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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




FORM 20-F


(Mark One)

|     |  |                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------
|[  ] |  | Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934

OR

|    |  |                                                                                      
|--- |  | -------------------------------------------------------------------------------------
|[X] |  | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
|    |  |                                                                                      
|    |  | For the fiscal year ended December 31, 2003                                          

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission File Number 000-27811

CHARTERED SEMICONDUCTOR MANUFACTURING LTD

(Exact name of Registrant as specified in its charter)


Republic of Singapore
(Jurisdiction of incorporation or organization)

60 Woodlands Industrial Park D
Street 2, Singapore 738406
+65-6362 2838
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

|                         |  |                                                         
|------------------------ |  | --------------------------------------------------------
|Title of Each Class
None |  | Name of Each Exchange on Which Registered
Not Applicable

Securities registered pursuant to Section 12(g) of the Act:
American Depositary Shares,
each represented by ten Ordinary Shares, par value S$0.26 per share.
(Title of class)

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:
Not Applicable

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report. 2,505,518,801 Ordinary Shares as of January 31, 2004.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]                No [  ]

Indicate by check mark which financial statement item the registrant has
elected to follow.

Item 17 [  ]           Item 18 [X]

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TABLE OF CONTENTS



|                                                   |                                                                                       |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|CERTAIN DEFINITIONS AND CONVENTIONS               
|PRESENTATION OF CERTAIN FINANCIAL INFORMATION     
|PART I                                            
|                                                   | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        
|                                                   | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|                                                   | ITEM 3. KEY INFORMATION                                                              
|                                                   | ITEM 4. INFORMATION ON OUR COMPANY                                                   
|                                                   | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|                                                   | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|                                                   | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|                                                   | ITEM 8. FINANCIAL INFORMATION                                                        
|                                                   | ITEM 9. THE OFFER AND LISTING                                                        
|                                                   | ITEM 10. ADDITIONAL INFORMATION                                                      
|                                                   | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|                                                   | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                           
|                                                   | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|                                                   | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|                                                   | ITEM 15. CONTROLS AND PROCEDURES                                                     
|                                                   | ITEM 16.                                                                             
|                                                   | ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                           
|                                                   | ITEM 16B. CODE OF ETHICS                                                             
|                                                   | ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                     
|                                                   | ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                 
|PART III                                          
|                                                   | ITEM 17. FINANCIAL STATEMENTS                                                        
|                                                   | ITEM 18. FINANCIAL STATEMENTS                                                        
|                                                   | ITEM 19. EXHIBITS                                                                    
|SIGNATURES                                        
|Ex-4.40 1st Supplement Agreement dated Dec 19,2003
|Ex-4.58 Supplemental Agreement dated Nov 1, 2002  
|Ex-4.60 Chia Song Hwee, Contract of Employment    
|Ex-10 Consent of KPMG                             
|Ex-12.1 302 Certification                         
|Ex-12.2 302 Certification                         
|Ex-13.1 906 Certification                         
|Ex-13.2 906 Certification                         



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TABLE OF CONTENTS

|                                              |  |                                                                                         |  |  |     |  |    | 
|--------------------------------------------- |  | --------------------------------------------------------------------------------------- |  |  | --- |  | -- | 
|Certain Definitions and Conventions           |  |                                                                                         |  |  |    
|Presentation of Certain Financial Information |  |                                                                                         |  |  |    
|PART I                                        |  |                                                                                         |  |  |     |  | 4  | 
|                                              |  | Item 1.    Identity Of Directors, Senior Management And Advisers                        |  |  | 4   | 
|                                              |  | Item 2.    Offer Statistics And Expected Timetable                                      |  |  | 4   | 
|                                              |  | Item 3.    Key Information                                                              |  |  | 4   | 
|                                              |  | Item 4.    Information On Our Company                                                   |  |  | 22  | 
|                                              |  | Item 5.    Operating And Financial Review And Prospects                                 |  |  | 38  | 
|                                              |  | Item 6.    Directors, Senior Management And Employees                                   |  |  | 55  | 
|                                              |  | Item 7.    Major Shareholders And Related Party Transactions                            |  |  | 67  | 
|                                              |  | Item
8.    Financial Information                                                        |  |  | 70  | 
|                                              |  | Item 9.    The Offer And Listing                                                        |  |  | 70  | 
|                                              |  | Item
10.   Additional Information                                                       |  |  | 71  | 
|                                              |  | Item
11.   Quantitative And Qualitative Disclosures About Market Risk                   |  |  | 83  | 
|                                              |  | Item
12.   Description Of Securities Other Than Equity Securities                       |  |  | 86  | 
|PART II                                       |  |                                                                                         |  |  |     |  | 86 | 
|                                              |  | Item
13.   Defaults, Dividend Arrearages And Delinquencies                              |  |  | 86  | 
|                                              |  | Item
14.   Material Modifications To The Rights Of Security Holders And Use Of Proceeds |  |  | 86  | 
|                                              |  | Item
15.   Controls and Procedures                                                      |  |  | 86  | 
|                                              |  | Item 16.                                                                                |  |  | 87  | 
|                                              |  | Item 16A. Audit Committee Financial Expert                                              |  |  | 87  | 
|                                              |  | Item 16B. Code Of Ethics                                                                |  |  | 87  | 
|                                              |  | Item 16C. Principal Accountant Fees and Services                                        |  |  | 87  | 
|                                              |  | Item 16D. Exemptions From The Listing Standards For Audit Committees                    |  |  | 87  | 
|PART III                                      |  |                                                                                         |  |  |     |  | 88 | 
|                                              |  | Item
17.    Financial Statements                                                        |  |  | 88  | 
|                                              |  | Item
18.    Financial Statements                                                        |  |  | 88  | 
|                                              |  | Item
19.    Exhibits                                                                    |  |  | 88  | 
|                                              |  | SIGNATURES                                                                              |  |  |     | 
|                                              |  | Financial Statements                                                                    |  |  | F-1 | 

2



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CERTAIN DEFINITIONS AND CONVENTIONS

Unless otherwise specified, when we refer to Singapore dollars and S$, we
are referring to Singapore dollars, the legal currency of Singapore. When we
refer to U.S. dollars, dollars, $ and US$, we are referring to United
States dollars, the legal currency of the United States or U.S.




PRESENTATION OF CERTAIN FINANCIAL INFORMATION

Our financial statements are reported in U.S. dollars and presented in
accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
This document includes the financial statements of our equity-method joint
venture company, Silicon Manufacturing Partners Pte Ltd, or SMP. In this
document, any discrepancies in any table between totals and the sums of the
amounts listed are due to rounding.

Our shares are listed on both the Nasdaq National Market, or Nasdaq, under the
symbol CHRT and the Singapore Exchange Securities Trading Limited, or the
Singapore Exchange, under the symbol Chartered.

Certain Singapore dollar amounts contained in this document have been
translated to U.S. dollars as of December 31, 2003, which was at an exchange
rate of S$1.707 = US$1.00. No representation is made that the Singapore dollar
or the U.S. dollar amounts shown in this document could have been or could be
converted at such rate or at any other rate.

The share and per share data and American Depositary Share, or ADS, and per ADS
data in this document for year 2002 and prior periods reflect a retroactive
adjustment to give effect to our eight-for-ten rights offering which we
completed in October 2002 (the October 2002 Rights Offering). The share price
information contained in this document was derived from Bloomberg L.P.

Certain reclassifications have been made in prior years financial information
to conform to classifications used in the current year.

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PART I






|ITEM 1. |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- |  | -----------------------------------------------------

Not applicable.






|ITEM 2. |  | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- |  | ---------------------------------------

Not applicable.






|ITEM 3. |  | KEY INFORMATION        
|------- |  | -----------------------
|       
|A.      |  | SELECTED FINANCIAL DATA

You should read the following selected financial data in conjunction with our
consolidated financial statements and related notes and Item 5. Operating and
Financial Review and Prospects included in this document. The selected
consolidated balance sheet data as of December 31, 1999, 2000 and 2001 and the
selected consolidated statements of operations data for the years ended
December 31, 1999 and 2000 are derived from our audited consolidated financial
statements. However, we have not included our audited consolidated financial
statements for those periods in this document. The selected consolidated
balance sheet data as of December 31, 2002 and 2003 and the selected
consolidated statements of operations data for each of the years in the three
year period ended December 31, 2003 are derived from our audited consolidated
financial statements included elsewhere in this document which have been
audited by KPMG, independent accountants. Our consolidated financial statements
are prepared in accordance with U.S. GAAP.

|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |         |         | 
|------------------------------------------------------- | ------------------------------ | ------------------------ | ------- | ------------------------------------------------ | ------- | ---- | --------- | ------- | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                        |                                |                          |         | Year Ended December 31,                         
|                                                        |                                |                          |         |                                                 
|                                                        |                                |                          |         | 1999(1)                                          |         | 2000 |           | 2001    |         | 2002 |          | 2003   
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |        
|                                                        |                                |                          |         | (in thousands, except per share data and ratios)
|Consolidated Statements of
Operations Data:             |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Net revenue                                             |                                | $                        | 694,258 |                                                  |         | $    | 1,134,104 |         |         | $    | 462,656  |         |         | $ | 449,241  |         |         | $ | 551,911  |        
|Cost of revenue                                         |                                |                          | 527,023 |                                                  |         |      | 749,582   |         |         |      | 665,261  |         |         |   | 628,726  |         |         |   | 648,330  |        
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Gross profit (loss)                                     |                                |                          | 167,235 |                                                  |         |      | 384,522   |         |         |      | (202,605 | )       |         |   | (179,485 | )       |         |   | (96,419  | )      
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Operating expenses:                                     |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|                                                        | Research and development       |                          |         | 63,172                                           |         |      |           | 74,876  |         |      |          | 82,897  |         |   |          | 95,285  |         |   |          | 124,533 |        
|                                                        | Fab start-up costs             |                          |         | 8,442                                            |         |      |           | 27,481  |         |      |          | 13,329  |         |   |          | 8,338   |         |   |          | 9,219   |        
|                                                        | Sales and marketing            |                          |         | 30,081                                           |         |      |           | 35,019  |         |      |          | 38,659  |         |   |          | 41,182  |         |   |          | 38,272  |        
|                                                        | General and administrative     |                          |         | 44,619                                           |         |      |           | 78,788  |         |      |          | 41,908  |         |   |          | 43,356  |         |   |          | 35,881  |        
|                                                        | Stock-based compensation       |                          |         | 20,094                                           |         |      |           | 2,778   |         |      |          | 763     |         |   |          | (253    | )       |   |          | 4       |        
|                                                        | Other operating expenses       |                          |         | 6,500                                            | (2)     |      |           | 11,570  | (3)     |      |          |        |         |   |          | 10,025  | (4)     |   |          | (6,124  | )(5)   
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|                                                        |                                | Total operating expenses |         |                                                  | 172,908 |      |           |         | 230,512 |      |          |         | 177,556 |   |          |         | 197,933 |   |          |         | 201,785 | 
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Operating income (loss)                                 |                                |                          | (5,673  | )                                                |         |      | 154,010   |         |         |      | (380,161 | )       |         |   | (377,418 | )       |         |   | (298,204 | )      
|Other income (expense):                                 |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|                                                        | Equity in loss of CSP          |                          |         | (9,528                                           | )       |      |           |        |         |      |          |        |         |   |          |        |         |   |          |        |        
|                                                        | Equity in income (loss) of SMP |                          |         | (23,282                                          | )       |      |           | 7,588   |         |      |          | (92,683 | )       |   |          | (84,846 | )       |   |          | 23,194  |        
|                                                        | Other income                   |                          |         | 5,739                                            |         |      |           | 12,926  |         |      |          | 19,718  |         |   |          | 23,632  |         |   |          | 23,186  |        
|                                                        | Interest income                |                          |         | 6,733                                            |         |      |           | 54,546  |         |      |          | 46,225  |         |   |          | 16,637  |         |   |          | 12,168  |        
|                                                        | Interest expense               |                          |         | (17,822                                          | )       |      |           | (17,561 | )       |      |          | (39,652 | )       |   |          | (41,661 | )       |   |          | (42,222 | )      
|                                                        | Exchange gain (loss)           |                          |         | 5,862                                            |         |      |           | 8,414   |         |      |          | 4,216   |         |   |          | (1,966  | )       |   |          | (733    | )      
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Income (loss) before income taxes                       |                                |                          | (37,971 | )                                                |         |      | 219,923   |         |         |      | (442,337 | )       |         |   | (465,622 | )       |         |   | (282,611 | )      
|Income tax expense                                      |                                |                          | (2,131  | )                                                |         |      | (18,704   | )       |         |      | (14,244  | )       |         |   | (7,029   | )       |         |   | (11,671  | )      
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Income (loss) before minority interest                  |                                |                          | (40,102 | )                                                |         |      | 201,219   |         |         |      | (456,581 | )       |         |   | (472,651 | )       |         |   | (294,282 | )      
|Minority interest in loss of CSP                        |                                |                          | 7,483   |                                                  |         |      | 43,547    |         |         |      | 72,629   |         |         |   | 55,563   |         |         |   | 9,491    |        
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Net income (loss) prior to cumulative effect
adjustment |                                |                          | (32,619 | )                                                |         |      | 244,766   |         |         |      | (383,952 | )       |         |   | (417,088 | )       |         |   | (284,791 | )      
|Cumulative
effect adjustment(6)                         |                                |                          |        |                                                  |         |      |          |         |         |      |         |         |         |   |         |         |         |   | (6,421   | )      
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        
|Net income (loss)                                       |                                | $                        | (32,619 | )                                                |         | $    | 244,766   |         |         | $    | (383,952 | )       |         | $ | (417,088 | )       |         | $ | (291,212 | )      
|                                                        |                                |                          |         |                                                  |         |      |           |         |         |      |          |         |         |   |          |         |         |   |          |        

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|                                                        |         |  |       |                                                  |   |      |       |           |  |      |         |           |   |  |         |           |   |  |         |           |   | 
|------------------------------------------------------- | ------- |  | ----- | ------------------------------------------------ | - | ---- | ----- | --------- |  | ---- | ------- | --------- | - |  | ------- | --------- | - |  | ------- | --------- | - | 
|                                                        |         |  |       | Year Ended December 31,                         
|                                                        |         |  |       |                                                 
|                                                        |         |  |       | 1999(1)                                          |   | 2000 |       | 2001      |  | 2002 |         | 2003     
|                                                        |         |  |       |                                                  |   |      |       |           |  |      |         |          
|                                                        |         |  |       | (in thousands, except per share data and ratios)
|Net income (loss) per share(7) :                        |         |  |       |                                                  |   |      |       |           |  |      |         |           |   |  |         |           |   |  |         |          
|                                                        | Basic   |  | $     | (0.03                                            | ) |      | $     | 0.16      |  |      | $       | (0.24     | ) |  | $       | (0.23     | ) |  | $       | (0.12     | )
|                                                        | Diluted |  | $     | (0.03                                            | ) |      | $     | 0.16      |  |      | $       | (0.24     | ) |  | $       | (0.23     | ) |  | $       | (0.12     | )
|Shares used in computing net income (loss) per share :  |         |  |       |                                                  |   |      |       |           |  |      |         |           |   |  |         |           |   |  |         |          
|                                                        | Basic   |  |       | 1,190,458                                        |   |      |       | 1,543,893 |  |      |         | 1,588,969 |   |  |         | 1,799,106 |   |  |         | 2,502,294 |  
|                                                        | Diluted |  |       | 1,190,458                                        |   |      |       | 1,568,971 |  |      |         | 1,588,969 |   |  |         | 1,799,106 |   |  |         | 2,502,294 |  
|Net income (loss) per ADS(7) :                          |         |  |       |                                                  |   |      |       |           |  |      |         |           |   |  |         |           |   |  |         |          
|                                                        | Basic   |  | $     | (0.27                                            | ) |      | $     | 1.59      |  |      | $       | (2.42     | ) |  | $       | (2.32     | ) |  | $       | (1.16     | )
|                                                        | Diluted |  | $     | (0.27                                            | ) |      | $     | 1.56      |  |      | $       | (2.42     | ) |  | $       | (2.32     | ) |  | $       | (1.16     | )
|ADSs used in computing net income (loss) per ADS :      |         |  |       |                                                  |   |      |       |           |  |      |         |           |   |  |         |           |   |  |         |          
|                                                        | Basic   |  |       | 119,046                                          |   |      |       | 154,389   |  |      |         | 158,897   |   |  |         | 179,911   |   |  |         | 250,229   |  
|                                                        | Diluted |  |       | 119,046                                          |   |      |       | 156,897   |  |      |         | 158,897   |   |  |         | 179,911   |   |  |         | 250,229   |  
|Other
Data(8) (unaudited)                              
|Ratio of earnings
to fixed charges                      |         |  | 0.88X |                                                  |   |      | 7.09X |           |  |      |        |           |   |  |        |           |   |  |        |          
|Deficiency of earnings available
to cover fixed charges |         |  | 2,900 |                                                  |   |      |      |           |  |      | 354,919 |           |   |  | 381,225 |           |   |  | 301,421 |          

|                                                                 |  |                    |           |      |  |      |           |      |  |                |           |  |  |   |           |  |  |   |           | 
|---------------------------------------------------------------- |  | ------------------ | --------- | ---- |  | ---- | --------- | ---- |  | -------------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                                 |  | As of December 31,
|                                                                 |  |                   
|                                                                 |  | 1999               |           | 2000 |  | 2001 |           | 2002 |  | 2003          
|                                                                 |  |                    |           |      |  |      |           |      |  |               
|                                                                 |  |                    |           |      |  |      |           |      |  | (in thousands) |           |  |  |   |           |  |  |  
|Consolidated Balance Sheet Data                                  |  |                    |           |      |  |      |           |      |  |                |           |  |  |   |           |  |  |   |           | 
|Cash and cash equivalents                                        |  | $                  | 544,996   |      |  | $    | 924,116   |      |  | $              | 1,041,616 |  |  | $ | 1,210,925 |  |  | $ | 905,472   | 
|Working capital                                                  |  |                    | 294,562   |      |  |      | 548,721   |      |  |                | 642,487   |  |  |   | 942,059   |  |  |   | 682,322   | 
|Total assets                                                     |  |                    | 2,137,485 |      |  |      | 3,217,122 |      |  |                | 3,144,342 |  |  |   | 3,337,900 |  |  |   | 3,022,027 | 
|Short-term borrowings and current
portion of long-term debt      |  |                    | 119,991   |      |  |      | 156,343   |      |  |                | 198,160   |  |  |   | 64,001    |  |  |   | 223,660   | 
|Current installments of obligations
under capital leases         |  |                    | 5,767     |      |  |      | 7,822     |      |  |                |          |  |  |   |          |  |  |   |          | 
|Obligations under capital leases,
excluding current installments |  |                    | 7,822     |      |  |      |          |      |  |                |          |  |  |   |          |  |  |   |          | 
|Other long-term debt                                             |  |                    | 423,668   |      |  |      | 426,120   |      |  |                | 914,070   |  |  |   | 1,115,930 |  |  |   | 989,092   | 
|Net assets                                                       |  |                    | 1,141,750 |      |  |      | 1,969,283 |      |  |                | 1,582,632 |  |  |   | 1,785,459 |  |  |   | 1,494,555 | 
|Share capital                                                    |  |                    | 264,529   |      |  |      | 279,893   |      |  |                | 280,480   |  |  |   | 443,713   |  |  |   | 444,953   | 
|Shareholders equity                                             |  |                    | 1,141,750 |      |  |      | 1,969,283 |      |  |                | 1,582,632 |  |  |   | 1,785,459 |  |  |   | 1,494,555 | 



---

|(1) |  | Prior to October 1, 1999, Chartered Silicon Partners Pte Ltd, or
CSP, was accounted for under the equity method in our consolidated
financial statements as a result of certain provisions that were
contained in our strategic alliance agreement with respect to CSP. As
a result of an amendment to the strategic alliance agreement, CSP was
treated as a consolidated subsidiary from October 1, 1999.                                                                                                                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In 1999, we recorded a charge of $6.5 million in connection with the
termination of a development program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) |  | In 2000, we recorded a charge of $11.6 million to reflect the
estimated loss on a licensing agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) |  | In 2002, we recorded a charge of $10.0 million associated with a
workforce re-sizing and a fixed asset impairment charge.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) |  | In 2003, the following items were recorded under the other operating
expenses line:
a) A gain of $27.5 million associated with the cancellation of the
companys employee bonus award plan;
b) An impairment charge of $9.0 million on certain machinery and
equipment which were classified as held for sale in 2003, as part
of the companys fab capacity rationalization; and
c) A restructuring charge of $12.4 million relating to the phase out of
the companys Fab 1.                                                                                                                                                                                                                                                 
|   
|(6) |  | Effective January 1, 2003, the company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations, which addresses
financial accounting and reporting for obligations associated with
the retirement of long-lived assets and associated asset retirement
costs. This resulted in a cumulative effect loss of $6.4 million,
after a reduction in minority interest of $0.5 million. The
cumulative effect loss represents the depreciation and accretion
expense that would have been recorded previously if SFAS No. 143 had
been in effect in prior years.                                                                                        
|   
|(7) |  | For 2003, basic and diluted net loss per share before cumulative
effect adjustment is $(0.11) and basic and diluted net loss per ADS
before cumulative effect adjustment is $(1.14).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(8) |  | For purposes of calculating the ratio of earnings to fixed charges
and the deficiency of earnings available to cover fixed charges, if
any, earnings consists of income (loss) before income taxes, minority
interest, cumulative effect adjustment and equity in income (loss) of
equity affiliates, plus fixed charges and amortization of capitalized
interest, less interest capitalized. Fixed charges consist of
interest expensed and capitalized, plus amortization of capitalized
expenses related to indebtedness, plus one-third of rental expenses
on operating leases (such amounts representing the estimated interest
portion of rental expense). No preference dividends were made during
the period indicated.

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|B. |  | CAPITALIZATION AND INDEBTEDNESS
|-- |  | -------------------------------

Not applicable.



|C. |  | REASONS FOR THE OFFER AND USE OF PROCEEDS
|-- |  | -----------------------------------------

Not applicable.



|D. |  | RISK FACTORS
|-- |  | ------------

Chartered Semiconductor Manufacturing Ltd, or Chartered, wishes to caution
readers that the following important factors, and those important factors
described in other reports and documents submitted to, or filed with, the
United States Securities and Exchange Commission, among other factors, could
affect our results. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer and actual
results could differ materially from those expressed in any forward-looking
statements made by us, or on our behalf.



|(I) |  | RISKS RELATED TO OUR FINANCIAL CONDITION
|--- |  | ----------------------------------------

We have a history of losses and this may continue.

Since our inception in 1987, we have incurred significant net losses. This was
true even in years in which our revenues increased. In 1999, 2001 and 2002, we
incurred net losses of $32.6 million, $384.0 million and $417.1 million
respectively. More recently, for the year ended December 31, 2003, we incurred
a net loss of $291.2 million due primarily to under-utilization of capacity at
our fabrication facilities as the semiconductor market remained relatively weak
during the first half of the year and only started to accelerate in the second
half of 2003.

As of December 31, 2003, we had
an accumulated deficit of $1,125.2 million. We cannot assure you that our net losses will not continue or
increase in the future or that we will become profitable. Please see Item 3.
Key Information  Selected Financial Data and Item 5. Operating and
Financial Review and Prospects for information regarding our financial
condition.

We need to continuously improve our device yields, maintain high capacity
utilization and optimize the technology mix of our semiconductor wafer
production.

The key factors that affect our profit margin are our ability to:



|- |  | continuously improve our device yields;                           
|- |  | ------------------------------------------------------------------
| 
|- |  | maintain high capacity utilization; and                           
| 
|- |  | optimize the technology mix of our semiconductor wafer production.

The term device yields means the actual number of usable semiconductor
devices on a semiconductor wafer in relation to the total number of devices on
the wafer. Our device yields directly affect our ability to attract and retain
customers, as well as the prices of our products.

The term capacity utilization means the actual number of semiconductor wafers
we are processing at a fabrication facility, or fab, in relation to the total
number of wafers we have the capacity to process. Where we refer to capacity
utilization in this document, such capacity utilization includes the
utilization of our allocated capacity with SMP. Our capacity utilization
affects our operating results because a large percentage of our operating costs
are fixed. For example, in 2001, 2002 and the first half of 2003, weak market
demand and a worldwide over-capacity of semiconductor wafer supply resulted in
low utilization rates at our fabs. In 2003, our
average capacity utilization was 58% with substantially lower utilization rates
in the first half than the second half of the year. The weak market demand and
over-capacity have had and may continue to have a negative effect on our
company. Other factors potentially affecting capacity utilization rates are the
complexity and mix of the

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wafers produced, overall industry conditions,
operating efficiencies, the level of customer orders, mechanical failure,
disruption of operations due to expansion of operations or relocation of
equipment and fire or natural disaster.

Because the price of wafers varies significantly, the mix of wafers produced
affects revenue and profitability. The value of a wafer is determined by the
complexity of the device on the wafer. Production of devices with higher level
functionality and greater system-level integration requires more manufacturing
steps than the production of less complex devices and commands higher wafer
prices. However, increasing the complexity of devices that we manufacture does
not necessarily lead to increased profitability because the higher wafer prices
for such devices may be offset by depreciation and other costs associated with
an increase in capital expenditures needed to manufacture such devices.

If we are unable to continuously improve our device yields, maintain high
capacity utilization or optimize the technology mix of our wafer production, we
may not be able to achieve our profit margin in which case the market price of
our securities could fall.

Our operating results fluctuate from quarter-to-quarter which makes it
difficult to predict our future performance.

Our revenues, expenses and operating results have varied significantly in the
past and may fluctuate significantly from quarter-to-quarter in the future due
to a number of factors, many of which are outside our control. These factors
include, among others:



|- |  | the cyclical nature of both the semiconductor industry and the markets served by our customers;                                                                
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|- |  | changes in the economic conditions of geographical regions where our customers and their markets are located;                                                  
| 
|- |  | shifts by integrated device manufacturers, or IDMs, between internal and outsourced production;                                                                
| 
|- |  | inventory and supply chain management of our customers;                                                                                                        
| 
|- |  | the loss of a key customer or the postponement of an order from a key customer or the failure of a key customer to pay
accounts receivables in a timely manner;
| 
|- |  | the occurrence of accounts receivables write-offs;                                                                                                             
| 
|- |  | the rescheduling or cancellation of large orders;                                                                                                              
| 
|- |  | the rescheduling or cancellation of planned capital expenditures;                                                                                              
| 
|- |  | our inability to qualify new processes or customer products in a timely manner;                                                                                
| 
|- |  | the return of wafers due to quality or reliability issues;                                                                                                     
| 
|- |  | malfunction of our wafer production equipment;                                                                                                                 
| 
|- |  | unforeseen delays or interruptions in our plans for new fabrication facilities;                                                                                
| 
|- |  | the timing and volume of orders relative to our available production capacity;                                                                                 
| 
|- |  | our ability to obtain raw materials and equipment on a timely and cost effective basis;                                                                        
| 
|- |  | environmental events or industrial accidents such as fires or explosions;                                                                                      
| 
|- |  | our susceptibility to intellectual property rights disputes;                                                                                                   
| 
|- |  | our ability to continue with existing and to enter into new partnerships, technology and supply alliances on mutually
beneficial terms;                        

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|- |  | actual capital expenditures
exceeding planned capital expenditures;           
|- |  | ------------------------------------------------------------------------------
| 
|- |  | currency and interest rate fluctuations that may not be adequately hedged; and
| 
|- |  | technological changes.                                                        

Due to the factors noted above and other risks discussed in this section, many
of which are beyond our control, you should not rely on quarter-to-quarter
comparisons to predict our future performance. Unfavorable changes in any of
the above factors may seriously harm our company. In addition, it is possible
that in some future periods our operating results may be below the expectations
of public market analysts and investors. In this event, the price of our
securities may under-perform or fall.

