrets Act, Cal. Civ. Code
sec. 3426, when does a claim for trade secret infringement
arise: only once, when the initial misappropriation occurs, or
with each subsequent misuse of the trade secret? On
October 31, 2001, the California Supreme Court accepted the
certified question. Briefing before the California Supreme Court
has not been completed, and no date for oral argument has been
set.

Proceedings in the District Court have been
stayed pending the Circuit Courts decision on appeal,
which will follow the California Supreme Courts decision
on the question certified to it, and no trial date has been set.
Depending upon the timing of the decision of the California
Supreme Court, the disposition of the appeal by the Circuit
Court, the discovery process, jury selection and the judicial
calendar, Avant! expects that, absent a lifting of the current
stay, any trial would likely commence no earlier than mid 2003,
and could commence substantially later.

Avant! believes it has defenses to all of
Cadences claims and intends to defend itself vigorously.
The defenses include, but are not limited to, Avant!s
belief that the 1994 written release bars Cadences claims
based on the use of DFII source code. Avant!s defenses
also include Avant!s belief that Avant! products did not
use or incorporate any Cadence proprietary information or
material allegedly misappropriated after the 1994 written
release. This defense will be based on testimony of the authors
of the source code challenged by Cadence, corroborated by
contemporaneous records of their source code development, and of
experts who have analyzed both Cadences source code and
the Avant! source code challenged by Cadence. Should Cadence
ultimately succeed in the prosecution of its claims, however,
Avant! could be required to pay substantial monetary damages to
Cadence. Some or all of these damages may be offset by the
amounts paid to Cadence as restitution arising out of the Santa
Clara criminal action. An adverse judgment could seriously harm
Avant!s business, financial position and results of
operations. Due to the

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uncertainty of the ultimate outcome of this
issue, no losses have been accrued in Avant!s financial
statements as of December 31, 2001.


As noted above, preliminary injunctions entered
in 1997 and 1998 enjoined Avant! from marketing its early place
and route products, ArcCell and Aquarius, based on a judicial
determination that they incorporated DFII source code. In
Avant!s current place and route products the functions
supported by Cadences DFII source code are performed by
the MilkWay database, and the DFII code is not incorporated in
any current Avant! product. Avant! developed MilkyWay under the
supervision of an independent expert employing rigorous
screening and record-keeping procedures. Cadence has never
alleged that MilkyWay uses DFII source code in any way. .
Although Cadence has not made a claim in the Avant!/ Cadence
litigation against any current Avant! product, including its
Apollo and Astro place and route products, and has not
introduced any evidence that any such product infringes
Cadences intellectual property rights, Cadence has
publicly implied that it intends to assert such claims. If and
when such claims are made, Avant! believes it would have
defenses to any such claims and would defend itself vigorously.
Nonetheless, should Cadence be successful at proving that any
past or then-current Avant! product incorporated intellectual
property misappropriated from Cadence, Avant! could be
permanently enjoined from further use of such intellectual
property, which might require modification to existing products
and/or suspension of the sale of such products until such
Cadence intellectual property was removed.

Santa Clara
Criminal Action

On December 16, 1998, after a grand jury
investigation, the Santa Clara County District Attorneys
office filed a criminal indictment alleging felony level
offenses related to the allegations of misappropriation of trade
secrets set forth in Cadences lawsuit. This criminal
action was brought against, among others, Avant! and the
following current or former employees and/or directors of
Avant!: Gerald C. Hsu, then President, Chief Executive
Officer and Chairman of the Board of Directors;
Y. Z. Liao, Stephen Wuu, Leigh Huang, Eric Cheng and
Mike Tsai. One former defendant was dismissed from the action,
and the District Attorney appealed the dismissal order.

The 1998 indictment charged the defendants listed
above with conspiring to commit trade secret theft, inducing the
theft of a trade secret, conspiracy to commit fraudulent
practices in connection with the offer or sale of a security and
fraudulent practices in connection with the offer or sale of a
security. On April 28, 2000, the Santa Clara Superior Court
dismissed all charges in the 1998 indictment against Avant! and
all of the current and former executives charged in the case.
The District Attorney appealed the dismissal of the 1998
indictment and indicated intent to seek another indictment. The
District Attorney dismissed the appeal in favor of the
indictment described below.

On August 10, 2000, a Santa Clara County
grand jury returned an indictment against the same current or
former employees and/or directors of Avant! as the 1998
indictment. This charged defendants with conspiracy to commit
trade secret theft, conspiracy to withhold and conceal stolen
property, conspiracy to commit securities fraud, theft of trade
secrets, withholding or concealing stolen property, making an
unauthorized copy of an article containing a trade secret, and
committing a fraudulent practice in connection with the offer or
sale of a security. Trial proceedings began May 14, 2001.

On May 22, 2001, Avant! entered pleas of no
contest to conspiracy to misappropriate trade secrets, two
counts of trade secret misappropriation, and a violation of
California corporate securities law. In connection with the plea
agreement, Avant! agreed to pay a fine of $27.0 million and
to pay restitution in an amount to be determined by the Court.
On July 25, 2001, the court fixed the total restitution
amount to be paid to Cadence at $195.4 million, any unpaid
portion of which accrued interest at the statutory rate of 10%
beginning July 25, 2001. The Company recognized the
resulting expense of $222.4 million in the second quarter
of 2001.

During the third quarter of 2001, Avant! paid the
$27.0 million fine and made restitution payments to Cadence
totaling $170.0 million. Avant! made a final payment of
$26.5 million to Cadence on October 3, 2001, to
conclude payment of the restitution owed to Cadence. The
payments above included $1.1 million of interest.

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In addition to the plea by Avant!, the individual
defendants resolved the charges against them in the following
manner:

 Gerald Hsu pleaded no contest to
conspiracy to misappropriate trade secrets, failure to return
stolen property, and a violation of California corporate
securities law and agreed to pay a $2.7 million fine.
Mr. Hsus fine was paid on May 22, 2001. The
securities charge is a misdemeanor, and the other charges were
reduced to misdemeanors at sentencing on July 25, 2001. On
July 25, 2001, Mr. Hsu resigned his positions as
Avant!s President and Chief Executive Officer.
Mr. Hsu continues as the Chairman of Board of Directors and
as an employee Avant! in the newly created position of Chief
Strategist, providing strategic direction for Avant!.

 Leigh Huang, Y.Z. Liao, and Eric Cho
pleaded no contest to trade secret conspiracy and a violation of
California corporate securities law. Huang, Liao and Cho agreed
to pay fines of $0.1 million, $2.7 million, and
$0.1 million, respectively, of which $0.2 million was
paid in September 2001 and the remaining $2.7 million was
paid in October 2001. Huang was sentenced to three years
probation. Liao and Cho were each sentenced to three years
probation and one year in county jail. Effective July 25,
2001, Liao resigned his position at Avant!. Huang and Cho are
former Avant! employees.

 Stephen Wuu pleaded no contest to
trade secret misappropriation and a violation of California
corporate securities law. Wuu agreed to pay a $2.7 million
fine, which was paid by October 23, 2001. On July 25,
2001, Wuu was sentenced to 2 years in prison and three
years probation. Effective July 25, 2001, Wuu resigned his
position at Avant!.

 Eric Cheng pleaded no contest to
trade secret misappropriation. Cheng agreed to pay a $27,000
fine and was sentenced to three years probation and
364 days in county jail. Effective July 25, 2001,
Cheng resigned his position at Avant!.

 All charges were dismissed against
former Avant! executive Mike Tsai.

As part of the settlement, Avant! agreed to
indemnify all of the current and former Avant! employees named
above, with the exception of Mr. Cheng, for the fines
assessed against them, and indemnify them for the taxes levied
as a result of this indemnification. Avant! recognized the
resulting expense of $14.1 million in the second quarter of
2001.

Under the applicable law, Avant! was authorized
to pay the defense expenses and fines of its officers, directors
and employees if the Avant! board found that the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons
conduct was unlawful. The Avant! board having determined
that these criteria were met, Avant! paid, or agreed to pay, the
following amounts in litigation expenses and fines for the
listed individuals in connection with the Santa Clara criminal
action:

|              |  |          |           |                                    |  |   |           |    
|------------- |  | -------- | --------- | ---------------------------------- |  | - | --------- | ---
|Name          |  | Fines(1) |           | Litigation and Related Expenses(1)
|              |  |          |           |                                   
|Gerald C. Hsu |  | $        | 2,700,000 |                                    |  | $ | 518,019   |    
|Stephen Wuu   |  | $        | 2,700,000 |                                    |  | $ | 1,813,009 |    
|Y.Z. Liao     |  | $        | 2,700,000 |                                    |  | $ | 1,044,457 |    
|Eric Cho      |  | $        | 100,000   |                                    |  | $ | 617,685   |    
|Leigh Huang   |  | $        | 100,000   |                                    |  | $ | 866,765   |    
|Eric Cheng    |  |          |          |                                    |  | $ | 1,410,100 | (2)
|Michael Tsai  |  |          |          |                                    |  | $ | 502,402   |    



---



|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts do not include amounts to indemnify each
	of the individuals for any actual tax liability attributable to
	amounts received from, or paid on their behalf by, Avant!.
|   
|(2) | Amounts include litigation expenses related to
	both the Santa Clara criminal action and the Avant!/Cadence
	litigation.                                                     

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Delaware General Corporation Law,
Section 145 authorizes a corporation to indemnify officers,
directors, employees and agents who were or are parties to a
pending or completed criminal action if the person acted
in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the persons conduct was
unlawful. A finding of good faith is not precluded by a
conviction or plea of no contest. Section 145(a) expressly
states that [t]he termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that the persons conduct was
unlawful.

In determining whether to indemnify the
individual defendants for their expenses and fines incurred in
the Santa Clara criminal action, the Avant! board of directors
was advised by Avant!s corporate counsel, special counsel
to the board of directors and Avant!s criminal defense
counsel. The Avant! board of directors was advised concerning
the requirements and appropriate application of Delaware General
Corporation Law, Section 145, and the facts and
circumstances of the plea bargain negotiated with the District
Attorney for both Avant! and the individual defendants,
including the charges to be dismissed, the agreed-upon sentence
limitations and the fact that the prosecutor conditioned the
plea agreement on acceptance by all the defendants. In
connection with determining whether the individual defendants
acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of Avant!, and had no
reasonable cause to believe that their conduct was unlawful, the
Avant! board was advised concerning:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the elements necessary to establish culpability
	for the violations of securities laws;                                                                                                              
|
| |  | the substance of the allegedly misleading
	statements;                                                                                                                                               
|
| |  | the circumstances and potential legal effect of
	the mutual, general release signed with Cadence in 1994; and                                                                                        
|
| |  | the limited role, if any, the individuals who had
	apparently used Cadence source code had played in connection
	with Avant!s initial public offering and subsequent
	securities-related activities.

Based on this information and the advice of
counsel, the Avant! board determined as to defendants Cho,
Huang, Hsu, Liao and Wuu that the requirements of
Section 145 were satisfied with respect to the fines
assessed against these individuals for violating California
securities laws and resolved to indemnify each of them for the
fines being assessed pursuant to their no contest pleas. The
Avant! board did not address the requirements of
Section 145 with respect to any offenses other than
violating California securities laws because no fines were
assessed in connection with such other offenses. With regard to
fines being assessed against defendants Igusa and Cheng, the
Avant! board determined that indemnification for their fines was
not appropriate pursuant to Section 145 because
Mr. Igusa had never been an officer, director, employee or
agent of Avant! and because Mr. Chengs fine was based
on a plea of no contest to an offense predicated on alleged
conduct by Mr. Cheng undertaken before he became an Avant!
employee.

In connection with the attorneys fees and
expenses previously advanced by Avant! on behalf of the
individual defendants in the Santa Clara criminal action, except
defendant Igusa, Avant! obtained undertakings by each of the
individual defendants on whose behalf advances were made that
Avant! believes complied with Delaware General Corporation Law,
Section 145. Each of the undertakings provided that, in the
event it was ultimately determined that the defendant was not,
under applicable law, entitled to indemnification by Avant! for
attorneys fees and expenses, the defendant would repay
Avant! the amount of all such payments made by Avant! to the
defendants attorneys. Avant!s board of directors
later determined that Delaware General Corporation Law,
Section 145 would permit Avant! to indemnify each of the
individual defendants, except defendant Igusa, for
attorneys fees and litigation expenses

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incurred in connection with defense of the
criminal action. In addition to the factors described above, the
Avant! board also was advised concerning, and considered:




| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | that, in connection with the no contest pleas,
	the prosecutor had dismissed certain charges made against the
	individual defendants,                                                                                                                                                                                 
|
| |  | that each of the defendants had been charged with
	conduct undertaken while a company officer, director, employee
	or agent,                                                                                                                                                                                          
|
| |  | that each defendant had coordinated with Avant!
	in the defense of the criminal action,                                                                                                                                                                                                                               
|
| |  | that it had been in Avant!s best interests
	to coordinate the defense of the criminal action,                                                                                                                                                                                                                        
|
| |  | that Avant!s prior willingness to advance
	attorneys fees and costs to assist the individual
	defendants in their defense of the criminal action had been a
	material inducement in obtaining that coordination by
	eliminating a potential source of financial pressure unrelated
	to the merits of the action, and
|
| |  | that such payments therefore had been for the
	direct benefit of Avant! in addition to being of benefit to the
	individual defendants.                                                                                                                                                                                

Because these attorneys fees and expenses
previously had been advanced by Avant! on behalf of the
aforementioned individual defendants, the board of directors
resolved that Avant! would not require repayment of these fees
and expenses by the individual defendants. As a separate and
further basis for indemnifying Messrs. Hsu, Wuu, Liao and
Cheng for their attorneys fees and expenses, for
substantial business reasons, Avant! negotiated settlements that
involved either revisions to, or termination of, those
individuals existing employment agreements with Avant!,
including Avant!s agreement not to require reimbursement
for the fees and costs incurred in connection with the criminal
action and advanced by Avant! on their behalf. The Avant! board
of directors reviewed, was advised concerning, and approved
settlement agreements with each of these individuals.

Finally, in connection with the indemnification
of the individuals identified above for the fines assessed in
connection with their no contest pleas, the Avant! board of
directors determined that indemnification properly should
encompass amounts sufficient to indemnify each of the
individuals for any actual tax liability attributable to amounts
received by or paid on behalf of the defendants and attributable
to the indemnification of those individuals for the fines
assessed in connection with the criminal action. The Avant!
board of directors therefore resolved to reimburse each of the
individual defendants, except for defendants Igusa and Cheng,
for additional taxes actually incurred and paid as a result of
having been indemnified by Avant! for the fines assessed in
connection with the no contest pleas. As a separate and further
basis for indemnifying Messrs. Hsu, Wuu and Liao for their
actual additional tax liability incurred in connection with
Avant!s indemnification of them for the fines assessed in
the criminal action, the settlements described above included
Avant!s agreement to indemnify each of those three
individuals for any actual tax liability incurred and
attributable to Avant!s indemnification of them for the
fines assessed in connection with the no contest pleas and the
attorneys fees and costs advanced by Avant! on their
behalf.

Securities Class Action Claims

On December 15, 1995, Paul Margetis and
Helen Margetis filed a securities fraud class action complaint
against Avant! in the United States District Court for the
Northern District of California. This lawsuit alleged securities
laws violations, including omissions and/or misrepresentations
of material facts related to the events and transactions which
are the subject of the claims contained in Cadences civil
lawsuit against the Avant!. In addition, on May 30, 1997,
Joanne Hoffman filed a securities fraud class action in the
United States District Court for the Northern District of
California on behalf of purchasers of Avant!s stock
between March 29, 1996 and April 11, 1997, the date of
the filing of a criminal complaint against Avant! and six of its
employees and/or directors. The plaintiffs alleged that Avant!
and its officers misled the market as to the likelihood of the
criminal indictment and as to the validity of the Cadence

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allegations. The District Court subsequently
certified these two securities class actions, consolidated them
for pretrial purposes, and stayed most discovery and other
proceedings pending resolution of the criminal proceeding
described above.


In March 2001, Avant! reached agreement with
counsel for the plaintiff classes in both securities actions for
a voluntary resolution of the cases. Under that agreement,
Avant! paid a total of $47.5 million in exchange for
dismissal of the actions and a release of claims by members of
the classes. The District Court entered an order on
June 22, 2001, that gave final approval to the settlement
and dismissed the litigation with prejudice. Avant! paid the
full settlement amount of $47.5 million in April 2001.
Avant! recognized the settlement as an expense in the fourth
quarter of 2000.