We expect to incur substantial capital and research and development
expenditures in connection with our growth plans and may require additional
financing that may not be available.

Our business and the nature of our industry require us to make substantial
capital expenditures leading to a high level of fixed costs. We expect to incur
significant capital expenditures in connection with our growth plans and
technology upgrades or migrations. For example, in 2000 and 2001, we incurred
$963.8 million and $489.6 million in capital expenditures, respectively. Even
in the midst of challenging economic conditions in 2002 we invested $419.5
million in capital expenditures, primarily in equipping Fab 6 and for the
purchase of equipment for research and development use, as part of our
continuing strategy of positioning ourselves to serve market needs. We invested
$220.8 million in capital expenditures in 2003, focused primarily on
leading-edge technologies. In addition, we expect our aggregate capital
expenditures in 2004 to be approximately $700 million. The majority of the
expenditures in 2004 will be for Fab 7 with the balance primarily for capacity
additions at leading-edge technologies in Fab 6. For more details on the
amount spent on equipping Fab 7 as of December 31, 2003, see Item 5.
Operating and Financial Review and Prospects  Liquidity and Capital
Resources. We also expect to incur approximately $130 million for research
and development in 2004.

We also anticipate that from time to time we may expand and add equipment to
increase the capacity of our existing fabs, two of which are owned through
joint ventures with third parties. We may require additional financing to
complete such equipping. The foregoing expenditures will be made in advance of
sales. Given the fixed cost nature of our business, we may incur losses if our
revenue does not adequately offset the level of depreciation resulting from our
capital expenditures, as occurred in 2001, 2002 and 2003. Additionally, our
actual expenditures may exceed our planned expenditures for a variety of
reasons, including changes in our growth plan, our process technology, market
conditions, customer requirements, interest rates and other factors.

We may require additional financing to fund our future growth plans and
technology upgrades and migrations. There can be no assurance that additional
financing will be available at all or, if available, that such financing will
be obtained on terms favorable to us or that any additional financing will not
be dilutive to our shareholders or creditors. In addition, a portion of our
borrowings is guaranteed by our controlling shareholder, Singapore Technologies
Pte Ltd, or Singapore Technologies. We may not be able to obtain similar credit
guarantees from Singapore Technologies in the future.

We have a high level of debt. If we are unable to make interest and principal
payments on our debt, it could seriously harm our company.

We have now and will continue to have a significant amount of debt. Our high
level of debt and the covenants contained in our financing documents could have
important consequences to our company. For example, they could:



|- |  | increase our vulnerability to general adverse economic and industry conditions;                                                                                                                                                              
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|- |  | limit our ability to pursue our growth plan and technology upgrades or migrations;                                                                                                                                                           
| 
|- |  | require us to seek the lenders consent prior to paying dividends on our ordinary shares;                                                                                                                                                    
| 
|- |  | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the
availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes;

8



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|- |  | limit our flexibility in planning for, or reacting to, changes in our business and the semiconductor industry; and
|- |  | ------------------------------------------------------------------------------------------------------------------
| 
|- |  | limit our ability to incur additional borrowings or raise additional financing through equity or debt instruments.

We cannot assure you that we will be able to make interest and principal
payments on debt incurred in connection with our growth if the average selling
prices or demand for our semiconductor wafers are lower than expected.



|(II) |  | RISKS RELATED TO OUR OPERATIONS
|---- |  | -------------------------------

The cyclical nature of the semiconductor industry and the periodic
over-capacity that results from this may seriously harm our company.

The semiconductor industry has historically been highly cyclical and, at
various times, has experienced significant economic downturns characterized by
production over-capacity, reduced product demand and rapid erosion of average
selling prices. For example, after experiencing average utilization rates
around 100% in 2000, our average utilization rates in 2002 and 2003 fell to 37%
and 58% respectively.

Historically, companies in the semiconductor industry have expanded
aggressively during periods of increased demand, as we and our competitors have
done. As a result, periods of over-capacity in the semiconductor industry have
frequently followed periods of increased demand. We expect this pattern to be
repeated in the future. In addition, the markets for semiconductors are
characterized by rapid technological change, intense competition and
fluctuations in end-user demand. In 2001 and 2002, the combination of a very
sharp downturn in the worldwide semiconductor industry and prolonged weakness
in global economies harmed our company. While the semiconductor industry
recovery started to accelerate in the second half of 2003, we cannot assure you
that the recovery will continue into 2004 and beyond. Future downturns in the
semiconductor industry may also be severe and could seriously harm our company.

A decrease in demand and average selling prices for end-use applications of
semiconductor products such as communications equipment, personal computers,
computer peripherals and consumer products may significantly decrease the
demand for our services and may result in a decrease in our revenue and gross
profit margin.

A significant percentage of our sales revenue is derived from customers who use
our manufacturing services to make semiconductors for communications equipment,
personal computers, computer peripherals and consumer products. Any significant
decrease in the demand for communications equipment, personal computers,
computer peripherals or consumer products may decrease the demand for our
services and could seriously harm our company. In addition, the declining
average selling prices in these end markets could place significant downward
pressure on the prices of the components that are used in such equipment. If
the average selling prices of such equipment continue to decrease, the downward
pricing pressure on components produced by our company may reduce our revenue
and therefore reduce our gross profit margin significantly.

In 2001 and 2002, the weak global economy and end markets and the abnormally
high inventories caused a severe decline in demand for semiconductor wafers by
our customers. This resulted in downward pricing pressure and a reduction of
our revenue and our gross profit margin, which harmed our company. While the
semiconductor industry recovery started to accelerate in the second half of
2003, we cannot assure you that the recovery will continue into 2004 and
beyond. Future downturns in the semiconductor industry and weakness in global
economies and end markets could seriously harm our company.

We depend on a small number of customers for a significant portion of our
revenues.

We have been largely dependent on a small number of customers for a substantial
portion of our business. Our top ten customers accounted for 66.8% and 59.3% of
our total net revenue in 2002 and 2003, respectively. In 2002, our two largest
customers accounted for 19.2% and 11.0% of our total net revenue and in 2003,
our two largest customers accounted for 15.1% and 9.2% of our total net
revenue, respectively. We expect that we will continue to be dependent upon a
relatively limited number of customers for a significant portion of our
revenue. We cannot assure you that revenue generated from these customers,
individually or in the aggregate, will reach

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or exceed historical levels in any future period. Loss or cancellation of business from, significant changes in
scheduled deliveries to, quality or reliability issues raised by, or decreases
in the prices of services sold to, any of these customers could seriously harm
our company.

We may lose customers as a result of our fab rationalization plans.

In February 2003, we announced our plan to phase out Fab 1, our only 150-mm
fab, and consolidate its business into Fab 2 over an estimated 13 month
transition period, with the aim of reducing our fixed cost base as well as
consolidating all Singapore fab operations onto our main campus in Woodlands.
While our consolidation process is progressing on schedule and we are working
towards a smooth transfer of customers from Fab 1 to Fab 2, we cannot assure
you that we will be successful in retaining all of our customers transferred
from Fab 1 to Fab 2, and as a result, we may lose some of these customers which
could seriously harm our company.

We may not be able to implement new technology as it becomes available which
may affect our ability to produce advanced products at competitive prices.

The semiconductor industry is rapidly developing and the technology used is
constantly evolving. If we do not anticipate the technology evolution and
rapidly adopt new and innovative technology, we may not be able to produce
sufficiently advanced products at competitive prices. There is a risk that our
competitors may adopt new technology before we do, resulting in our loss of
market share. If we do not continue to produce the most advanced products at
competitive prices, our customers may use the services of our competitors
instead of our services, which could seriously harm our company.

We depend on our technology partners to advance our portfolio of process
technologies.

Enhancing our manufacturing process technologies is critical to our ability to
provide services for our customers. We intend to continue to advance our
process technologies through internal research and development efforts and
technology alliances with leading semiconductor companies. Although we have an
internal research and development team focused on developing new semiconductor
manufacturing process technologies, we are dependent on our technology partners
to advance our portfolio of process technologies. For example, in November
2002, we converged our 90nm development program with International Business
Machines, or IBM, by entering into a joint development agreement with them. In
August 2003, we extended the IBM joint development agreement to include
Infineon Technologies AG, or Infineon. Under the agreement, IBM, Infineon and
Chartered are jointly developing a common advanced foundry manufacturing
process technology at 65nm, as well as variants tuned for high performance and
low power. For more information on the joint development agreements with IBM
and Infineon, please see Item 4. Information On Our Company  Business
Overview Research and Development.

We are depending on our joint developments with IBM and Infineon for faster
access to 90nm and 65nm process technologies. If there are problems in the
successful implementation of the IBM and Infineon joint development agreements,
this would not only result in our having incurred costs, but also adversely
impact our strategy in targeting first-source business and time-to-market, as
we would then require even more time to access or develop similar technologies.
If this were to happen, it could seriously harm our company.

Our technology alliances have been and may from time to time be subject to
changes, including changes in the technology partners business strategy (as
was the case with Agere Systems Incs fab-lite strategy and Agilent
Technologies ceasing technology development for certain technology nodes).
For more information on these changes, please see Item 4. Information On Our
Company  Business Overview  Strategic Alliances  Chartered Silicon
Partners. Although the changes we have experienced so far have not had a
significant impact on our companys performance, there can be no assurance that
this will continue to be the case.

If we are unable to continue our technology alliances with our partners on
mutually beneficial economic terms, or are unable to enter into new technology
alliances with other leading semiconductor companies, we may not be able to
continue providing our customers with leading-edge process technologies, which
could seriously harm our company.

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Our customers do not place purchase orders far in advance. Therefore, we do not
have any significant backlog.

Our customers generally do not place purchase orders far in advance. In
addition, due to the cyclical nature of the semiconductor industry, our
customers purchase orders have varied significantly from period-to-period. As
a result, we do not typically operate with any significant backlog. The lack of
a significant backlog makes it difficult for us to forecast our net revenue in
future periods. Moreover, our expense levels are based in part on our
expectations of future revenue and we may be unable to adjust costs in a timely
manner to compensate for revenue shortfalls. We expect that in the future our
revenue in any quarter will continue to be substantially dependent upon
purchase orders received in that quarter. We cannot assure you that any of our
customers will continue to place orders with us in the future at the same
levels as in prior periods.

We depend on our strategic alliances relating to Fab 5 and Fab 6. Termination
or modification of either of these alliances could seriously harm our company.

We currently have two strategic alliances relating to the operation of Fab 5
and Fab 6. Our equity-method joint venture company, SMP, which owns
and operates Fab 5,
is a joint venture with Agere Systems Singapore Pte Ltd (formerly Lucent
Technologies Microelectronics Pte Ltd), a subsidiary of Agere Systems Inc.
CSP, which owns and operates Fab 6, is a joint venture with Agilent
Technologies Europe B.V., EDB Investments Pte Ltd and Singapex Investments Pte
Ltd, a wholly owned subsidiary of Singapore Technologies. We believe our
alliances with these companies give us access to select leading-edge process
technologies, moderate our development costs and capital expenditures and
increase our fab utilization rates. The termination of either of these
alliances or any modification of either alliance which adversely affects our
rights under the alliance could seriously harm our company. Please see Item 4.
Information On Our Company  Business Overview  Strategic Alliances 
Chartered Silicon Partners and Item 4. Information On Our Company 
Business Overview  Strategic Alliances  Silicon Manufacturing Partners for
a more detailed description of these alliances.

We may not be able to compete successfully in our industry.

The worldwide semiconductor foundry industry is highly competitive. We compete
with dedicated foundry service providers such as Taiwan Semiconductor
Manufacturing Corporation, or TSMC, and United Microelectronics Corporation, or
UMC, as well as the foundry operation services of some integrated device
manufacturers or IDMs such as IBM. IDMs principally manufacture and sell their
own proprietary semiconductor products, but may offer foundry services.
Further, there have been a number of new entrants to the semiconductor foundry
industry. In particular, foundries in China, Malaysia and Korea are now
becoming increasingly significant. Our competitors may have greater access to
capital and substantially greater production, research and development,
marketing and other resources than we do. As a result, these companies may be
able to compete more aggressively over a longer period of time than we can.

A number of semiconductor manufacturers, including our primary competitors,
have announced plans to increase their manufacturing capacity (including
setting up fabrication facilities in Singapore). As a result, we expect that
there will be a significant increase in worldwide semiconductor capacity over
the next few years. If growth in demand for this capacity fails to match the
growth in supply, or occurs more slowly than anticipated, there may be more
intense competition and pressure on the pricing of our services. Any
significant increase in competition may erode our profit margin and weaken our
earnings.

The principal elements of competition in the wafer foundry market include
technical competence, time-to-market, research and development quality,
available capacity, device yields, customer service, price, design services,
access to intellectual property, electronic design automation or EDA, and tool
support. We cannot assure you that we will be able to compete successfully in
the future, which could seriously harm our company.

Our business depends in part on our ability to obtain and preserve intellectual
property rights.

Our ability to compete successfully and achieve future growth will depend, in
part, on our ability to protect our proprietary technology and our intellectual
property, as well as the intellectual property of our customers. We seek to
protect proprietary information and know-how through the use of confidentiality
and non-disclosure agreements and limited access to and distribution of
proprietary information. As of December 31, 2003, we had filed an aggregate of
1,834 patent applications worldwide, (930 of which had been filed in the U.S.)
and held an aggregate of 859 issued patents worldwide (615 of which are issued
U.S. patents) relating to our production processes. We intend to continue to
file patent applications when and where appropriate to protect our proprietary
technologies. The process of seeking patent protection may take a long time and
be expensive. We cannot assure you that patents will be issued from pending or
future applications or that, if patents are issued, they will not be
challenged, invalidated or circumvented or that the rights granted under the
patents will provide

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us with meaningful protection or any commercial advantage.
In addition, we cannot assure you that the Asian countries in which we market
our services will protect our intellectual property rights to the same extent
as the United States. Additionally, we cannot assure you that our competitors
will not develop, patent or gain access to similar know-how and technology, or
reverse engineer our processes, or that our confidentiality and non-disclosure
agreements upon which we rely to protect our trade secrets and other
proprietary information will be effective. The occurrence of any such events
could seriously harm our company. Please see Item 4. Information On Our
Company  Intellectual Property for a more detailed description of our
proprietary technology.

We may be subject to intellectual property rights disputes.

Our ability to compete successfully depends on our ability to operate without
infringing the proprietary rights of others. We have no means of knowing what
patent applications have been filed in the U.S. and elsewhere. Although we are
not currently a party to any material litigation involving patent infringement,
the semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. As is typical in the
semiconductor industry, we have from time to time received communications from
third parties asserting patents that cover certain of our technologies and
alleging infringement of certain intellectual property rights of others. We
expect to receive similar communications in the future. In the event any third
party were to make a valid claim against us or our customers, we could be
required to:



|- |  | discontinue using certain process technologies which could cause us to stop manufacturing certain semiconductors;           
|- |  | ----------------------------------------------------------------------------------------------------------------------------
| 
|- |  | pay substantial monetary damages;                                                                                           
| 
|- |  | seek to develop non-infringing technologies, which may not be feasible; or                                                  
| 
|- |  | seek to acquire licenses to the infringed technology which may not be available on commercially reasonable terms, if at all.

Our company could be seriously harmed by such developments. Litigation, which
could result in substantial costs to us and diversion of our resources, may
also be necessary to enforce our patents or other intellectual property rights
or to defend us against claimed infringement of the rights of others. If we
fail to obtain necessary licenses or if litigation relating to patent
infringement or other intellectual property matters occurs, it could seriously
harm our company.

We may experience difficulty in obtaining insurance coverage and increased
costs.

While we have been able to obtain adequate insurance coverage in the past and
while we do not expect to experience any significant increase in premium rates
of insurance coverage for 2004, we cannot assure you that we will continue to
be able to do so in the future. For example, following the tragic events of
September 11, 2001, the premiums we paid for the renewal of our insurance
coverage commencing from January 2002 were 2.2 times more than the premiums we
paid for such coverage for the previous year. However, the premiums remained
at almost the same levels for 2003. In the event that we fail to secure
adequate coverage in the future, we could be seriously harmed by the occurrence
of a loss that is not covered.



|(III) |  | RISKS RELATING TO MANUFACTURING
|----- |  | -------------------------------

We may experience difficulty in achieving acceptable device yields, product
performance and delivery times as a result of manufacturing problems.

The process technology for the manufacture of semiconductor wafers is highly
complex, requires advanced and costly equipment and is continuously being
modified or changed in an effort to improve device yields and product
performance. Microscopic impurities such as dust and other contaminants,
difficulties in the production process, disruptions in the supply of utilities
or defects in the key materials and tools used to manufacture wafers can cause
a percentage of the wafers to be rejected or individual semiconductors on
specific wafers to be non-functional, which in each case negatively affects our
device yields. We have, from time to time, experienced production difficulties
that have caused delivery delays, lower than expected device yields and the
replacement of certain vendors of manufacturing equipment used in our
production processes. We may also

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experience difficulty achieving acceptable
device yields, product performance and product delivery times in the future as
a result of manufacturing problems. These problems may result from, among other
things, production failures, capacity constraints, construction delays,
increasing production at new facilities, upgrading or expanding existing
facilities or changing our process technologies, human errors, equipment
malfunction or process contamination. In addition, although our consolidation
of the Fab 1 business into Fab 2 is progressing on schedule, we cannot assure
you that there will be no difficulties or risks resulting from or associated
with the transfer of the processes from Fab 1 to Fab 2. Any of these problems
could seriously harm our company.

We depend on our vendors of raw materials, supplies and equipment and do not
typically have long-term supply contracts with them.

We depend on our vendors of raw materials and supplies. To maintain competitive
manufacturing operations, we must obtain from our vendors, in a timely manner,
sufficient quantities of quality materials and supplies at acceptable prices.
We obtain most of our materials and supplies, including critical materials such
as raw semiconductor wafers, from a limited number of vendors. We purchase
most of our key materials and supplies on a blanket purchase order basis. We
typically do not have long term contracts with our vendors. As a result, from
time to time due to capacity constraints, vendors have extended lead times or
limited the supply of required materials and supplies to us. Consequently, from
time to time, and particularly during periods of sudden increase in demand, we
have experienced and may experience difficulty in obtaining quantities of raw
materials that we need on a timely basis. Further, where we only have one
qualified supplier for materials and supplies and a need subsequently arises to
look to other alternative suppliers, we would have to qualify these alternative
suppliers, and such qualification could lead to delays in production and
seriously harm our company.

In addition, from time to time, we may reject materials and supplies that do
not meet our specifications, resulting in declines in output or device yields,
which may in turn adversely affect our revenue. We cannot assure you that we
will be able to obtain sufficient quantities of raw materials and other
supplies of an acceptable quality. If our ability to obtain sufficient
quantities of raw materials and other supplies in a timely manner is
substantially diminished or if there are significant increases in the costs of
raw materials, it could seriously harm our company.

We also depend on a limited number of manufacturers and vendors that make and
sell the complex equipment we use in our manufacturing processes. In periods of
high market demand, the lead times from order to delivery of some of this
equipment could be as long as 12 months, or even longer if, as a result of
reduced orders placed in the preceding period, we are accorded less favorable
priority by manufacturers and vendors. If there are delays in the delivery of
this equipment or if there are increases in the cost of this equipment, it
could seriously harm our company. Further, the long lead time reduces our
flexibility in responding to changing market conditions. Please see Item 4.
Information On Our Company  Business Overview  Equipment and Materials for
additional information regarding our relationships with our suppliers of
materials and equipment.

Our ability to successfully partner with EDA, intellectual property and design
service providers to meet customers design needs depends on the availability
and quality of the relevant services, tools and technologies and our ability to
meet our customers schedule and budget requirements.

We have established relationships with EDA, intellectual property and design
service providers. Together we work to develop a complete design platform that
is production-proven and tailored to our customers design needs. Our ability
to successfully meet our customers design needs depends on the availability
and quality of the relevant services, tools and technologies, and on whether
we, together with our EDA, intellectual property and design service providers,
are able to meet customers schedule and budget requirements. Difficulties or
delays in these areas may adversely affect the success of our partnerships with
EDA, intellectual property and design service providers and consequently, our
ability to attract or serve customers, and thereby could seriously harm our
company.

We depend on assembly and test subcontractors for our semiconductor assembly
and testing requirements.

Semiconductor assembly and test operations are an integral part of the supply
chain, and involve specialized equipment and technology. As we do not have
such in-house assembly and test capabilities and facilities, we depend on
assembly and test subcontractors to provide us with the assembly, test and
wafer bumping services. We currently subcontract to our affiliate, ST Assembly
Test Services Ltd, or STATS, as well as to United Test and Assembly Center
Limited, or UTAC, and ASE Singapore Pte Ltd, or ASE, a significant amount of
orders for

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assembly and testing services. STATS, UTAC and ASE may, from time to
time, experience production interruption due to, among other things, technical
problems occurring during the assembly and testing processes. Because STATS,
UTAC and ASE are our major providers of these services, any prolonged
interruption in their operations or the termination or changes to our
affiliation with STATS could seriously harm our company.

As we migrate to more advanced technologies which may require access to
advanced packaging and wafer bumping services, we may experience difficulties
in securing such access in a timely manner due to the limited number of vendors
providing such services.

As our company migrates to more advanced technologies and devices that require
very high pin counts, the need for advanced packaging and wafer bumping
services may increase. The advanced packaging technology is new and there may
be initial problems resulting from this. While there are sufficient wafer
bumping houses for printing technology, there is currently still limited
capacity for plating technology. Although we are working with our vendors to
qualify them on wafer bumping plating technology, we cannot assure you that the
qualification would be successful or without delays or that we would have ready
access to the limited capacity. In addition, there is currently no 300-mm wafer
bumping capability in Singapore, so we will have to work with our vendors to
establish the capability in Singapore or look for such capability elsewhere,
such as in Taiwan, in order to support our 300-mm fab operations. We cannot
assure you that we would have ready and timely access to such capability. If
we are unable to gain access to such advanced packaging and wafer bumping
services in a timely manner, or if there are delays in the qualification of
such technology, or if there are disruptions in such services, this may
adversely impact our ability to secure business for the more advanced
technology nodes and thereby could seriously harm our company.

We are subject to the risk of loss due to fire because the materials we use in
our manufacturing processes are highly flammable.

We use highly flammable materials such as silane and hydrogen in our
manufacturing processes and are therefore subject to the risk of loss arising
from fire. Although we have implemented industry acceptable risk management
controls at our manufacturing locations, the risk of fire associated with these
materials cannot be completely eliminated and, in the past, we have had minor
interruptions in production as a result of fire. We maintain insurance
policies to guard against losses caused by fire. While we believe our
insurance coverage for damage to our property and disruption of our business
due to fire is adequate, we cannot assure you that it would be sufficient to
cover all of our potential losses. If any of our fabs were to be damaged or
cease operations as a result of a fire, it would temporarily reduce
manufacturing capacity and could seriously harm our company.

Our failure to comply with certain environmental regulations could seriously
harm our company.

We are subject to a variety of laws and governmental regulations in Singapore
relating to the use, discharge and disposal of toxic or otherwise hazardous
materials used in our production process. While we believe that we are
currently in compliance in all material respects with such laws and
regulations, if we fail to use, discharge or dispose of hazardous materials
appropriately, our company could be subject to substantial liability or could
be required to suspend or modify our manufacturing operations at significant
cost to us. In addition, we could be required to pay for the cleanup of our
properties if they are found to be contaminated even if we are not responsible
for the contamination. We maintain insurance policies to guard against certain
types of losses
resulting from unintended and unexpected pollution caused by our company. While
we believe our insurance coverage is adequate, we cannot assure you that it
would be sufficient to cover all our potential losses.



|(IV) |  | RISKS RELATING TO OUR INFRASTRUCTURE
|---- |  | ------------------------------------

We face several risks in constructing and equipping new fabrication plants.

Where we expand by constructing new fabrication plants, there will be certain
uncontrollable events that could delay the project or increase the costs of
construction and equipping, even if we take the project management and planning
steps we believe are necessary to complete the new fabrication plants on
schedule and within budget. Such potential events include:

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|- |  | a major design and/or construction change caused by changes to the initial building space utilization plan or equipment
layout;    
|- |  | -----------------------------------------------------------------------------------------------------------------------------------
| 
|- |  | technological, capacity and other changes to our plans for new fabrication plants necessitated by changes in market
conditions;    
| 
|- |  | shortages and late delivery of building materials and facility equipment;                                                          
| 
|- |  | delays in the installation, commissioning and qualification of our facility equipment;                                             
| 
|- |  | a long and intensive wet season that limits construction;                                                                          
| 
|- |  | a shortage of foreign construction workers or a change in immigration laws preventing such workers from entering Singapore;        
| 
|- |  | strikes and labor disputes;                                                                                                        
| 
|- |  | on-site construction problems such as industrial accidents, fires and structural collapse;                                         
| 
|- |  | delays in securing the necessary governmental approvals and land lease;                                                            
| 
|- |  | delays arising from modifications in capacity expansion plans as a result of uncertainty in economic conditions; and               
| 
|- |  | delays arising from demand exceeding supply and long lead times for delivery of equipment during periods of growth in the
industry.

We depend on key personnel and due to the shortage of skilled labor in
Singapore, we may have difficulty attracting and retaining sufficient numbers
of skilled employees.