Silvaco Litigation

In March 1993, Meta Software Inc.
(Meta), which Avant! acquired in October 1996, filed
a complaint in the Superior Court of California for Santa Clara
County against Silvaco Data Systems, Inc. seeking monetary
damages and injunctive relief. In August 1995, Silvaco
International and Silvaco Data Systems (collectively
Silvaco) filed a cross-complaint against Meta and
Shawn Hailey, then the President and Chief Executive Officer of
Meta, alleging that Meta owed Silvaco royalties and license fees
pursuant to a product development and marketing program and
unpaid commissions related to Silvacos sale of Metas
products and services under such program. In November 1997, a
judgment in the aggregate amount of $31.4 million was
entered against Avant!. Avant! filed appeals on its own behalf
and on behalf of Mr. Hailey. In order to appeal the
judgment, Avant! was required to post a bond, which was
collateralized with a $23.6 million letter of credit.

On June 21, 2001, the California Court of
Appeal for the Sixth Appellate District reversed the judgment.
The Court of Appeal decision gave Silvaco the option of amending
its cross-complaint, in which case defaults that had been
previously entered against Meta and Hailey, and that were the
principal bases for the $31.4 million award, would be
vacated, or holding a new default prove-up hearing on
Silvacos causes of action for intentional interference
with business relationships and defamation and retrial as to the
amount of award on Silvacos cause of action for unfair
business practices. On July 27, 2001, Silvaco petitioned
the California Supreme Court for review of the Court of Appeal
decision reversing the trial court judgment. On
September 19, 2001, the California Supreme Court denied
review of the Court of Appeal decision, and the Court of Appeal
remitted the case to the trial court on September 21, 2001.
At Silvacos request, the Santa Clara County Superior court
held a default prove-up hearing on January 31, 2002, where
the court fixed the combined award to Silvaco at
$26.1 million on its causes of action for defamation and
intentional interference with economic relations based on
conduct occurring between November 1995 and June 1996. Judgment
against Avant! will not be entered until its claims against
Silvaco and Silvacos remaining claim against Avant! are
resolved, and the amount of the award in Silvacos favor
will be reduced by any current and future awards in
Avant!s favor in the same action. On February 6,
2002, the court entered judgment against Mr. Hailey for the
amount of the award, but the court ordered, with the
parties consent, that enforcement of that judgment be
stayed. Mr. Hailey has written indemnity agreements with
Meta Software and with Avant!, and Avant! is providing him with
a defense. As part of the agreement to stay enforcement of the
judgment against Mr. Hailey in February 2002, Avant! set
aside funds in the amount of the award. Consequently, Avant! has
accrued $26.1 million as a one-time charge as of
December 31, 2001. Following the entry of judgment against
Mr. Hailey, Avant! filed on behalf of Mr. Hailey
notice of intention for move for new trial, which motion was
denied on March 22, 2002. Avant! will file on behalf of
Mr. Hailey an appeal to challenge the basis and amount of
the judgment. Following the entry of any judgment against
Avant!, it will have an opportunity on its own behalf to file a
motion for new trial and, if appropriate, an appeal. Avant!
intends to pursue all remedies available to it in connection
with the litigation with Silvaco, and Avant! believes it has
substantial issues that could cause the trial court to grant a
new trial or that could cause any judgment to be remanded to the
trial court for further proceedings. However, there can be no
assurance that any such remedies will be successful. Payment of
the damage award, or damages that may be awarded in the future,
would have a material effect on Avant!s financial
condition and cash flows.

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Shareholder
Derivative Actions

Between July and October 2001, three derivative
actions were filed against Avant! and certain of its officers
and directors: Scott v. Muraki, et al., No. 01-017548 (Cal.
Superior Ct.); Louisiana School Employees Retirement
System v. Muraki, et al., C.A. No. 19091 (Del. Chancery
Ct.); and Peterson v. Hsu, et al., C.A. No. 19178 (Del.
Chancery Ct.). The actions allege, in substance, that certain
present and former Avant! officers and directors caused damage
to Avant! by misappropriating trade secrets from competitors,
making false representations to investors and the public, and
causing Avant! to award lucrative employment contracts, bonuses,
stock option grants, and valuable consulting contracts and
ownership interests in companies affiliated with Avant!. The
plaintiffs in the actions have agreed to several extensions of
the defendants deadline for responding to their respective
complaints. Accordingly, the defendants have not moved to
dismiss the actions or otherwise responded to plaintiffs
allegations. None of the parties to the actions has initiated
any discovery requests, and no depositions have been taken. The
defendants believe they have meritorious legal and factual
defenses to the actions but, because the cases are in their
initial stages, and because no court appearances have occurred,
no motions have been heard, and no discovery has been taken, the
ultimate outcome of the cases is uncertain. In addition, the
individual officers and directors may have indemnification
rights against the company which may reduce or eliminate any
recovery by the company from the litigation. Due to the
uncertainty of the ultimate outcome of this issue, no losses
have been accrued in Avant!s financial statements as of
December 31, 2001.

Sequence
Litigation

On August 9, 2001, Sequence Design, Inc.
(Sequence) filed an action against Avant! Corporation
No. CV-01-3064JL, in the United States District Court for
the Northern District of California. Sequence alleges that
Avant!s Star-RC and Star-RCXT products infringe patent
5,901,063 owned by Sequence. The complaint seeks monetary and
injunctive relief. Avant! has answered the complaint and
counterclaimed for declaratory relief, for violations of the
Sherman Antitrust Act and for statutory unfair competition in
violation of California Business and Professions Code section
17200. The court held a case management conference on
December 13, 2001, and subsequently scheduled trial for
June 2, 2003. Avant! believes it has defenses to
Sequences claim and intends to defend itself vigorously.
Avant!s defenses and counterclaims include, but are not
limited to, Avant!s belief that the 063 patent is
invalid over the prior art pursuant to 35 U.S.C.
sections 102 and 103 and, independently, that Avant!s
Star-RC and Star-RCXT products do not infringe Sequences
063 patent. Should Sequences claim succeed, however,
Avant! could be permanently enjoined from using and marketing
any products held to incorporate the inventions claimed in the
patent at issue, and it may be required to pay monetary damages
to Sequence. Although Sequence has not made a claim against any
Avant! products other than Star-RC and Star-RCXT, Sequence may
assert such claims. If such claims are made, Avant! believes it
would have defenses to any such claims and would defend itself
vigorously. Nonetheless, should Sequence be successful at
proving that any Avant! product infringes the 063 patent,
Avant! could be permanently enjoined from further infringing
that patent, which might require modification to existing
products and/or suspension of the sale of such products until
they no longer infringed the Sequence patent. Accordingly, an
adverse judgment could seriously harm Avant!s business,
financial position and results of operations. Due to the
uncertainty of the ultimate outcome of this issue, no losses
have been accrued in Avant!s financial statements as of
December 31, 2001.

Silicon
Valley Research Litigation

On August 10, 2001, Silicon Valley Research,
Inc. (SVR) filed an action against Avant! Corporation in
the United States District Court for the Northern District of
California. The complaint purports to state claims for statutory
unfair competition, receipt, sale and concealment of stolen
property, interference with prospective economic advantage,
conspiracy, false advertising, violation of the Lanham Act and
violation of 18 U.S.C.A. § 1962 (R.I.C.O.). In
the complaint, SVR alleges that Avant!s use of Cadence
trade secrets damaged SVR by allowing Avant! to develop and
market products more quickly and cheaply than it could have
otherwise and that more closely tracked Cadences approach
and interface. The complaint seeks an accounting, the imposition
of a constructive trust, and actual and exemplary damages.
Avant! has moved

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to dismiss the claims for statutory unfair
competition, receipt, sale and concealment of stolen property,
negligent interference with prospective economic advantage,
conspiracy, and violation of 18 U.S.C.A. § 1962
(R.I.C.O.). Avant! has filed an answer in response to the
remaining claims. Co-defendant Stephen Wuu moved to dismiss all
claims. The court held a hearing on the motions to dismiss on
December 14, 2001, and it took both motions under
submission. Avant! believes it has defenses to SVRs claims
and intends to defend itself vigorously. These defenses include,
but are not limited to, defenses based on the authority granted
to Avant! by the written release agreement signed between
Cadence and Avant! in 1994, Avant!s denial of any
post-release misappropriation of Cadence trade secrets,
Avant!s belief that any use by Avant! of Cadence trade
secrets did not confer any competitive advantage on Avant! over
SVR, and Avant!s belief that SVRs loss of market
share resulted from factors other than any use by Avant! of
Cadence trade secrets. Should SVRs claims succeed,
however, Avant! could be required to pay monetary damages to
SVR. Accordingly, an adverse judgment could seriously harm
Avant!s business, financial position and results of
operations. Due to the uncertainty of the ultimate outcome of
this issue no losses have been accrued in Avant!s
financial statements as of December 31, 2001.


Dynasty
Capital Services Arbitration

On October 18, 2001, Dynasty Capital
Services LLC submitted a Notice of Submission of Dispute against
Avant! to the American Arbitration Association, and
Randolph L. Tom subsequently submitted a Notice of
Submission of Dispute against Avant! to the American Arbitration
Association. The dispute stems from an advisory services
agreement between Avant! and Dynasty Capital Services LLC and a
legal services agreement between Avant! and Mr. Tom. In
February 2002, Avant! resolved all claims between it and Dynasty
Capital Services LLC and Randolph L. Tom. Under the terms
of the settlement agreement, Avant! will pay a total of
$5.4 million  $2.7 million was paid at the
time of the settlement and an additional $2.7 million will
be paid upon the closing of the proposed merger with Synopsys
Inc. If the Synopsys merger does not close and Avant! does not
merge with any other entity, or sell or transfer 40% or more of
its assets, on or before September 14, 2003, Avant!s
payment obligation is limited to the initial $2.7 million
payment. Consequently, Avant! accrued $5.4 million as a
one-time charge as of December 31, 2001.

Comdisco

On October 24, 2000, Avant! entered into an
assignment of a lease dated February 27, 1997 between it as
tenant and Renco Investment Company as landlord for premises
known as Renco 48 at 46897 Bayside Parkway, Fremont,
CA. The assignee was Comdisco, Inc. Avant! retained no
possessory interest but was not released from any obligations
under the lease. Renco is also the landlord under the leases
covering Avant!s facilities at 46871 Bayside Parkway.
Those leases contain cross default provisions that apply to
defaults under the Renco 48 lease.

In July 2001, Comdisco filed Chapter 11
bankruptcy. Shortly thereafter the general contractor who was
modifying the leased premises filed a mechanics lien
against the Renco 48 property. After having been notified
of the filing of the lien, the landlord, Renco, demanded that
pursuant to the requirements of the lease Avant! release or bond
around the lien. Avant! discharged the lien by payment of
$4.2 million. Avant! recognized this cost in the third
quarter of 2001. Subsequently, on September 8, 2001,
Comdisco rejected the Renco 48 lease in the bankruptcy
proceeding. Based upon the assignment of that lease, Avant! has
the obligation to pay rent and common area maintenance (CAM)
charges.

Avant! has been negotiating with Renco to resolve
the issues related to Comdiscos rejection of the lease.
However, on February 7, 2002 Renco filed suit in the
Alameda County Superior Court claiming damages against Avant! on
account of Comdiscos rejection of the lease. The complaint
asks for rent damages in the sum of approximately
$37.2 million, which is the amount through the end of the
lease term that Comdisco would have been required to pay, and
approximately $5.9 million build out damages. Renco has not
declared any default of any of the other Avant! leases based on
the cross-default provisions in those leases. Avant! is
vigorously defending the rent damages and build out damages
claim. In addition, Avant!

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is asserting its claim against Comdisco regarding
payment of the mechanics lien and rent in the Comdisco
bankruptcy proceeding.


The pending litigation and any future litigation
against Avant! and its employees, regardless of the outcome, are
expected to result in substantial costs and expenses to Avant!.
Avant!s legal expenses for all litigation matters were
$14.6 million, $5.8 million and $14.7 million for
the years ended December 31, 2001, 2000 and 1999,
respectively. Avant! currently expects continued substantial
legal costs in the future as a result of its current litigation
issues. Thus, current litigation issues could seriously harm
Avant!s business, financial condition and results of
operations.

In addition, from time to time, Avant! is subject
to legal proceedings and claims in the ordinary course of
business that, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
Aside from the matters described above, Avant! does not believe
that it is a party to any legal proceedings or claims that it
believes would materially harm its business, financial condition
and results of operations.

Selected Quarterly Financial Data
(unaudited)

|                                |         |                                       |        |         |  |         |          |         |   |   |         |      |  |   |         |      | 
|------------------------------- | ------- | ------------------------------------- | ------ | ------- |  | ------- | -------- | ------- | - | - | ------- | ---- |  | - | ------- | ---- | 
|                                |         | Q1 2001                               |        | Q2 2001 |  | Q3 2001 |          | Q4 2001
|                                |         |                                       |        |         |  |         |          |        
|                                |         |                                      
|                                |         | (In thousands, except per share data)
|Revenue                         |         | $                                     | 93,663 |         |  | $       | 98,045   |         |   | $ | 100,812 |      |  | $ | 106,150 |     
|Costs of revenue                |         |                                       | 7,759  |         |  |         | 7,717    |         |   |   | 6,852   |      |  |   | 7,118   |     
|Earnings (loss) from operations |         |                                       | 26,976 |         |  |         | (205,384 | )       |   |   | 34,568  |      |  |   | 11,901  |     
|Net earnings (loss)             |         |                                       | 14,661 |         |  |         | (217,250 | )       |   |   | 17,128  |      |  |   | 7,744   |     
|Earnings (loss) per share:      |         |                                       |        |         |  |         |          |         |   |   |         |      |  |   |         |     
|                                | Basic   |                                       | $      | 0.39    |  |         | $        | (5.79   | ) |   | $       | 0.45 |  |   | $       | 0.20 | 
|                                | Diluted |                                       |        | 0.38    |  |         |          | (5.79   | ) |   |         | 0.45 |  |   |         | 0.20 | 

|                                |         |                                       |        |         |  |         |        |         |  |   |        |      |  |   |         |       |  
|------------------------------- | ------- | ------------------------------------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | ---- |  | - | ------- | ----- | -
|                                |         | Q1 2000                               |        | Q2 2000 |  | Q3 2000 |        | Q4 2000
|                                |         |                                       |        |         |  |         |        |        
|                                |         |                                      
|                                |         | (In thousands, except per share data)
|Revenue                         |         | $                                     | 85,219 |         |  | $       | 89,751 |         |  | $ | 90,508 |      |  | $ | 92,622  |      
|Costs of revenue                |         |                                       | 6,450  |         |  |         | 6,818  |         |  |   | 6,111  |      |  |   | 6,375   |      
|Earnings (loss) from operations |         |                                       | 23,494 |         |  |         | 29,450 |         |  |   | 26,503 |      |  |   | (21,004 | )    
|Net earnings (loss)             |         |                                       | 18,905 |         |  |         | 20,711 |         |  |   | 20,149 |      |  |   | (6,906  | )    
|Earnings (loss) per share:      |         |                                       |        |         |  |         |        |         |  |   |        |      |  |   |         |      
|                                | Basic   |                                       | $      | 0.49    |  |         | $      | 0.55    |  |   | $      | 0.51 |  |   | $       | (0.18 | )
|                                | Diluted |                                       |        | 0.47    |  |         |        | 0.52    |  |   |        | 0.50 |  |   |         | (0.18 | )

100



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##### Table of Contents



Forefront Venture Partners L.P.

(A Delaware limited partnership)


Financial Statements


As of December 31, 2001 and 2000 and for each
of the


three years in the period ended December 31,
2001




---



##### Table of Contents



Report of Independent Accountants

To the Partners of

Forefront Venture Partners L.P.


(a Delaware limited partnership)


In our opinion, the accompanying statement of net
assets, including the schedule of portfolio investments, and the
related statements of operations, of changes in partners
capital and of cash flows present fairly, in all material
respects, the financial position of Forefront Venture
Partners L.P., a Delaware limited partnership (the
Partnership), at December 31, 2001, and the
results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally
accepted in the United States of America. These financial
statements are the responsibility of the Partnerships
management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit
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. Our procedures
included verification, by physical examination or correspondence
with the custodian, of investments owned as of December 31,
2001. We believe that our audit provides a reasonable basis for
our opinion. The financial statements of the Partnership as of
December 31, 2000 and the results of its operations and its
cash flows for the years ended December 31, 2000 and 1999
were audited by other independent accountants whose report dated
February 9, 2001 expressed an unqualified opinion on those
statements.