Our success depends to a significant extent upon the continued service of our
key senior executives and our engineering, marketing, customer services,
manufacturing, support and other personnel. In addition, in connection with our
future growth plans, we are likely to need a greater number of experienced
engineers and other employees in the future. Despite the current economic
environment, the competition for skilled professionals remains intense and
there is a shortage of such personnel in Singapore. Accordingly, we must
recruit our personnel internationally. This is more expensive than hiring
personnel locally, and therefore increases our operating costs. As of December
31, 2003, a majority of our employees were citizens of countries other than
Singapore. We expect demand for personnel in Singapore to increase
significantly in the future, particularly as new wafer fabrication facilities,
including those of our competitors, are established in Singapore.

We use stock options and employee share purchase plans as compensation tools to
attract and retain our personnel. Recent proposed changes to the accounting
standards applicable to our company may require us to record stock-based
compensation charges in the future as a result of these plans. If we were to
terminate these plans, or were to modify such plans with decreased benefits to
employees or were to reduce the stock grants made under these plans to avoid or
minimize an adverse impact on our financial results, we may become
uncompetitive from an employee compensation perspective and may not be able to
continue to attract and/or retain required personnel, which could seriously
harm our company.

In February 2003, we announced our plans to phase out Fab 1 and to consolidate
its business into Fab 2, as a result of which we do not anticipate having
positions for Fab 1 employees after March 31, 2004. The current and future
workforce reduction could lead to a perception of uncertainty, and as such,
potentially hinder our efforts to retain existing key personnel or hire new key
personnel in the event of future recovery. Further, with respect to Fab 1,
while we have taken measures to incentivize Fab 1 employees to stay on during
the transition period, we cannot assure you that these employees will continue
to stay and as a result, this may adversely affect the smooth transfer of
customers from Fab 1 to Fab 2 and could seriously harm our company.

If we were to lose the services of any of our existing key personnel without
adequate replacements, or were unable to attract and retain experienced
personnel as we grow, it could seriously harm our company. For example,
although we strive to retain employees that we send on assignments with our
technology partners such as IBM, we cannot assure you that we will be
successful in retaining these employees or that if our

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employees leave, our
technology partners would re-train their replacements. If our employees leave,
this may limit our ability to benefit from the alliances and could seriously
harm our company. We do not carry insurance to protect us against the loss of
any of our key personnel.

We may not be able to manage our growth, which could seriously harm our
company.

We have experienced periods of significant growth, particularly in late 1999
and in 2000. This growth has placed, and our future growth may place, a
significant strain on our managerial, technical, financial, production,
operational and other resources. In particular, we have expanded our
manufacturing facilities and equipped new facilities and we may from time to
time create additional capacity at our fabs, which if not utilized, would
reduce our profitability and could seriously harm our company.



|(V) |  | RISKS RELATED TO COVENANTS IN OUR AGREEMENTS
|--- |  | --------------------------------------------

Many of our loans, including loans incurred by our subsidiary, CSP, and our
equity-method joint venture company, SMP, contain various financial and other
covenants. Among other things, these covenants require the maintenance of
certain financial ratios (including total debt to net worth) and that Singapore
Technologies own, directly or indirectly, at least 51% of our outstanding
shares. They also require that we own, directly or indirectly, at least a
certain percentage of our subsidiary and/or our equity-method joint venture
companys outstanding shares. If we fail to comply with these covenants, we
could be in a default under these loans and the lenders would have the right to
accelerate our obligation to repay the outstanding borrowings under these
loans. Such a default could also cause cross-defaults under other loans and
could seriously harm us.

In addition, many of our loans require that we obtain prior written consent
from our lenders prior to incurring indebtedness or creating security interests
over our assets. Consequently, although we have been able to obtain such lender
consent in the past, we may be limited in our ability to obtain future
financing. Any inability to obtain such future financing could seriously harm
our company.

Our joint development agreement of November 2002 with IBM provides that,
subject to certain exceptions, a change of control will be deemed to occur if
more than 30% of our companys voting securities become beneficially owned by a
person that directly or indirectly derives more than 50% of its revenue from
the manufacture and/or sale of semiconductor products. One of these exceptions
is where Singapore Technologies continues to own directly or indirectly at
least 40% or more of our companys securities. Such a change of control could
lead to IBM terminating the agreement, which could seriously harm our company.
For more information on the IBM joint development agreement, see Item 10.
Additional Information  Material Contracts  Technology transfer, licenses,
joint development and other related agreements  IBM.



|(VI) |  | RISKS RELATED TO INVESTMENTS IN A CONTROLLED CORPORATION
|---- |  | --------------------------------------------------------

Singapore Technologies controls our company and its interests may conflict with
the interests of our other shareholders.

As of January 31, 2004, Singapore Technologies through its affiliate, Singapore
Technologies Semiconductors Pte Ltd, or ST Semiconductors, beneficially owns
60.28% of our outstanding ordinary shares.As a result, Singapore Technologies
is able to exercise control over many matters requiring approval by our
shareholders, including the election of directors and approval of significant
corporate transactions.

Singapore Technologies also provides us with a credit facility, guarantees some
of our debt and enters into forward foreign exchange contracts with us. While
we believe that Singapore Technologies will continue to provide us credit and
other support, Singapore Technologies has no obligation to do so and the
availability and the amount of its support may not be at the same levels as
previously provided.

We also have contractual and other business relationships with Singapore
Technologies and its affiliates and may engage in material transactions from
time to time. Although the Audit Committee of our Board of Directors will
review all material transactions between our company and Singapore Technologies
and its affiliates, circumstances may arise in which the interests of Singapore
Technologies and its affiliates could conflict with the interests of our other
shareholders. Because Singapore Technologies and its affiliates own a
significant portion of our ordinary shares, they could delay or prevent a
change in control of our company, even if a

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transaction of that nature would be
beneficial to our other shareholders. Our Articles of Association do not
contain any provision requiring that Singapore Technologies and its affiliates
own at least a majority of our ordinary shares. Please see Item 7. Major
Shareholders and Related Party Transactions for additional information
regarding our relationship with Singapore Technologies and its affiliates.



|(VII) |  | RISKS RELATED TO INVESTMENT IN A CORPORATION WITH INTERNATIONAL
OPERATIONS
|----- |  | --------------------------------------------------------------------------

Economic conditions where our customers and their markets are located may have
a negative impact on our revenue.

A significant portion of our revenue is derived from sales to customers whose
semiconductors are used in products that are sold in the U.S., Taiwan, Japan,
Europe and other countries in East and Southeast Asia. Our results of
operations in the future could be negatively impacted if the economic
environment in these countries deteriorates. For example, in 1998, many
countries in Asia experienced considerable currency volatility and
depreciation, high interest rates and declining asset values. As a result,
there was a general decline in business and consumer spending and a decrease in
economic growth as compared with prior years. Our results of operations in 1998
were affected by overall regional economic conditions because demand for
semiconductor products generally rises as the overall level of economic
activity increases and falls as activity decreases. In 2001, the semiconductor
industry experienced its sharpest contraction on record as weakening global
economic conditions contributed to a severe decline in the demand for
electronic products that use semiconductors. The semiconductor industry
recovery which began in late 2002 did not accelerate until the second half of
2003 due to weak global economies.

Terrorist attacks or a war could adversely affect our business, results of
operations and financial condition.

Terrorist attacks, such as the attacks of September 11, 2001 in the United
States and other acts of violence or war, have the potential to have a direct
impact on our clients. To the extent that such attacks affect or involve the
United States and any other places in which our customers markets are located,
our business may be significantly impacted.

Further, the continued occupation of Iraq by the United States could result in
unpredictable consequences on the economic conditions in the U.S. and the rest
of the world. In addition, terrorist attacks or another war could adversely
impact the transportation of our products, resulting in an adverse impact on
our business, results of operations and financial condition and thereby could
seriously harm our company.

Outbreak of an infectious disease or any other serious public health concerns
in Asia (including Singapore) and elsewhere could adversely impact our
business, results of operations and financial condition.

The outbreak of an infectious disease in Asia (including Singapore) and
elsewhere, together with any resulting restrictions on travel or quarantines
imposed, could have a negative impact on the economies, financial markets and
business activities in countries in which our end markets are located and
thereby adversely impact our revenue. Examples are the outbreak in 2003 of
Severe Acute Respiratory Syndrome, or SARS, in East Asia and more recently, the
outbreak of Avian Influenza, or Bird Flu, in Asia. While we took precautionary
measures in response to the outbreak of SARS in 2003, we cannot assure you that
any precautionary measures we may take against SARS or any other infectious
diseases in the future would be effective. A future outbreak of an infectious
disease or any other serious public health concern could seriously harm our
company.

We operate internationally and are therefore affected by problems in other
countries.

Our principal customers are located in the U.S., Taiwan, Japan and Europe and
our principal vendors are located in the U.S., Japan, Taiwan, Korea and Europe.
As a result, we are affected by economic and political conditions in those
countries, including:



|- |  | fluctuations in the values of currencies;
|- |  | -----------------------------------------
| 
|- |  | changes in labor conditions;             

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|- |  | longer payment cycles;                                                                                                                                
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|- |  | greater difficulty in collecting accounts receivable;                                                                                                 
| 
|- |  | burdens and costs of compliance with a variety of foreign laws;                                                                                       
| 
|- |  | political and economic instability;                                                                                                                   
| 
|- |  | increases in duties and taxation;                                                                                                                     
| 
|- |  | imposition of restrictions on currency conversion or the transfer of funds;                                                                           
| 
|- |  | limitations on imports or exports;                                                                                                                    
| 
|- |  | expropriation of private enterprises; and                                                                                                             
| 
|- |  | reversal of the current policies (including favorable tax and lending policies) encouraging foreign investment or foreign
trade by our host countries.

The geographical distances between Asia, the Americas and Europe also create a
number of logistical and communications challenges. Although we have not
experienced any serious harm in connection with our international operations,
we cannot assure you that such problems will not arise in the future.

Exchange rate fluctuations may increase our costs and capital expenditures,
which could affect our operating results and financial position.

Our financial statements are prepared in U.S. dollars. Our net revenue is
generally denominated in U.S. dollars and our operating expenses are generally
incurred in U.S. dollars and Singapore dollars. Our capital expenditures are
generally denominated in U.S. dollars, Euros, Singapore dollars and Japanese
Yen. Although we hedge a portion of the resulting net foreign exchange position
through the use of forward exchange contracts, we are still particularly
affected by fluctuations in exchange rates between the U.S dollar and the above
mentioned currencies. Any significant fluctuation in exchange rates may lead
to an increase in our costs and capital expenditures, which could adversely
affect our operating results and financial position.

We may be a passive foreign investment company.

Based on our asset composition and operations, we do not believe that we were a
passive foreign investment company, or PFIC, during 2003. However, there can
be no assurances that we will not be a PFIC in 2004 or in a later year. If,
for example, the passive income earned by us exceeds 75% or more of our
gross income, we will be a PFIC under the income test. In addition, we
will be a PFIC under the asset test if at least 50% of
the quarterly average value of our assets is attributable to assets that
produce or are held to produce passive income. The determination of the value
of our assets will be based in part on the market price of our ordinary shares
and ADSs. Because we have historically held, and may continue to hold a
substantial amount of passive assets, there is a substantial risk that we may
be a PFIC in 2004 or in a later year. Passive income for the PFIC purposes
includes, among other things, interest, dividends, royalties, rents and
annuities. If we were to become a PFIC at any time during a U.S. persons
holding period, such U.S. person holding ordinary shares or ADSs would be
required, if the mark to market election were not made, to pay an interest
charge on certain distributions from us or upon a sale or other disposition of
ordinary shares or ADSs and face other adverse tax consequences. Please see
Item 10. Additional Information   Taxation  U.S. Federal Taxation  PFIC
Rules. It is strongly urged that U.S. persons holding ordinary shares or ADSs
consult their own tax advisers regarding the application of the PFIC rules.

Our public shareholders may have more difficulty protecting their interests
than they would as shareholders of a U.S. corporation.

Our corporate affairs are governed by our Memorandum and Articles of
Association and by the laws governing corporations incorporated in Singapore.
The rights of our shareholders and the responsibilities of the members of our
Board of Directors under Singapore law may be different from those applicable
to a corporation incorporated in the U.S. Therefore, our public shareholders
may have more difficulty in protecting their interests

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in connection with
actions taken by our management, members of our Board of Directors or our
controlling shareholder than they would as shareholders of a corporation
incorporated in the U.S. For example, controlling shareholders in U.S.
corporations are subject to fiduciary duties while controlling shareholders in
Singapore corporations are not subject to such duties. Please see Item 7.
Major Shareholders and Related Party Transactions for a discussion relating to
our controlling shareholder, Singapore Technologies and its affiliates.

It may be difficult for you to enforce any judgment obtained in the United
States against us or our affiliates.

Our company is incorporated under the laws of the Republic of Singapore. Many
of our directors and senior management, and some of the experts named in this
document, reside outside the U.S. In addition, virtually all of our assets and
the assets of those persons are located outside the U.S. As a result, it may be
difficult to enforce in or out of the U.S, any judgment obtained in the U.S.
against us or any of these persons, including judgments based upon the civil
liability provisions of the U.S. securities laws. In addition, in original
actions brought in courts in jurisdictions located outside the U.S., it may be
difficult for investors to enforce liabilities based on U.S. securities laws.

We have been advised by Allen & Gledhill, our Singapore legal counsel, that
judgments of the U.S. courts based upon the civil liability provisions of the
federal securities laws of the U.S. are not enforceable in Singapore courts.
Allen & Gledhill has also advised us that there is doubt as to whether
Singapore courts will enter judgments in original actions brought in Singapore
courts based solely upon the civil liability provisions of the federal
securities laws of the U.S.

Singapore law contains provisions that could discourage a takeover of our
company.

The Singapore Code on Takeovers and Mergers contains certain provisions that
may delay, deter or prevent a future takeover or change in control of our
company. Any person acquiring an interest, either on his own or together with
parties acting in concert with him, in 30% or more of our voting shares may be
required to extend a takeover offer for our remaining voting shares in
accordance with the Singapore Code on Takeovers and Mergers. A takeover offer
is also required to be made if a person holding between 30% and 50% (both
inclusive) of our voting shares (either on his own or together with parties
acting in concert with him) acquires an additional 1% of our voting shares in
any six month period. These provisions may discourage or prevent certain types
of transactions involving an actual or threatened change of control of our
company. Some of our shareholders, which may include you, may therefore be
disadvantaged as a transaction of that kind might have allowed the sale of the
shares at a price above the prevailing market price.



|(VIII) |  | RISKS RELATED TO OUR SECURITIES AND OUR TRADING MARKET
|------ |  | ------------------------------------------------------

The future sales of securities by our company or existing shareholders may hurt
the price of our securities.

If we or our shareholders sell a large number of our securities in the public
market, including sales under the shelf registration statement we filed on
March 12, 2001, the trading price of such securities could decrease
dramatically. Any perception that these sales could occur could also result in
a dramatic decline in the trading price of our securities. These sales also
might make it more difficult for us to sell securities in the future at a time
and at a price that we deem appropriate. As of January 31, 2004, we had an
aggregate of 2,505,518,801 ordinary shares outstanding (including ordinary
shares represented by ADSs). Singapore Technologies through its affiliate owns
1,510,324,883 of our outstanding ordinary shares. All of our outstanding shares
are freely tradable in Singapore and in the U.S. (in the form of ADSs), except
that the shares owned by our affiliates, including Singapore Technologies, may
only be sold in the U.S. if they are registered or if they qualify for an
exemption from registration, including under Rule 144 under the Securities Act
of 1933, or the Securities Act. On March 12, 2001, we filed a shelf
registration statement registering $4,000,000,000 of securities, of which
$1,791,000,000 relate to securities we may issue from time to time and
$1,000,000,000 relates to ordinary shares that Singapore Technologies and ST
Semiconductors, in the aggregate, may offer from time to time.

The market prices of our securities have been and may continue to be highly
volatile.

The market prices of our securities have fluctuated widely and may continue to
do so. For example, from our initial public offering in October 1999 through
December 31, 2003, the trading price of our ADSs, adjusted for

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the October 2002 Rights Offering, has ranged from a high of $95.07 per ADS to a low of $3.48 per
ADS. During the same period, the trading price of our ordinary shares, adjusted
for the October 2002 Rights Offering, has ranged from a high of S$16.03 per
ordinary share to a low of S$0.63 per ordinary share. Many factors could cause
the market prices of our securities to rise and fall. Some of these factors
include:



|- |  | actual or anticipated variations in our quarterly operating results;                                                           
|- |  | -------------------------------------------------------------------------------------------------------------------------------
| 
|- |  | announcements of technological innovations;                                                                                    
| 
|- |  | changes in estimates of our performance or recommendations by financial analysts;                                              
| 
|- |  | market conditions in the semiconductor industry and economy as a whole;                                                        
| 
|- |  | introduction of new services by us or our competitors;                                                                         
| 
|- |  | changes in market valuations of other foundries and semiconductor companies;                                                   
| 
|- |  | announcements made by us or our competitors of significant acquisitions, strategic partnerships or joint ventures;             
| 
|- |  | announcements made by our customers of their performance or financial results and of their foundry alliances and
relationships;
| 
|- |  | market rumors or speculation about our business, operations or affairs;                                                        
| 
|- |  | issue of additional equity or equity linked offerings;                                                                         
| 
|- |  | significant reduction or increase of shareholding by our controlling shareholder;                                              
| 
|- |  | additions or departures of key personnel; and                                                                                  
| 
|- |  | other events or factors, many of which are beyond our control.                                                                 

The financial markets in the U.S., Singapore and other countries have
experienced significant price and volume fluctuations, and market prices of
technology companies have been and continue to be extremely volatile.
Volatility in the prices of our securities may be caused by factors outside of
our control and may be unrelated or disproportionate to our operating results.
In the past, following periods of volatility in the market price of a public
companys securities, securities class action litigation has often been
instituted against that company. Such litigation could result in substantial
costs and a diversion of our managements attention and resources.

The Singapore securities market is relatively small and more volatile than the
U.S. markets and may cause the market price of our securities to fluctuate.

The Singapore Exchange is relatively small and more volatile than stock
exchanges in the U.S. and certain other European countries. As of December 31,
2003, there were 413 companies listed on the Main Board of the Singapore
Exchange and the aggregate market capitalization of listed equity securities of
these companies was approximately S$383.4 billion. For the year ended December
31, 2003, the average daily equity trading value on the Singapore Exchange
(including shares traded on the CLOB International trading system) was
approximately S$637.7 million, with an annualized aggregate trading value of
approximately S$153.1 billion. The relatively small market capitalization of,
and trading volume on, the Main Board of the Singapore Exchange may cause the
market price of securities of listed companies, including our securities, to
fluctuate in both the domestic and the international markets.

Your voting rights with respect to the ADSs are limited by the terms of the
deposit agreement for the ADSs.

Holders may exercise voting rights with respect to the ordinary shares
represented by ADSs only in accordance with the provisions of the deposit
agreement relating to the ADSs. There are no provisions under Singapore law or
under our Articles of Association that limit ADS holders ability to exercise
their voting rights through the depositary with respect to the underlying
ordinary shares. However, there are practical limitations upon the

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ability of ADS holders to exercise their voting rights due to the additional procedural
steps involved in communicating with such holders. For example, our Articles
of Association require us to notify our shareholders at least 14 days in
advance of any annual general meeting unless a special resolution is to be
passed at that meeting, in which case at least 21 days notice must be given.
Our ordinary shareholders will receive notice directly from us and will be able
to exercise their voting rights by either attending the meeting in person or
voting by proxy.

ADS holders, by comparison, will not receive notice directly from us. Rather,
in accordance with the deposit agreement, we will provide the notice to the
depositary, which will in turn, as soon as practicable thereafter, mail to
holders of ADSs:



|- |  | the notice of such meeting;                                                
|- |  | ---------------------------------------------------------------------------
| 
|- |  | voting instruction forms; and                                              
| 
|- |  | a statement as to the manner in which instructions may be given by holders.

To exercise their voting rights, ADS holders must then instruct the depositary
how to vote their shares. Because of this extra procedural step involving the
depositary, the process for exercising voting rights will take longer for ADS
holders than for holders of ordinary shares. ADSs for which the depositary does
not receive timely voting instructions will not be voted at any meeting.

Except as described in this document, holders will not be able to exercise
voting rights attaching to the ADSs.

Your ability to participate in any rights offering of our company is limited.

We distributed in October 2002 and may, from time to time, distribute rights to
our shareholders, including rights to acquire securities under the deposit
agreement relating to the ADSs. The depositary will not offer rights to
holders in any jurisdictions unless both the rights and the securities to which
such rights relate are either exempt from registration under the applicable
securities laws of such jurisdictions or are registered in accordance with the
provisions of such laws. However, we are under no obligation to file a
registration statement with respect to any such rights or underlying securities
or to endeavor to cause such a registration statement to be declared effective.
Accordingly, holders of our securities may be unable to participate in rights
offerings by us and may experience dilution of their holdings as a result.

FORWARD-LOOKING STATEMENTS CONTAINED IN THIS DOCUMENT MAY NOT BE REALIZED

This document contains forward-looking statements, as defined in the safe
harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
These forward-looking statements, including without limitation, statements
relating to our return-to-profitability strategy with plans to enhance our
growth potential and improve our cost structure; our position with respect to
advanced technology and access to new customer and market opportunities; our
ability to become a first source solutions provider; our enhanced position in
advanced technologies and the opportunity for higher profit margins and
increased customer and market diversification; our fab rationalization plan,
including the adoption of a borderless fab approach; our
capital, research and development expenditures in 2004; estimate of
our gross profit in first quarter 2004; our sources of liquidity,
cash flow, funding needs and
financings; estimate of our capacity utilization rate, production capacity and production capacity mix; the equipping of
our fabrication facilities and the expected production dates of Fab 7;
our steps to strengthen our technology position by developing 90nm
and 65nm technologies jointly with IBM and Infineon; the manufacture
of 90nm SOI products for IBM in 2005; our near-term and long-term outlook in
the foundry services market; the expansion of existing or
establishment of new strategic partnerships and alliances and the establishment of
a manufacturing presence outside Singapore with appropriate partners. These forward looking statements reflect
our current views with respect to future events and financial performance, and
are subject to certain risks and uncertainties, which could cause actual
results to differ materially from historical results or those anticipated.
Among the factors that could cause actual results to differ materially are: the
successful implementation of our partnership, technology and supply alliances
(including our joint development agreements with IBM and Infineon), changes in
the market outlook and trends; the growth rate of fabless companies and the
outsourcing strategy of integrated device manufacturers; the rate of the
semiconductor market recovery; economic conditions in the United States as well
as globally; customer demands, unforeseen delays or interruptions in our plans
for our fabrication facilities (including Fab 7); the performance level of and
technology mix in our fabrication facilities; our progress on leading edge
products; access to or delays in

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technological advances or our development of
process technologies, changes in
 capacity allocation in process technology mix, changes in our capacity plans, unavailability of materials, equipment,
manpower, expertise and timely regulatory approvals; the availability of
financings and the terms thereof; the continued occupation of Iraq and the
possibility of another outbreak of SARS or any other infectious disease in
Singapore as well as various parts of the world. Although we believe the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained. In addition to the foregoing factors, a description of certain other
risks and uncertainties which cause actual results to differ materially can be
found in Item 3. Key Information  Risk Factors. You are cautioned not to
place undue reliance on these forward-looking statements, which reflect
managements current analysis of future events. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.






|ITEM 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | INFORMATION ON OUR COMPANY            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | HISTORY AND DEVELOPMENT OF OUR COMPANY
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Chartereds full legal name is Chartered Semiconductor Manufacturing Ltd.
Chartered is a limited liability company incorporated in the Republic of
Singapore in 1987. Our principal executive and registered offices are located
at 60 Woodlands Industrial Park D, Street 2, Singapore 738406. Our telephone
number is +65-6362 2838. Information pertaining to our company and our SEC
filings are available on our website, www.charteredsemi.com. However,
information contained in our Web site does not constitute a part of this
document.                                                                                                                                                           
|Our agent in the U.S. for the purpose of our securities filings is our
subsidiary, Chartered Semiconductor Manufacturing, Inc., 1450 McCandless Drive,
Milpitas, California 95035, telephone +1-408-941 1100.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|In 1997, Chartered acquired equity interests in CSP and in SMP. For more
information on this, please refer to Item 4. Information On Our Company 
Business Overview  Strategic Alliances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|We have one significant subsidiary, CSP, a Singapore company incorporated in
1997 in which we have a 51% equity interest. For information on our other
subsidiaries, please see Item 4. Information On Our Company   Organizational
Structure.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Our principal capital expenditures for the fiscal years 2001, 2002 and 2003
comprised mainly of the purchase of semiconductor equipment for the equipping
of fabs. Our capital expenditures amounted to $489.6 million in 2001, $419.5
million in 2002 and $220.8 million in 2003. We expect our aggregate capital
expenditures in 2004 to be approximately $700 million. The majority of the
expenditures in 2004 will be for Fab 7 with the balance primarily for capacity
additions at leading-edge technologies in Fab 6. For more details on the amount
spent on equipping Fab 7 as of December 31, 2003, see Item 5. Operating and
Financial Review and Prospects  Liquidity and Capital Resources.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|For the year 2003, our capital expenditures were financed mainly from
borrowings under our existing credit facilities and cash balances. A more
detailed discussion of credit facilities can be found under Item 5. Operating
and Financial Review and Prospects  Liquidity and Capital Resources.                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|B.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | BUSINESS OVERVIEW                     

DESCRIPTION OF BUSINESS

Chartered is one of the worlds leading semiconductor foundries. We provide
comprehensive wafer fabrication services and technologies to semiconductor
suppliers and systems companies. We focus on providing foundry services to
customers that serve high-growth, technologically advanced applications, in the
communication, computer and consumer applications.

We currently own, or have an interest in, five fabrication facilities, all of
which are located in Singapore. Our sixth fab, Fab 7, will be developed as the
companys first 300-mm facility. Engineering wafer starts in Fab 7 are
scheduled to begin in late third quarter of 2004 and pilot production is
expected to commence in end 2004.

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In February 2003, we announced our plans to phase out Fab 1, our only 150-mm
fab, and consolidate its business into Fab 2 over an estimated 13 month
transition period, with the aim of reducing our fixed cost base as well as
consolidating all Singapore fab operations onto our main campus in Woodlands.
The consolidation is progressing on schedule and production at Fab 1 is
expected to cease by the end of March 2004.

We have service operations in 11 locations and in eight countries in North
America, Europe and Asia.

INDUSTRY BACKGROUND

Semiconductors are critical components used in an increasingly wide variety of
applications, such as computer systems, communications equipment and systems,
automobiles, consumer products and industrial automation and control systems.
As performance has increased and size and cost have decreased, the use of
semiconductors in these applications has grown significantly.

Historically, the semiconductor industry was composed primarily of companies
which designed and manufactured semiconductors in their own fabrication
facilities. These companies are known as integrated device manufacturers, or
IDMs. In the mid-1980s, fabless semiconductor companies, which focused on
design and marketing and utilized external manufacturing capacity, began to
emerge. Fabless companies initially relied on the excess capacity provided by
IDMs. As the semiconductor industry continued to grow, fabless companies and
IDMs began to seek reliable and dedicated sources of wafer fabrication
services. This need is being met by the development of independent companies,
known as foundries, that focus primarily on providing wafer fabrication
services to semiconductor suppliers and systems companies.

THE GROWTH OF THE SEMICONDUCTOR FOUNDRY INDUSTRY

Semiconductor suppliers presently face increasing demands to offer new products
that provide higher performance and greater functionality at lower prices. To
compete successfully, they must also minimize the time it takes to bring a
product to market. High performance semiconductors, which contain millions of
transistors, are extraordinarily challenging to design and even more
challenging to manufacture. Additionally, these high-performance semiconductors
can only be produced in fabs that employ the most advanced semiconductor
process technologies.

According to recent industry research reports and company announcements, the
cost of a state-of-the-art 300-mm fab is approximately $3 billion, which is
approximately six times higher than the cost a decade ago. Today, only large
and well-capitalized companies can support the substantial technology and
investment requirements of building state-of-the-art fabs. In addition, for
companies to justify the enormous cost of a new fab, a high level of capacity
utilization is essential to ensure that fixed costs are fully absorbed. These
trends have led to the rapid growth in demand in the recent years for advanced
semiconductor manufacturing services provided by semiconductor foundries.

Foundry services are now utilized by nearly every major semiconductor company
in the world. Historically, IDMs have used foundry services for their
incremental manufacturing needs. Given the high cost of implementing 300-mm
technology and the mounting pressure on them to improve profit margins and
accelerate time-to-market, we expect IDMs to utilize foundries more extensively
in the future for their core manufacturing needs.

THE REQUIREMENTS OF A FULL-SERVICE FOUNDRY

As demand for foundry services has grown, many semiconductor suppliers are
seeking highly committed partners that meet their manufacturing technology
requirements. These partners must be able to provide the following:

Systems Integration Expertise. Business and consumer demand for convergent
solutions that perform multiple functions that classically were done by
different individual devices has increased dramatically. Fueling this demand
has been growth in the merging of data communications, telecommunications,
wireless and consumer markets. This has resulted in greater demand for faster,
smaller semiconductors that integrate an increasing
number of functions onto a single device at a lower cost. This need for
increased system-level integration requires semiconductor foundries to offer
specialized expertise in a number of areas. These include the

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integration of
logic, which processes data, and memory, which stores data, into a single
device and mixed-signal technologies which translate data between analog and
digital form. The foundry market has been asked to also provide and support
access to third party intellectual property and design solutions as the
customer base increasingly focuses on system-level expertise and passes on to
its foundry more of the design and product implementation efforts.

Leading-Edge Process Technologies. Semiconductor foundries must also provide a
range of manufacturing process technologies from standard CMOS (complementary
metal oxide silicon) to technologies that enable extremely fast transmission
and processing speeds, such as specialized CMOS for wireless applications and
the use of copper interconnect for very high speed devices. Foundries must
also continue to offer smaller process geometries which allows for the
integration of more functions in the same size device or more devices per
wafer.

Long-Term Relationships. As foundries become more integral to the overall
manufacturing strategies of their customers, it has become increasingly
important for foundries to form long-term relationships with them.
Semiconductor suppliers and systems companies need assurance that their foundry
suppliers will continue to provide sufficient advanced manufacturing capacity
to keep pace with their customers growth, and develop and make available
advanced process technologies capable of producing next-generation products.
These relationships must be also flexible, allowing customers to respond to the
variable nature of the semiconductor market.

Security. When using foundry services, semiconductor suppliers, systems
companies and their partners entrust highly valuable and proprietary
intellectual property to the foundries manufacturing their devices. These
customers demand foundry partners who understand the importance of protecting
intellectual property.

THE CHARTERED SOLUTION

Chartered is one of the worlds leading semiconductor foundries. We provide
comprehensive wafer fabrication services and technologies to semiconductor
suppliers and systems companies and enable seamless integration of the
semiconductor design and manufacturing processes. By doing so, we enable our
customers to bring high-performance, highly-integrated products to market
rapidly and cost effectively.

Chartereds partnership approach allows us to work with customers early on in
the product definition stage, often sharing resources, knowledge and even
physical assets, to jointly develop solutions, thus giving our partners the
flexibility to adapt quickly to new market opportunities.

Chartered has developed an array of technologies and capabilities to drive
converging applications. Our fabrication facilities support the leading-edge
requirements for high-bandwidth, feature-rich wireless and wired applications.
We have proven expertise in mixed signal and radio frequency complementary
metal oxide silicon, or RF CMOS, enabling technologies essential to the
convergence of computer, communication and consumer applications.

In order to augment our internal development efforts, we have entered into
strategic alliances and technology alliances with leading semiconductor
companies such as our strategic alliance with Agere in SMP and our technology
alliances with IBM and Infineon. For more details on these strategic alliances
and technology alliances, see Item 4. Information On Our Company  Business
Overview  Strategic Alliances  Silicon Manufacturing Partners and Item 4.
Information On Our Company  Business Overview  Research and Development.

We have established relationships with leading EDA, intellectual property and
design services providers. Together we develop a process platform tailored to
our customers needs and that is production-proven so as to facilitate
first-pass success. We offer design solutions for a variety of applications and
process nodes, giving customers valuable freedom of choice when it comes to EDA
and intellectual property selection. Customers get early access to design rules
and other important manufacturing specifications so that they can be
incorporated into designs early. We have launched in September 2003, a Design
Solutions Partner Alliance, or NanoAccess Alliance, specifically aimed at
providing solutions to address the design challenges associated with advanced
process technologies (90nm and below). The initial NanoAccess Alliance is
comprised of fifteen of the worlds leading EDA, intellectual property and
design service companies.

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We launched our e-Business initiative in the second quarter of 2003 which we
believe will provide our customers with improved information access, data
exchange and e-Business functionality over the Internet. For more information
on our e-Business initiative, please see Item 4. Information On Our Company 
Business Overview  Customer Service.

We believe that Chartered is a trusted, customer-oriented service provider, and
it takes a collaborative approach to the foundry industry. All of our
manufacturing operations are located in Singapore, a politically and
economically stable nation with laws that protect our customers proprietary
technology.

BUSINESS STRATEGY

Our objective is to be a leading worldwide full-service provider of wafer
foundry services to semiconductor suppliers and systems companies focused on
high-growth applications that require a high degree of system-level
integration. In February 2003, we also announced our aim to accelerate our
return to profitability by putting in place strategies to enhance our growth
potential and improve our cost structure. Key elements of our updated strategy
include:



|(a) |  | Improve Top-Line Growth By Targeting First Source Business While
Continuing To Serve The Markets For Mature Technologies
|--- |  | ------------------------------------------------------------------------------------------------------------------------

Our ability to engage customers at increasingly advanced technologies, the
strengthening of our technology roadmap resulting from our joint development
agreements with IBM and Infineon, and the expansion of our third-party network
of pre-qualified EDA, intellectual property and design services solutions, have
allowed us to target substantially more first source business. First source
business refers to being selected as the first manufacturing source for
customers new product introductions and it typically commands higher prices
and profit margins.

As mature technology products remain a growing and important part of
Chartereds business, we will also continue to focus on increasing our reach
into mature markets. We place an emphasis on leveraging our capabilities in
mixed-signal and RF CMOS processes with complete solutions for our niche
technologies for products such as smart cards, RFID tags, display drivers and
power management for mobile products.



|(b) |  | Optimize Our Capacity Base
|--- |  | --------------------------

We aim to optimize our capacity base by rapidly expanding capability for
advanced technologies, reducing excess capacity at mature technology nodes and
adopting a borderless fab approach targeted at improving asset utilization
and increasing flexibility and scalability across all our fabs.

Advanced Technologies. As part of our plan to expand our capability for
advanced technologies, we intend to expand our production capacity for 0.18um
and smaller geometry technology to meet the anticipated needs of our customers.
Although our plans may change in the future depending on market demand and our
customers requirements, we intend to increase production capacity for 0.18um
and smaller geometry products by approximately 125% between 2002 and 2004, and
to do so while essentially holding our total capacity base flat. Slightly over
one-half of this increase was completed in 2003. We believe that increasing
our foundry capacity in smaller or advanced process geometry technology will
allow us to take advantage of the market opportunities opening up to Chartered
as a result of the rapid technology progress we have made in recent years.

Mature Technologies. We intend to utilize our capacity for mature technologies
by developing niche technologies, targeting strategic partnerships for volume
production and working towards establishing a manufacturing presence in China
with appropriate partners to leverage on our equipment assets, technology and
expertise in mature processes. With the aim of reducing our fixed cost base, we
announced in February 2003 that we will be phasing out Fab 1 (our only 150-mm
fab) and consolidating its business into Fab 2 on the main campus in Woodlands.
The consolidation process is progressing on schedule and production at Fab 1
is expected to cease by the end of March 2004.



|(c) |  | Focus On Solutions That Support The Growing Trend Of Product Convergence
|--- |  | ------------------------------------------------------------------------

We are focused on providing foundry services to customers that serve
high-growth convergence applications which require a high degree of functional
integration. These customers compete based on differentiated

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products, rapid
time-to-market and device performance, as opposed to suppliers of less complex
commodity semiconductor products, which compete primarily on price and
manufacturing capacity. Many of our customers use our custom solution of
technology and services to manufacture their products for applications such as
cable modems, wireless, office automation products and consumer connectivity
products.



|(d) |  | Provide A Complete Range Of Services
|--- |  | ------------------------------------

We are continuing to expand our range of services so that we can effectively
meet our customers evolving needs. Our goal is to seamlessly integrate the
design and manufacturing process with a wide array of services, tools and
technologies. The services we currently make available to our customers, in
conjunction with our partners, include a number of EDA design tools, design
libraries, third party intellectual property and process technologies that have
been validated for our manufacturing process. We also offer our customers full
turnkey services which include wafer fabrication, assembly and test.



|(e) |  | Offer Leading Process Technology
|--- |  | --------------------------------

We intend to continually expand our portfolio of process technologies in line
with our customers requirements for timing and performance for use with their
products. The schedule and first level definition of the new process
technologies being developed, and to be developed, are provided by our
technology roadmaps. The current roadmaps cover the 2003 through 2005 period,
and the baseline technologies for logic, mixed signal, RF CMOS and BiCMOS,
embedded electrically erasable programmable read-only devices or embedded
EEPROM and HVCMOS. All of these technologies are built on the logic foundation,
using plug-in modules to extend the capability of the combined logic and
modules. The plug-in module approach allows for the reuse of design libraries
with the addition of the modules, since the logic transistor and other
electrical device characteristics remain unchanged from those produced with the
logic processes.

The current development programs for logic are directed to 90nm and 65nm
technology nodes. For 0.13um logic, production capability for the nominal
devices has been in production since the first quarter of 2003. We have
converged our 90nm development program with the joint development that we
engaged in with IBM in November 2002. The IBM joint development agreement is
designed to provide customers with greater access to leading-edge semiconductor
technologies and sourcing flexibility. In addition, IBM also licensed to us
under the Copper/Related FEOL Technology License Agreement, certain know-how
and skills relating to certain copper back end of line and related front end of
line techniques. Please see Item 19. Exhibits  Exhibit 4.37.

In August 2003, we extended the IBM joint development agreement to include
Infineon. Under the agreement, IBM, Infineon and Chartered are jointly
developing a common advanced foundry manufacturing process technology at 65nm,
as well as variants tuned for high performance and low power. Please see Item
4. Information On Our Company  Business Overview  Research and Development
for more details on this joint development agreement.

In the case of mixed signal technologies, which employ additional devices such
as metal-insulator-metal capacitors and poly silicon resistors that must be
characterized for mixed-signal operation, timing typically follows the
introduction of the logic development schedule. For RF CMOS, still more
devices such as inductors and varactors must be developed and characterized and
modeled. This process builds on the mixed signal and the logic processes, and
is generally expected to be ready for pilot production within six months after
the logic process becomes available. BiCMOS, which integrates bipolar
transistors with the CMOS and selected modules from mixed signal and RF CMOS,
comes to pilot production later. In September 2002, we strengthened our
position in RF and mixed signal technology by entering into a collaboration
agreement with Interuniversitair Micro-Elektronic Centrum vzw, or IMEC,
Europes leading independent research and development center for
microelectronics, relating to 0.18um silicon germanium (SiGe) BiCMOS. The
0.18um SiGe BiCMOS process transfer from IMEC to us was completed on schedule
in 2003.

The availability of logic, mixed-signal RFCMOS, BiCMOS, SiGe and embedded
memories technologies enables us to provide process solutions essential to the
convergence of computer, communication and consumer applications.



|(f) |  | Enhance And Expand Alliances
|--- |  | ----------------------------

We intend to leverage and expand our existing alliances and to establish new
alliances with leading companies that offer complementary technologies,
products and services. We believe that our alliances with semiconductor

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technology leaders and providers of design tools, intellectual property, design
services and assembly and test services have given us access to select
leading-edge system technologies. These alliances have also enhanced our
development efforts and have the potential to increase our fab utilization
rates. We also believe that by establishing these alliances and working closely
with leading companies who are also existing or future customers, such as Agere
Systems, IBM and Infineon, we are better positioned to win future business with
them.

In August 2003, we entered into an arrangement with CSMC Technologies
Corporation, or CSMC, a leading 150mm Chinese integrated circuit (IC) foundry
services company for equipment sale, technology licensing, operational
assistance and customer referral. We have commenced transfer of our proven
150mm technologies which will be used to serve the China market and other
customers globally with specific mature technology requirements.

MANUFACTURING FACILITIES

As of December 31, 2003, we own or have an interest in five fabs, all of which
are located in Singapore. Fabs 1, 2 and 3 are wholly-owned and operated by our
company. We do not have a Fab 4. Fab 5 is owned and operated by SMP, our joint venture
company with Agere Systems Singapore Pte Ltd, a subsidiary of Agere Systems
Inc. Fab 6 is owned and operated by CSP, our joint venture company with Agilent Technologies
Europe B.V., EDB Investments and Singapex Investments Pte Ltd, a wholly owned
subsidiary of Singapore Technologies.

In February 2003, we announced our plans to phase out Fab 1, our only 150-mm
fab, and consolidate its business into Fab 2 over an estimated 13 month
transition period, with the aim of reducing our fixed cost base as well as
consolidating all Singapore fab operations onto our main campus in Woodlands.
The consolidation is progressing on schedule and production at Fab 1 is
expected to cease by the end of March 2004.

Our sixth fab, Fab 7, will be developed as the companys first 300-mm facility.
Engineering wafer starts in Fab 7 are scheduled to begin in late third quarter
of 2004 and pilot production is expected to commence in end 2004. Fab 7 is
wholly owned and operated by our company.

Our fab capacity plans have been updated consistent with our companys efforts
to better align manufacturing capability with our growing market opportunities
in advanced technologies. The following table reflects our wafer capacity
figures as of December 31, 2003 for each of our fabs and the fab of our
equity-method joint venture company, SMP (Fab 5). The information in this table
does not reflect the changes arising from the on-going consolidation of Fab 1s
business into Fab 2.

|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |       |            |      |                 |  |  |      |  |  |                        |         |  | 
|-------------------------- |  | ------------- | -------- | --------------- | ----- | ------------- | ----- | ------------- | -------------- | ------------- | -------------- | ---------------- | ----- | ---------- | ---- | --------------- |  |  | ---- |  |  | ---------------------- | ------- |  | 
|                           |  |               | Fab 1(1) |                 | Fab 2 |               | Fab 3 |               | Fab 5 (SMP)(2) |               | Fab 6 (CSP)(2) |                  | Fab 7
|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |      
|Production commenced       |  |               | 1989     |                 |       |               | 1995  |               |                |               | 1997           |                  |       |            | 1999 |                 |  |  | 2000 |  |  |                        | 2005(3) | 
|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |       |            |      |                 |  |  |      |  |  |                        |         | 
|Current capacity(4)        |  | 26,000 wafers |          | 42,000 wafers   |       | 19,500 wafers |       | 20,000 wafers |                | 20,000 wafers |                |                  |      |           
|                           |  | per month(5)  |          | per month       |       | per month     |       | per month     |                | per month     |                |                  |       |           
|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |       |            |      |                 |  |  |      |  |  |                        |         | 
|Estimated full capacity(6) |  | 26,000 wafers |          | 42,000 wafers   |       | 22,000 wafers |       | 20,000 wafers |                | 30,000 wafers |                | 30,000 wafers   
|                           |  | per month(5)  |          | per month       |       | per month     |       | per month     |                | per month     |                | per month(7)    
|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |       |            |      |                 |  |  |      |  |  |                        |         | 
|Wafer size                 |  | Six-inch      |          | Eight-inch      |       | Eight-inch    |       | Eight-inch    |                | Eight-inch    |                | Twelve-inch     
|                           |  | (150-mm)      |          | (200-mm)        |       | (200-mm)      |       | (200-mm)      |                | (200-mm)      |                | (300-mm)        
|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |       |            |      |                 |  |  |      |  |  |                        |         | 
|Process Technologies       |  | 1.2 to 0.5um  |          | 0.6 to 0.3um(8) |       | 0.35 to       |       | 0.25 to       |                | 0.25 to       |                | 0.13um, 90nm and
|                           |  |               |          |                 |       |               |       |               |                | 0.18um (8)    |                | 0.13um(8)        |       | 0.11um (8) |      | smaller process
|                           |  |               |          |                 |       |               |       |               |                |               |                |                  |       |            |      |                 |  |  |      |  |  | geometry technology(8)

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|                              |  |                                                    |          |                                                                                                |       |                                           |       |                                              |                |                                                                              |                |                                                        |       |  |  |  |  |  |  |  |  |  |  |  | 
|----------------------------- |  | -------------------------------------------------- | -------- | ---------------------------------------------------------------------------------------------- | ----- | ----------------------------------------- | ----- | -------------------------------------------- | -------------- | ---------------------------------------------------------------------------- | -------------- | ------------------------------------------------------ | ----- |  |  |  |  |  |  |  |  |  |  |  | 
|                              |  |                                                    | Fab 1(1) |                                                                                                | Fab 2 |                                           | Fab 3 |                                              | Fab 5 (SMP)(2) |                                                                              | Fab 6 (CSP)(2) |                                                        | Fab 7
|                              |  |                                                    |          |                                                                                                |       |                                           |       |                                              |                |                                                                              |                |                                                        |      
|Manufacturing
Technologies(9) |  | Digital; Mixed
Signal; ROM;
EEPROM;
HVCMOS;
BiCMOS |          | Digital; Mixed
Signal; RF
CMOS;
SRAM; Flash
Memory;
HVCMOS;
EEPROM;
DMOS;
BiCMOS,
BiPolar; OTP |       | Digital; Mixed
Signal; RF
CMOS;
SRAM; ROM |       | Digital; RF
CMOS;
BiCMOS
Mixed
Signal; eSRAM |                | High
performance,
high-density
CMOS;
high density
SRAM
Mixed Signal;
RF CMOS |                | Digital;
high-density
SRAM;
RF CMOS;
Mixed
Signal; SOI |      
|                              |  |                                                    |          |                                                                                                |       |                                           |       |                                              |                |                                                                              |                |                                                        |       |  |  |  |  |  |  |  |  |  |  | 
|Clean room                    |  | 34,000 sq. ft                                      |          | 109,000 sq. ft.                                                                                |       | 81,000 sq. ft.                            |       | 96,540 sq. ft.                               |                | 123,000 sq. ft.                                                              |                | 170,000 sq. ft                                        
|                              |  | Class 10; 10,000                                   |          | Class-1 SMIF(10)                                                                               |       | Class-1 SMIF(10)                          |       | Class-1 SMIF(10)                             |                | Class-1 SMIF(10)                                                             |                | Class-1 SMIF(10)                                      
|                              |  | sq. ft. Class-1                                    |          |                                                                                                |       |                                           |       |                                              |                |                                                                              |                |                                                        |       |  |  |  |  |  |  |  |  | 
|                              |  | SMIF(10)                                           |          |                                                                                                |       |                                           |       |                                              |                |                                                                              |                |                                                        |       |  |  |  |  |  |  |  |  | 



---

|(1)  |  | In February 2003, we announced our plans to phase out Fab 1 and
production at Fab 1 is expected to cease by the end of March 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | With respect to Fab 5 and Fab 6, the information includes capacity of our
strategic partners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(3)  |  | Engineering wafer starts are scheduled to begin in late third quarter of
2004 and pilot production is expected to commence in end 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(4)  |  | Current capacity is the production output capability based on current
process technology mix using the installed set of equipment in the fab as
of December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(5)  |  | Equivalent to 14,625 eight-inch wafers per month. A conversion rate of
0.5625 is utilized in determining the number of eight-inch equivalent
wafers to that of six-inch wafers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(6)  |  | Estimated full capacity is the production output capability based on our
current and anticipated process technology mix, which may vary. Unlike
current capacity which is computed based on the currently installed set of
equipment in the fab, estimated full capacity assumes that the fab is
fully utilized to its maximum capacity, based on planned equipment
additions and anticipated technology mix. Our projections of estimated
full capacity have varied from previous projections in terms of number of
wafers because of revisions to our earlier plans, including changes to our
capacity expansion plans and capacity allocation in process technology
mix. Such changes reflect developments in market conditions and demand.                                                                                                                      
|    
|(7)  |  | Equivalent to 67,500 eight-inch wafers per month. A conversion rate of
2.25 is utilized in determining the number of eight-inch equivalent wafers
to that of twelve-inch wafers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(8)  |  | Some of these manufacturing processes are preliminary and their
successful implementation depends on various factors, including our
ability to achieve advances in process technology or to obtain access to
advanced process technology developed by others, or in the case of our
0.18um capability in Fab 3, our ability to leverage on certain tool
capacities in SMP. These fabs can be retrofitted to achieve smaller
geometries than those shown above.                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(9)  |  | Some of these manufacturing technologies are preliminary and their
successful implementation depends on various factors, including our
ability to achieve advances in manufacturing technology or to obtain
access to advanced manufacturing technology developed by others. ROMs are
read-only memory devices. EEPROMs are electrically erasable programmable
read-only memory devices. SRAMs are static random access memory devices.
eSRAMs are embedded static random access memory devices. CMOS means
complementary metal oxide silicon. RF CMOS means radio frequency
complementary metal oxide silicon. BiCMOS means bipolar complementary
metal oxide silicon. HVCMOS refers to high voltage complementary metal
oxide silicon. DMOS refers to double diffused vertical MOSFET. OTP refers
to one time programmable memory. SOI means silicon on insulator.
|    
|(10) |  | Class 10 is a measurement of air cleanliness in which the amount of
particles is controlled to no more than 10 particles at 0.5 micron per
cubic foot of air. Class 1 is a measurement of air cleanliness in which
the amount of particles is controlled to no more that 1 particle at 0.5
micron per cubic foot of air. SMIF means standard mechanical interface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

All our production fabs generally operate 24 hours per day, 7 days per week.
The only exceptions are where scheduled maintenance requires a facility
shut-down, or in periods of weak demand where we idle fabs that are not
required to meet manufacturing schedules to reduce certain operating costs, as
was the case from time to

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time in 2001 and 2002 and as may be the case in the
future, depending on customer demand. Regular maintenance is otherwise
performed concurrently with production. Whether we choose to carry out
scheduled maintenance requiring a facility shut-down or regular maintenance
performed concurrently with production depends on which is more appropriate at
any given time, having regard to minimizing disruption to our production
schedule.

The following table sets forth information regarding the total wafer output by
each of our fabs, the fab of our equity-method joint venture company, SMP, and
the fab of our subsidiary, CSP, during the past five years:

Total Output(1) (in thousands)Fab
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003Fab 1(2)
    
    

    181
    
    
    
    180
    
    
    
    96
    
    
    
    97
    
    
    
    121Fab 2
    
    
    419
    
    
    
    524
    
    
    
    168
    
    
    
    149
    
    
    
    247Fab 3
    
    
    96
    
    
    
    210
    
    
    
    113
    
    
    
    94
    
    
    
    134Fab 5 (SMP)(3)(4)
    
    
    
    
    
    
    73
    
    
    
    7
    
    
    
    28
    
    
    
    116Fab 6 (CSP)(3)
    
    
    
    
    
    
    13
    
    
    
    14
    
    
    
    77
    
    
    
    104




|(1) |  | Total output of revenue generating eight-inch equivalent wafers.          
|--- |  | --------------------------------------------------------------------------
|   
|(2) |  | Includes output of terminated print-head business for year 1999.          
|   
|(3) |  | Fab 5 commenced production in 1999 and Fab 6 commenced production in
2000.
|   
|(4) |  | Includes only Chartereds output.                                         

QUALITY ASSURANCE PROGRAMS

We have implemented systems to ensure high quality service to customers and
manufacturing reliability at our facilities in Singapore. Our in-house
laboratory is equipped with advanced analytical tools and provides the
necessary equipment and resources for our research and development and
engineering staff to continuously enhance product quality and reliability. Our
quality assurance staff comprises engineers, technicians and other employees
who monitor and control our manufacturing processes.

Our production facilities in Singapore, Fabs 1, 2, 3, 5 and 6 have been
certified by a third party certification body to QS 9000, an internationally
recognized quality standard and in May 2003, Fabs 2, 3, 5 and 6 were certified
to the more exacting ISO 9000:2000 standard. These standards include the
requirement for continuous improvement, emphasizing on defect prevention,
variation reduction and reduction of waste in the supply chain. The
certification processes involve periodically subjecting production processes
and quality management systems to stringent third-party review and
verification. Our customers often look to QS 9000 and ISO 9000 certification
as a threshold indication of our quality control standards. In the near future,
we plan to move to the TS 16949 standard that will replace QS 9000 in 2005.

Our company has adopted the Six Sigma program, a well-recognized method of
making breakthrough improvements in business processes and solving chronic
problems. Our strategy is to use the Six Sigma method to give a structured and
rigorous approach to improvements across the whole organization. Following the
completion of the pilot project, we have put more people through in-depth
training to create a critical mass of Black-Belts, experts in the use of Six
Sigma tools and methods. The deployment continues to spread to the wider
engineering population with Green Belt training.

STRATEGIC ALLIANCES

Chartered Silicon Partners

Our subsidiary, Chartered Silicon Partners Pte Ltd, or CSP, was established in
March 1997 and is a joint venture between Chartered (51%), EDB Investments Pte
Ltd, or EDB Investments (26.5%), Agilent Technologies Europe B.V. (15%)
(previously Hewlett-Packard Europe B.V.), and Singapex Investments Pte Ltd, or
Singapex (7.5%).