/s/ PricewaterhouseCoopers LLP

San Jose, California

January 18, 2002




---



##### Table of Contents



Report of Independent Certified Public
Accountants

To the Partners of

Forefront Venture Partners, L.P.


We have audited the accompanying statement of
assets and liabilities, including the schedule of investments,
of Forefront Venture Partners, L.P. (a Limited Partnership) as
of December 31, 2000, and the related statements of
operations, and changes in partners capital for the years
ended December 31, 2000 and 1999. These financial
statements are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2000,
by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Forefront Venture Partners, L.P. (a Limited
Partnership) as of December 31, 2000, and the results of
its operations and its changes in partners capital for the
years ended December 31, 2000 and 1999 in conformity with
accounting principles generally accepted in the United States of
America.

As disclosed in the schedule of investments, the
financial statements as of December 31, 2000 include
securities valued at $68,488,608 (91% of net assets), whose
values the General Partner has estimated in the absence of
readily ascertainable fair values. We have reviewed the
procedures used by the General Partner in arriving at its
estimate of the fair value of such securities and have inspected
the underlying documentation, and, in the circumstances, we
believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from
the values that would have been used had a ready market for the
securities existed, and the differences could be material to the
financial statements.

As discussed more fully in Note 4, the
Partnerships investment concentrations expose the
Partnership to a relatively greater degree of risk of loss than
would be the case with greater investment diversification.
Additionally, subsequent to December 31, 2000, the single
largest investment in the portfolio has suffered substantial
unrealized losses.

/s/  BDO Seidman, LLP

San Jose, California

February 9, 2001, except for Note 4,


as to which the date is


March 30, 2001




---



##### Table of Contents



Forefront Venture Partners L.P.

(A Delaware limited partnership)


Statements of Net Assets





|                                                                                              |                         |              |            |            |  |   |            |            | 
|--------------------------------------------------------------------------------------------- | ----------------------- | ------------ | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                                                              |                         |             
|                                                                                              |                         | December 31,
|                                                                                              |                         |             
|                                                                                              |                         | 2001         |            | 2000      
|                                                                                              |                         |              |            |           
|Assets                                                                                        |                         |              |            |            |  |   |            |           
|Investments in securities, at fair value (cost:
	$14,948,133 in 2001 and $17,902,953 in 2000) |                         | $            | 40,142,520 |            |  | $ | 68,488,608 |           
|Cash and cash equivalents                                                                     |                         |              | 497,788    |            |  |   | 6,674,266  |           
|Other assets                                                                                  |                         |              | 53,397     |            |  |   | 17,688     |           
|                                                                                              |                         |              |            |            |  |   |            |           
|                                                                                              | Total assets            |              |            | 40,693,705 |  |   |            | 75,180,562 | 
|                                                                                              |                         |              |            |            |  |   |            |           
|Liabilities                                                                                   |                         |              |            |            |  |   |            |           
|Accounts payable and accrued liabilities                                                      |                         |              | 58,374     |            |  |   | 16,000     |           
|                                                                                              |                         |              |            |            |  |   |            |           
|                                                                                              | Net assets              |              | $          | 40,635,331 |  |   | $          | 75,164,562 | 
|                                                                                              |                         |              |            |            |  |   |            |           
|Net Assets Represented by Partners
	Capital                                                  |                         |              |            |            |  |   |            |           
|Contributed capital                                                                           |                         | $            | 18,570,707 |            |  | $ | 18,570,707 |           
|Distributions to partners                                                                     |                         |              | (8,000,297 | )          |  |   |           |           
|Cumulative net operating loss                                                                 |                         |              | (1,382,462 | )          |  |   | (1,071,711 | )         
|Total realized gain on investments                                                            |                         |              | 6,252,996  |            |  |   | 7,079,911  |           
|Net unrealized appreciation on investments                                                    |                         |              | 25,194,387 |            |  |   | 50,585,655 |           
|                                                                                              |                         |              |            |            |  |   |            |           
|                                                                                              | Total partners capital |              | $          | 40,635,331 |  |   | $          | 75,164,562 | 
|                                                                                              |                         |              |            |            |  |   |            |           

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

2



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments


December 31, 2001





|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |           |  
|----------------------------- | -------------------------------- | ------------- |  | ------ |  | --------------- |  | ---------------- | - | --------- |  | ---------- | - | ------------ | - | ---------- | ------- | ------- |  | ---------- | --------- | -------------- | - |  | ----- | ----- |  |  | ----- | ----- | - |  | ------- | --------- |  |  | --------- | --------- | - |  | --------- | --------- | -
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |           
|                              |                                  |               |  |        |  |                 |  | Privately Held   |   |           |  |            |   |              |   |            |         |        
|                              |                                  |               |  |        |  | Publicly Traded |  | Preferred/Common |   |           |  |            |   |             
|                              |                                  |               |  |        |  | Common Stock    |  | Stock            |   | Other     |  | Total      |   | Unrealized  
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   | Appreciation
|                              |                                  | Location      |  | Shares |  | Cost            |  | Fair Value       |   | Cost      |  | Fair Value |   | Cost         |   | Fair Value |         | Cost    |  | Fair Value |           | (Depreciation)
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |               
|Communication and Networking: |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | % of net assets                  |               |  |        |  |                 |  |                  |   |           |  |            |   | 10.8         | % |            |         |         |  |            |           | 35.6           | % |  |       |       |  |  |       | 0.0   | % |  |         |           |  |  |           | 46.4      | % |  |           |           |  
|AltiGen Communications, Inc.: |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Common stock                     |               |  |        |  | 99,820          |  |                  | $ | 833,330   |  |            | $ | 89,479       |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  | $       | 833,330   |  |  | $         | 89,479    |   |  | $         | (743,851  | )
|ANDA Networks, Inc.:          |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Series B                         |               |  |        |  | 500,500         |  |                  |   |           |  |            |   |              |   |            | $       | 166,666 |  |            | $         | 5,526,821      |   |  |       |       |  |  |       |       |   |  |         | 166,666   |  |  |           | 5,526,821 |   |  |           | 5,360,155 |  
|                              | Series C                         |               |  |        |  | 166,667         |  |                  |   |           |  |            |   |              |   |            |         | 333,334 |  |            |           | 1,896,004      |   |  |       |       |  |  |       |       |   |  |         | 333,334   |  |  |           | 1,896,004 |   |  |           | 1,562,670 |  
|                              | Series D                         |               |  |        |  | 10,933          |  |                  |   |           |  |            |   |              |   |            |         | 150,000 |  |            |           | 150,000        |   |  |       |       |  |  |       |       |   |  |         | 150,000   |  |  |           | 150,000   |   |  |           |          |  
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            | 650,000 |         |  |            | 7,572,825 |                |   |  |       |       |  |  |       |       |   |  | 650,000 |           |  |  | 7,572,825 |           |   |  | 6,922,825 |          
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|Clarinet Systems, Inc.:       |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Series B                         |               |  |        |  | 500,000         |  |                  |   |           |  |            |   |              |   |            |         | 500,000 |  |            |           | 800,000        |   |  |       |       |  |  |       |       |   |  |         | 500,000   |  |  |           | 800,000   |   |  |           | 300,000   |  
|CopperCom, Inc.:              |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Series B                         |               |  |        |  | 137,500         |  |                  |   |           |  |            |   |              |   |            |         | 550,000 |  |            |           | 928,400        |   |  |       |       |  |  |       |       |   |  |         | 550,000   |  |  |           | 928,400   |   |  |           | 378,400   |  
|LeadTONE Wireless, Inc.:      |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Common stock                     |               |  |        |  | 6,628           |  |                  |   |           |  |            |   |              |   |            |         | 1       |  |            |           | 1              |   |  |       |       |  |  |       |       |   |  |         | 1         |  |  |           | 1         |   |  |           |          |  
|                              | Promissory note                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  | $     | 4,850 |  |  | $     | 4,850 |   |  |         | 4,850     |  |  |           | 4,850     |   |  |           |          |  
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            | 1       |         |  |            | 1         |                |   |  | 4,850 |       |  |  | 4,850 |       |   |  | 4,851   |           |  |  | 4,851     |           |   |  |          |          
|                              |                                  |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|Ligh Tech Fiberoptics, Inc.:  |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Series A                         |               |  |        |  | 999,999         |  |                  |   |           |  |            |   |              |   |            |         | 999,999 |  |            |           | 3,199,997      |   |  |       |       |  |  |       |       |   |  |         | 999,999   |  |  |           | 3,199,997 |   |  |           | 2,199,998 |  
|Oplink Communications, Inc.:  |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | Common                           |               |  |        |  | 2,574,464       |  |                  |   | 1,246,674 |  |            |   | 4,295,751    |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         | 1,246,674 |  |  |           | 4,295,751 |   |  |           | 3,049,077 |  
|RapidStream, Inc.:            |                                  | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |          
|                              | (formerly Network Engine, Inc.): |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |       |       |  |  |       |       |   |  |         |           |  |  |           |           |   |  |           |           |  
|                              | Series A                         |               |  |        |  | 549,999         |  |                  |   |           |  |            |   |              |   |            |         | 183,333 |  |            |           | 1,929,323      |   |  |       |       |  |  |       |       |   |  |         | 183,333   |  |  |           | 1,929,323 |   |  |           | 1,745,990 |  

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

3



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2001





|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |           |  
|-------------------------------------------------- | ----------------------------- | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ----- |  | ---------- |  | ------------ | - | ---------- | ------- | --------- |  | ---------- | ------- | -------------- | - |  | - | - |  |  | - | --- | - |  | ------- | --------- |  |  | ------- | --------- | - |  | ------- | --------- | -
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |           
|                                                   |                               |               |  |        |  |                 |  | Privately Held   |  |       |  |            |  |              |   |            |         |          
|                                                   |                               |               |  |        |  | Publicly Traded |  | Preferred/Common |  |       |  |            |  |             
|                                                   |                               |               |  |        |  | Common Stock    |  | Stock            |  | Other |  | Total      |  | Unrealized  
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  | Appreciation
|                                                   |                               | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost  |  | Fair Value |  | Cost         |   | Fair Value |         | Cost      |  | Fair Value |         | (Depreciation)
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |               
|Semiconductor Industry:                            |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | % of net assets               |               |  |        |  |                 |  |                  |  |       |  |            |  | 0.0          | % |            |         |           |  |            |         | 13.9           | % |  |   |   |  |  |   | 0.0 | % |  |         |           |  |  |         | 13.9      | % |  |         |           |  
|Advanced Thermal Technologies, Inc.:               |                               | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Common stock                  |               |  |        |  | 4,349,998       |  |                  |  |       |  |            |  |              |   |            |         | 1,373,652 |  |            |         | 1,457,142      |   |  |   |   |  |  |   |     |   |  |         | 1,373,652 |  |  |         | 1,457,142 |   |  |         | 83,490    |  
|Chipstrate Technology Inc.:                        |                               | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Common stock                  |               |  |        |  | 1,582,500       |  |                  |  |       |  |            |  |              |   |            |         | 486,246   |  |            |         | 490,500        |   |  |   |   |  |  |   |     |   |  |         | 486,246   |  |  |         | 490,500   |   |  |         | 4,254     |  
|Cypress Semiconductor Corporation:                 |                               | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Sales proceeds held in escrow |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         | 306,801   |  |            |         | 306,801        |   |  |   |   |  |  |   |     |   |  |         | 306,801   |  |  |         | 306,801   |   |  |         |          |  
|Global Testing Corporation.:                       |                               | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Common stock                  |               |  |        |  | 3,093,554       |  |                  |  |       |  |            |  |              |   |            |         | 865,126   |  |            |         | 2,283,078      |   |  |   |   |  |  |   |     |   |  |         | 865,126   |  |  |         | 2,283,078 |   |  |         | 1,417,952 |  
|Grand Plastic Technologies Co., Ltd.:              |                               | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Common stock                  |               |  |        |  | 166,667         |  |                  |  |       |  |            |  |              |   |            |         | 58,140    |  |            |         | 87,619         |   |  |   |   |  |  |   |     |   |  |         | 58,140    |  |  |         | 87,619    |   |  |         | 29,479    |  
|Sonics, Inc.:                                      |                               | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Series A                      |               |  |        |  | 333,334         |  |                  |  |       |  |            |  |              |   |            |         | 333,334   |  |            |         | 333,334        |   |  |   |   |  |  |   |     |   |  |         | 333,334   |  |  |         | 333,334   |   |  |         |          |  
|                                                   | Series B                      |               |  |        |  | 146,334         |  |                  |  |       |  |            |  |              |   |            |         | 219,501   |  |            |         | 146,334        |   |  |   |   |  |  |   |     |   |  |         | 219,501   |  |  |         | 146,334   |   |  |         | (73,167   | )
|                                                   | Series C                      |               |  |        |  | 333,333         |  |                  |  |       |  |            |  |              |   |            |         | 333,333   |  |            |         | 333,333        |   |  |   |   |  |  |   |     |   |  |         | 333,333   |  |  |         | 333,333   |   |  |         |          |  
|                                                   | Warrants  series B           |               |  |        |  | 3,750           |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |  |  |  |   |    |   |  |         |          |  |  |         |          |   |  |         |          |  
|                                                   | Warrants  common stock       |               |  |        |  | 349,999         |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |  |  |  |   |    |   |  |         |          |  |  |         |          |   |  |         |          |  
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            | 886,168 |           |  |            | 813,001 |                |   |  |  |   |  |  |  |     |   |  | 886,168 |           |  |  | 813,001 |           |   |  | (73,167 | )        
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|Ucomm Universal Communication
	Technologies, Inc.: |                               | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   | Common stock                  |               |  |        |  | 400,000         |  |                  |  |       |  |            |  |              |   |            |         | 124,043   |  |            |         | 114,286        |   |  |   |   |  |  |   |     |   |  |         | 124,043   |  |  |         | 114,286   |   |  |         | (9,757    | )
|                                                   | Preferred stock               |               |  |        |  | 334,482         |  |                  |  |       |  |            |  |              |   |            |         | 97,041    |  |            |         | 95,574         |   |  |   |   |  |  |   |     |   |  |         | 97,041    |  |  |         | 95,574    |   |  |         | (1,467    | )
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            | 221,084 |           |  |            | 209,860 |                |   |  |   |   |  |  |   |     |   |  | 221,084 |           |  |  | 209,860 |           |   |  | (11,224 | )        
|                                                   |                               |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |           |  |            |         |                |   |  |   |   |  |  |   |     |   |  |         |           |  |  |         |           |   |  |         |          