CSP owns and operates Fab 6. Pursuant to a cost sharing agreement, we perform
certain management and corporate support activities for the benefit of CSP
including accounting, financial, sales and marketing. Under this agreement, CSP
is allocated a portion of our costs in performing such activities.

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From March 1997 until October 2001, we, Agilent Technologies Europe B.V. and
EDB Investments had a 51%, 30% and 19% equity interest in CSP, respectively.
The ownership was restructured in October 2001 when Agilent Technologies Europe
B.V. sold one-half of its 30% share in CSP to Singapex and EDB Investments, in
equal proportion, resulting in Chartered, EDB Investments, Agilent Technologies
Europe B.V. and Singapex owning 51%, 26.5%, 15% and 7.5% equity interest in
CSP, respectively. Agilent Technologies Europe B.V. has a 2 year option from
October 2002 to reacquire the ownership interest that was sold.

We and Agilent Technologies, Inc. contributed the process technologies needed
by CSP. Such process technologies are licensed to CSP for its own use and CSP
cannot sub-license them to others. We also cross-license the rights to use such
technologies to one another. These cross-licenses allow our respective
companies to use the process technologies and related intellectual property
licensed to CSP in our respective manufacturing facilities for our general
businesses even if such are not related to CSP. Agilent Technologies, Inc. has
ceased its technology development for technology nodes beyond 0.25um, and as
such, Agilent Technologies, Inc. will cease to contribute any process
technologies involving these technology nodes to CSP and CSP will instead rely
solely on the process technologies contributed by our company.

Pursuant to our joint venture agreement, the CSP alliance will continue
indefinitely so long as there are two or more parties to the alliance. Before
any transfer of an interest in CSP can occur, the non-transferring parties may
exercise a right of first refusal with respect to the interests proposed to be
transferred. Upon a serious, uncured default, the non-defaulting parties have
the right to purchase all of the defaulting partys interest for fair value, as
defined in the agreement. Upon a change of control of a party, the other
parties have the right to purchase, at fair value, all of such partys
interest.

The reduction in Agilent Technologies Europe B.V.s ownership in CSP in 2001
also had an impact on Agilent Technologies, Inc.s obligation to purchase a
minimum number of wafers per year and rights to purchase a maximum number of
wafers per year from CSP. This reduction automatically resulted in a reduction
in Agilent Technologies, Inc.s maximum capacity entitlement and in the
financial obligation associated with its minimum wafer purchase commitment
requirement. However, if Agilent Technologies Europe B.V. exercises its option
to reacquire the ownership interest, such reacquisition will also lead to an
increase in the related capacity entitlement and purchase requirement.

With the reduction of Agilent Technologies Europe B.V.s ownership in CSP in
2001, the parties also agreed that directors appointed by Agilent Technologies
Europe B.V. would no longer have voting rights although they would still remain
on CSPs Board of Directors and retain all their other existing rights and
obligations. In addition, Agilent Technologies Europe B.V. is no longer a
member of CSPs management committee. CSPs Board of Directors comprises eight
directors. As long as we own more than 50% of CSP, we can elect four of the
directors. Agilent Technologies Europe B.V. can elect two directors as long as
it owns at least 15% of CSP, EDB Investments can elect one director as long as
it holds any ownership interest in CSP and Singapex can elect one director as
long as it holds 7.5% of CSP.

U.S. GAAP generally requires consolidation of all majority owned (greater than
50%) subsidiaries. CSP is a consolidated subsidiary. Due to cumulative
losses, CSPs financial position moved to a capital deficit as of the first
quarter of 2003, thereby requiring us to recognize 100% of CSPs losses (and
profits) from that point forward and until such time as CSPs financial
position reverts to a capital surplus.

Silicon Manufacturing Partners

In December 1997, we entered into the SMP strategic alliance with Lucent
Technologies Microelectronics Pte Ltd, or Lucent Technologies Microelectronics,
now known as Agere Systems Singapore Pte Ltd, or Agere Systems Singapore,
relating to the joint venture ownership of Fab 5.

Agere Systems Singapore has a 51% equity interest in SMP and we have a 49%
equity interest. SMPs Board of Directors comprises five directors, three of
which are elected by Agere Systems Singapore and two of which are elected by
us. We also nominate the chairman of the Board of Directors and the general
manager, while Agere Systems Singapore names the finance director.

Pursuant to an assured supply and demand agreement that both the joint venture
partners signed with SMP, we are each required to purchase a specified
percentage of Fab 5s output. However, if one party does not purchase its share
of wafers, the other party is entitled to utilize that unused capacity. In the
event such other

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party does not utilize the unused capacity, the party who does
not purchase its entitlement will be required to compensate SMP for any
unrecovered costs it incurs in connection with such unused capacity. Under the
assured supply and demand agreement mentioned above, there was no allocated
wafer capacity billable to us for 2003.

Pursuant to our agreement, the SMP strategic alliance continues indefinitely
until it is terminated by written notice from or by either party. Neither
party may give such written notice of termination prior to February 2006, and
the termination of the alliance will take effect two years from the date of
such termination notice. In addition, the parties may only transfer their
interests to their respective affiliates. Upon our dissolution, winding up or
liquidation, Agere Systems Singapore can purchase all of our interests in SMP
for fair value, as defined in the agreement. Upon our serious, uncured breach,
Agere Systems Singapore has the right to sell all of its interest in SMP to us
at the higher of fair value or the value of its interest based on SMPs net
book value, as defined in the agreement. Upon Agere Systems Singapores
dissolution, winding up or liquidation, we have the right to purchase all of
its interest in SMP for fair value. Upon Agere Systems Singapores serious,
uncured breach, we have the right to purchase all of its interest in SMP at 90%
of fair value. Upon a change of control of a party, the other party has the
right to purchase, at fair value, all of such partys interest in SMP.

Pursuant to a cost sharing agreement, we perform certain management and
corporate support activities for the benefit of SMP including accounting,
financial and human resources. Under this agreement, SMP is allocated a portion
of our costs in performing such activities.

We and Agere Systems Singapore contribute the process technologies needed by
SMP. Such process technologies are licensed to SMP for its own use and SMP
cannot sublicense them to others. The licensed technologies are categorized as
restricted and unrestricted technologies. We and Agere Systems Singapore also
cross-license the unrestricted technologies to one another. These
cross-licenses allow our respective companies and subsidiaries to use certain
process technologies and related intellectual property licensed to SMP in our
respective manufacturing facilities for our general businesses even if such
uses are not related to SMP. We do not cross-license the restricted
technologies with one another, which means that only SMP can use such
restricted process technologies and intellectual property.

SMP owns and operates Fab 5, which is adjacent to our Fab 3 building. SMP owns
the equipment used in Fab 5 and leases the space for Fab 5 from us. With effect
from October 2001, we together with Agere Systems Singapore agreed to run Fab 5
and Fab 3 as one integrated operation, while retaining the existing ownership
and corporate structure of SMP. The fabs shared a single shell but had two
separate administrative structures prior to their operational integration. By
implementing this change, we and Agere Systems Singapore are able to free up
key technical resources and also provide enhanced flexibility and better
utilization of the combined equipment base.

We account for our 49% investment in SMP using the equity method. Under the
strategic alliance agreement, the parties do not share SMPs net results in the
same ratio as the equity holding. Instead, each party is entitled to the gross
profits from sales to the customers that it directs to SMP, after deducting its
share of the overhead costs of SMP. Accordingly, we account for our due share
of SMPs net results based on the gross sales to the customers that we direct
to SMP, after deducting our 49% share of the overhead costs.

OVERVIEW OF WAFER FABRICATION SERVICES

Wafer fabrication is an intricate process that requires many distinct steps.
Each step in the manufacturing process must be completed with extreme accuracy
in order for finished semiconductor devices to work as
intended. The processes required to take raw wafers and turn them into finished
semiconductor devices are accomplished through a series of steps that can be
summarized as follows:

Pre-fabrication services

Circuit Design. Producing a semiconductor device involves designing the layout
of its components and designating the interconnections between each component.
The result is a pattern of components and connections that defines the function
of the semiconductor device. In highly complex circuits, there may be more than
35 layers of electronic patterns.

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We do not design semiconductor devices for our customers. If requested, we
assist our customers in the design process by providing them with access to our
partners EDA tools, design libraries and intellectual property and design
services which are proven and have been qualified for our manufacturing
processes. Our field engineers assist our customers during the development
process to ensure that their designs can be successfully manufactured in
volume.

Mask Making. The design for each layer of a semiconductor wafer is imprinted on
a photographic negative, called a mask. The mask is the blueprint for each
specific layer of the semiconductor wafer. We do not manufacture masks for our
customers but provide a service through third party mask shops.

Wafer fabrication

Wafer Manufacturing. Transistors and other circuit elements comprising a
semiconductor device are formed by repeating a series of processes in which a
photosensitive material is deposited on the wafer and exposed to light through
a mask. The unwanted material is then etched away, leaving only the desired
circuit pattern on the wafer. This process is repeated for each mask layer. The
final step in the wafer fabrication process is to visually and electronically
inspect each individual semiconductor device, known as wafer probe, in order to
identify the operable semiconductor devices for assembly.

We manufacture semiconductors using CMOS and BiCMOS processes. CMOS is the most
widely used process technology because it requires lower power than other
technologies and allows dense placement of components onto a single
semiconductor device. The low power consumption and high-density
characteristics of the CMOS process allow the continued development of high
performance semiconductor devices that are smaller and faster. BiCMOS process
technology combines bipolars attribute of high speed with the high density and
low power consumption of CMOS. We use CMOS or a combination of CMOS and BiCMOS
for the fabrication of logic, mixed-signal and memory semiconductor wafers.

We manufacture a variety of semiconductor wafers for a full range of end market
applications including communication, computing, and consumer electronics.
Examples of the types of semiconductors we manufacture are as follows:

Logic. All digital electronic systems, such as computing devices, are
controlled by logic semiconductor devices, which process data.
Microcontrollers, microprocessors, digital signal processors, and graphics
chipsets are all logic devices. We manufacture logic semiconductor wafers
primarily for the computing, consumer and communications markets.

Mixed-Signal. Mixed-signal semiconductor devices combine analog and digital
devices on a single semiconductor device to process both analog signals and
digital data. Mixed-signal semiconductor devices are used in applications
including wireless equipment, fiber optic communications and data networking.
We make mixed-signal semiconductor wafers using both CMOS and BiCMOS processes.

Memory. Memory devices store data and can be manufactured as stand-alone
devices or embedded in system semiconductor devices, which combine a number of
functions, such as logic and memory components. We manufacture stand-alone
memory devices including EPROM, EEPROM, ROM, SRAM and Flash memory and embedded
memory including eSRAM, eEEPROM, and eFLASH (embedded memory that can be erased
in a flash) memories. For more information on what these mean, please see Item
4. Information On Our Company  Business Overview  Manufacturing
Facilities. Memory is used in a range of products from computers and mobile
phones to smart chip cards.

Wafer Probe. We provide all aspects of the wafer fabrication process except
for wafer probe, which, if requested by the customer, is outsourced to a
qualified third party. All steps in the wafer manufacturing process are
controlled by our computer-integrated manufacturing, or CIM, system. The CIM
system allows us to monitor equipment performance, wafer processing steps, and
the wafers themselves throughout the fabrication process.

Other services

Assembly and Test. After fabrication and wafer probe, the wafers are
transferred to assembly and test facilities. The assembly process protects the
semiconductor device, facilitates its integration into electronic systems and
enables the dissipation of heat. Following assembly, each semiconductor
devices functionality, voltage, current

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and timing are tested. After testing,
the completed semiconductor device is either shipped to the semiconductor
device supplier or directly to its final destination.

Although we are an independent foundry specializing in wafer fabrication, we
offer our customers the option to purchase from us finished semiconductor
products that have been assembled and tested (turnkey services). When
requested by the customer, we outsource assembly and testing of the fabricated
semiconductor devices. Alternatively, our customers may directly arrange with
assembly and test facilities for these services. Testing includes wafer probe
and final testing of assembled semiconductor devices. After final testing, the
semiconductor devices are returned to the customer or drop-shipped according to
our customers specifications.

CUSTOMERS AND MARKETS

We manufactured semiconductors for over 100 different active customers in 2003.
Our top five customers accounted for approximately 53.1% and 41.5% of our
revenue in 2002 and 2003, respectively. In 2002, Agilent, Motorola and
Broadcom each accounted for more than 10% of our revenue. However, in 2003,
only Broadcom accounted for more than 10% of our revenue.

The following table sets forth our top five customers for 2003 in order of
revenue:

|                     |  |                                                                              
|-------------------- |  | -----------------------------------------------------------------------------
|CUSTOMER             |  | REPRESENTATIVE PRODUCTS OR APPLICATIONS                                      
|                     |  |                                                                              
|Broadcom             |  | LAN switches/routers and ethernet transceivers, cable modem and set-top boxes
|Agilent Technologies |  | Computer peripherals, mobile phone handsets and networking products          
|Mediatek             |  | Optical Storage and DVD players/recorders                                    
|Motorola             |  | Wired and wireless communications                                            
|ST Microelectronics  |  | Mobile phones and set-top box                                                

We categorize a sale geographically based on the country in which the customer
is headquartered. The following table sets forth the geographical distribution
of our net revenues for the periods indicated:

By Percentage:

|             |  |      |     |      |  |      |     |   |  |  |     |  
|------------ |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|             |  | 2001 |     | 2002 |  | 2003
|             |  |      |     |      |  |     
|Americas     |  |      | 67  | %    |  |      | 71  | % |  |  | 64  | %
|Europe       |  |      | 9   | %    |  |      | 8   | % |  |  | 13  | %
|Asia-Pacific |  |      | 18  | %    |  |      | 11  | % |  |  | 18  | %
|Japan        |  |      | 6   | %    |  |      | 10  | % |  |  | 5   | %
|             |  |      |     |      |  |      |     |   |  |  |     |  
|Total        |  |      | 100 | %    |  |      | 100 | % |  |  | 100 | %
|             |  |      |     |      |  |      |     |   |  |  |     |  

By $ (in thousands):

|             |  |      |         |      |  |      |         |  |  |   |         | 
|------------ |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|             |  | 2001 |         | 2002 |  | 2003
|             |  |      |         |      |  |     
|Americas     |  | $    | 308,093 |      |  | $    | 317,218 |  |  | $ | 353,921 | 
|Europe       |  |      | 41,958  |      |  |      | 38,643  |  |  |   | 72,249  | 
|Asia-Pacific |  |      |         |      |  |      |         |  |  |   |         | 
|- Singapore  |  |      | 449     |      |  |      | 485     |  |  |   | 871     | 
|- Others     |  |      | 84,671  |      |  |      | 48,928  |  |  |   | 100,071 | 
|Japan        |  |      | 27,485  |      |  |      | 43,967  |  |  |   | 24,799  | 
|             |  |      |         |      |  |      |         |  |  |   |         | 
|Total        |  | $    | 462,656 |      |  | $    | 449,241 |  |  | $ | 551,911 | 
|             |  |      |         |      |  |      |         |  |  |   |         | 

We expect that the majority of our sales will continue to be made to companies
headquartered in the U.S. or to overseas affiliates of U.S. companies. All of
our sales are direct sales to our customers with delivery in Singapore. We
provide customer support in the U.S. through a wholly-owned subsidiary located
in Milpitas, California which has additional offices in Boston, Massachusetts
and Austin, Texas. We also maintain customer support offices in Hsin-Chu,
Taiwan; Yokohama, Japan; Paris, France; London, United Kingdom; Munich, Germany
and Shanghai, China.

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Our customers generally do not place their purchase orders far in advance. As a
result, we do not typically operate with any significant backlog.

We currently allocate a portion of our wafer manufacturing capacity to certain
customers under several types of agreements.

CUSTOMER SERVICE

We focus on providing a high level of customer service in order to attract
customers and maintain their on-going loyalty. Our culture emphasizes
responsiveness to customer needs, flexibility and delivery accuracy. In
particular, in the area of flexibility, we work closely with customers to
understand their needs and collaborate with them to deliver a solution that is
customized to address their requirements. Our customer-oriented and
collaborative approach is especially evident in two prime functional areas of
customer interaction, customer design development and manufacturing services.

We emphasize very close interaction with customers throughout the design
development and prototyping process. We provide for an account manager to be
assigned early in the design development process who coordinates an account
team composed of marketing, EDA, silicon engineering, third-party partner and
customer service/logistical support. The account team is supported by
additional marketing and customer engineering staff in Singapore.

After the design moves into manufacturing production, on-going customer support
is provided through all phases of the manufacturing process. The account
manager teams with a dedicated customer service representative, along with
marketing and customer engineering support teams at the factory.

The Chartered On Line Access System is our e-Business platform that provides
our customers with secure access via the Internet to design and manufacturing
data. We launched our e-Business initiative in the second quarter of 2003 which
we believe will provide our customers with improved information access, data
exchange and e-Business functionality over the internet. Concurrently, we
continue to be an advocate of RosettaNet open standards for communication
across the supply chain. In 2003, we doubled the number of partners with whom
we have successfully set up RosettaNet B2B connectivity. We also continue to
build customer-specific communication channels to achieve closer contact with,
and provide better service to, our customers.

RESEARCH AND DEVELOPMENT

The semiconductor industry is characterized by rapid and relentless technical
advances. We believe effective research and development is essential to our
success, as that research and development spawns the leading-edge technologies
that are critical to attracting and retaining customers who design highly
sophisticated semiconductors. In 2001 and 2002, we invested $82.9 million and
$95.3 million, respectively, in research and development. Those investments
represented 17.9% and 21.2% of our net revenue for the respective periods. In
2003, our research and development expenditures, including our share of
expenses related to the IBM joint-development agreement, were $124.5 million,
or 22.6% of our net revenue for the year. As of December 31, 2003, we employed
225 professionals in our research and development department, 37 of whom have
PhDs.

Our investment in research and development allows us to continue developing new
and advanced processes down to the 65nm technology node. The research and
development programs are structured to ensure that our
baseline manufacturing processes accommodate new technology modules that are
the heart of highly differentiated system-level applications.

Periodically, we update our technology roadmap based on industry trends,
expected customer adoption of the technology and our internal development
plans.

Our technology alliances with leading semiconductor suppliers contribute to our
development of new process technologies. In November 2002, we entered into a
multi-year joint development agreement with IBM designed to provide customers
with greater access to leading-edge semiconductor technologies and sourcing
flexibility. Under the agreement, the parties are jointly developing and
aligning on 90nm and 65nm logic processes for foundry chip production on 300-mm
silicon wafers. Additionally, the parties may explore an extension to the
agreement to include 45nm technologies. To assist foundry customers in
designing with these technologies,

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IBM and Chartered have also agreed to work
together with third-party providers of design enablement and open-standard
formats to help customers more easily move their products between the two
companies for production. Our agreement with IBM also includes a reciprocal
manufacturing arrangement between the parties.

In August 2003, we extended the IBM joint development agreement to include
Infineon. Under the agreement, IBM, Infineon and Chartered are jointly
developing a common advanced foundry manufacturing process technology at 65nm,
as well as variants tuned for high performance and low power (See Item 19.
Exhibits  Exhibit 4.41). Additionally, the parties may explore an extension
to the agreement to include 45nm technology.

We have received research grants from various agencies of the Government of
Singapore. These grants provide funding for a portion of our research and
development related capital expenditures, for the training and staffing costs
associated with some of our process technology development programs and to
implement cost-effective solutions to meet our power quality needs. $8.1
million of such grants were disbursed to us in 2003. The grants are disbursed
based on the amount of expenditures incurred and achievement of program
milestones. The main conditions attached to the grants are the completion of
the project to which the grant relates and the certification of the qualifying
costs incurred.

EQUIPMENT AND MATERIALS

We depend on a limited number of manufacturers that make and sell the complex
equipment that we use in our manufacturing processes. The principal pieces of
equipment we use to manufacture semiconductors are scanners, steppers, tracks,
etchers, furnaces, wet stations and implanters and sputtering, chemical vapor
deposition and chemical mechanical planarization equipment. In periods of high
market demand, the lead times from order to delivery of some of such equipment
can extend beyond 12 months. We seek to manage this process through early
reservation of appropriate delivery slots and constant communication with our
suppliers.

Our manufacturing processes use highly specialized materials, including
semiconductor wafers, chemicals, gases, targets and masks. We depend on our
vendors of these materials and seek to have more than one vendor for our
material requirements. To maintain competitive manufacturing operations, we
must obtain from our vendors, in a timely manner, sufficient quantities of
quality materials at acceptable prices. We source most of our materials,
including critical items such as semiconductor wafers, from a limited group of
vendors. We purchase most of our key materials on a blanket purchase order
basis. We typically do not have long term contracts with our vendors. For those
materials that are wholly procured from one source, we continuously look to
identify and qualify alternative sources of supply. We have agreements with key
material vendors under which they hold inventory on consignment for us. We are
not under any obligation to purchase inventory that is held on consignment
until we actually use it. We typically work with our suppliers to forecast our
raw material requirements up to one year in advance.

INTELLECTUAL PROPERTY

Our success depends in part on our ability to obtain patents, licenses and
other intellectual property rights covering our production processes. To that
end, we have acquired certain patents and patent licenses and intend to
continue to seek patents on our production processes.

As of December 31, 2003, we had filed an aggregate of 1,834 patent applications
worldwide, (930 of which had been filed in the U.S.) and held an aggregate of
859 issued patents worldwide (615 of which are issued U.S. patents). Of the 930
aggregate applications filed in the U.S., 615 had been issued as of December
31, 2003 and 27 had been allowed but not issued. Those 27 allowed patents will
be issued if and when we pay the applicable issuance fee. (Note: References to
aggregate figures include not only the figures for the year itself but figures
for previous years as well. Accordingly, if an aggregate of 1,834 patent
applications have been filed as of December 31, 2003, these include not only
the patent applications filed in 2003 but all patent applications previously
filed by the company.)

Our issued patents have expiration dates ranging from 2011 to 2023. All of the
allowed and pending patents will expire after 2023. We have also entered into
various patent licenses and cross-licenses with major semiconductor companies.
We may choose to renew our present licenses or to obtain additional technology
licenses in the future. There can be no assurance that any such licenses could
be obtained on commercially reasonable terms.

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Our ability to compete also depends on our ability to operate without
infringing the proprietary rights of others. The semiconductor industry is
generally characterized by frequent litigation regarding patent and other
intellectual property rights. We have from time to time received communications
from third parties asserting patents that cover certain of our technologies and
alleging infringement of certain intellectual property rights of others. We
expect that we will receive similar communications in the future. Irrespective
of the validity or the successful assertion of such claims, we could incur
significant costs and devote significant management resources to the defense of
these claims which could seriously harm our company. There is no such material
litigation currently pending against us. Additionally, we market services in
several countries in Asia which may not protect our intellectual property
rights to the same extent as the U.S.

COMPETITION

The worldwide semiconductor foundry industry is highly competitive. Our
principal competitors are TSMC and UMC. Our competitors may have greater access
to capital and substantially greater production, research and development,
marketing and other resources than we do. As a result, these companies may be
able to compete more aggressively over a longer period of time than we can. In
addition, several new dedicated foundries have entered the semiconductor
industry, arising from new foundries being established in China and Malaysia
and manufacturers of DRAM products converting to dedicated foundries in Korea.
These new foundries have commenced operations and compete directly with us. Any
significant increase in competition may erode our profit margins and weaken our
earnings.

A number of semiconductor manufacturers, including our primary competitors,
have announced plans to set up fabrication facilities in Singapore and other
parts of the world and to increase their manufacturing capacity. As a result,
we expect that there will be a significant increase in worldwide semiconductor
capacity during the next few years. If growth in demand for this capacity fails
to match the growth in supply or occurs more slowly than anticipated, there may
be more intense competition and pressure on the pricing of our services may
result.

The principal elements of competition in the wafer foundry market include
technical competence, time-to-market, research and development, quality,
available capacity, device yields, customer service, price, design services,
access to intellectual property and EDA tool support.

ENVIRONMENTAL MATTERS AND COMPLIANCE

We have implemented an extensive environmental management system. This system
is third party certified through internationally recognized ISO 14001. This
system enables our operations to identify applicable environmental regulations
and assist in evaluating compliance status. Programs are established at
manufacturing locations to ensure that all accidental spills and discharges are
properly addressed.

We are subject to a variety of laws and governmental regulations in Singapore
relating to the use, discharge and disposal of toxic or otherwise hazardous
materials used in our production process. While we believe that we are
currently in compliance in all material respects with such laws and regulations
and have management systems in place to continue to be in compliance, if we
fail to use, discharge or dispose of hazardous materials
appropriately, we could subject our company to substantial liability or could
be required to suspend or adversely modify our manufacturing operations. In
addition, we could be liable for remedial measures if our properties were found
to be contaminated even if we were not responsible for such contamination.

INSURANCE

We maintain industrial all risk insurance for our facilities, equipment and
inventories. The insurance for fabs (including our strategic alliance fabs) and
their equipment covers physical damage and consequential losses from natural
disaster, business interruption and certain other risks up to their respective
policy limits except for exclusions as defined in the policy. We also maintain
public liability insurance for losses to others arising from our business
operations and carry insurance for business interruption resulting from such
events. In addition, we also maintain product liability insurance for damages
sustained by others for bodily injury or property damage caused by our
product(s) except for exclusions as defined in the policy. Our insurance
policies also cover public liability and actions by our employees.

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In addition, we also have various insurance policies in place which cover a
majority of our employees with the exception that some of our key employees are
covered under insurance policies held by Singapore Technologies through its
group insurance policy. We pay our pro rata share of the costs of such
Singapore Technologies group insurance policies. Some of our insurance coverage
is provided through affiliates of Singapore Technologies. Some of our insurance
coverage for SMP is under Ageres global group insurance program.

While we believe that our insurance coverage is adequate, significant damage to
any of our production facilities, whether as a result of fire or other causes,
could seriously harm our company. We do not insure against the loss of key
personnel.



|C. |  | ORGANIZATIONAL STRUCTURE
|-- |  | ------------------------

Chartered is part of the Singapore Technologies group of companies. A
description of the group and Chartereds position within the group may be found
at Item 7. Major Shareholders and Related Party Transactions  Related Party
Transactions  The Singapore Technologies Group.

Currently, Chartered has five subsidiaries, the particulars of which are as
follows:

|                                               |  |                   |  |               |  |                   
|---------------------------------------------- |  | ----------------- |  | ------------- |  | ------------------
|                                               |  | Country of        |  | Date of       |  | Proportion of     
|Name of Subsidiary                             |  | Incorporation     |  | Incorporation |  | Ownership Interest
|                                               |  |                   |  |               |  |                   
|Chartered Silicon Partners Pte Ltd             |  | Singapore         |  | March 1997    |  | 51%               
|Chartered Semiconductor Manufacturing Inc.     |  | U.S               |  | June 1991     |  | 100%              
|Chartered Semiconductor Japan Kabushiki Kaisha |  | Japan             |  | October 2000  |  | 100%              
|Chartered Semiconductor Taiwan Ltd             |  | Taiwan            |  | August 2000   |  | 100%              
|Chartered Semiconductor Europe Ltd             |  | England and Wales |  | March 2001    |  | 100%              



|D. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

All of our fabrication facilities and our corporate offices are located in
Singapore. Fab 1 is located on land leased from Ascendas Land (Singapore) Pte
Ltd, or Ascendas, a private company wholly-owned by Jurong Town Corporation, or
JTC, a statutory board established by the Government of Singapore to develop
and manage industrial estates in Singapore. The lease runs until 2017 with a
conditional option to extend for another 30 years. Following the announcement
of our plans to consolidate Fab 1s business into Fab 2, we are evaluating our
various options with regard to the future of the lease.

Fabs 2 and 3 and our corporate offices are located on land leased to Singapore
Technologies by JTC. These leases run until 2024 with conditional options to
extend for another 30 years. We have entered into sub-leases with Singapore
Technologies for the entire term of the leases for Fabs 2 and 3. The sub-leases
for Fab 2 and Fab 3 require us to make rental payments to Singapore
Technologies at rates equal to the rent paid by Singapore Technologies to JTC
for the subject land through 2006 for Fab 2 and 2024 for Fab 3.

CSP leases the land on which Fab 6 is located from Singapore Technologies,
which in turn leases it from JTC. The agreement provides for the land to be
leased to Singapore Technologies until 2027, with a conditional option to
extend for an additional 30 years. CSP makes rental payments to Singapore
Technologies at rates equal to the rent paid by Singapore Technologies to JTC
for the subject land through 2027.

Fab 7 is located on land licensed to Singapore Technologies by JTC for a period
of three years commencing from March 1, 2000 under the terms of a Building
Agreement dated July 30, 2001 for the purpose of entering and building on the
land (see Item 19. Exhibits  Exhibit 4.56). Under an Agreement for
Sub-License and Sub-Lease with Singapore Technologies dated July 30, 2001, (see
Item 19. Exhibits  Exhibit 4.55), we have a sub-license from Singapore
Technologies to this land for a term of three years less one day commencing
from March 1, 2000, with license fee payments equal to the license fees payable
by Singapore Technologies to JTC under the Building Agreement, and we have
successfully negotiated with Singapore Technologies to extend the sub-license
to December 30, 2004. Upon the completion of the Fab 7 building and the
satisfaction of certain conditions (such as investment criteria) contained in
the Building Agreement, JTC will lease the land where Fab

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7 is located to
Singapore Technologies. We will sub-lease this land from Singapore Technologies
for a term of 30 years less 1 day with rental payments equal to the rent paid
by Singapore Technologies to JTC.




ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
the related notes included elsewhere in this document. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ significantly from those projected in the forward-looking
statements. Factors that might cause future results to differ significantly
from those projected in the forward-looking statements include, but are not
limited to, those discussed below and elsewhere in this document particularly
in the cautionary risk factors described in Item 3. Key Information  Risk
Factors above.

INDUSTRY OVERVIEW

According to the Semiconductor Industry Association, the long-term growth rate
for the worldwide semiconductor industry is expected to be 8% to 10%. However,
the semiconductor industry is highly cyclical. Fabs can take several years to
plan, construct and begin operations. Therefore, during periods of favorable
market conditions, semiconductor manufacturers often begin building new fabs in
response to anticipated demand growth for semiconductors. In addition, upon
operation, fabs increase production volumes rapidly. As a result, large amounts
of semiconductor manufacturing capacity typically become available during the
same time period. In the absence of growth in demand, this sudden increase in
supply results in semiconductor manufacturing over-capacity, which leads to
sharp drops in semiconductor prices.

Semiconductor manufacturing is very capital intensive in nature. For example,
in 2000 and 2001, we incurred $963.8 million and $489.6 million in capital
expenditures, respectively. Even in the midst of challenging economic
conditions in 2002, we invested $419.5 million in capital expenditures,
primarily in equipping Fab 6 and for the purchase of equipment for research and
development use, as part of our continuing strategy of positioning ourselves to
serve market needs. We invested $220.8 million in capital expenditures in 2003,
focused primarily on leading-edge technologies. A high percentage of the cost
of operating a fab is fixed, therefore increases or decreases in capacity
utilization rates can have a significant effect on profitability. The unit cost
of wafer fabrication generally decreases as fixed charges, such as depreciation
expense on the facility and semiconductor manufacturing equipment, are
allocated over a larger number of units produced.

As the price of wafers varies significantly, the mix of wafers produced affects
revenue and profitability. The value of a wafer is determined by the complexity
of the device on the wafer. Production of devices with higher level
functionality and greater system-level integration requires more manufacturing
steps and commands higher wafer prices. However, increasing the complexity of
devices that we manufacture does not necessarily lead to increased
profitability, because the higher wafer prices for such devices may be offset
by depreciation and other costs associated with an increase in the capital
expenditures needed to manufacture such devices. The prices for wafers of a
given level of technology decline over the product life cycle and foundries
must continue to
migrate to increasingly sophisticated technologies to maintain the same level
of profitability. This requires continuous capital investment.

Our capacity was at maximum utilization from the second quarter of 1999 through
the third quarter of 2000. During this period of capacity utilization, our
gross profits and net income showed progressive improvement as better economies
of scale and operating leverage took effect on the back of rising demand. In
the fourth quarter of 2000, the semiconductor market turned down and our
utilization rate declined. The industry contraction in 2001 was the most severe
in its history and largely as a result of this, our average utilization rate in
2001 and 2002 was in the mid-30s. Because of this, we suffered significant net
losses in 2001 and in 2002. As average capacity utilization improved to 58% in
2003, our net losses decreased significantly.

2003 OVERVIEW

The semiconductor industry recovery, which began in late 2002, accelerated in
the second half of 2003. We registered year-over-year revenue growth of 22.9%
in 2003 and saw an acceleration of this growth in the fourth quarter of 2003.

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This growth was primarily due to higher demand as we recorded sequential
quarterly increases in shipments, which was driven primarily by customers in
our communications sector. Based on shipments by technology, both advanced and
mature technology products shipments also recorded sequential quarterly
increases.

In February 2003, we announced our strategy to accelerate our return to
profitability with plans to enhance the companys growth potential and improve
our cost structure. We believe we are starting to see results from this
strategy. Our revenue growth from the fourth quarter of 2002 to fourth quarter
of 2003 was 69.3%, compared to the broader semiconductor market, which we
believe grew about 28% over the same period. We gained ground in both advanced
and mature technologies and also made good progress in broadening our customer
base and in expanding relationships with existing customers. As a result, we
estimate our capacity utilization in the first quarter of 2004 will
be 81% plus or minus 2 points as disclosed in our fourth quarter and
year 2003 earnings release on January 30, 2004,
compared to 45% in the same period in 2003.

Our strategy for improving our cost structure included phasing out Fab 1s
business and consolidating its business into Fab 2 by March 2004, together with
a corresponding work force reduction for Fab 1 employees. The consolidation
process is progressing on schedule and production at Fab 1 is expected to cease
by the end of March 2004. The pre-tax costs associated with retention, work
force reduction, plant closure, customer assistance and other related expenses
are estimated to total approximately $18 to $22 million, not including
potential gains on the disposition of fixed assets. As of December 31, 2003,
we have recognized $12.4 million of these expenses. Annualized on going cost
savings is expected to be approximately $25 million, beginning in the second
quarter of 2004. In addition, due to higher volumes and improvement in our
cost structure, we recorded a gross profit of $11.1 million in the fourth
quarter of 2003, an improvement from the gross loss of $53.9 million in the
fourth quarter of 2002. As disclosed in our fourth quarter and year
2003 earnings release on January 30, 2004, we estimate our gross profit in the first quarter of

2004 to be approximately $35 million plus or minus
$4 million.

In 2003, we also took a number of steps to further strengthen our technology
position towards industry leadership. Under the Chartered-IBM joint development
agreement announced in November 2002, the two companies are jointly developing
90nm and 65nm bulk CMOS processes for foundry chip production on 300-millimeter
silicon wafers and are engaged in a reciprocal manufacturing arrangement that
provides dual-sourcing flexibility for their customers. Together, the two
companies are providing a common 90nm design manual and guidelines for the
jointly developed process platform. In August 2003, we extended the
Chartered-IBM joint development agreement to include Infineon. Under the
agreement, IBM, Infineon and Chartered are jointly developing a common advanced
foundry manufacturing process technology at 65nm, as well as variants tuned for
high performance and low power. Chartered and IBM also entered into another
agreement in 2003 under which Chartered will manufacture selected 90nm SOI
(silicon on insulator) products for IBM in volume-driven, high performance
solutions, beginning in mid-2005.

U.S. GAAP generally requires consolidation of all majority-owned (greater than
50%) subsidiaries. CSP is our joint venture fab in which we have 51% equity
interest and is a consolidated subsidiary. Due to cumulative losses, CSPs
financial position moved to a capital deficit in first quarter of 2003, thereby
requiring the company to recognize 100% of CSPs losses (and profits) from that
point forward and until such time as CSPs financial position reverts to a
capital surplus. The result of this on our consolidated statements of
operations was an
additional loss of $74.3 million in 2003. This has no additional impact on our
cash flow nor does it have an impact on CSPs operations and loan covenants.

CRITICAL ACCOUNTING POLICIES

The preparation of the consolidated financial statements in accordance with
U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
revenues and expenses during the reporting period. Actual results could differ
from these estimates. We believe the following critical accounting policies
require us to make significant judgments and estimates in the preparation of
our consolidated financial statements:

Depreciation, amortization and valuation of long-lived and intangible assets

Our results of operations are generally affected by the capital intensive
nature of our business. A large proportion of our costs of revenues are fixed
in nature. The major component of our fixed costs included in our cost of
revenue relates to depreciation on property, plant and equipment.

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Depreciation of our wafer fab buildings, and the mechanical and electrical
installations in the fabs, is provided on straight-line basis over their
estimated useful lives of 20 years and 10 years respectively. Depreciation
commences from the date when the building is ready for its intended use.
Depreciation of our equipment and machinery is provided on a straight-line
basis over their estimated useful lives of 5 years, commencing from the date
that the equipment or machinery is ready for its intended use which is not to
exceed 12 months from the purchase date.

The depreciation useful life estimates reflect our estimate of the periods that
we expect to derive economic benefits from the use of our property, plant and
equipment. In estimating the useful lives and determining whether subsequent
revisions to the useful lives are necessary, we consider the likelihood of
technological obsolescence arising from changes in production techniques or in
market demand. The effect of any future changes to the estimated useful lives
of our property, plant and equipment could be significant to our results of
operations. Depreciation charged to results of our operations amounted to
$429.5 million, $434.3 million and $418.2 million for 2001, 2002 and 2003,
respectively.

We capitalize interest with respect to major assets under installation and
construction until such assets are ready for use. Interest capitalized is based
on the average cost of the companys pooled borrowings.

In the course of our operations, we enter into technology license arrangements
in order to advance our process technologies. When such arrangements require
the payment of an initial license fee, the fee is recorded as an intangible
asset and amortized on a straight-line basis over the shorter of the estimated
useful life of the license or the license period.

We routinely review the remaining estimated useful lives of our property, plant
and equipment and our technology licenses to determine if such lives should be
adjusted due to changes in technology, production techniques and demand. We
also review our long-lived assets, including technology licenses, for
impairment whenever events or changes in circumstances indicate that their
carrying amounts 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 undiscounted cash flows expected to be generated from the assets. If
such assets are considered to be impaired, an impairment charge is recognized
for the amount that the carrying value of the asset exceeds its fair value.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

Due to the cyclical nature of our industry and changes in our business strategy
or market requirements, we may not be able to anticipate declines in the
utility of our equipment or licenses. Consequently, impairment charges may be
necessary in the future.

In 2000, we recorded a $11.6 million charge related to a technology license
which no longer met our requirements. We intend to continue to advance our
process technologies and we expect to enter into additional
technology licenses in the future. Due to the nature of our business and the
changing needs of our customers, further impairment charges in respect of
technology licenses could occur in the future.

Valuation of inventory

Our inventories are stated at the lower of standard cost, which approximates
actual costs determined on the weighted average basis, or market (net
realizable value). We reduce the carrying value of inventory for estimated
obsolescence or unmarketable inventory by an amount that is the difference
between its cost and the estimated market value based upon assumptions about
market conditions. We capitalize labor and overhead costs associated with the
manufacture of our products. Cost is generally computed on a standard cost
basis, based on normal fab capacity utilization, with unrecovered costs arising
from abnormal underutilization of capacity expensed when incurred. Net
realizable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make a sale.

We routinely review our inventories for their saleability and for indications
of obsolescence to determine if inventories should be written-down to net
realizable value. In estimating the net realizable value of our inventories, we
consider the likelihood of changes in market demand for our inventories.
Judgments and estimates must be made and used in connection with establishing
such allowances in any accounting period. If the inventories are sold for less
than the estimated net realizable value, it could be material to our results of
operations.

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Revenue recognition, sales returns, product warranties and allowances for
doubtful accounts

We derive revenue primarily from fabricating semiconductor wafers, and to a
lesser extent, from providing associated subcontracted assembly and test
services and from certain arrangements, for pre-fabrication services, including
engineering services.

Revenue is generally recognized upon shipment of wafers provided title and risk
of loss has passed to the customer, there is evidence of a final understanding
between us and our customers as to the specific terms of the agreed upon sales,
selling prices to the customers are fixed or determinable and collection of the
sales revenue is reasonably assured. Revenue represents the invoiced value of
goods and services supplied, excluding goods and services tax, less allowances
for sales returns.

For multiple-element arrangements, we divide the deliverables into separate
units of accounting upon their meeting certain specified criteria. From July
1, 2003 onwards, we adopted the methodology in FASB Emerging Issues Task Force
Issue 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21).
The total consideration is allocated to each component of the multiple-element
arrangement based on its fair value. Revenue on each element is recognized
when the contractual obligations have been performed and, where applicable,
delivery has occurred and title and risk of loss have passed to the customer,
there is evidence of an arrangement, fees are fixed or determinable, and
collectability is reasonably assured.

A typical arrangement includes fabricating semiconductor wafers, providing
associated subcontracted assembly and test services, and pre-fabrication
services such as engineering services. Where significant, the revenue allocated
to pre-fabrication service units of accounting are recognized over the expected
life of the specified products. Other arrangements include sale of equipment
and licensing of intellectual property. In allocating the total arrangement
consideration between equipment and licensing of intellectual property, we use
the residual method based on the fair value of equipment sold. The
determination of fair value of equipment is based on the resale prices of
similar equipment sold on the used equipment market. Accordingly, assuming all
other revenue recognition criteria are met, license revenue is recognized upon
delivery of the intellectual property, provided we have no continuing
involvement with the buyers use of the intellectual property.

The process technology for the manufacture of semiconductor wafers is highly
complex. The presence of contaminants, difficulties in the production process,
disruption in the supply of utilities or defects in key materials and tools can
all cause reductions in device yields and increase the risk of sales returns
and claims under our warranty guarantees. We make estimates of potential sales
returns and warranty costs related to current period product revenue. We
provide for such returns and costs based upon historical experience and our
estimate of the level of future claims. Additionally, we accrue for specific
items at the time their existence is known and the amounts are estimable.
Significant management judgments and estimates must be made and used in
connection with establishing the sales return and warranty allowances in any
accounting period. Material
differences may result in the amount and timing of our revenue for any period
if we make different judgments or utilize different estimates.

Similarly, we must make estimates of the collectability of our accounts
receivable. We review the accounts receivable on a periodic basis and make
specific allowances when there is doubt as to the collectability of individual
receivable balances. In evaluating the collectability of individual receivable
balances, we consider the age of the balance, the customers historical payment
history, their current credit-worthiness and current economic trends. We
believe that we adequately manage our credit risk through our credit evaluation
process, credit policies, and credit control and collection procedures.
However, losses on accounts receivable from our larger customers could be
material to our results of operations.

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RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of net
revenue for the periods indicated:

|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |      |      | 
|-------------------------------------------- | ------------------------------ | ------------------------ | ----- | ----------------------- | ---- | ---- | ------ | ----- | ---- |  | ----- | ---- | ---- | 
|                                             |                                |                          |       | Year ended December 31,
|                                             |                                |                          |       |                        
|                                             |                                |                          |       | 2001                    |      | 2002 |        | 2003 
|                                             |                                |                          |       |                         |      |      |        |      
|Net revenue                                  |                                |                          | 100.0 | %                       |      |      | 100.0  | %     |      |  | 100.0 | %   
|Cost of revenue                              |                                |                          | 143.8 |                         |      |      | 140.0  |       |      |  | 117.5 |     
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Gross loss                                   |                                |                          | (43.8 | )                       |      |      | (40.0  | )     |      |  | (17.5 | )   
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Operating expenses:                          |                                |                          |       |                         |      |      |        |       |      |  |       |     
|                                             | Research and development       |                          |       | 17.9                    |      |      |        | 21.2  |      |  |       | 22.6 |     
|                                             | Fab start-up costs             |                          |       | 2.9                     |      |      |        | 1.9   |      |  |       | 1.7  |     
|                                             | Sales and marketing            |                          |       | 8.3                     |      |      |        | 9.2   |      |  |       | 6.9  |     
|                                             | General and administrative     |                          |       | 9.3                     |      |      |        | 9.6   |      |  |       | 6.5  |     
|                                             | Other operating expenses       |                          |       |                        |      |      |        | 2.2   |      |  |       | (1.1 | )   
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|                                             |                                | Total operating expenses |       |                         | 38.4 |      |        |       | 44.1 |  |       |      | 36.6 | 
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Operating loss                               |                                |                          | (82.2 | )                       |      |      | (84.1  | )     |      |  | (54.1 | )   
|Other income (expense):                      |                                |                          |       |                         |      |      |        |       |      |  |       |     
|                                             | Equity in income (loss) of SMP |                          |       | (20.0                   | )    |      |        | (18.9 | )    |  |       | 4.2  |     
|                                             | Other income                   |                          |       | 4.3                     |      |      |        | 5.4   |      |  |       | 4.3  |     
|                                             | Interest income                |                          |       | 10.0                    |      |      |        | 3.7   |      |  |       | 2.2  |     
|                                             | Interest expense               |                          |       | (8.6                    | )    |      |        | (9.3  | )    |  |       | (7.7 | )   
|                                             | Exchange gain (loss)           |                          |       | 0.9                     |      |      |        | (0.4  | )    |  |       | (0.1 | )   
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Loss before income taxes                     |                                |                          | (95.6 | )                       |      |      | (103.6 | )     |      |  | (51.2 | )   
|Income tax expense                           |                                |                          | (3.1  | )                       |      |      | (1.6   | )     |      |  | (2.1  | )   
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Loss before minority interest                |                                |                          | (98.7 | )                       |      |      | (105.2 | )     |      |  | (53.3 | )   
|Minority interest in loss of CSP             |                                |                          | 15.7  |                         |      |      | 12.4   |       |      |  | 1.7   |     
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Net loss before cumulative effect adjustment |                                |                          | (83.0 | )                       |      |      | (92.8  | )     |      |  | (51.6 | )   
|Cumulative effect adjustment                 |                                |                          |      |                         |      |      |       |       |      |  | (1.2  | )   
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     
|Net loss                                     |                                |                          | (83.0 | )%                      |      |      | (92.8  | )%    |      |  | (52.8 | )%  
|                                             |                                |                          |       |                         |      |      |        |       |      |  |       |     

The following table sets forth a breakdown of net revenue by market sector for
the periods indicated. An improved methodology for deriving this data was
implemented in the first quarter of 2003 and is reflected for data as of the
first quarter of 2002. Comparable data is not available for 2001. As part of
the improved methodology, products formerly classified in the memory sector are
now classified in the appropriate end-market category.

|               |  |                         |     |      |  |      |     |   |  |  |     |  
|-------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|               |  | Year ended December 31,
|               |  |                        
|               |  | 2001                    |     | 2002 |  | 2003
|               |  |                         |     |      |  |     
|Communications |  |                         | 33  | %    |  |      | 36  | % |  |  | 46  | %
|Computer       |  |                         | 40  |      |  |      | 46  |   |  |  | 33  |  
|Consumer       |  |                         | 12  |      |  |      | 14  |   |  |  | 17  |  
|Memory         |  |                         | 13  |      |  |      |    |   |  |  |    |  
|Other          |  |                         | 2   |      |  |      | 4   |   |  |  | 4   |  
|               |  |                         |     |      |  |      |     |   |  |  |     |  
|Total          |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|               |  |                         |     |      |  |      |     |   |  |  |     |  

The following table sets forth a breakdown of net revenue by geographical
region for the periods indicated:

|             |  |                         |     |      |  |      |     |   |  |  |     |  
|------------ |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|             |  | Year ended December 31,
|             |  |                        
|             |  | 2001                    |     | 2002 |  | 2003
|             |  |                         |     |      |  |     
|Americas     |  |                         | 67  | %    |  |      | 71  | % |  |  | 64  | %
|Europe       |  |                         | 9   |      |  |      | 8   |   |  |  | 13  |  
|Asia-Pacific |  |                         | 18  |      |  |      | 11  |   |  |  | 18  |  
|Japan        |  |                         | 6   |      |  |      | 10  |   |  |  | 5   |  
|             |  |                         |     |      |  |      |     |   |  |  |     |  
|Total        |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|             |  |                         |     |      |  |      |     |   |  |  |     |  

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The following table sets forth a breakdown of net revenue by technology
(micron) for the periods indicated:

|               |  |                         |     |      |  |      |     |   |  |  |     |  
|-------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|               |  | Year ended December 31,
|               |  |                        
|               |  | 2001                    |     | 2002 |  | 2003
|               |  |                         |     |      |  |     
|0.13 and below |  |                         | 0   | %    |  |      | 0   | % |  |  | 9   | %
|Up to 0.18     |  |                         | 3   |      |  |      | 26  |   |  |  | 15  |  
|Up to 0.25     |  |                         | 19  |      |  |      | 23  |   |  |  | 21  |  
|Up to 0.35     |  |                         | 42  |      |  |      | 28  |   |  |  | 30  |  
|Above 0.35     |  |                         | 36  |      |  |      | 23  |   |  |  | 25  |  
|               |  |                         |     |      |  |      |     |   |  |  |     |  
|Total          |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|               |  |                         |     |      |  |      |     |   |  |  |     |  

YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2003

Net revenue

We derive revenue primarily from fabricating semiconductor wafers, and to a
lesser extent, from providing the associated subcontracted assembly and test
services and from certain arrangements, for pre-fabrication services, including
engineering services. Net revenues were $551.9 million in 2003, up 22.9%
compared to $449.2 million in 2002. This increase was primarily the result of
higher demand, partially offset by a decline in average selling prices, or ASP.
Shipments in 2003 were 606.0 thousand wafers, an increase of 45.3% compared to
417.0 thousand wafers in 2002, due to higher demand. ASP decreased by 15.4% to
$911 per wafer from $1,077 per wafer over the same period, primarily due to
customer mix and pricing pressures, partially offset by substantially higher
shipments of advanced technology products in 2003.

In 2002, the computer sector, which represented 46% of our total revenues, was
our highest revenue contributor, followed by the communications sector at 36%
of our total revenues. Primarily due to a significant increase in shipments to
the mobile phone handset and LAN switches/routers markets, which use more
advanced technology in their fabrication coupled with higher ASP in these
products, communications sector revenues increased by 56% between 2002 and
2003. Concurrently, computer sector revenues declined by 12% over the same
period mainly due to product and customer mix. As a result of this shift,
communications and computer sector revenues represented 46% and 33%,
respectively, of our total revenues in 2003.

As a result of customer mix changes, net revenue by geographical region
increased by 104%, 87% and 12% in the Asia Pacific, Europe and the Americas
regions, respectively, in 2003 as compared to 2002. The Japan region recorded a
decline of 44% over the same period. The Americas continued to be our largest
contributor to revenues, representing 64% of our total revenues in 2003, down
from 71% of our total revenues in 2002.

Cost of revenue and gross loss

Cost of revenue includes depreciation expense, attributed overheads, cost of
labor and materials as well as subcontracted expenses for assembly and test
services. Cost of revenue increased by 3.1% from $628.7 million in 2002 to
$648.3 million in 2003 despite a 45.3% increase in volumes. Cost per wafer
shipped decreased by 29.0% from $1,508 in 2002 to $1,070 in 2003 due to higher
volumes, lower depreciation, and cost savings and avoidance from our cost
reduction programs. Gross loss as a percentage of net revenue improved across
the same period, from 40.0% to 17.5%, as higher volumes and reduced cost per
wafer more than offset the unfavorable impact of a lower ASP.

Research and development expenses

Research and development (R&D) expenses consist primarily of cost sharing
arrangements, salaries and benefits for research and development personnel,
depreciation of research and development equipment and expenses for development
wafers. Research and development expenses increased by $29.2 million, or 30.7%,
from $95.3 million in 2002 to $124.5 million in 2003, due to increased
investments to accelerate the companys technology roadmap which provide
customers a breadth of processes, enabling systems-level integration.

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Beginning in first quarter of 2003, R&D expenses include our share of expenses
related to the IBM joint-development agreement for 90nm technologies, announced
in November 2002. This additional expense in 2003 was partially offset by lower
expenses for development wafers as our 0.13-micron process was completed and
released to production during the year.

Sales and marketing expenses

Sales and marketing expenses, which primarily consist of expenses associated
with overseas offices, payroll related costs for sales and marketing personnel
and costs related to prototyping activities, decreased by 7.1% from $41.2
million in 2002 to $38.3 million in 2003. The decrease was primarily due to
lower costs related to prototyping activities. As a percentage of net revenue,
sales and marketing expenses decreased from 9.2% to 6.9% over the same period.

General and administrative expenses

General and administrative expenses consist primarily of salaries and benefits
for administrative personnel, depreciation of non-production equipment,
consultancy, legal and professional fees, and recruitment and training
expenses. General and administrative expenses decreased by 17.2% from $43.1
million in 2002 to $35.9 million in 2003, primarily due to a $4.9 million gain
resulting from equipment disposition in the second quarter of 2003. Excluding
this gain, the decline was 5.4%.

Other operating expenses

Other operating expenses were a net gain of $6.1 million in 2003 and related to
the following three items:



| |  | A gain of $27.5 million associated with the cancellation of the companys employee bonus award plan.                                                                                       
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | A restructuring charge of $12.4 million relating to the phase out of the companys Fab 1.                                                                                                  
| 
| |  | An impairment charge of $9.0 million on certain machinery and equipment that have been classified as held for sale on
December 31, 2003, as part of companys fab capacity rationalization.