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

4



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2001





|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |           |  
|------------------------------------- | ------------------------ | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ------- |  | ---------- |  | ------------ | - | ---------- | ------- | ------- |  | ---------- | --------- | -------------- | - |  | - | - |  |  | - | - |  |  | ------- | ------- |  |  | --------- | --------- | - |  | --------- | --------- | -
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |           
|                                      |                          |               |  |        |  |                 |  | Privately Held   |  |         |  |            |  |              |   |            |         |        
|                                      |                          |               |  |        |  | Publicly Traded |  | Preferred/Common |  |         |  |            |  |             
|                                      |                          |               |  |        |  | Common Stock    |  | Stock            |  | Other   |  | Total      |  | Unrealized  
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  | Appreciation
|                                      |                          | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost    |  | Fair Value |  | Cost         |   | Fair Value |         | Cost    |  | Fair Value |           | (Depreciation)
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |               
|Electronics and Computer Hardware     |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | % of net assets          |               |  |        |  |                 |  |                  |  |         |  |            |  | 1.1          | % |            |         |         |  |            |           | 2.9            | % |  |   |   |  |  |   |   |  |  |         |         |  |  |           | 4.0       | % |  |           |           |  
|Rainbow Display, Inc.:                |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Common stock             |               |  |        |  | 50,001          |  |                  |  |         |  |            |  |              |   |            |         | 38,334  |  |            |           | 38,334         |   |  |   |   |  |  |   |   |  |  |         | 38,334  |  |  |           | 38,334    |   |  |           |          |  
|                                      | Series B                 |               |  |        |  | 166,667         |  |                  |  |         |  |            |  |              |   |            |         | 333,334 |  |            |           | 466,667        |   |  |   |   |  |  |   |   |  |  |         | 333,334 |  |  |           | 466,667   |   |  |           | 133,333   |  
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 371,668 |         |  |            | 505,001   |                |   |  |   |   |  |  |   |   |  |  | 371,668 |         |  |  | 505,001   |           |   |  | 133,333   |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|AOpen, Inc.:                          |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Common stock             |               |  |        |  | 112,532         |  |                  |  | 114,437 |  |            |  | 274,031      |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         | 114,437 |  |  |           | 274,031   |   |  |           | 159,594   |  
|Ritek Corporation:                    |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Common stock             |               |  |        |  | 172,984         |  |                  |  | 467,395 |  |            |  | 162,002      |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         | 467,395 |  |  |           | 162,002   |   |  |           | (305,393  | )
|Waffer Technology Corporation:        |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Common stock             |               |  |        |  | 401,757         |  |                  |  |         |  |            |  |              |   |            |         | 510,269 |  |            |           | 681,182        |   |  |   |   |  |  |   |   |  |  |         | 510,269 |  |  |           | 681,182   |   |  |           | 170,913   |  
|Fabless IC Design House               |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | % of net assets          |               |  |        |  |                 |  |                  |  |         |  |            |  | 15.9         | % |            |         |         |  |            |           | 12.6           | % |  |   |   |  |  |   |   |  |  |         |         |  |  |           | 28.5      | % |  |           |           |  
|Capella Microsystems, Inc.:           |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Common stock             |               |  |        |  | 62,500          |  |                  |  |         |  |            |  |              |   |            |         | 15,625  |  |            |           | 15,625         |   |  |   |   |  |  |   |   |  |  |         | 15,625  |  |  |           | 15,625    |   |  |           |          |  
|                                      | Series B3                |               |  |        |  | 125,000         |  |                  |  |         |  |            |  |              |   |            |         | 125,000 |  |            |           | 150,000        |   |  |   |   |  |  |   |   |  |  |         | 125,000 |  |  |           | 150,000   |   |  |           | 25,000    |  
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 140,625 |         |  |            | 165,625   |                |   |  |   |   |  |  |   |   |  |  | 140,625 |         |  |  | 165,625   |           |   |  | 25,000    |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|EmpowerTel Networks, Inc.:            |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Common stock             |               |  |        |  | 52,884          |  |                  |  |         |  |            |  |              |   |            |         | 57,291  |  |            |           | 57,291         |   |  |   |   |  |  |   |   |  |  |         | 57,291  |  |  |           | 57,291    |   |  |           |          |  
|                                      | Series A                 |               |  |        |  | 606,060         |  |                  |  |         |  |            |  |              |   |            |         | 181,818 |  |            |           | 2,130,906      |   |  |   |   |  |  |   |   |  |  |         | 181,818 |  |  |           | 2,130,906 |   |  |           | 1,949,088 |  
|                                      | Series B                 |               |  |        |  | 211,538         |  |                  |  |         |  |            |  |              |   |            |         | 222,114 |  |            |           | 775,498        |   |  |   |   |  |  |   |   |  |  |         | 222,114 |  |  |           | 775,498   |   |  |           | 553,384   |  
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 461,223 |         |  |            | 2,963,695 |                |   |  |   |   |  |  |   |   |  |  | 461,223 |         |  |  | 2,963,695 |           |   |  | 2,502,472 |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|HiNT Corporation:                     |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Series A                 |               |  |        |  | 125,000         |  |                  |  |         |  |            |  |              |   |            |         | 125,000 |  |            |           | 125,000        |   |  |   |   |  |  |   |   |  |  |         | 125,000 |  |  |           | 125,000   |   |  |           |          |  
|                                      | Warrants  common stocks |               |  |        |  | 1,875           |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |  |  |  |   |  |  |  |         |        |  |  |           |          |   |  |           |          |  
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 125,000 |         |  |            | 125,000   |                |   |  |  |   |  |  |  |   |  |  | 125,000 |         |  |  | 125,000   |           |   |  |          |          
|                                      |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|LightSpeed Semiconductor Corporation: |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |           |           |   |  |           |          
|                                      | Series D                 |               |  |        |  | 39,452          |  |                  |  |         |  |            |  |              |   |            |         | 110,071 |  |            |           | 13,374         |   |  |   |   |  |  |   |   |  |  |         | 110,071 |  |  |           | 13,374    |   |  |           | (96,697   | )

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

5



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2001





|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |           |  
|------------------------------------------- | ------------------------------------------------- | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ------- |  | ---------- |  | ------------ | - | ---------- | ------- | ------- |  | ---------- | ------- | -------------- | - |  |  |  |  |  |  |  |  |  | ------- | ------- |  |  | ------- | --------- | - |  | ------- | --------- | -
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |           
|                                            |                                                   |               |  |        |  |                 |  | Privately Held   |  |         |  |            |  |              |   |            |         |        
|                                            |                                                   |               |  |        |  | Publicly Traded |  | Preferred/Common |  |         |  |            |  |             
|                                            |                                                   |               |  |        |  | Common Stock    |  | Stock            |  | Other   |  | Total      |  | Unrealized  
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  | Appreciation
|                                            |                                                   | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost    |  | Fair Value |  | Cost         |   | Fair Value |         | Cost    |  | Fair Value |         | (Depreciation)
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |               
|Marvell Technology Group Ltd.:              |                                                   | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | Common                                            |               |  |        |  | 184,616         |  |                  |  | 199,998 |  |            |  | 5,978,235    |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         | 199,998 |  |  |         | 5,978,235 |   |  |         | 5,778,237 |  
|PicoTurbo, Inc.:                            |                                                   | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | Series A                                          |               |  |        |  | 16,667          |  |                  |  |         |  |            |  |              |   |            |         |        |  |            |         | 16,667         |   |  |  |  |  |  |  |  |  |  |         |        |  |  |         | 16,667    |   |  |         | 16,667    |  
|                                            | Series B                                          |               |  |        |  | 333,333         |  |                  |  |         |  |            |  |              |   |            |         | 416,666 |  |            |         | 416,666        |   |  |  |  |  |  |  |  |  |  |         | 416,666 |  |  |         | 416,666   |   |  |         |          |  
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 416,666 |         |  |            | 433,333 |                |   |  |  |  |  |  |  |  |  |  | 416,666 |         |  |  | 433,333 |           |   |  | 16,667  |          
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|Richtek Technology, Inc.:                   |                                                   | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | Common stock                                      |               |  |        |  | 500,869         |  |                  |  |         |  |            |  |              |   |            |         | 442,434 |  |            |         | 910,032        |   |  |  |  |  |  |  |  |  |  |         | 442,434 |  |  |         | 910,032   |   |  |         | 467,598   |  
|Silicon Image, Inc.:                        |                                                   | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | Common stock                                      |               |  |        |  | 89,069          |  |                  |  | 155,871 |  |            |  | 318,885      |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         | 155,871 |  |  |         | 318,885   |   |  |         | 163,014   |  
|Silicon Laboratories, Inc.:                 |                                                   | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | Common stock                                      |               |  |        |  | 5,086           |  |                  |  | 156,075 |  |            |  | 164,768      |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         | 156,075 |  |  |         | 164,768   |   |  |         | 8,693     |  
|Tropian Inc. (formerly Premier              |                                                   | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | R.F., Inc.):                                      |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |           |  
|                                            | Series A                                          |               |  |        |  | 384,615         |  |                  |  |         |  |            |  |              |   |            |         | 166,666 |  |            |         | 453,794        |   |  |  |  |  |  |  |  |  |  |         | 166,666 |  |  |         | 453,794   |   |  |         | 287,128   |  
|                                            | Series C                                          |               |  |        |  | 33,351          |  |                  |  |         |  |            |  |              |   |            |         | 166,755 |  |            |         | 69,810         |   |  |  |  |  |  |  |  |  |  |         | 166,755 |  |  |         | 69,810    |   |  |         | (96,945   | )
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 333,421 |         |  |            | 523,604 |                |   |  |  |  |  |  |  |  |  |  | 333,421 |         |  |  | 523,604 |           |   |  | 190,183 |          
|                                            |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|Software and Information                    |                                                   |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | % of net assets                                   |               |  |        |  |                 |  |                  |  |         |  |            |  | 0.0          | % |            |         |         |  |            |         | 6.0            | % |  |  |  |  |  |  |  |  |  |         |         |  |  |         | 6.0       | % |  |         |           |  
|Celestry Design Technologies Inc.           |                                                   | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | (formerly Ultima Interconnect
	Technology, Inc.): |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |           |  
|                                            | Series D                                          |               |  |        |  | 217,391         |  |                  |  |         |  |            |  |              |   |            |         | 499,999 |  |            |         | 499,999        |   |  |  |  |  |  |  |  |  |  |         | 499,999 |  |  |         | 499,999   |   |  |         |          |  
|Chain Sea Information Integration Co. Ltd.: |                                                   | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |  |  |  |  |  |  |  |  |         |         |  |  |         |           |   |  |         |          
|                                            | Common stock                                      |               |  |        |  | 102,400         |  |                  |  |         |  |            |  |              |   |            |         | 123,596 |  |            |         | 110,683        |   |  |  |  |  |  |  |  |  |  |         | 123,596 |  |  |         | 110,683   |   |  |         | (12,913   | )

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

6



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2001





|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |         |            | 
|------------------------------------------- | ------------------------------------------- | --------------------------- |  | ------ |  | --------------- |  | ---------------- |  | ----- | --------- | ---------- |  | ------------ | ---------- | ---------- | ------- | ------- | ---------- | ---------- | --------- | -------------- | ---------- | - | - | - | ----- |  | - | - | ----- | - | ------- | ------- | ---------- |  | --------- | ------- | ---------- | - | ------- | ------- | ---------- | 
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |           
|                                            |                                             |                             |  |        |  |                 |  | Privately Held   |  |       |           |            |  |              |            |            |         |        
|                                            |                                             |                             |  |        |  | Publicly Traded |  | Preferred/Common |  |       |           |            |  |             
|                                            |                                             |                             |  |        |  | Common Stock    |  | Stock            |  | Other |           | Total      |  | Unrealized  
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  | Appreciation
|                                            |                                             | Location                    |  | Shares |  | Cost            |  | Fair Value       |  | Cost  |           | Fair Value |  | Cost         |            | Fair Value |         | Cost    |            | Fair Value |           | (Depreciation)
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |               
|Dome Digital Holding Corporation:           |                                             | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Series A                                    |                             |  |        |  | 500,000         |  |                  |  |       |           |            |  |              |            |            |         | 250,000 |            |            |           | 250,000        |            |   |   |   |       |  |   |   |       |   |         | 250,000 |            |  |           | 250,000 |            |   |         |        |           
|EnReach Technology, Inc.:                   |                                             | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Series C                                    |                             |  |        |  | 25,000          |  |                  |  |       |           |            |  |              |            |            |         | 125,000 |            |            |           | 125,000        |            |   |   |   |       |  |   |   |       |   |         | 125,000 |            |  |           | 125,000 |            |   |         |        |           
|GeoVision, Inc.:                            |                                             | Taiwan                      |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Common stock                                |                             |  |        |  | 256,757         |  |                  |  |       |           |            |  |              |            |            |         | 86,275  |            |            |           | 87,850         |            |   |   |   |       |  |   |   |       |   |         | 86,275  |            |  |           | 87,850  |            |   |         | 1,575   |           
|Incentia Design Systems, Inc.:              |                                             | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Series B                                    |                             |  |        |  | 35,715          |  |                  |  |       |           |            |  |              |            |            |         | 62,501  |            |            |           | 62,501         |            |   |   |   |       |  |   |   |       |   |         | 62,501  |            |  |           | 62,501  |            |   |         |        |           
|Kinzan, Inc.:                               |                                             | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Common stock                                |                             |  |        |  | 17,339          |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |         |           
|                                            | Series A                                    |                             |  |        |  | 277,778         |  |                  |  |       |           |            |  |              |            |            |         | 69,083  |            |            |           | 69,083         |            |   |   |   |       |  |   |   |       |   |         | 69,083  |            |  |           | 69,083  |            |   |         |        |           
|                                            | Common stocks held in escrow                |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         | 250,000 |            |            |           | 938,888        |            |   |   |   |       |  |   |   |       |   |         | 250,000 |            |  |           | 938,888 |            |   |         | 688,888 |           
|                                            | (from the acquisition of Portal Wave, Inc.) |                             |  |        |  | 4,335           |  |                  |  |       |           |            |  |              |            |            |         | 17,613  |            |            |           | 17,613         |            |   |   |   |       |  |   |   |       |   |         | 17,613  |            |  |           | 17,613  |            |   |         |        |           
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            | 336,696 |         |            |            | 1,025,584 |                |            |   |   |   |       |  |   |   |       |   | 336,696 |         |            |  | 1,025,584 |         |            |   | 688,888 |        
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|Oridus, Inc. (formerly Creosys, Inc.):      |                                             | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Series B                                    |                             |  |        |  | 187,500         |  |                  |  |       |           |            |  |              |            |            |         | 187,500 |            |            |           | 187,500        |            |   |   |   |       |  |   |   |       |   |         | 187,500 |            |  |           | 187,500 |            |   |         |        |           
|Sharemedia, Inc. (formerly
	Fax2Net, Inc.): |                                             | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            | Common stock                                |                             |  |        |  | 537,340         |  |                  |  |       |           |            |  |              |            |            |         | 13,815  |            |            |           | 13,815         |            |   |   |   |       |  |   |   |       |   |         | 13,815  |            |  |           | 13,815  |            |   |         |        |           
|                                            | Series A                                    |                             |  |        |  | 276,355         |  |                  |  |       |           |            |  |              |            |            |         | 92,194  |            |            |           | 92,194         |            |   |   |   |       |  |   |   |       |   |         | 92,194  |            |  |           | 92,194  |            |   |         |        |           
|                                            | Warrants  common stocks                    |                             |  |        |  | 23,037          |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |  |       |  |   |  |       |   |         |        |            |  |           |        |            |   |         |        |           
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            | 106,009 |         |            |            | 106,009   |                |            |   |  |   |       |  |  |   |       |   | 106,009 |         |            |  | 106,009   |         |            |   |        |        
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            |                                             | Total portfolio investments |  |        |  |                 |  |                  |  | $     | 3,173,780 |            |  | $            | 11,283,151 |            |         | $       | 11,769,503 |            |           | $              | 28,854,519 |   |   | $ | 4,850 |  |   | $ | 4,850 |   |         | $       | 14,948,133 |  |           | $       | 40,142,520 |   |         | $       | 25,194,387 | 
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        
|                                            |                                             | % of net assets             |  |        |  |                 |  |                  |  |       |           |            |  |              | 27.8       | %          |         |         |            |            |           |                | 71.0       | % |   |   |       |  |   |   | 0.0   | % |         |         |            |  |           |         | 98.8       | % |         |         |            | 
|                                            |                                             |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |   |   |       |  |   |   |       |   |         |         |            |  |           |         |            |   |         |        