In 2002, we recorded a charge of $5.2 million associated with the workforce
re-sizing announced in October 2002 and a fixed asset impairment charge of $4.8
million. The restructuring charge relating to workforce re-sizing reflects the
costs of the compensation package paid to the affected employees. Further
details are disclosed in Note 22 of the consolidated financial statements.

Equity in income (loss) of SMP

Equity in loss of SMP was $84.8 million in 2002 compared to an income of $23.2
million in 2003, primarily due to significantly higher revenues from
Chartereds portion of SMP.

Interest income and interest expense

Net interest expense increased by 20.1% from $25.0 million in 2002 to $30.1
million in 2003. The increase was primarily due to lower interest income as a
result of lower interest rates on fixed deposit balances in 2003.

Income tax expense

Currently, we pay tax on interest income, rental income and other income not
specifically exempted from income tax. Each of our existing fabs, other than
Fab 1, has been exempted from income tax on profits from the sale of
manufactured goods for ten years following the date specified production
milestones are achieved. We have been granted post-pioneer status for Fab 1
which allows us to pay a concessionary tax rate of 10% effective January 1,
2001 with respect to certain qualifying income earned by Fab 1. Income taxes
increased from $7.0 million in 2002 to $11.7 million in 2003. The increase was
primarily due to higher taxes payable on Fab 1s taxable income. In 2002, tax
expense for Fab 1 was accrued based on the concessionary post-pioneer rate of
10%. In 2003, this tax expense was accrued based on the full corporate tax
rate of 22% because we will not be able to fulfill the conditions required to
maintain our post-pioneer status as a result of the restructuring of Fab 1.

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We
are currently discussing this with the relevant authorities. Please see Item
5. Operating and Financial Review and Prospects  Special Tax Status for
further discussion.

Minority interest in CSP

Minority interest in loss of CSP decreased from $55.6 million in 2002 to $9.5
million in 2003. Due to cumulative losses, CSPs financial position moved to a
capital deficit in first quarter of 2003, thereby requiring the company to
recognize 100% of CSPs losses (and profits) from that point forward, and until
such time as CSPs financial position reverts to a capital surplus. CSP has
remained in a capital deficit position since the first quarter of 2003 and none
of CSPs results have been allocated to the minority interest from that point
forward. As of December 31, 2003, CSPs capital deficit was $151.2 million.

YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2002

Net revenue

We derive revenue primarily from fabricating semiconductor wafers, and to a
lesser extent, from providing the associated subcontracted assembly and test
services and from certain arrangements, for pre-fabrication services, including
engineering services. Net revenues were $449.2 million in 2002, down 2.9%
compared to $462.7 million in 2001.

Wafer shipments increased from 390.7 thousand wafers in 2001 to 417.0 thousand
wafers in 2002, an increase of 6.7%, reflecting higher demand. ASP decreased by
9.0% to $1,077 per wafer in 2002 compared to $1,184 per wafer in 2001, due
primarily to pricing pressures which more than offset the favorable impact of a
richer product mix.

Cost of revenue and gross loss

Cost of revenue includes depreciation expense, attributed overheads, cost of
labor and materials as well as subcontracted expenses for assembly and test
services. Cost of revenue decreased 5.5% from $665.3 million in 2001 to $628.7
million in 2002 primarily due to reductions in manufacturing costs. Gross loss
decreased from $202.6 million, or 43.8% of net revenues in 2001 to $179.5
million, or 40.0% of net revenues in 2002, due primarily to lower manufacturing
cost such as depreciation and payroll costs.

Research and development expenses

R&D expenses consist primarily of salaries and benefits for research and
development personnel, depreciation of research and development equipment and
material expenses for development wafers. R&D expenses increased by $12.4
million, or 14.9%, from $82.9 million in 2001 to $95.3 million in 2002, due to
increased investments to accelerate the companys technology roadmap which
provide customers a breadth of processes, enabling systems-level integration.

Fab start-up costs

Fab start-up costs represent costs incurred (other than capitalized costs,
including capitalized interest related to acquisition or construction of
property, plant and equipment) in connection with the establishment of new fabs
and operations. Fab start-up costs, all related to Fab 7, decreased from $13.3
million in 2001 to $8.3 million in 2002, primarily due to the decision to delay
equipping the fab, as a result of the overall depressed market environment for
the semiconductor market.

Sales and marketing expenses

Sales and marketing expenses primarily consist of expenses associated with
overseas offices, payroll related costs for sales and marketing personnel and
costs related to prototyping activities. Sales and marketing expenses increased
by 6.5% from $38.7 million in 2001 to $41.2 million in 2002, primarily due to
expansion of worldwide sales and marketing activities to further enhance the
level of customer support.

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General and administrative expenses

General and administrative expenses primarily consist of salaries and benefits
for administrative personnel, depreciation of non-production equipment,
consultancy, legal and professional fees and recruitment and training expenses.
General and administrative expenses increased by 2.9% from $41.9 million in
2001 to $43.1 million in 2002.

Other operating expenses

In 2002, we recorded a charge of $5.2 million associated with the workforce
re-sizing announced in October 2002 and a fixed asset impairment charge of $4.8
million. The restructuring charge relating to workforce re-sizing reflects the
costs of the compensation package paid to the affected employees. Annual
savings in payroll and benefits is expected to be approximately $8 million.

Equity in income (loss) of SMP

Our equity share of the loss in SMP decreased from $92.7 million in 2001 to
$84.8 million in 2002, due primarily to higher SMP revenues.

Other income

Other income increased 19.8%, from $19.7 million in 2001 to $23.6 million in
2002, primarily due to an increase in grant income.

Interest income and interest expense

Net interest income of $6.6 million in 2001 decreased to a net interest expense
of $25.0 million in 2002, due primarily to lower interest income. Interest
income decreased 64.0%, from $46.2 million in 2001 to $16.6 million in 2002,
due to lower interest rates and to a lesser extent, a lower average cash
balance.

Exchange gain (loss)

Exchange loss was $2.0 million in 2002 compared with an exchange gain of $4.2
million in 2001, primarily due to fluctuations in the U.S. dollar/Singapore
dollar exchange rate and in the U.S. dollar/Japanese Yen exchange rate.

Income tax expense

Currently, we pay tax on interest income, rental income and other income not
specifically exempted from income tax. Each of our existing fabs, other than
Fab 1, has been exempted from income tax on profits from the sale of
manufactured goods for ten years following the date specified production
milestones are achieved. We have been granted post-pioneer status for Fab 1
which allows us to pay a concessionary tax rate of 10% effective January 1,
2001 with respect to certain qualifying income earned by Fab 1. In February
2003, we announced our plan to consolidate Fab 1s business into Fab 2, which
may affect Fab 1s post-pioneer status.

We recorded income tax expense of $7.0 million in 2002 compared to $14.2
million in 2001. The lower tax expense in 2002 was primarily the result of
lower tax payable on the lower level of interest income.

Minority interest in CSP

The minority interest in loss of CSP was $55.6 million in 2002 compared to
$72.6 million in 2001, reflecting the improved financial performance of CSP
that resulted primarily from significantly higher revenues, partially offset by
increased depreciation.

QUARTERLY RESULTS

The following table sets forth certain unaudited consolidated financial
information, including as a percentage of net revenue, for the eight fiscal
quarters ended December 31, 2003. We believe that all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the selected quarterly information when
read in conjunction with our consolidated financial statements and the related
notes included elsewhere in the document. Our consolidated statements of
operations have varied

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and may continue to vary significantly from
quarter-to-quarter and are not necessarily indicative of the results of any
future period. See Item 3. Key Information  Risk Factors  Risks Related
To Our Financial Condition Our operating results fluctuate from
quarter-to-quarter which makes it difficult to predict our future performance.

|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |       |      | 
|---------------------------------------------- | ------------------------------ | ------------------------ | ------ | --------------- | ---- | ------- | ------ | ------- | ---- | ------- | ----- | ------- | ---- | ------- | ------ | ------- | ---- | ------- | ----- | ----- | ---- |  | ----- | ----- | ---- |  | ----- | ----- | ---- |  | ----- | ----- | ---- | 
|                                               |                                |                          |        | Quarter ended  
|                                               |                                |                          |        |                
|                                               |                                |                          |        | Mar 31,         |      | Jun 30, |        | Sep 30, |      | Dec 31, |       | Mar 31, |      | Jun 30, |        | Sep 30, |      | Dec 31,
|                                               |                                |                          |        | 2002            |      | 2002    |        | 2002    |      | 2002    |       | 2003    |      | 2003    |        | 2003    |      | 2003   
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |        
|                                               |                                |                          |        | (in millions $)
|Consolidated Statements of
Operations Data:    |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Net revenue                                    |                                |                          | 84.4   |                 |      |         | 127.5  |         |      |         | 129.5 |         |      |         | 107.9  |         |      |         | 103.8 |       |      |  | 127.6 |       |      |  | 137.7 |       |      |  | 182.8 |      
|Cost of revenue                                |                                |                          | 148.2  |                 |      |         | 162.1  |         |      |         | 156.8 |         |      |         | 161.8  |         |      |         | 157.3 |       |      |  | 160.0 |       |      |  | 159.4 |       |      |  | 171.7 |      
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Gross profit (loss)                            |                                |                          | (63.8  | )               |      |         | (34.6  | )       |      |         | (27.3 | )       |      |         | (53.9  | )       |      |         | (53.5 | )     |      |  | (32.4 | )     |      |  | (21.7 | )     |      |  | 11.1  |      
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Operating expenses:                            |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|                                               | Research and development       |                          |        | 24.7            |      |         |        | 21.6    |      |         |       | 20.9    |      |         |        | 28.1    |      |         |       | 32.5  |      |  |       | 30.6  |      |  |       | 30.3  |      |  |       | 31.1  |     
|                                               | Fab start-up costs             |                          |        | 1.9             |      |         |        | 1.4     |      |         |       | 2.4     |      |         |        | 2.6     |      |         |       | 2.1   |      |  |       | 2.2   |      |  |       | 2.5   |      |  |       | 2.3   |     
|                                               | Sales and marketing            |                          |        | 9.7             |      |         |        | 10.3    |      |         |       | 11.4    |      |         |        | 9.8     |      |         |       | 10.0  |      |  |       | 10.2  |      |  |       | 8.3   |      |  |       | 9.8   |     
|                                               | General and administrative     |                          |        | 14.6            |      |         |        | 10.3    |      |         |       | 10.1    |      |         |        | 8.1     |      |         |       | 10.0  |      |  |       | 4.4   |      |  |       | 10.8  |      |  |       | 10.7  |     
|                                               | Other operating expenses       |                          |        |                |      |         |        |        |      |         |       |        |      |         |        | 10.0    |      |         |       | (24.8 | )    |  |       | 3.8   |      |  |       | 3.3   |      |  |       | 11.6  |     
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|                                               |                                | Total operating expenses |        |                 | 50.9 |         |        |         | 43.6 |         |       |         | 44.8 |         |        |         | 58.6 |         |       |       | 29.8 |  |       |       | 51.2 |  |       |       | 55.2 |  |       |       | 65.5 | 
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Operating loss                                 |                                |                          | (114.7 | )               |      |         | (78.2  | )       |      |         | (72.1 | )       |      |         | (112.5 | )       |      |         | (83.3 | )     |      |  | (83.6 | )     |      |  | (76.9 | )     |      |  | (54.4 | )    
|Other income (expense):                        |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|                                               | Equity in income (loss) of SMP |                          |        | (29.8           | )    |         |        | (22.0   | )    |         |       | (21.5   | )    |         |        | (11.5   | )    |         |       | 1.9   |      |  |       | (2.2  | )    |  |       | 8.8   |      |  |       | 14.7  |     
|                                               | Other income                   |                          |        | 5.2             |      |         |        | 6.8     |      |         |       | 7.3     |      |         |        | 4.4     |      |         |       | 4.7   |      |  |       | 8.6   |      |  |       | 4.6   |      |  |       | 5.2   |     
|                                               | Interest income                |                          |        | 4.3             |      |         |        | 3.9     |      |         |       | 3.4     |      |         |        | 4.9     |      |         |       | 3.7   |      |  |       | 3.3   |      |  |       | 2.7   |      |  |       | 2.4   |     
|                                               | Interest expense               |                          |        | (10.7           | )    |         |        | (10.6   | )    |         |       | (10.7   | )    |         |        | (9.6    | )    |         |       | (9.7  | )    |  |       | (10.4 | )    |  |       | (11.7 | )    |  |       | (10.3 | )   
|                                               | Exchange gain (loss)           |                          |        | 1.8             |      |         |        | (2.0    | )    |         |       | (2.1    | )    |         |        | 0.2     |      |         |       | 0.2   |      |  |       | (0.5  | )    |  |       | 0.4   |      |  |       | (0.9  | )   
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Loss before income taxes                       |                                |                          | (143.9 | )               |      |         | (102.1 | )       |      |         | (95.7 | )       |      |         | (124.1 | )       |      |         | (82.5 | )     |      |  | (84.8 | )     |      |  | (72.1 | )     |      |  | (43.3 | )    
|Income tax benefit (expense)                   |                                |                          | (1.6   | )               |      |         | (1.0   | )       |      |         | (2.2  | )       |      |         | (2.2   | )       |      |         | (2.8  | )     |      |  | (5.2  | )     |      |  | (3.8  | )     |      |  | 0.1   |      
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Loss before minority interest                  |                                |                          | (145.5 | )               |      |         | (103.1 | )       |      |         | (97.9 | )       |      |         | (126.3 | )       |      |         | (85.3 | )     |      |  | (90.0 | )     |      |  | (75.9 | )     |      |  | (43.2 | )    
|Minority interest in loss of CSP               |                                |                          | 17.1   |                 |      |         | 12.4   |         |      |         | 8.5   |         |      |         | 17.6   |         |      |         | 9.5   |       |      |  |      |       |      |  |      |       |      |  |      |      
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Net loss prior to cumulative effect adjustment |                                |                          | (128.4 | )               |      |         | (90.7  | )       |      |         | (89.4 | )       |      |         | (108.7 | )       |      |         | (75.8 | )     |      |  | (90.0 | )     |      |  | (75.9 | )     |      |  | (43.2 | )    
|Cumulative effect adjustment                   |                                |                          |       |                 |      |         |       |         |      |         |      |         |      |         |       |         |      |         | (6.4  | )     |      |  |      |       |      |  |      |       |      |  |      |      
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      
|Net loss                                       |                                |                          | (128.4 | )               |      |         | (90.7  | )       |      |         | (89.4 | )       |      |         | (108.7 | )       |      |         | (82.2 | )     |      |  | (90.0 | )     |      |  | (75.9 | )     |      |  | (43.2 | )    
|                                               |                                |                          |        |                 |      |         |        |         |      |         |       |         |      |         |        |         |      |         |       |       |      |  |       |       |      |  |       |       |      |  |       |      

|                                            |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |      |      | 
|------------------------------------------- | -------------------------- | ------------------------ | ----- | -------------------------------- | ---- | ------- | ----- | ------- | ---- | ------- | ----- | ------- | ---- | ------- | ----- | ------- | ---- | ------- | ----- | ----- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                            |                            |                          |       | Quarter ended                   
|                                            |                            |                          |       |                                 
|                                            |                            |                          |       | Mar 31,                          |      | Jun 30, |       | Sep 30, |      | Dec 31, |       | Mar 31, |      | Jun 30, |       | Sep 30, |      | Dec 31,
|                                            |                            |                          |       | 2002                             |      | 2002    |       | 2002    |      | 2002    |       | 2003    |      | 2003    |       | 2003    |      | 2003   
|                                            |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |        
|                                            |                            |                          |       | (as a percentage of net revenue)
|Consolidated Statements of
Operations Data: |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |     
|Net revenue                                 |                            |                          | 100.0 | %                                |      |         | 100.0 | %       |      |         | 100.0 | %       |      |         | 100.0 | %       |      |         | 100.0 | %     |      |  | 100.0 | %    |      |  | 100.0 | %    |      |  | 100.0 | %   
|Cost of revenue                             |                            |                          | 175.6 |                                  |      |         | 127.1 |         |      |         | 121.1 |         |      |         | 149.9 |         |      |         | 151.5 |       |      |  | 125.4 |      |      |  | 115.8 |      |      |  | 93.9  |     
|                                            |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |     
|Gross profit (loss)                         |                            |                          | (75.6 | )                                |      |         | (27.1 | )       |      |         | (21.1 | )       |      |         | (49.9 | )       |      |         | (51.5 | )     |      |  | (25.4 | )    |      |  | (15.8 | )    |      |  | 6.1   |     
|                                            |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |     
|Operating expenses:                         |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |     
|                                            | Research and development   |                          |       | 29.3                             |      |         |       | 17.0    |      |         |       | 16.1    |      |         |       | 26.0    |      |         |       | 31.3  |      |  |       | 24.0 |      |  |       | 22.0 |      |  |       | 17.0 |     
|                                            | Fab start-up costs         |                          |       | 2.3                              |      |         |       | 1.1     |      |         |       | 1.8     |      |         |       | 2.4     |      |         |       | 2.1   |      |  |       | 1.7  |      |  |       | 1.8  |      |  |       | 1.3  |     
|                                            | Sales and marketing        |                          |       | 11.5                             |      |         |       | 8.1     |      |         |       | 8.8     |      |         |       | 9.1     |      |         |       | 9.6   |      |  |       | 8.0  |      |  |       | 6.0  |      |  |       | 5.4  |     
|                                            | General and administrative |                          |       | 17.2                             |      |         |       | 8.1     |      |         |       | 7.8     |      |         |       | 7.5     |      |         |       | 9.6   |      |  |       | 3.5  |      |  |       | 7.9  |      |  |       | 5.9  |     
|                                            | Other operating expenses   |                          |       |                                 |      |         |       |        |      |         |       |        |      |         |       | 9.3     |      |         |       | (23.9 | )    |  |       | 3.0  |      |  |       | 2.4  |      |  |       | 6.3  |     
|                                            |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |     
|                                            |                            | Total operating
expenses |       |                                  | 60.3 |         |       |         | 34.3 |         |       |         | 34.5 |         |       |         | 54.3 |         |       |       | 28.7 |  |       |      | 40.2 |  |       |      | 40.1 |  |       |      | 35.9 | 
|                                            |                            |                          |       |                                  |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |       |      |  |       |      |      |  |       |      |      |  |       |     

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|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |      |   | 
|---------------------------------------------- | ------------------------------ |  | ------ | -------------------------------- | - | ------- | ------ | ------- | - | ------- | ----- | ------- | - | ------- | ------ | ------- | - | ------- | ----- | ---- | - |  | ------ | ---- | - |  | ----- | ---- | - |  | ----- | ---- | - | 
|                                               |                                |  |        | Quarter ended                   
|                                               |                                |  |        |                                 
|                                               |                                |  |        | Mar 31,                          |   | Jun 30, |        | Sep 30, |   | Dec 31, |       | Mar 31, |   | Jun 30, |        | Sep 30, |   | Dec 31,
|                                               |                                |  |        | 2002                             |   | 2002    |        | 2002    |   | 2002    |       | 2003    |   | 2003    |        | 2003    |   | 2003   
|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |        
|                                               |                                |  |        | (as a percentage of net revenue)
|Operating loss                                 |                                |  | (135.9 | )                                |   |         | (61.4  | )       |   |         | (55.6 | )       |   |         | (104.2 | )       |   |         | (80.2 | )    |   |  | (65.6  | )    |   |  | (55.9 | )    |   |  | (29.8 | )   
|Other income (expense):                        |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |     
|                                               | Equity in income (loss) of SMP |  |        | (35.4                            | ) |         |        | (17.2   | ) |         |       | (16.6   | ) |         |        | (10.7   | ) |         |       | 1.9  |   |  |        | (1.7 | ) |  |       | 6.4  |   |  |       | 8.0  |  
|                                               | Other income                   |  |        | 6.2                              |   |         |        | 5.3     |   |         |       | 5.6     |   |         |        | 4.0     |   |         |       | 4.6  |   |  |        | 6.8  |   |  |       | 3.4  |   |  |       | 2.8  |  
|                                               | Interest income                |  |        | 5.2                              |   |         |        | 3.1     |   |         |       | 2.6     |   |         |        | 4.6     |   |         |       | 3.6  |   |  |        | 2.6  |   |  |       | 2.0  |   |  |       | 1.3  |  
|                                               | Interest expense               |  |        | (12.7                            | ) |         |        | (8.3    | ) |         |       | (8.3    | ) |         |        | (8.9    | ) |         |       | (9.4 | ) |  |        | (8.2 | ) |  |       | (8.5 | ) |  |       | (5.7 | )
|                                               | Exchange gain (loss)           |  |        | 2.1                              |   |         |        | (1.5    | ) |         |       | (1.6    | ) |         |        | 0.2     |   |         |       | 0.2  |   |  |        | (0.4 | ) |  |       | 0.3  |   |  |       | (0.5 | )
|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |     
|Loss before income taxes                       |                                |  | (170.5 | )                                |   |         | (80.0  | )       |   |         | (73.9 | )       |   |         | (115.0 | )       |   |         | (79.3 | )    |   |  | (66.5  | )    |   |  | (52.3 | )    |   |  | (23.9 | )   
|Income tax benefit (expense)                   |                                |  | (1.9   | )                                |   |         | (0.8   | )       |   |         | (1.7  | )       |   |         | (2.0   | )       |   |         | (2.7  | )    |   |  | (4.0   | )    |   |  | (2.8  | )    |   |  | 0.1   |     
|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |     
|Loss before minority interest                  |                                |  | (172.4 | )                                |   |         | (80.8  | )       |   |         | (75.6 | )       |   |         | (117.0 | )       |   |         | (82.0 | )    |   |  | (70.5  | )    |   |  | (55.1 | )    |   |  | (23.8 | )   
|Minority interest in loss of CSP               |                                |  | 20.2   |                                  |   |         | 9.7    |         |   |         | 6.6   |         |   |         | 16.3   |         |   |         | 9.1   |      |   |  |       |      |   |  |      |      |   |  |      |     
|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |     
|Net loss prior to cumulative effect adjustment |                                |  | (152.2 | )                                |   |         | (71.1  | )       |   |         | (69.0 | )       |   |         | (100.7 | )       |   |         | (72.9 | )    |   |  | (70.5  | )    |   |  | (55.1 | )    |   |  | (23.8 | )   
|Cumulative effect adjustment                   |                                |  |       |                                  |   |         |       |         |   |         |      |         |   |         |       |         |   |         | (6.2  | )    |   |  |       |      |   |  |      |      |   |  |      |     
|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |     
|Net loss                                       |                                |  | (152.2 | )%                               |   |         | (71.1) | %       |   |         | (69.0 | )%      |   |         | (100.7 | )%      |   |         | (79.1 | )%   |   |  | (70.5) | %    |   |  | (55.1 | )%   |   |  | (23.8 | )%  
|                                               |                                |  |        |                                  |   |         |        |         |   |         |       |         |   |         |        |         |   |         |       |      |   |  |        |      |   |  |       |      |   |  |       |     

Net revenue

The semiconductor industry recovery began to accelerate in the second half of
2003. We registered year-over-year revenue growth of 22.9% in 2003 and saw an
acceleration of this growth in fourth quarter of 2003. Net revenues were
$182.8 million in the fourth quarter of 2003, up 69.3% from $107.9 million in
the year-ago quarter, reflecting higher demand.

ASP decreased 11.4% from fourth quarter of 2002 to fourth quarter of 2003,
primarily due to customer mix and pricing pressures, partially offset by
substantially higher shipments of advanced technology products in 2003.
Primarily due to a richer product mix, ASP increased 1.7% in the fourth quarter
of 2003, to increase from $896 in third quarter of 2003 to $911 in fourth
quarter of 2003.

Gross margin

We recorded a gross margin in the fourth of quarter of 2003 after sequential
quarters of gross loss since the trough of our cycle in the fourth quarter of
2001. Gross margin as a percentage of net revenue improved quarter-on-quarter
since the second quarter of 2003, as higher volumes and reduced cost, due to
lower depreciation and cost savings and avoidance from our cost reduction
programs, more than offset the unfavorable impact of a lower ASP.

Research and development expenses

R&D expenses increased in 2003 as we increased investments to accelerate our
technology roadmap. Beginning in the first quarter of 2003, R&D expenses
include our share of expenses related to the IBM joint-development agreement
for 90nm technologies, announced in November 2002. The increase in R&D expense
in 2003 was partially offset by lower expenses for development wafers as our
0.13-micron process was ramped into volume production in 2003.

Other operating expenses

In the fourth quarter of 2002, we recorded $10.0 million in other operating
expenses, associated with the workforce re-sizing announced in October 2002 and
a fixed asset impairment charge. In the first quarter of 2003, we recorded a
net gain of $24.8 million, related to a gain of $27.5 million associated with
the cancellation of the companys employee bonus award plan and a restructuring
charge of $2.7 million associated with the phase out of Fab 1. We recorded a
total of $9.7 million in restructuring charges in the remaining quarters of
2003. In the fourth quarter of 2003, we also recorded an impairment charge of
$9.0 million on certain machinery

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and equipment that have been classified as
held for sale on December 31, 2003, as part of the companys fab capacity
rationalization.

Equity in income (loss) of SMP

Equity in loss of SMP continuously improved across the quarters of 2002,
primarily due to growing SMP revenues over the period. Beginning first quarter
of 2003, and except for a small equity in loss in second quarter of 2003, we
began to record equity in income of SMP as a result of significantly higher
revenues at SMP.

Minority interest in CSP

Due to cumulative losses, CSPs financial position moved to a capital deficit
in first quarter of 2003, thereby requiring the company to recognize 100% of
CSPs losses (and profits) from that point forward, and until such time as
CSPs financial position reverts to a capital surplus. CSP remained in a
capital deficit position since the first quarter of 2003 and none of CSPs
results have been allocated to the minority interest from that point forward.
The result of this on our consolidated statements of operations was additional
losses of $10.7 million, $22.4 million, $23.8 million and $17.4 million for the
first, second, third and fourth quarter of 2003, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Current and expected liquidity

As of December 31, 2003, our principal sources of liquidity included $905.5
million in cash and cash equivalents, $392.3 million of unutilized banking
facilities consisting of short-term advances, term loans and bankers
guarantees, and an unutilized oral short-term credit facility with Singapore
Technologies of $100.0 million.

Based on our existing cash on hand, planned use of existing credit facilities,
projected operating cash flow and use of liquidity, such as for debt
repayments, capital expenditures and capacity deposits in 2004, our current
target is to achieve a cash and cash equivalents balance as of December 31,
2004 of approximately $520 million. We expect that depreciation and
amortization will be approximately $455 million in 2004 compared to $439.3
million in 2003. Our ability to generate operating cash flow in 2004 will
depend largely on future
operations and other factors, as discussed in the risk factor, Our Operating
Results Fluctuate From Quarter-to-Quarter Which Makes It Difficult To Predict
Our Future Performance and elsewhere in this document. There can be no
assurances that our business will generate and continue to generate sufficient
cash flow to fund our liquidity needs in the future or that we will achieve our
targets.