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

7



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments


December 31, 2000





|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |            |  
|-------------------------------------------------- | ------------------------ | ------------- |  | ------ |  | --------------- |  | ---------------- | - | --------- |  | ---------- | - | ------------ | - | ---------- | ------- | ------- |  | ---------- | --------- | -------------- | - |  |  |  |  |  |  |  |  |  | ------- | --------- |  |  | --------- | ---------- | - |  | --------- | ---------- | -
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |           
|                                                   |                          |               |  |        |  |                 |  | Privately Held   |   |           |  |            |   |              |   |            |         |        
|                                                   |                          |               |  |        |  | Publicly Traded |  | Preferred/Common |   |           |  |            |   |             
|                                                   |                          |               |  |        |  | Common Stock    |  | Stock            |   | Other     |  | Total      |   | Unrealized  
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   | Appreciation
|                                                   |                          | Location      |  | Shares |  | Cost            |  | Fair Value       |   | Cost      |  | Fair Value |   | Cost         |   | Fair Value |         | Cost    |  | Fair Value |           | (Depreciation)
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |               
|Communication and Networking:                      |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | % of net assets          |               |  |        |  |                 |  |                  |   |           |  |            |   | 50.2         | % |            |         |         |  |            |           | 14.0           | % |  |  |  |  |  |  |  |  |  |         |           |  |  |           | 64.2       | % |  |           |            |  
|AltiGen Communications, Inc.:                      |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Common stock             |               |  |        |  | 99,820          |  |                  | $ | 833,330   |  |            | $ | 85,346       |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  | $       | 833,330   |  |  | $         | 85,346     |   |  | $         | (747,984   | )
|ANDA Networks, Inc.:                               |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Series B                 |               |  |        |  | 500,500         |  |                  |   |           |  |            |   |              |   |            | $       | 166,667 |  |            | $         | 2,780,077      |   |  |  |  |  |  |  |  |  |  |         | 166,667   |  |  |           | 2,780,077  |   |  |           | 2,613,410  |  
|                                                   | Series C                 |               |  |        |  | 166,667         |  |                  |   |           |  |            |   |              |   |            |         | 333,334 |  |            |           | 981,335        |   |  |  |  |  |  |  |  |  |  |         | 333,334   |  |  |           | 981,335    |   |  |           | 648,001    |  
|                                                   | Series D                 |               |  |        |  | 10,993          |  |                  |   |           |  |            |   |              |   |            |         | 150,001 |  |            |           | 90,001         |   |  |  |  |  |  |  |  |  |  |         | 150,001   |  |  |           | 90,001     |   |  |           | (60,000    | )
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            | 650,002 |         |  |            | 3,851,413 |                |   |  |  |  |  |  |  |  |  |  | 650,002 |           |  |  | 3,851,413 |            |   |  | 3,201,411 |           
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|Clarinet Systems, Inc.:                            |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Series B                 |               |  |        |  | 500,000         |  |                  |   |           |  |            |   |              |   |            |         | 500,000 |  |            |           | 500,000        |   |  |  |  |  |  |  |  |  |  |         | 500,000   |  |  |           | 500,000    |   |  |           |           |  
|CopperCom, Inc.:                                   |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Series B                 |               |  |        |  | 550,000         |  |                  |   |           |  |            |   |              |   |            |         | 550,000 |  |            |           | 2,035,000      |   |  |  |  |  |  |  |  |  |  |         | 550,000   |  |  |           | 2,035,000  |   |  |           | 1,485,000  |  
|Empower Tel Network, Inc.:                         |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Series A                 |               |  |        |  | 606,060         |  |                  |   |           |  |            |   |              |   |            |         | 181,818 |  |            |           | 1,083,635      |   |  |  |  |  |  |  |  |  |  |         | 181,818   |  |  |           | 1,083,635  |   |  |           | 901,817    |  
|                                                   | Series B                 |               |  |        |  | 211,538         |  |                  |   |           |  |            |   |              |   |            |         | 222,114 |  |            |           | 409,961        |   |  |  |  |  |  |  |  |  |  |         | 222,114   |  |  |           | 409,961    |   |  |           | 187,847    |  
|                                                   | Warrants  common stocks |               |  |        |  | 52,884          |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |          |  |  |           |           |   |  |           |           |  
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            | 403,932 |         |  |            | 1,493,596 |                |   |  |  |  |  |  |  |  |  |  | 403,932 |           |  |  | 1,493,596 |            |   |  | 1,089,664 |           
|                                                   |                          |               |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|Ligh Tech Fiberoptics, Inc.:                       |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Series A                 |               |  |        |  | 999,999         |  |                  |   |           |  |            |   |              |   |            |         | 999,999 |  |            |           | 1,999,998      |   |  |  |  |  |  |  |  |  |  |         | 999,999   |  |  |           | 1,999,998  |   |  |           | 999,999    |  
|Oplink Communications, Inc.:                       |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Common                   |               |  |        |  | 2,574,464       |  |                  |   | 1,246,674 |  |            |   | 37,651,536   |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         | 1,246,674 |  |  |           | 37,651,536 |   |  |           | 36,404,862 |  
|RapidStream, Inc. (formerly Network Engine, Inc.): |                          | United States |  |        |  |                 |  |                  |   |           |  |            |   |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |  |  |  |         |           |  |  |           |            |   |  |           |           
|                                                   | Series A                 |               |  |        |  | 549,999         |  |                  |   |           |  |            |   |              |   |            |         | 183,333 |  |            |           | 667,552        |   |  |  |  |  |  |  |  |  |  |         | 183,333   |  |  |           | 667,552    |   |  |           | 484,219    |  

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

8



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2000





|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |           |  
|------------------------------------------------------ | ------------------------ | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ----- |  | ---------- |  | ------------ | - | ---------- | ------- | ------- |  | ---------- | --------- | -------------- | - |  | ------ | ------ |  |  | - | --- | - |  | ------- | ------- |  |  | --------- | --------- | - |  | --------- | --------- | -
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |           
|                                                       |                          |               |  |        |  |                 |  | Privately Held   |  |       |  |            |  |              |   |            |         |        
|                                                       |                          |               |  |        |  | Publicly Traded |  | Preferred/Common |  |       |  |            |  |             
|                                                       |                          |               |  |        |  | Common Stock    |  | Stock            |  | Other |  | Total      |  | Unrealized  
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  | Appreciation
|                                                       |                          | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost  |  | Fair Value |  | Cost         |   | Fair Value |         | Cost    |  | Fair Value |           | (Depreciation)
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |               
|Solopoint, Inc.:                                       |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Common                   |               |  |        |  | 256,158         |  |                  |  |       |  |            |  |              |   |            |         | 277,778 |  |            |           |               |   |  |        |        |  |  |   |     |   |  |         | 277,778 |  |  |           |          |   |  |           | (277,778  | )
|                                                       | Warrants  common stocks |               |  |        |  | 123,889         |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |       |  |  |   |    |   |  |         |        |  |  |           |          |   |  |           |          |  
|                                                       | Promissory notes         |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        | 27,780 |  |  |   |    |   |  |         | 27,780  |  |  |           |          |   |  |           | (27,780   | )
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            | 277,778 |         |  |            |          |                |   |  | 27,780 |        |  |  |  |     |   |  | 305,558 |         |  |  |          |           |   |  | (305,558  | )        
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|Semiconductor Industry:                                |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | % of net assets          |               |  |        |  |                 |  |                  |  |       |  |            |  | 0.0          | % |            |         |         |  |            |           | 9.8            | % |  |        |        |  |  |   | 0.0 | % |  |         |         |  |  |           | 9.8       | % |  |           |           |  
|Advanced Thermal Technologies, Inc.:                   |                          | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Common stock             |               |  |        |  | 2,999,999       |  |                  |  |       |  |            |  |              |   |            |         | 908,536 |  |            |           | 906,126        |   |  |        |        |  |  |   |     |   |  |         | 908,536 |  |  |           | 906,126   |   |  |           | (2,410    | )
|Chipstrate Technology Inc.:                            |                          | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Common stock             |               |  |        |  | 1,582,500       |  |                  |  |       |  |            |  |              |   |            |         | 486,247 |  |            |           | 517,593        |   |  |        |        |  |  |   |     |   |  |         | 486,247 |  |  |           | 517,593   |   |  |           | 31,346    |  
|Global Testing Corporation.:                           |                          | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Common stock             |               |  |        |  | 2,632,812       |  |                  |  |       |  |            |  |              |   |            |         | 838,760 |  |            |           | 2,075,011      |   |  |        |        |  |  |   |     |   |  |         | 838,760 |  |  |           | 2,075,011 |   |  |           | 1,236,251 |  
|Grand Plastic Technologies Co., Ltd.:                  |                          | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Common stock             |               |  |        |  | 166,667         |  |                  |  |       |  |            |  |              |   |            |         | 58,140  |  |            |           | 92,119         |   |  |        |        |  |  |   |     |   |  |         | 58,140  |  |  |           | 92,119    |   |  |           | 33,979    |  
|Lara Networks, Inc. (formerly Lara Technology,
	Inc.): |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Preferred A              |               |  |        |  | 408,799         |  |                  |  |       |  |            |  |              |   |            |         | 204,400 |  |            |           | 2,657,193      |   |  |        |        |  |  |   |     |   |  |         | 204,400 |  |  |           | 2,657,193 |   |  |           | 2,452,793 |  
|                                                       | Warrants  common stocks |               |  |        |  | 26,443          |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |        |  |  |           |          |   |  |           |          |  
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            | 204,400 |         |  |            | 2,657,193 |                |   |  |        |        |  |  |   |     |   |  | 204,400 |         |  |  | 2,657,193 |           |   |  | 2,452,793 |          
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|Sage, Inc.:                                            |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Common                   |               |  |        |  | 22,000          |  |                  |  |       |  |            |  |              |   |            |         | 79,406  |  |            |           | 272,498        |   |  |        |        |  |  |   |     |   |  |         | 79,406  |  |  |           | 272,498   |   |  |           | 193,092   |  
|Sonics, Inc.:                                          |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       | Series A                 |               |  |        |  | 333,334         |  |                  |  |       |  |            |  |              |   |            |         | 333,334 |  |            |           | 466,668        |   |  |        |        |  |  |   |     |   |  |         | 333,334 |  |  |           | 466,668   |   |  |           | 133,334   |  
|                                                       | Series B                 |               |  |        |  | 146,334         |  |                  |  |       |  |            |  |              |   |            |         | 219,501 |  |            |           | 219,501        |   |  |        |        |  |  |   |     |   |  |         | 219,501 |  |  |           | 219,501   |   |  |           |          |  
|                                                       | Warrants  series A      |               |  |        |  | 150,000         |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |        |  |  |           |          |   |  |           |          |  
|                                                       | Warrants  series B      |               |  |        |  | 3,750           |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |        |  |  |           |          |   |  |           |          |  
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            | 552,835 |         |  |            | 686,169   |                |   |  |        |        |  |  |   |     |   |  | 552,835 |         |  |  | 686,169   |           |   |  | 133,334   |          
|                                                       |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |   |            |         |         |  |            |           |                |   |  |        |        |  |  |   |     |   |  |         |         |  |  |           |           |   |  |           |          

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

9



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2000





|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |          |  
|------------------------------------------------- | ------------------------ | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ------- |  | ---------- |  | ------------ | - | ---------- | ------- | ------- |  | ---------- | ------- | -------------- | - |  | - | - |  |  | - | - |  |  | ------- | ------- |  |  | ------- | ------- | - |  | - | -------- | -
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |           
|                                                  |                          |               |  |        |  |                 |  | Privately Held   |  |         |  |            |  |              |   |            |         |        
|                                                  |                          |               |  |        |  | Publicly Traded |  | Preferred/Common |  |         |  |            |  |             
|                                                  |                          |               |  |        |  | Common Stock    |  | Stock            |  | Other   |  | Total      |  | Unrealized  
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  | Appreciation
|                                                  |                          | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost    |  | Fair Value |  | Cost         |   | Fair Value |         | Cost    |  | Fair Value |         | (Depreciation)
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |               
|Ucomm Universal Communication Technologies, Inc.: |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Common stock             |               |  |        |  | 400,000         |  |                  |  |         |  |            |  |              |   |            |         | 124,043 |  |            |         | 169,692        |   |  |   |   |  |  |   |   |  |  |         | 124,043 |  |  |         | 169,692 |   |  |   | 45,649   |  
|Electronics and Computer Hardware                 |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | % of net assets          |               |  |        |  |                 |  |                  |  |         |  |            |  | 0.8          | % |            |         |         |  |            |         | 1.2            | % |  |   |   |  |  |   |   |  |  |         |         |  |  |         | 2.0     | % |  |   |          |  
|Rainbow Display, Inc.:                            |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Common stock             |               |  |        |  | 50,001          |  |                  |  |         |  |            |  |              |   |            |         | 38,334  |  |            |         | 38,334         |   |  |   |   |  |  |   |   |  |  |         | 38,334  |  |  |         | 38,334  |   |  |   |         |  
|                                                  | Series B                 |               |  |        |  | 166,667         |  |                  |  |         |  |            |  |              |   |            |         | 333,334 |  |            |         | 333,334        |   |  |   |   |  |  |   |   |  |  |         | 333,334 |  |  |         | 333,334 |   |  |   |         |  
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 371,668 |         |  |            | 371,668 |                |   |  |   |   |  |  |   |   |  |  | 371,668 |         |  |  | 371,668 |         |   |  |  |         
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|AOpen, Inc.:                                      |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Common stock             |               |  |        |  | 404,301         |  |                  |  | 500,925 |  |            |  | 435,591      |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         | 500,925 |  |  |         | 435,591 |   |  |   | (65,334  | )
|Ritek Corporation:                                |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Common stock             |               |  |        |  | 133,065         |  |                  |  | 465,116 |  |            |  | 181,753      |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         | 465,116 |  |  |         | 181,753 |   |  |   | (283,363 | )
|Waffer Industrial Corporation:                    |                          | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Common stock             |               |  |        |  | 297,598         |  |                  |  |         |  |            |  |              |   |            |         | 505,964 |  |            |         | 561,109        |   |  |   |   |  |  |   |   |  |  |         | 505,964 |  |  |         | 561,109 |   |  |   | 55,145   |  
|Fabless IC Design House                           |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | % of net assets          |               |  |        |  |                 |  |                  |  |         |  |            |  | 5.4          | % |            |         |         |  |            |         | 3.5            | % |  |   |   |  |  |   |   |  |  |         |         |  |  |         | 8.9     | % |  |   |          |  
|Capella Microsystems, Inc.:                       |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Preferred B-3            |               |  |        |  | 125,000         |  |                  |  |         |  |            |  |              |   |            |         | 125,000 |  |            |         | 125,000        |   |  |   |   |  |  |   |   |  |  |         | 125,000 |  |  |         | 125,000 |   |  |   |         |  
|                                                  | Warrants  common stocks |               |  |        |  | 62,500          |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |  |  |  |   |  |  |  |         |        |  |  |         |        |   |  |   |         |  
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 125,000 |         |  |            | 125,000 |                |   |  |  |   |  |  |  |   |  |  | 125,000 |         |  |  | 125,000 |         |   |  |  |         
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|HiNT Corporation:                                 |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Series A                 |               |  |        |  | 125,000         |  |                  |  |         |  |            |  |              |   |            |         | 125,000 |  |            |         | 125,000        |   |  |   |   |  |  |   |   |  |  |         | 125,000 |  |  |         | 125,000 |   |  |   |         |  
|                                                  | Warrants  common stocks |               |  |        |  | 1,875           |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |  |  |  |   |  |  |  |         |        |  |  |         |        |   |  |   |         |  
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 125,000 |         |  |            | 125,000 |                |   |  |  |   |  |  |  |   |  |  | 125,000 |         |  |  | 125,000 |         |   |  |  |         
|                                                  |                          |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|LightSpeed Semiconductor Corporation:             |                          | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |         |                |   |  |   |   |  |  |   |   |  |  |         |         |  |  |         |         |   |  |   |         
|                                                  | Series D                 |               |  |        |  | 39,452          |  |                  |  |         |  |            |  |              |   |            |         | 110,071 |  |            |         | 110,071        |   |  |   |   |  |  |   |   |  |  |         | 110,071 |  |  |         | 110,071 |   |  |   |         |  

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

10



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2000





|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |           |  
|------------------------------------------- | --------------- | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ------- |  | ---------- |  | ------------ | - | ---------- | ------- | ------- |  | ---------- | --------- | -------------- | - |  |  |  |  |  |  | --- | - |  | ------- | ------- |  |  | --------- | --------- | - |  | --------- | --------- | -
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |           
|                                            |                 |               |  |        |  |                 |  | Privately Held   |  |         |  |            |  |              |   |            |         |        
|                                            |                 |               |  |        |  | Publicly Traded |  | Preferred/Common |  |         |  |            |  |             
|                                            |                 |               |  |        |  | Common Stock    |  | Stock            |  | Other   |  | Total      |  | Unrealized  
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  | Appreciation
|                                            |                 | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost    |  | Fair Value |  | Cost         |   | Fair Value |         | Cost    |  | Fair Value |           | (Depreciation)
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |               
|Marvell Technology Group Ltd.:              |                 | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Common          |               |  |        |  | 184,616         |  |                  |  | 199,998 |  |            |  | 3,323,088    |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         | 199,998 |  |  |           | 3,323,088 |   |  |           | 3,123,090 |  
|PicoTurbo, Inc.:                            |                 | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Series A        |               |  |        |  | 16,667          |  |                  |  |         |  |            |  |              |   |            |         |        |  |            |           |               |   |  |  |  |  |  |  |     |   |  |         |        |  |  |           |          |   |  |           |          |  
|                                            | Series B        |               |  |        |  | 333,333         |  |                  |  |         |  |            |  |              |   |            |         | 416,666 |  |            |           | 416,666        |   |  |  |  |  |  |  |     |   |  |         | 416,666 |  |  |           | 416,666   |   |  |           |          |  
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 416,666 |         |  |            | 416,666   |                |   |  |  |  |  |  |  |     |   |  | 416,666 |         |  |  | 416,666   |           |   |  |          |          
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|Richtek Technology, Inc.:                   |                 | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Common stock    |               |  |        |  | 263,333         |  |                  |  |         |  |            |  |              |   |            |         | 104,411 |  |            |           | 100,439        |   |  |  |  |  |  |  |     |   |  |         | 104,411 |  |  |           | 100,439   |   |  |           | (3,972    | )
|Silicon Image, Inc.:                        |                 | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Common stock    |               |  |        |  | 123,608         |  |                  |  | 216,314 |  |            |  | 645,234      |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         | 216,314 |  |  |           | 645,234   |   |  |           | 428,920   |  
|Silicon Laboratories:                       |                 | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Common stock    |               |  |        |  | 5,086           |  |                  |  | 156,075 |  |            |  | 59,392       |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         | 156,075 |  |  |           | 59,392    |   |  |           | (96,683   | )
|Tropian Inc. (formerly Premier R.F., Inc.): |                 | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Series A        |               |  |        |  | 384,615         |  |                  |  |         |  |            |  |              |   |            |         | 166,667 |  |            |           | 1,571,793      |   |  |  |  |  |  |  |     |   |  |         | 166,667 |  |  |           | 1,571,793 |   |  |           | 1,405,126 |  
|                                            | Series C        |               |  |        |  | 33,351          |  |                  |  |         |  |            |  |              |   |            |         | 166,755 |  |            |           | 166,755        |   |  |  |  |  |  |  |     |   |  |         | 166,755 |  |  |           | 166,755   |   |  |           |          |  
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            | 333,422 |         |  |            | 1,738,548 |                |   |  |  |  |  |  |  |     |   |  | 333,422 |         |  |  | 1,738,548 |           |   |  | 1,405,126 |          
|                                            |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|Software and Information                    |                 |               |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | % of net assets |               |  |        |  |                 |  |                  |  |         |  |            |  | 0.0          | % |            |         |         |  |            |           | 5.8            | % |  |  |  |  |  |  | 0.4 | % |  |         |         |  |  |           | 6.2       | % |  |           |           |  
|Box Vision.com:                             |                 | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Common          |               |  |        |  | 187,500         |  |                  |  |         |  |            |  |              |   |            |         | 61,215  |  |            |           | 57,519         |   |  |  |  |  |  |  |     |   |  |         | 61,215  |  |  |           | 57,519    |   |  |           | (3,696    | )
|Chain Sea Information Integration Co. Ltd:  |                 | Taiwan        |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Common stock    |               |  |        |  | 100,000         |  |                  |  |         |  |            |  |              |   |            |         | 123,457 |  |            |           | 116,451        |   |  |  |  |  |  |  |     |   |  |         | 123,457 |  |  |           | 116,451   |   |  |           | (7,006    | )
|Creosys, Inc.:                              |                 | United States |  |        |  |                 |  |                  |  |         |  |            |  |              |   |            |         |         |  |            |           |                |   |  |  |  |  |  |  |     |   |  |         |         |  |  |           |           |   |  |           |          
|                                            | Series B        |               |  |        |  | 187,500         |  |                  |  |         |  |            |  |              |   |            |         | 187,500 |  |            |           | 187,500        |   |  |  |  |  |  |  |     |   |  |         | 187,500 |  |  |           | 187,500   |   |  |           |          |  

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

11



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2000





|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |          |  
|------------------------------------------- | ------------------------ | ------------- |  | ------ |  | --------------- |  | ---------------- |  | ----- |  | ---------- |  | ------------ |  | ---------- | --------- | ------- |  | ---------- | ------- | -------------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | --------- | ------- |  |  | ------- | ------- |  |  | ---------- | -------- | -
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |           
|                                            |                          |               |  |        |  |                 |  | Privately Held   |  |       |  |            |  |              |  |            |           |        
|                                            |                          |               |  |        |  | Publicly Traded |  | Preferred/Common |  |       |  |            |  |             
|                                            |                          |               |  |        |  | Common Stock    |  | Stock            |  | Other |  | Total      |  | Unrealized  
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  | Appreciation
|                                            |                          | Location      |  | Shares |  | Cost            |  | Fair Value       |  | Cost  |  | Fair Value |  | Cost         |  | Fair Value |           | Cost    |  | Fair Value |         | (Depreciation)
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |               
|Dome Digital Holding Corporation:           |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series A                 |               |  |        |  | 500,000         |  |                  |  |       |  |            |  |              |  |            |           | 250,000 |  |            |         | 250,000        |  |  |         |         |  |  |         |         |  |  |           | 250,000 |  |  |         | 250,000 |  |  |            |         |  
|EnReach Technology, Inc.:                   |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series C                 |               |  |        |  | 25,000          |  |                  |  |       |  |            |  |              |  |            |           | 125,000 |  |            |         | 125,000        |  |  |         |         |  |  |         |         |  |  |           | 125,000 |  |  |         | 125,000 |  |  |            |         |  
|                                            | Warrants  series C      |               |  |        |  | 2,500           |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |        |  |  |         |        |  |  |           |        |  |  |         |        |  |  |            |         |  
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            | 125,000   |         |  |            | 125,000 |                |  |  |        |         |  |  |        |         |  |  | 125,000   |         |  |  | 125,000 |         |  |  |           |         
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|GeoVision, Inc.:                            |                          | Taiwan        |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Common stock             |               |  |        |  | 221,667         |  |                  |  |       |  |            |  |              |  |            |           | 84,267  |  |            |         | 70,380         |  |  |         |         |  |  |         |         |  |  |           | 84,267  |  |  |         | 70,380  |  |  |            | (13,887  | )
|Homeworkhelp.com:                           |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series B                 |               |  |        |  | 666,667         |  |                  |  |       |  |            |  |              |  |            |           | 333,333 |  |            |         | 333,333        |  |  |         |         |  |  |         |         |  |  |           | 333,333 |  |  |         | 333,333 |  |  |            |         |  
|                                            | Series C                 |               |  |        |  | 458,888         |  |                  |  |       |  |            |  |              |  |            |           | 229,444 |  |            |         | 229,444        |  |  |         |         |  |  |         |         |  |  |           | 229,444 |  |  |         | 229,444 |  |  |            |         |  
|                                            | Common                   |               |  |        |  | 100,000         |  |                  |  |       |  |            |  |              |  |            |           | 5,000   |  |            |         | 5,000          |  |  |         |         |  |  |         |         |  |  |           | 5,000   |  |  |         | 5,000   |  |  |            |         |  
|                                            | Warrants  common stocks |               |  |        |  | 68,833          |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |        |  |  |         |        |  |  |           |        |  |  |         |        |  |  |            |         |  
|                                            | Promissory notes         |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         | 187,500 |  |  |         | 187,500 |  |  |           | 187,500 |  |  |         | 187,500 |  |  |            |         |  
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            | 567,777   |         |  |            | 567,777 |                |  |  | 187,500 |         |  |  | 187,500 |         |  |  | 755,277   |         |  |  | 755,277 |         |  |  |           |         
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|Incentia Design Systems, Inc.:              |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series B                 |               |  |        |  | 35,715          |  |                  |  |       |  |            |  |              |  |            |           | 62,501  |  |            |         | 62,501         |  |  |         |         |  |  |         |         |  |  |           | 62,501  |  |  |         | 62,501  |  |  |            |         |  
|Kinzan.com.:                                |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series A                 |               |  |        |  | 277,778         |  |                  |  |       |  |            |  |              |  |            |           | 250,000 |  |            |         | 494,445        |  |  |         |         |  |  |         |         |  |  |           | 250,000 |  |  |         | 494,445 |  |  |            | 244,445  |  
|Portal Wave, Inc.:                          |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series C                 |               |  |        |  | 375,000         |  |                  |  |       |  |            |  |              |  |            |           | 375,000 |  |            |         | 375,000        |  |  |         |         |  |  |         |         |  |  |           | 375,000 |  |  |         | 375,000 |  |  |            |         |  
|Pocket.com (formerly Pocket Science, Inc.): |                          | United States |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            | Series C                 |               |  |        |  | 244,200         |  |                  |  |       |  |            |  |              |  |            |           | 666,666 |  |            |         |               |  |  |         |         |  |  |         |         |  |  |           | 666,666 |  |  |         |        |  |  |            | (666,666 | )
|                                            | Series C-1               |               |  |        |  | 61,051          |  |                  |  |       |  |            |  |              |  |            |           | 166,669 |  |            |         |               |  |  |         |         |  |  |         |         |  |  |           | 166,669 |  |  |         |        |  |  |            | (166,669 | )
|                                            | Series D                 |               |  |        |  | 104,192         |  |                  |  |       |  |            |  |              |  |            |           | 284,444 |  |            |         |               |  |  |         |         |  |  |         |         |  |  |           | 284,444 |  |  |         |        |  |  |            | (284,444 | )
|                                            | Warrants  common stocks |               |  |        |  | 41,666          |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |        |  |  |         |        |  |  |           |        |  |  |         |        |  |  |            |         |  
|                                            | Promissory notes         |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         | 31,250  |  |  |         |        |  |  |           | 31,250  |  |  |         |        |  |  |            | (31,250  | )
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            | 1,117,779 |         |  |            |        |                |  |  | 31,250  |         |  |  |        |         |  |  | 1,149,029 |         |  |  |        |         |  |  | (1,149,029 | )       
|                                            |                          |               |  |        |  |                 |  |                  |  |       |  |            |  |              |  |            |           |         |  |            |         |                |  |  |         |         |  |  |         |         |  |  |           |         |  |  |         |         |  |  |            |         

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

12



---



##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Schedule of Portfolio Investments (Continued)


December 31, 2000





|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |          |            | 
|------------------------------------- | ------------------------ | --------------------------- |  | ------ |  | --------------- |  | ---------------- |  | ----- | --------- | ---------- |  | ------------ | ---------- | ---------- | ------- | ------- | ---------- | ---------- | --------- | -------------- | ---------- | - | ------ | ------ | ------- |  | ------ | ------ | ------- | - | ------- | ------- | ---------- |  | --------- | --------- | ---------- | - | -------- | -------- | ---------- | 
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |           
|                                      |                          |                             |  |        |  |                 |  | Privately Held   |  |       |           |            |  |              |            |            |         |        
|                                      |                          |                             |  |        |  | Publicly Traded |  | Preferred/Common |  |       |           |            |  |             
|                                      |                          |                             |  |        |  | Common Stock    |  | Stock            |  | Other |           | Total      |  | Unrealized  
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  | Appreciation
|                                      |                          | Location                    |  | Shares |  | Cost            |  | Fair Value       |  | Cost  |           | Fair Value |  | Cost         |            | Fair Value |         | Cost    |            | Fair Value |           | (Depreciation)
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |               
|Share Media, Inc.:                    |                          | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      | Series B                 |                             |  |        |  | 782,242         |  |                  |  |       |           |            |  |              |            |            |         | 666,666 |            |            |           | 1,382,918      |            |   |        |        |         |  |        |        |         |   |         | 666,666 |            |  |           | 1,382,918 |            |   |          | 716,252  |           
|                                      | Series C                 |                             |  |        |  | 50,080          |  |                  |  |       |           |            |  |              |            |            |         | 100,000 |            |            |           | 100,000        |            |   |        |        |         |  |        |        |         |   |         | 100,000 |            |  |           | 100,000   |            |   |          |          |           
|                                      | Warrants  series B      |                             |  |        |  | 195,560         |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |       |         |  |        |       |         |   |         |        |            |  |           |          |            |   |          |         |           
|                                      | Warrants  common stocks |                             |  |        |  | 5,008           |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |       |         |  |        |       |         |   |         |        |            |  |           |          |            |   |          |         |           
|                                      | Promissory notes         |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        | 92,011 |         |  |        | 92,011 |         |   |         | 92,011  |            |  |           | 92,011    |            |   |          |         |           
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            | 766,666 |         |            |            | 1,482,918 |                |            |   | 92,011 |        |         |  | 92,011 |        |         |   | 858,677 |         |            |  | 1,574,929 |           |            |   | 716,252  |         
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|Ultima Interconnect Technology, Inc.: |                          | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      | Series D                 |                             |  |        |  | 217,391         |  |                  |  |       |           |            |  |              |            |            |         | 499,999 |            |            |           | 499,999        |            |   |        |        |         |  |        |        |         |   |         | 499,999 |            |  |           | 499,999   |            |   |          |         |           
|UniCONN Technologies, Inc.:           |                          | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      | Series C                 |                             |  |        |  | 52,125          |  |                  |  |       |           |            |  |              |            |            |         | 65,156  |            |            |           | 65,156         |            |   |        |        |         |  |        |        |         |   |         | 65,156  |            |  |           | 65,156    |            |   |          |         |           
|                                      | Common                   |                             |  |        |  | 5,000           |  |                  |  |       |           |            |  |              |            |            |         | 50      |            |            |           | 50             |            |   |        |        |         |  |        |        |         |   |         | 50      |            |  |           | 50        |            |   |          |         |           
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            | 65,206  |         |            |            | 65,206    |                |            |   |        |        |         |  |        |        |         |   | 65,206  |         |            |  | 65,206    |           |            |   |         |         
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|Uniteq Application Systems, Inc.:     |                          | United States               |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      | Series C                 |                             |  |        |  | 333,333         |  |                  |  |       |           |            |  |              |            |            |         | 333,333 |            |            |           |               |            |   |        |        |         |  |        |        |         |   |         | 333,333 |            |  |           |          |            |   |          | (333,333 | )         
|                                      | Common                   |                             |  |        |  | 666,666         |  |                  |  |       |           |            |  |              |            |            |         | 166,667 |            |            |           |               |            |   |        |        |         |  |        |        |         |   |         | 166,667 |            |  |           |          |            |   |          | (166,667 | )         
|                                      | Warrants  common stocks |                             |  |        |  | 333,333         |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |       |         |  |        |       |         |   |         |        |            |  |           |          |            |   |          |         |           
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            | 500,000 |         |            |            |          |                |            |   |       |        |         |  |       |        |         |   | 500,000 |         |            |  |          |           |            |   | (500,000 | )       
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      |                          | Total portfolio investments |  |        |  |                 |  |                  |  | $     | 3,618,432 |            |  | $            | 42,381,940 |            |         | $       | 13,945,980 |            |           | $              | 25,827,157 |   |        | $      | 338,541 |  |        | $      | 279,511 |   |         | $       | 17,902,953 |  |           | $         | 68,488,608 |   |          | $        | 50,585,655 | 
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         
|                                      |                          | % of net assets             |  |        |  |                 |  |                  |  |       |           |            |  |              | 56.4       | %          |         |         |            |            |           |                | 34.3       | % |        |        |         |  |        |        | 0.4     | % |         |         |            |  |           |           | 91.1       | % |          |          |            | 
|                                      |                          |                             |  |        |  |                 |  |                  |  |       |           |            |  |              |            |            |         |         |            |            |           |                |            |   |        |        |         |  |        |        |         |   |         |         |            |  |           |           |            |   |          |         

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

13



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##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Statements of Operations





|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |            |         |            |            | 
|--------------------------------------- | --------------------------------- | ------------------------ | ----------------------------------------------------- | ---------------------------------------------------------------- | ------- | ----------- | ----------- | ---------- | ------- | ---------- | ---------- | ---------- | ------- | ---------- | ---------- | 
|                                        |                                   |                         
|                                        |                                   | Years Ended December 31,
|                                        |                                   |                         
|                                        |                                   | 2001                     |                                                       | 2000                                                             |         | 1999       
|                                        |                                   |                          |                                                       |                                                                  |         |            
|Interest income from idle funds         |                                   | $                        | 144,988                                               |                                                                  |         | $           | 95,464      |            |         | $          | 55,246     |           
|Interest income from notes receivable   |                                   |                          | 7,391                                                 |                                                                  |         |             | 8,073       |            |         |            |           |           
|Other income earned from investments    |                                   |                          | 66,538                                                |                                                                  |         |             | 30,721      |            |         |            |           |           
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        |                                   |                          | 218,917                                               |                                                                  |         |             | 134,258     |            |         |            | 55,246     |           
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|Expenses:                               |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        | Management fee                    |                          |                                                       | 464,268                                                          |         |             |             | 464,268    |         |            |            | 464,268    |        
|                                        | Legal and accounting              |                          |                                                       | 56,374                                                           |         |             |             | 24,048     |         |            |            | 24,307     |        
|                                        | Other                             |                          |                                                       | 9,026                                                            |         |             |             | 1,891      |         |            |            | 1,285      |        
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        |                                   | Total expenses           |                                                       |                                                                  | 529,668 |             |             |            | 490,207 |            |            |            | 489,860 |           
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        |                                   |                          | Net operating loss                                    |                                                                  |         | (310,751    | )           |            |         | (355,949   | )          |            |         | (434,614   | )         
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|Net realized loss on investments:       |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        | Proceeds from sale of investments |                          |                                                       | 3,897,982                                                        |         |             |             | 10,892,165 |         |            |            | 437,067    |        
|                                        | Cost of investments written-off   |                          |                                                       | (3,946,511                                                       | )       |             |             |           |         |            |            | (1,602,331 | )      
|                                        | Cost of investments sold          |                          |                                                       | (778,386                                                         | )       |             |             | (2,230,323 | )       |            |            | (416,667   | )      
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        |                                   |                          | Net realized gain (loss) on investments               |                                                                  |         | (826,915    | )           |            |         | 8,661,842  |            |            |         | (1,581,931 | )         
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|Unrealized appreciation on investments: |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        | Beginning of the year             |                          |                                                       | 50,585,655                                                       |         |             |             | 14,927,345 |         |            |            | 79,180     |        
|                                        | End of the year                   |                          |                                                       | 25,194,387                                                       |         |             |             | 50,585,655 |         |            |            | 14,927,345 |        
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        |                                   |                          | Net change in unrealized appreciation on
	investments |                                                                  |         | (25,391,268 | )           |            |         | 35,658,310 |            |            |         | 14,848,165 |           
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           
|                                        |                                   |                          |                                                       | Net increase (decrease) in net assets
	resulting from operations |         | $           | (26,528,934 | )          |         | $          | 43,964,203 |            |         | $          | 12,831,620 | 
|                                        |                                   |                          |                                                       |                                                                  |         |             |             |            |         |            |            |           

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

14



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##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Statements of Changes in Partners Capital


For the Years Ended December 31, 2001 and 2000





|                                                      |  |         |            |          |  |       |             |   |  |   |             |  
|----------------------------------------------------- |  | ------- | ---------- | -------- |  | ----- | ----------- | - |  | - | ----------- | -
|                                                      |  | General |            | Limited  |  |      
|                                                      |  | Partner |            | Partners |  | Total
|                                                      |  |         |            |          |  |      
|Balances, January 1, 1999                             |  | $       | 110,520    |          |  | $     | 18,258,219  |   |  | $ | 18,368,739  |  
|Net operating loss                                    |  |         | (101,338   | )        |  |       | (333,276    | ) |  |   | (434,614    | )
|Net realized loss on investments                      |  |         | (329,042   | )        |  |       | (1,252,889  | ) |  |   | (1,581,931  | )
|Net change in unrealized appreciation on
	investments |  |         | 3,088,418  |          |  |       | 11,759,747  |   |  |   | 14,848,165  |  
|                                                      |  |         |            |          |  |       |             |   |  |   |             |  
|Balances, December 31, 1999                           |  |         | 2,768,558  |          |  |       | 28,431,801  |   |  |   | 31,200,359  |  
|Net operating loss                                    |  |         | (100,621   | )        |  |       | (255,328    | ) |  |   | (355,949    | )
|Net realized gain on investments                      |  |         | 1,801,663  |          |  |       | 6,860,179   |   |  |   | 8,661,842   |  
|Net change in unrealized appreciation on
	investments |  |         | 7,416,928  |          |  |       | 28,241,382  |   |  |   | 35,658,310  |  
|                                                      |  |         |            |          |  |       |             |   |  |   |             |  
|Balances, December 31, 2000                           |  |         | 11,886,528 |          |  |       | 63,278,034  |   |  |   | 75,164,562  |  
|Distributions                                         |  |         | (646,297   | )        |  |       | (7,354,000  | ) |  |   | (8,000,297  | )
|Net operating loss                                    |  |         | (94,807    | )        |  |       | (215,944    | ) |  |   | (310,751    | )
|Net realized loss on investments                      |  |         | (171,998   | )        |  |       | (654,917    | ) |  |   | (826,915    | )
|Net change in unrealized appreciation on
	investments |  |         | (5,281,384 | )        |  |       | (20,109,884 | ) |  |   | (25,391,268 | )
|                                                      |  |         |            |          |  |       |             |   |  |   |             |  
|Balances, December 31, 2001                           |  | $       | 5,692,042  |          |  | $     | 34,943,289  |   |  | $ | 40,635,331  |  
|                                                      |  |         |            |          |  |       |             |   |  |   |             |  

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

15



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##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Statements of Cash Flows





|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |            |             |        |            |  
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------- | ---------- | ------- | ---------- | ---------- | ----------- | ------- | ---------- | ---------- | ----------- | ------ | ---------- | -
|                                                      |                                                                                                                                      |                                                      
|                                                      |                                                                                                                                      | Years Ended December 31,                             
|                                                      |                                                                                                                                      |                                                      
|                                                      |                                                                                                                                      | 2001                                                  |                                                                  | 2000                                                 |            | 1999   
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |        
|Cash flows from operating
	activities:                |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      | Net increase (decrease) in net assets
	resulting from operations                                                                     |                                                       | $                                                                | (26,528,934                                          | )          |         | $          | 43,964,203 |             |         | $          | 12,831,620 |            
|                                                      | Adjustments to reconcile net increase
	(decrease) in net assets resulting from operations to net
	cash used in operating activities: |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |            |            
|                                                      |                                                                                                                                      | Net change in unrealized appreciation on
	investments |                                                                  |                                                      | 25,391,268 |         |            |            | (35,658,310 | )       |            |            | (14,848,165 | )     
|                                                      |                                                                                                                                      | Net realized loss (gain) on investments               |                                                                  |                                                      | 826,915    |         |            |            | (8,661,842  | )       |            |            | 1,581,931   |       
|                                                      |                                                                                                                                      | Change in assets and liabilities:                     |                                                                  |                                                      |            |         |            |            |             |         |            |            |             |       
|                                                      |                                                                                                                                      |                                                       | Increase in other assets                                         |                                                      |            | (35,709 | )          |            |             | (17,501 | )          |            |             | (187   | )         
|                                                      |                                                                                                                                      |                                                       | Increase (decrease) in accounts payable and
	accrued liabilities |                                                      |            | 42,374  |            |            |             | 783     |            |            |             | (4,675 | )         
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      |                                                                                                                                      |                                                       |                                                                  | Net cash used in operating activities                |            |         | (304,086   | )          |             |         | (372,667   | )          |             |        | (439,476   | )
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|Cash flows from investing
	activities:                |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      | Purchase of investments and issuance of notes
	receivable                                                                            |                                                       |                                                                  | (1,770,077                                           | )          |         |            | (4,082,696 | )           |         |            | (3,359,341 | )          
|                                                      | Proceeds from sale of investments                                                                                                    |                                                       |                                                                  | 3,897,982                                            |            |         |            | 10,892,165 |             |         |            | 437,067    |            
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      |                                                                                                                                      |                                                       |                                                                  | Net cash provided by (used in) investing
	activities |            |         | 2,127,905  |            |             |         | 6,809,469  |            |             |        | (2,922,274 | )
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|Cash flows from financing
	activities:                |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      | Distributions to partners                                                                                                            |                                                       |                                                                  | (8,000,297                                           | )          |         |            |           |             |         |            |           |            
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      |                                                                                                                                      |                                                       |                                                                  | Net cash used in financing activities                |            |         | (8,000,297 | )          |             |         |           |            |             |        |           |  
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|Net increase (decrease) in cash and cash
	equivalents |                                                                                                                                      |                                                       | (6,176,478                                                       | )                                                    |            |         | 6,436,802  |            |             |         | (3,361,750 | )         
|Cash and cash equivalents, beginning of year          |                                                                                                                                      |                                                       | 6,674,266                                                        |                                                      |            |         | 237,464    |            |             |         | 3,599,214  |           
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|Cash and cash equivalents, end of year                |                                                                                                                                      | $                                                     | 497,788                                                          |                                                      |            | $       | 6,674,266  |            |             | $       | 237,464    |           
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|Supplemental disclosure:                              |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           
|                                                      | Promissory note converted into privately held
	stock                                                                                 |                                                       | $                                                                | 179,411                                              |            |         | $          | 303,406    |             |         | $          |           |            
|                                                      |                                                                                                                                      |                                                       |                                                                  |                                                      |            |         |            |            |             |         |            |           

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

16



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##### Table of Contents



Forefront Venture Partners L.P.

(a Delaware limited partnership)


Notes to Financial Statements





1.     Organization



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Forefront Venture Partners L.P., a Delaware
	limited partnership (the Partnership), was formed on
	February 25, 1998 among Forefront Associates L.L.C. as the
	General Partner and a number of limited partners for the purpose
	of making venture capital investments in technology companies
	through the acquisition, holding and distribution or other
	disposition of portfolio securities. The Partnership will
	continue until December 31, 2008, unless terminated sooner
	or extended in accordance with the Partnership agreement.

2.     Summary of
Significant Accounting Policies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Management estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The preparation of financial statements in
	conformity with accounting principles generally accepted in the
	United States of America requires the General Partner 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 income, unrealized gains, and expenses
	during the reporting period. Actual results could differ from
	those estimates.
|
| | Valuation of investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Investments are recorded at fair value which is
	determined by the General Partner as follows:                                                                                                                                                                                                                                                                                                                                                                                                                     



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | If there is no active public market, fair value
	is determined by the General Partner, taking into account the
	financial condition, operating results, or the value of
	additional equity offerings of the issuers, and other factors
	pertinent to the valuation of the investments. Because of the
	inherent uncertainty of valuations, those estimated valuations
	may differ significantly from the values that would have been
	had a ready market for the securities existed, and the
	difference could be material. The Partnership may also have risk
	associated with its concentration of investments in certain
	geographical regions and in certain industries.
|  
|b. | If actively traded on one or more national
	securities exchanges, the fair value is determined at 90% of the
	average closing price on December 31, 2001 and the
	preceding four days, unless there are legal or economic
	restriction in trading, in which case the price may be
	discounted appropriately.                                                                                                                                                                                                                                                                                                                                                                
|  
|c. | Notes receivables are valued at principal plus
	accrued interest, except that discounts will be taken when the
	company is considered to be experiencing operating difficulties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gains or losses on investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Realized gains or losses on investment securities
	represent the difference between the original cost of the
	securities on an identified cost basis and the related market
	price on the sale or distribution date. They include the
	original cost of investment securities written-off, if any. When
	investment securities are sold or distributed to the partners,
	gains or losses are classified as realized. The difference
	between the original cost and the estimated fair value of
	investment securities owned at the end of the year represents
	unrealized gains or losses.
|
| | The Partnership does not isolate that portion of
	the results of operations resulting from changes in foreign
	exchange rates on investments from the fluctuation arising from
	changes in market prices of securities held. Such fluctuations
	are included with the net realized and unrealized gain or loss
	from investments.                                                                                                                                                                                                                                                         
|
| | Net unrealized gains or losses on investments are
	included in partners capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

17



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##### Table of Contents



Forefront Venture Partners L.P.


(a Delaware limited partnership)


Notes to Financial Statements (Continued)







| |                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash equivalents                                                                                                                                                                                                                                                                                                           
| | The Partnership considers all highly liquid
	investments purchased with original maturities of three months
	or less to be cash equivalents. These instruments are stated at
	cost, which approximates fair value. The Partnerships cash
	and cash equivalents are held at financial institutions in the
	United States and Taiwan.
|
| | Income taxes                                                                                                                                                                                                                                                                                                                        
| | Income taxes on Partnership income are the
	responsibility of the individual partners; accordingly, no
	provision for income taxes is included in the accompanying
	financial statements.                                                                                                                                           
|
| | Organization and syndication costs                                                                                                                                                                                                                                                                                                  
| | Organization costs are costs incurred in the
	formation of the Partnership. These costs are charged to expense
	when incurred. Syndication costs consist of costs incurred in
	connection with the syndication of limited partnership
	interests. These costs are reflected as a reduction of
	partners capital.                   
|
| | Reclassifications                                                                                                                                                                                                                                                                                                                   
| | Certain amounts in prior year financial
	statements have been reclassified to conform with the current
	year presentation.                                                                                                                                                                                                          

3.     Allocation of
Profits and Losses



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | The Partnership agreement provides for the
	allocation of net profit or loss as follows:



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | The Partnerships idle funds income is
	allocated to all partners in proportion to their respective
	capital commitments if the cumulative capital contributions of
	the partners have not been fully returned; and to all partners
	in proportion to their respective capital account balances if
	the cumulative capital contributions have been fully returned.                                                                                                                                                                                                                                                                                    
|  
|b. | Except as provided in c. through e. below, all
	remaining unallocated profit and loss items are allocated 20% to
	the general partner and 80% to all partners in proportion to
	their respective capital commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|c. | To the extent that an item of loss allocable to a
	limited partner creates a negative balance in the limited
	partners capital account, the item shall not be allocated
	to such limited partner. It will instead be allocated first, to
	all the partners as a group, to the extent possible in
	proportion to their respective capital commitments, until the
	capital account balance of each limited partner has been reduced
	to (but not less than) zero; and thereafter to the general
	partner. The next available item of profit will be allocated
	among the partners to offset in reverse order such special
	allocation of excess losses.



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|d. | To the extent that an item of loss allocable to
	the general partner, as provided in b. above, causes the
	aggregate losses allocated to the general partner to exceed the
	aggregate profits allocated to the general partner, the item
	shall be allocated as follows: first, to the partners as a
	group, to the extent possible in proportion to their respective
	capital commitments, until the capital account balance of each
	limited partner has been reduced to (but not less than) zero;
	and thereafter, to the general partner. To the extent there have
	been special allocations of loss from the general partner which
	have not been offset, the next available item of profit
	allocable to the general partner shall first be allocated to the
	partners to whom such items of loss had been previously
	allocated so as to first offset in reverse order such special
	allocation of loss.

18



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##### Table of Contents



Forefront Venture Partners L.P.


(a Delaware limited partnership)


Notes to Financial Statements (Continued)







|   |                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|e. | Notwithstanding the above provisions, the general
	partner shall be allocated at least 1% of each item of
	Partnership income, expense, gain or loss.

4.     Distributions
of Partnership Assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Agreement provides for mandatory distribution
	of cash equal to 35% of the net taxable income and gain
	allocated to each partner as shown on the Partnerships
	Federal income tax return. However, no distribution is required
	if the total net taxable income and gain of the Partnership for
	such fiscal year is less than or equal to $250,000. The
	Agreement also provides for discretionary distributions. In
	2001, the partnership made $5,214,691 of mandatory cash
	distributions and $2,785,606 of discretionary cash distributions.

5.     Investments



| |                                               
| | ----------------------------------------------
| | Investments by geographical region as follows:

|                  |  |      |            |            |  |               |            |  |  |  |      |  
|----------------- |  | ---- | ---------- | ---------- |  | ------------- | ---------- |  |  |  | ---- | -
|                  |  |      |            |            |  | Percentage   
|                  |  | Cost |            | Fair Value |  | of Net Assets
|                  |  |      |            |            |  |              
|December 31, 2001 |  |      |            |            |  |               |            |  |  |  |      |  
|United States     |  | $    | 10,199,485 |            |  | $             | 33,388,549 |  |  |  | 82.2 | %
|Taiwan            |  |      | 4,748,648  |            |  |               | 6,753,971  |  |  |  | 16.6 | %
|                  |  |      |            |            |  |               |            |  |  |  |      |  
|                  |  | $    | 14,948,133 |            |  | $             | 40,142,520 |  |  |  | 98.8 | %
|                  |  |      |            |            |  |               |            |  |  |  |      |  

|                  |  |      |            |            |  |               |            |  |  |  |      |  
|----------------- |  | ---- | ---------- | ---------- |  | ------------- | ---------- |  |  |  | ---- | -
|                  |  |      |            |            |  | Percentage   
|                  |  | Cost |            | Fair Value |  | of Net Assets
|                  |  |      |            |            |  |              
|December 31, 2000 |  |      |            |            |  |               |            |  |  |  |      |  
|United States     |  | $    | 13,641,872 |            |  | $             | 63,204,825 |  |  |  | 84.1 | %
|Taiwan            |  |      | 4,261,081  |            |  |               | 5,283,783  |  |  |  | 7.0  | %
|                  |  |      |            |            |  |               |            |  |  |  |      |  
|                  |  | $    | 17,902,953 |            |  | $             | 68,488,608 |  |  |  | 91.1 | %
|                  |  |      |            |            |  |               |            |  |  |  |      |  

6.     Management
Fee



| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Agreement requires payment of a management
	fee to the general partner. The management fee, payable
	quarterly, in advance, is 0.625% of the aggregate capital
	commitments of the partners. Management fee paid in each of the
	three years in the period ended December 31, 2001 was
	$464,268.

19



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##### Table of Contents



Forefront Venture Partners L.P.


(a Delaware limited partnership)


Notes to Financial Statements (Continued)





7.     Financial
Highlights

|                                         |  |                          |        |      |  |      |        |    |  |  |        |   
|---------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | -- |  |  | ------ | --
|                                         |  |                         
|                                         |  | Years Ended December 31,
|                                         |  |                         
|                                         |  | 2001                     |        | 2000 |  | 1999
|                                         |  |                          |        |      |  |     
|Net operating loss                       |  |                          | 0.48   | %    |  |      | 0.57   | %  |  |  | 1.63   | % 
|                                         |  |                          |        |      |  |      |        |    |  |  |        |   
|Operating expenses                       |  |                          | 0.70   | %    |  |      | 0.89   | %  |  |  | 3.37   | % 
|Incentive allocation                     |  |                          | (11.74 | )%   |  |      | 18.85  | %  |  |  | 12.00  | % 
|                                         |  |                          |        |      |  |      |        |    |  |  |        |   
|Total expenses and incentive allocation  |  |                          | (11.04 | )%   |  |      | 19.74  | %  |  |  | 15.37  | % 
|                                         |  |                          |        |      |  |      |        |    |  |  |        |   
|Total return before incentive allocation |  |                          | (43.89 | )%   |  |      | 152.69 | %  |  |  | 69.58  | % 
|Less incentive allocation                |  |                          | 9.05   | %    |  |      | (30.47 | )% |  |  | (13.46 | )%
|                                         |  |                          |        |      |  |      |        |    |  |  |        |   
|Total return after incentive allocation  |  |                          | (34.84 | )%   |  |      | 122.22 | %  |  |  | 56.12  | % 
|                                         |  |                          |        |      |  |      |        |    |  |  |        |   



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ratios of net investment loss to average net
	assets, of operating expenses to average net assets and total
	return are calculated for the limited partners as a class. Total
	return, which reflects the quarter to quarter change in net
	assets, was calculated using returns which have been
	geometrically linked and utilize the average quarterly capital
	transactions. The total expenses and incentive allocation and
	the total return after incentive allocation adjust the operating
	expense and total return before incentive allocation
	calculations for the General Partners carried interest.

20



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##### Table of Contents



EXHIBIT INDEX

|            |       |             |  |                                                                                                                                                                                                                                                                     
|----------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 2.1   |             |  | Agreement and Plan of Reorganization dated as of
	August 18, 1996, among the Company, AGM Acquisition
	Corporation and Anagram, Inc.(2)                                                                                                                             
|            | 2.2   |             |  | Agreement and Plan of Reorganization dated as of
	August 22, 1996, among the Company, Natasha Merger
	Corporation and Meta-Software, Inc.(2)                                                                                                                        
|            | 2.3   |             |  | Agreement and Plan of Reorganization dated as of
	October 9, 1996, among the Company, DSM Acquisition
	Corporation and FrontLine Design Automation, Inc.(3)                                                                                                         
|            | 2.4   |             |  | Agreement and Plan of Reorganization dated as of
	July 31, 1997, as amended on August 27, 1997, among
	the Company, GB Acquisition Corporation, VLSI Technology, Inc.
	and Compass Design Automation, Inc.(6)                                                       
|            | 2.5   |             |  | Agreement and Plan of Reorganization dated as of
	September 10, 1997, among the Company, Cardinal Merger
	Corporation and Technology Modeling Associates, Inc.(5)                                                                                                   
|            | 2.6   |             |  | Agreement and Plan of Reorganization dated as of
	November 4, 1998, as amended on November 12, 1998,
	among the Company, Artemis Corporation and interHDL, Inc.(10)                                                                                                 
|            | 2.7   |             |  | Agreement and Plan of Merger, dated as of
	December 3, 2001, as amended, among Synopsys, Inc., a
	Delaware corporation, Maple Forest Acquisition L.L.C., a
	Delaware limited liability company and direct wholly owned
	subsidiary of Synopsys, and the Company.(20)
|            | 3.1   |             |  | Restated Certificate of Incorporation(1)                                                                                                                                                                                                                            
|            | 3.1.1 |             |  | Certificate of Amendment of the Restated
	Certificate of Incorporation of Avant! Corporation(1)                                                                                                                                                                     
|            | 3.1.2 |             |  | Certificate of Designations of Series A
	Junior Participating Preferred Stock(8)                                                                                                                                                                                    
|            | 3.2   |             |  | Amended and Restated Bylaws(16)                                                                                                                                                                                                                                     
|            | 4.1   |             |  | Amended and Restated Investors Rights Agreement
	between the Company and the Investors specified therein-dated
	September 24, 1993.(1)                                                                                                                              
|            | 4.2   |             |  | Specimen Common Stock Certificate(1)                                                                                                                                                                                                                                
|            | 4.3   |             |  | Registration Rights Agreement between the
	Registrant and certain investors dated November 27, 1996,(4)                                                                                                                                                             
|            | 4.4   |             |  | Rights Agreement dated September 4, 1998,
	between the Registrant and Harris Trust Company of California.(8)                                                                                                                                                        
|            | 4.5   |             |  | First Amendment to Rights Agreement dated as of
	December 3, 2001, between the Registrant and Harris Trust
	Company of California.                                                                                                                                  
|            | 4.6   |             |  | Voting Agreement dated as of December 3,
	2001, by and among Moriyuki Chimura, Gerald C. Hsu, Paul
	Lo, Howard Ko, Amy Sakasegawa, Viraj J. Patel, Scott
	Spangenberg, Charles St. Clair, and Synopsys, Inc.(18)                                                    
|            | 10.1  |             |  | 1995 Stock Option/ Stock Issuance Plan, as
	amended.(7)*                                                                                                                                                                                                            
|            | 10.2  |             |  | Employee Stock Purchase Plan, as amended.(7)                                                                                                                                                                                                                        
|            | 10.3  |             |  | Form of Indemnification Agreement.(1)                                                                                                                                                                                                                               
|            | 10.4  |             |  | Indemnification Agreement entered into between
	the Company and Gerald C. Hsu dated May 24, 1994.(1)                                                                                                                                                                
|            | 10.5  |             |  | Employment Agreement with Gerald C. Hsu dated
	July 21, 1998.(12)*                                                                                                                                                                                                  
|            | 10.6  |             |  | Executive Deferred Compensation Plan.(12)*                                                                                                                                                                                                                          
|            | 10.7  |             |  | Form of Confidential Severance Agreement.(12)*                                                                                                                                                                                                                      
|            | 10.8  |             |  | 2000 Stock Option/ Stock Issuance Plan.(13)*                                                                                                                                                                                                                        
|            | 10.9  |             |  | Employment Agreement with Gerald C. Hsu dated
	August 24, 2000.(14)*                                                                                                                                                                                                
|            | 10.10 |             |  | Form of Series A Preference Shares Purchase
	Agreement between Semiconductor Manufacturing International
	Corporation and Certain Investors, including the Company, dated
	March 8, 2001.(15)                                                                       

21



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##### Table of Contents



|            |        |             |  |                                                                                                                                                                            
|----------- | ------ | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |        | Description
|            |        |            
|            | 10.11 |             |  | Form of Shareholders Agreement by and among
	Semiconductor Manufacturing International Corporation and
	certain of its shareholders dated as of March 2001.(15)            
|            | 10.12  |             |  | Form of Registration Rights Agreement between
	Semiconductor Manufacturing International Corporation and
	certain other shareholders dated as of March 15, 2001.(15)       
|            | 10.13  |             |  | Modification Agreement with Gerald C. Hsu dated
	July 25, 2001.(16)                                                                                                        
|            | 10.14  |             |  | Form of Employment Agreement for Officers and Key
	Employees.(16)*                                                                                                         
|            | 10.15  |             |  | Employment Agreement with Noriko Ando dated
	October 1, 2000.(17)*                                                                                                         
|            | 10.16  |             |  | Employment Agreement with John Hsu dated
	October 1, 2000.(17)*                                                                                                            
|            | 10.17  |             |  | Severance Agreement with Moriyuki Chimura dated
	December 8, 1998, as amended December 15, 1999.(17)*                                                                      
|            | 10.18  |             |  | Distribution Agreement between Avant! Japan
	Corporation and Maingate Electronics KK dated October 1,
	2000. (17)*                                                         
|            | 10.19  |             |  | Distribution Agreement between Avanticorp Hong
	Kong Limited and Davan Tech Co., Ltd., dated October 1,
	2000.(17)*                                                        
|            | 10.20  |             |  | Promissory Note dated June 5, 1998, from
	Moriyuki Chimura in favor of the Company.(17)*                                                                                   
|            | 10.21  |             |  | First Amendment, dated as of November 20,
	2001, to the Distribution Agreement, dated October 1, 2000,
	between Avanticorp Hong Kong Limited and Davan Tech Co., Ltd.(18)  
|            | 10.22  |             |  | First Amendment, dated as of November 20,
	2001, to the Distribution Agreement, dated October 1, 2000,
	between Avant! Japan Corporation and Maingate Electronics KK.(18)  
|            | 10.23  |             |  | First Amendment, dated as of November 20,
	2001, to the Product Lease Agreement, dated October 1,
	2000, between Avant! Japan Corporation and Maingate Electronics
	KK.(18)
|            | 10.24  |             |  | Stock Purchase Agreement, dated December 27,
	2001, among the Company, Gerald C. Hsu, Noriko Ando, and the
	Eigen Fund                                                     
|            | 10.25  |             |  | Termination Agreement with Semiconductor
	Manufacturing International Corporation, dated
	September 25, 2001.                                                              
|            | 10.26  |             |  | Separation Agreement, General Release, and
	Waiver, dated December 3, 2001, by and among Synopsys,
	Inc., Gerald C. Hsu, and the Company.(19)*                             
|            | 10.27  |             |  | Separation Agreement, General Release, and
	Waiver, dated December 3, 2001, by and among Synopsys,
	Inc., John Hsu, and the Company.(19)*                                  
|            | 10.28  |             |  | Separation Agreement, General Release, and
	Waiver, dated December 3, 2001, by and among Synopsys,
	Inc., Noriko Ando, and the Company.(19)*                               
|            | 10.29  |             |  | Amendment to Employment Agreement, dated as of
	December 3, 2001, between the Company and Paul Lo.(19)*                                                                    
|            | 10.30  |             |  | Form of Amendment to Employment Agreement, dated
	as of December 3, 2001, by and between the Company and each
	of Howard Ko and Amy Sakasegawa.(19)*                       
|            | 10.31  |             |  | Agreement with Moriyuki Chimura, dated
	December 31, 2001.*                                                                                                                
|            | 10.32  |             |  | Form of Bonus Agreement, dated September 19,
	2001, by and between the Company and Scott Spangenberg.*                                                                     
|            | 10.33  |             |  | Form of Bonus Agreement, dated September 20,
	2001, by and between the Company and Viraj J. Patel.*                                                                        
|            | 10.34  |             |  | Employment Agreement with Paul Lo dated
	October 1, 2000.(16)*                                                                                                             
|            | 10.35  |             |  | General Release and Settlement Agreement dated
	July 25, 2001, between the Company and Stephen Wuu.*                                                                       
|            | 21.1   |             |  | List of Subsidiaries of the Company.                                                                                                                                       
|            | 23.1   |             |  | Consent of PricewaterhouseCoopers LLP,
	Independent Accountants.                                                                                                           
|            | 23.2   |             |  | Consent of KPMG LLP, Independent Auditors.                                                                                                                                 
|            | 23.3   |             |  | Consent of BDO Seidman, LLP, Independent Auditors
	of Subsidiary Not Consolidated, and 50-percent-or-less-owned
	Person.                                                   

22



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##### Table of Contents





---



|  |                                                                                              
|- | ---------------------------------------------------------------------------------------------
| | Portions of this exhibit have been omitted
	pursuant to a request for confidential treatment.



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Management contract or compensatory plan or
	arrangement.                                                                                           
|   
|(1) | Incorporated by reference from the Companys
	Registration Statement on Form S-1 (File No. 33-91128)
	as declared effective on June 6, 1995.        
|   
|(2) | Incorporated by reference from the Companys
	Registration Statement on Form S-4 (File
	No. 333-11659) as declared effective on September 30,
	1996.
|   
|(3) | Incorporated by reference from the Companys
	current Report on Form 8-K filed with the SEC on
	October 24, 1996.                                   
|   
|(4) | Incorporated by reference from the Companys
	Registration Statement on Form S-3 (File
	No. 333-18445) as filed on January 27, 1997.                
|   
|(5) | Incorporated by reference from the Companys
	Registration Statement on Form S-4 (File
	No. 333-42923) as filed on December 22, 1997.               
|   
|(6) | Incorporated by reference from the Companys
	Registration Statement on Form S-3 (File
	No. 333-43087) as filed on January 13, 1998.                
|   
|(7) | Incorporated by reference from the Companys
	Definitive Proxy Statement on Schedule 14A filed with the
	SEC on April 7, 1998.                      
|   
|(8) | Incorporated by reference from the Companys
	Current Report on Form 8-K filed with the SEC on
	September 18, 1998.                                 
|   
|(9) | Incorporated by reference from the Companys
	Registration Statement on Form 8-A12G filed with the SEC on
	September 18, 1998.                      



|     |                                                                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from the Company
	Current Report on Form 8-K filed with the SEC on
	November 19, 1998.                                                                                                        
|    
|(11) | Incorporated by reference from the Companys
	Registration Statement on Form S-3 (File
	No. 333-67629) as declared effective on March 9, 1999.                                                                          
|    
|(12) | Previously filed as Exhibits 10.5, 10.6 and 10.7
	to the Companys Annual Report on Form 10-K for the
	fiscal year ended December 31, 1999 (File No. 0-25864).                                                          
|    
|(13) | Previously filed as Exhibit 10.1 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended June 30, 2000 (File
	No. 0-25864).                                                                     
|    
|(14) | Previously filed as Exhibit 10.8 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly prior ended September 30, 2000 (File No. 0-25864).                                                                  
|    
|(15) | Previously filed as Exhibits 10.10, 10.11 and
	10.12 to the Companys Annual Report on Form 10-K for
	the year ended December 31, 2000 (File No. 0-258684)                                                              
|    
|(16) | Previously filed as Exhibits 3.2.1, 10.9.1, 10.13
	and 10.14 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended June 30, 2001
	(File No. 0-25864).                                          
|    
|(17) | Previously filed as Exhibits 10.15, 10.16, 10.17,
	10.18, 10.19 and 10.20 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended September 30,
	2001 (File No. 0-25864).                        
|    
|(18) | Previously filed as Exhibits 9.1, 10.1, 10.2 and
	10.3 to the Companys Current Report on Form 8-K dated
	December 3, 2001 (File No. 0-25864).                                                                          
|    
|(19) | Previously filed as Exhibits 10.2, 10.3, 10.4,
	10.5 and 10.6 to the Registration Statement on Form S-4 of
	Synopsys, Inc. (File No. 333-75638) filed with the
	Securities and Exchange Commission on December 21, 2001.
|    
|(20) | Previously filed as Annex A to Amendment
	No. 2 to the Registration Statement of Form S-4 of
	Synopsys, Inc. (File No. 333-75638) filed with the
	Securities and Exchange Commission on March 18, 2002.                 

23