We expect our aggregate capital expenditures in 2004 to be approximately $700
million. The majority of the expenditures in 2004 are expected to be for Fab 7
with the balance primarily for capacity additions at leading-edge technologies
in Fab 6. The full equipping of Fab 7 is expected to take a number of years and
will be paced by market demand. At completion, the total investment is
expected to be approximately $3 billion. As of December 31, 2003, we have
spent $227.1 million. Engineering wafer starts in Fab 7 are scheduled to begin
in late third quarter of 2004 and pilot production is expected to commence in
end 2004. We expect our aggregate research and development expenditures to be
approximately $130 million in 2004, compared to $124.5 million in 2003.

Based on our current level of operations, we believe that our cash on hand,
planned use of existing credit facilities, credit terms with our vendors, and
projected cash flows from operations will be sufficient to meet our 2004
capital and research and development expenditures and working capital needs.
However, we may require additional financing to fund our future growth
activities. In such event, there can be no assurance that additional financing
will be available or, if available, that such financing will be obtained on
terms favorable to us or that any additional financing will not be dilutive to
our shareholders.

Historic operating cash flows

Net cash used in operating activities totaled $10.9 million in 2002, compared
to net cash provided by operating activities of $48.1 million in 2003. The
improvement in operating cash flows was primarily due to the lower net loss
incurred in 2003 compared with 2002, after taking into account the effect of
non-cash adjustments and

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working capital changes. The lower net loss in 2003
compared to 2002 was primarily due to higher revenues, improved share of equity
in income of SMP and a gain associated with the cancellation of the companys
employee bonus award plan, partially offset by lower loss of CSP attributed to
minority interest.

The non-cash adjustments in 2002 primarily included non-cash charges of $452.4
million of depreciation and amortization, and $44.7 million of equity in loss
of SMP, offset by $55.6 million of minority interest in loss of CSP. The
unfavorable working capital change in 2002 was primarily due to the decrease in
the amount due to SMP, as a result of lower outstanding amounts payable for
allocated wafer capacity, and a decrease in accrued operating expenses,
resulting from higher payments, partly offset by a decrease in accounts
receivable as a result of lower revenues.

The non-cash adjustments in 2003 primarily included non-cash charges of $439.3
million of depreciation and amortization, offset by $23.2 million of equity in
income of SMP, $9.5 million of minority interest in loss of CSP and $27.5
million of cancellation of employee bonus award plan. The unfavorable working
capital change for 2003 was primarily due to increased revenues, which drove
the increase in accounts receivable and work-in-process inventory, partially
offset by increase in payables corresponding to increased purchases.

Historic investing cash flows and capital expenditures

Net cash used in investing activities totaled $447.3 million in 2002 and $384.3
million in 2003. Investing activities consisted primarily of capital
expenditures totaling $419.5 million in 2002 and $220.8 million in 2003.
Investing activities in 2003 also included payments for technology license
fees, the payment for a credit-linked deposit and placement of a deposit to
secure wafer capacity.

The nature of our industry is such that, in the short-term, we may reduce our
capital expenditures by delaying planned capital expenditures in response to a
difficult business environment, such as the one that existed in 2001 and 2002.
However, the semiconductor market is characterized by rapid technological
change, which we expect to result in significant capital expenditure
requirements within our longer-term horizon. Factors that may affect our level
of future capital expenditures include the degree and the timing of
technological changes within our industry, changes in demand for the use of our
equipment and machinery as a result of changes to our customer base and the
level of growth within our industry.

Capital expenditures in 2002 were mainly related to the equipping of Fab 6 and
purchase of equipment for research and development use. Capital expenditures in
2003 were mainly related to capacity additions at leading-edge technologies.

Historic financing cash flows

Net cash provided by financing activities totaled $627.2 million in 2002. This
was principally from the net cash proceeds of $611.7 million from the October
2002 Rights Offering and long-term borrowings incurred to finance the capital
expenditures at Fab 6, partly offset by the repayment of term loans. Net cash
provided by financing activities totaled $30.8 million in 2003 and was
primarily due to the draw-down of credit facilities of $125.0 million to
finance capital expenditures, partly offset by repayment of term loans and
refund of customer deposits.

Research and development grants

In 2003, we received $8.1 million in research grants from various agencies of
the Government of Singapore, which are included in operating cash flows. These
grants provide funding for a portion of our research and development related
capital expenditures and for the training and staffing costs associated with
some of our process technology development programs and to implement
cost-effective solutions to meet our power quality needs. The grants are
disbursed based on the amount of expenditures incurred and achievement of
program milestones. The main conditions attached to the grants are the
completion of the project to which the grant relates and the certification of
the costs incurred.

Loan agreements

As of December 31, 2003, we had one loan from the Economic Development Board or
EDB for capital expenditures and equipment with outstanding principal amount of
$54.1 million (S$92.3 million). The loan is denominated in Singapore dollars
and we fully hedge both interest and principal payments against fluctuations in
foreign exchange rates. The loan bears interest of 4.0%. The loan agreement
is unsecured and guaranteed

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by Singapore Technologies. The loan matures on
September 1, 2005. Interest is payable semi-annually and principal is payable
in equal semi-annual installments which commenced on September 1, 1999.

A second loan for capital expenditures and equipment with an outstanding amount
as of December 31, 2002 of $8.8 million (S$15.4 million) has since matured on
September 1, 2003 and was fully repaid.

On April 2, 2001, we issued $575 million of senior unsecured convertible notes
due April 2, 2006, which bear interest at the rate of 2.50% per year and have a
yield to maturity of 5.25% per year. The conversion price of convertible debt
outstanding is S$4.7980 per share (equivalent to approximately US$26.7701 per
ADS) as of December 31, 2003 and reflects a retroactive adjustment due to our
October 2002 Rights Offering. We may redeem all or a portion of the
convertible notes at any time on or after April 2, 2003 at a price to yield of
5.25 % per year on the redemption date if our shares or ADSs trade at 125% of
the conversion price for a period of 20 days in any consecutive 30 trading day
period. We have entered into interest rate swaps to hedge the interest rate
obligations and accreting portion of the convertible notes. Please see Item
11. Quantitative and Qualitative Disclosures About Market Risk  Interest Rate
Risk.

As of December 31, 2003, CSP has a U.S. dollar term loan with several banks and
financial institutions for capital expenditures and equipment (the CSP Second
Phase Credit Agreement). The loan was first put in place on September 28, 2000
and matures on September 28, 2006. (See Item 19. Exhibits  Exhibits 4.3.1 to
4.3.4). The loan is for an amount of $820.0 million. As of December 31, 2003,
$318.0 million in principal remains undrawn. The loan carries an interest rate
of 0.60% to 0.85% (depending on certain criteria relating to wafer starts and
debt-net worth ratio) above the LIBOR rates for U.S. dollars deposits quoted by
specified banks to the lender. As of December 31, 2003, this rate was 1.9375%.
Interest is payable semi-annually in U.S. dollars and principal will be
amortized in six semi-annual installments commencing March 28, 2004. Borrowings
under this facility are secured by a floating charge over a CSP project bank
account and a fixed charge over CSPs debt service reserve account both of
which were established pursuant to this loan. The fixed charge over CSPs debt
service reserve account will not permit the use of the funds in that account by
CSP for as long as the loan remains outstanding. The actual amount of debt to
be incurred under the facility will be influenced by several factors, including
without limitation, the speed and timing of the ramp up of operations at Fab 6,
the companys cash flow position and the need to comply with specified debt-net
worth ratios under the terms of the credit facility.

A second U.S. dollar term loan (the CSP First Phase Credit Agreement) for the
amount of $143.2 million with several banks and financial institutions for
capital expenditure and equipment that was first put in place on March 12,
1998, has since been fully repaid in 2002. (See Item 19. Exhibits  Exhibits
4.1.1 to 4.1.6 and Exhibits 4.2.1 to 4.2.3 for this agreement together with
subsequent amendments and related agreements). Although the CSP First Phase
Credit Agreement has been fully repaid, the guarantee that the lenders under
this agreement had provided in favor of EDB in respect of CSPs obligations
under its loan with EDB dated November 24, 1999 (See Item 19. Exhibits 
Exhibit 4.9 for a copy of the EDB loan agreement) remains unaffected. As such,
certain provisions under the CSP First Phase Credit Agreement arising out of or
in connection with the guarantee (such as indemnity provisions from CSP as a
result of the guarantee and the debt-net worth ratio obligations) continue to
apply until the loan from EDB is fully repaid or June 30, 2006, whichever is
earlier.

In addition, as of December 31, 2003, CSP has a loan from EDB for capital
expenditures and equipment that was first put in place on November 24, 1999.
The loan provided for an availability of $263.6 million (S$450.0 million), of
which $131.8 million (S$225.0 million) in principal has been drawn down and
$73.2 million (S$125.0 million) is outstanding as of December 31, 2003. As the
interest rate for the balance of the funds available under the facility was not
competitive at the time of the intended draw-down, we decided against drawing
on the balance and allowed the availability of the balance to lapse. The loan
is denominated in Singapore dollars and we fully hedge both interest and
principal payments so as to minimize our exposure to fluctuations in foreign
exchange rates. The loan has an interest rate of 4.25%. The loan matures on
March 1, 2006. Interest is payable semi-annually and principal was amortized in
equal semi-annual installments commencing on March 1, 2002. While the loan is
unsecured, it is backed by a bank guarantee from a syndicate of banks. (See
Item 19. Exhibits  Exhibit 4.9).

We have an oral agreement for a multi-currency $100.0 million short-term credit
facility with Singapore Technologies. Interest on the facility accrues at the
monthly average interest rate of three specific banks as indicated by Singapore
Technologies. Borrowings are unsecured. As of December 31, 2003, there were no

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borrowings outstanding under this facility. There is a possibility that
Singapore Technologies may cease to make this credit facility available to us,
as we have not utilized it during the last four years.

Covenants Compliance

Some of our loans, including loans incurred by our subsidiary, CSP, and our
joint venture company, SMP, contain various financial and other covenants.
Among other things, those covenants require the maintenance of certain
financial ratios (including total debt to net worth) and that
Singapore Technologies own, directly
or indirectly, at least 51% of our outstanding shares. If we fail to comply
with these covenants, we could be in a default under these loans and the
lenders would have the right to accelerate our obligation to repay the
outstanding borrowings under these loans. In some cases, a default could also
cause cross-defaults under other loans and could seriously harm us.

In 2002, we sought and obtained consents from the lenders of CSP to allow us to
substantially increase CSPs net worth to enable CSP to satisfy a total debt to
net worth ratio for the CSP First and Second Phase Credit Agreements. Such
increase in CSPs net worth was effected by converting amounts payable by CSP
to us into a loan from us to CSP (the Chartered Loan). We may in the future
increase the amount of the Chartered Loan to CSP by converting additional
amounts payable by CSP to us in order to enable CSP to satisfy the total debt
to net worth ratio.

In obtaining the consents, the two CSP loan agreements described above, were
amended to include the Subordination Agreements which subordinated the amounts
under the Chartered Loan to the amounts due by CSP to its other lenders under
the above loans. For copies of the respective Letter Agreements incorporating
the Subordination Agreements, see Item 19. Exhibits  Exhibit 4.1.6 and
Exhibit 4.3.4 and for copies of the respective Subordination Agreements, see
Item 19. Exhibits  Exhibit 4.1.5 and Exhibit 4.3.3.

In addition, some of our loans require that we obtain prior written consent
from our lenders prior to incurring indebtedness or creating security interests
over our assets. Consequently, although we have been able to obtain such lender
consent in the past, we may be limited in our ability to obtain future
financing.

Contractual Obligations

The following table sets forth the payments due for specific contractual
obligations as of December 31, 2003:

|                                |                       |   |                       |         |      |   |         |        |      |   |         |       |       |   |       |       |  |   |       |       |  |   |        |       |  |   |           |         | 
|------------------------------- | --------------------- | - | --------------------- | ------- | ---- | - | ------- | ------ | ---- | - | ------- | ----- | ----- | - | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ----- |  | - | --------- | ------- | 
|                                |                       |   | Expected Payment Date
|                                |                       |   |                      
|                                |                       |   |                       |         |      |   |         |        |      |   |         |       |       |   |       |       |  |   |       |       |  |   | There  |       |  |   |          
|                                |                       |   | 2004                  |         | 2005 |   | 2006    |        | 2007 |   | 2008    |       | After |   | Total
|                                |                       |   |                       |         |      |   |         |        |      |   |         |       |       |   |      
|                                |                       |   | (in thousands)       
|Long-term debt                  |                       | $ | 223,660               |         |      | $ | 223,660 |        |      | $ | 765,432 |       |       |   |      |       |  |   |      |       |  |   |       |       |  | $ | 1,212,752 |        
|Operating leases (1)            |                       |   | 7,663                 |         |      |   | 6,449   |        |      |   | 5,724   |       |       | $ | 4,256 |       |  | $ | 4,218 |       |  | $ | 70,265 |       |  |   | 98,575    |        
|Purchase obligations (2)
under: |                       |   |                       |         |      |   |         |        |      |   |         |       |       |   |       |       |  |   |       |       |  |   |        |       |  |   |           |        
|                                | Capital expenditures  |   |                       | 398,296 |      |   |         |       |      |   |         |      |       |   |       |      |  |   |       |      |  |   |        |      |  |   |           | 398,296 | 
|                                | Technology agreements |   |                       | 120,032 |      |   |         | 80,716 |      |   |         | 3,250 |       |   |       | 3,250 |  |   |       | 3,250 |  |   |        | 6,500 |  |   |           | 216,998 | 
|                                | Other                 |   |                       | 28,288  |      |   |         | 2,929  |      |   |         |      |       |   |       |      |  |   |       |      |  |   |        |      |  |   |           | 31,217  | 
|Other long-term liabilities     |                       |   |                      |         |      |   |        |        |      |   | 37,008  |       |       |   |      |       |  |   |      |       |  |   | 14,253 |       |  |   | 51,261    |        
|                                |                       |   |                       |         |      |   |         |        |      |   |         |       |       |   |       |       |  |   |       |       |  |   |        |       |  |   |           |        
|Total                           |                       | $ | 777,939               |         |      | $ | 313,754 |        |      | $ | 811,414 |       |       | $ | 7,506 |       |  | $ | 7,468 |       |  | $ | 91,018 |       |  | $ | 2,009,099 |        
|                                |                       |   |                       |         |      |   |         |        |      |   |         |       |       |   |       |       |  |   |       |       |  |   |        |       |  |   |           |        



|(1) |  | We do not have any capital lease obligations as of December 31, 2003.                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We have not included purchase obligations that have been recorded on our
consolidated balance sheet as of December 31, 2003. These obligations
amounted to $22.3 million, $41.1 million and $187.4 million for capital
expenditures, technology agreements and other purchase obligations
primarily relating to operating expenses, respectively.

Our material contractual obligations also include a commitment with SMP.
Pursuant to an assured supply and demand agreement that both the joint venture
partners signed with SMP, we are each required to purchase a specified
percentage of Fab 5s output. However, if one party does not purchase its share
of wafers, the other

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party is entitled to utilize that unused capacity. In the
event such other
party does not utilize the unused capacity, the party who does
not purchase its entitlement will be required to compensate SMP for any
unrecovered costs it incurs in connection with such unused capacity. Under the
assured supply and demand agreement mentioned above, there was no allocated
wafer capacity billable to us for the year ended December 31, 2003.

SPECIAL TAX STATUS

We have been granted pioneer status under the Economic Expansion Incentives
(Relief from Income Tax) Act (Chapter 86) of Singapore for:



| |  |  | the manufacture of integrated circuits using submicron technology at
Fab 2 for a ten year period beginning July 1, 1996;                                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the manufacture of integrated circuits using submicron technology at
Fab 3 for a ten year period beginning July 1, 1999; and                                               
|
| |  |  | the wafer fabrication of Application Specific Integrated Circuits
(ASIC) and other advanced semiconductor devices at Fab 6 for a ten year
period beginning January 1, 2004.

Under the Economic Expansion
Incentives (Relief from Income Tax) Act (Chapter 86) of Singapore, we have
also been granted:



| |  |  | development and expansion company status for wafer fabrication of
integrated circuits at Fab 1 for a five year period beginning January 1,
2001;                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | post-pioneer enterprise status for the manufacture of integrated
circuits using submicron technology at Fab 2 for a five year period
beginning July 1, 2006;                   
|
| |  |  | development and expansion company status for the manufacture of
integrated circuits using submicron technology at Fab 3 for a five year
period beginning July 1, 2009; and     
|
| |  |  | development and expansion company status for the wafer fabrication of
ASICs and other advanced semiconductor devices at Fab 6 for a five year
period beginning January 1, 2014.

During the period for which our pioneer status is effective, subject to our
compliance with certain conditions, income from our pioneer trade (that is,
sale of integrated circuits) is exempt from Singapore income tax. During the
periods for which our post-pioneer status and development and expansion company
status are effective, subject to our compliance with certain conditions, income
from our post-pioneer trade and development and expansion activities are taxed
at a concessionary rate of 10%. The income tax exempt profits arising from the
pioneer trade may be distributed as tax-exempt dividends, and holders of
ordinary shares are not subject to Singapore income tax on such dividends.
Please see Item 10. Additional Information  Taxation  Singapore Taxation 
Income Tax for information regarding the taxation of dividends. Losses
accumulated before the pioneer status period cannot be carried forward. Losses
accumulated in the pioneer status period may be carried forward and may be
offset against profits from the same pioneer trade arising after the expiration
of the pioneer status period, subject to our compliance with certain
conditions. Profits arising during pioneer status offset any accumulated
pioneer loss carry forward balance. Without this exemption from income tax or
the concessionary tax rate of 10%, we would be subject to income tax at the
applicable corporate income tax rate which is currently 22% for the year of
assessment 2004. Interest income is not exempt from taxation during the
pioneer status period or entitled to the concessionary tax rate during the
post-pioneer status period or the development and expansion company status
period.

The development and expansion company status for wafer fabrication of
integrated circuits at Fab 1 required us to fulfil certain conditions during
the five year period beginning January 1, 2001. In February 2003, we announced
our plan to consolidate the business of Fab 1 into Fab 2, and as a result of
the proposed consolidation, we will not be able to fulfil the conditions
required to maintain our development and expansion company status. We are
currently discussing with the relevant authority as to the taxation impact
resulting from us not being able to fulfil the conditions.

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RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003, the company adopted the provisions of SFAS No. 143,
Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
long-lived assets and associated asset retirement costs. Accordingly, the
company recorded a liability of $13.2 million related to the requirements in
its lease agreements for the return of buildings to tenantable condition and
the return of land on which fabs have been built to its original condition. The
associated cost was capitalized as an increase in property, plant and
equipment of the same amount and will be depreciated over its remaining useful
lives. The adoption of SFAS No. 143 as of January 1, 2003, resulted in a
cumulative effect loss of $6.4 million, after a reduction in minority interest
of $0.5 million. The cumulative effect loss represents the depreciation and
accretion expense that would have been recorded previously if SFAS No. 143 had
been in effect in prior years.

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities, which
addresses financial accounting and reporting for costs associated with exit and
disposal activities to be recorded at their fair values when a liability has
been incurred. SFAS No. 146 was effective in fiscal year 2003 for exit or
disposal activities that were initiated after December 31, 2002. As a result,
the company recorded a charge of $12.4 million for the year ended December 31,
2003 associated with the closure of Fab 1 and consolidation of its business
into Fab 2, announced in February 2003.

In November 2002, a consensus was reached on EITF 00-21. The EITF addresses
certain aspects of accounting by a vendor for arrangements relating to
performance of multiple revenue-generating activities. EITF 00-21 requires
revenue arrangements with multiple deliverables to be divided into separate
units of accounting if the deliverables in the arrangement meet certain
specified criteria, allocation of the arrangement consideration among the
separate units of accounting based on their relative fair values, and separate
revenue recognition for separate units of accounting. The guidance in EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 did not have a
material impact on the companys financial condition and consolidated
statements of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities (VIE)an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements (FIN No. 46). A VIE is
an entity in which equity investors do not have characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from investors. Among other things, FIN No. 46 requires the
consolidation of the assets, liabilities and results of operations of VIEs by
the primary beneficiary. FIN No. 46 also requires the disclosure of
information concerning VIEs by entities that hold significant variable interest
but may not be the primary beneficiary. FIN No. 46 applies immediately to VIEs
created after January 31, 2003 and is effective for interim periods beginning
after June 15, 2003 for interests in VIEs that were acquired before February 1,
2003. In October 2003, the FASB issued FASB Staff Position No. 46-6 to defer
the effective date for applying the provisions of FIN No. 46 for interests in
VIEs that were created before February 1, 2003. FIN No. 46 also requires the
disclosure of the nature, purpose, size and activities of VIEs, as well as the
maximum exposure to loss in connection with VIEs for any financial statements
issued after January 31, 2003, if it is reasonably possible that an entity will
consolidate or disclose information about a VIE. The effect of adoption of FIN
No. 46 did not have and is not expected to have any impact on the companys
financial condition and consolidated statements of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. Among other things, SFAS No.
149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and all of its provisions should be applied prospectively.
The adoption of SFAS No. 149 did not have a material impact on the companys
financial condition and consolidated statements of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments With Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures financial
instruments with characteristics of both liabilities and equity and requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS
No. 150 also revises the definition of a liability to encompass obligations
that a reporting entity can or must settle

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by issuing its own equity shares,
depending on the nature of the relationship established between the holder and
the issuer. SFAS No. 150 is effective for financial instruments entered into
or modified after May 31, 2003. The adoption of SFAS No. 150 did not have any
impact on the companys financial condition and consolidated statements of
operations.

IMPACT OF INFLATION

Based on the generally low inflation rates in Singapore for the years ended
December 31, 2001, 2002 and 2003, we believe that changes in the Singapore
inflation rates did not have a material impact on our cost of operations or net
income (loss).






|ITEM 6. |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- |  | ------------------------------------------
|       
|A.      |  | DIRECTORS AND SENIOR MANAGEMENT           

The following table sets forth, as of January 31, 2004, the name, age and
position of each director and member of senior management of our company.

|                                |     |          |  |                                                                      
|------------------------------- | --- | -------- |  | ---------------------------------------------------------------------
|Name                            | Age | Position
|Board Of Directors
(1)          |     |          |  |                                                                      
|James A. Norling (2)(3)(6)      |     | 61       |  | Chairman of the Board                                                
|Lim Ming Seong (3) (4) (6)      |     | 56       |  | Deputy Chairman of the Board                                         
|Chia Song Hwee(2)               |     | 41       |  | Director                                                             
|Sum Soon Lim (3) (4) (5) (6)    |     | 60       |  | Director                                                             
|Robert E. La Blanc (5)          |     | 69       |  | Director                                                             
|Andre Borrel (3) (4) (5) (6)    |     | 67       |  | Director                                                             
|Charles E. Thompson (3) (6)     |     | 74       |  | Director                                                             
|Tsugio Makimoto, PhD            |     | 66       |  | Director                                                             
|Tay Siew Choon (2) (3) (4) (6)  |     | 56       |  | Director                                                             
|Peter Seah Lim Huat (2) (3) (6) |     | 57       |  | Director                                                             
|Philip Tan Yuen Fah (5)         |     | 59       |  | Director                                                             
|                               
|Senior Management (1)           |     |          |  |                                                                      
|Chia Song Hwee                  |     | 41       |  | President and Chief Executive Officer                                
|Ang Kay Chai                    |     | 44       |  | Senior Vice President, Fab Operations                                
|Michael J. Rekuc                |     | 54       |  | Senior Vice President, Worldwide Sales and Marketing                 
|Sun Shi-Chung, PhD              |     | 56       |  | Senior Vice President, Technology Development                        
|George Thomas                   |     | 50       |  | Vice President and Chief Financial Officer                           
|Ang Tang Yong                   |     | 46       |  | Vice President, Quality, Reliability Assurance and
Support Operations
|Roy Kannan                      |     | 51       |  | Vice President, Chief Information Officer                            
|Ng Seng Huwi                    |     | 46       |  | Vice President, Human Resources                                      
|Tan Seng Chai                   |     | 41       |  | Vice President, Strategy Resources                                   



|(1) |  | A portion of our directors (including our President and Chief Executive
Officer) are elected at each annual general meeting of shareholders. The
number of directors retiring and eligible to stand for re-election each
year varies, but generally, it is equal to one-third of the board, with
the directors who have been in office longest since their re-election or
appointment standing for re-election. Our contracts with senior management
and/or directors do not have fixed expiry dates but can be terminated by
either party through notice provisions.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Member of the Executive Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | Member of the Executive Resource and Compensation Committee, or the ERCC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(4) |  | Member of the Budget Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) |  | Member of the Audit Committee. Mr. Andre Borrel was also appointed as a
member of the Audit Committee as of February 5, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(6) |  | Member of the Nominating Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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Biographical Information

JAMES A. NORLING

James A. Norling has served on our Board of Directors since March 1, 2001 and
as our Chairman of the Board since August 1, 2002. Mr. Norling also served as
interim Chief Executive Officer from May 2002 to June 2002. He has 37 years of
working experience in the electronics industry. Mr. Norling was with Motorola
Inc. from 1965 to 2000 holding various positions, including President of the
Semiconductor Products Sector in 1986, President of the Europe, Middle East and
Africa region in 1993, Deputy to the Chief Executive Officer in 1998 and
President of the Personal Communications Sector in 1999 until his retirement.
He has previously served as a board member and the Chairman of the
Semiconductor Industry Association. Mr. Norling is currently a board member of
Harley-Davidson, Inc. Mr. Norling holds a B.Sc and a Masters degree in
Electrical Engineering from the University of Illinois.

LIM MING SEONG

Lim Ming Seong has served on our Board of Directors since November 1987 and as
our Deputy Chairman of the Board since August 1995. Mr. Lim currently sits on
the boards of various companies, including as Deputy Chairman of ST Assembly
Test Services Ltd and Chairman of CSE Global Ltd. After joining Singapore
Technologies Pte Ltd in December 1986, Mr. Lim has held various senior
positions in the Singapore Technologies group. Prior to joining Singapore
Technologies Pte Ltd, Mr. Lim was with the Ministry of Defence of Singapore.
Mr. Lim received his Bachelor of Science (Honors) in Mechanical Engineering
from the University of Toronto and his Diploma in Business Administration from
the University of Singapore. Mr. Lim also participated in the Advanced
Management Programs at INSEAD and Harvard University.

CHIA SONG HWEE

Chia Song Hwee has served on our Board of Directors and as our President and
Chief Executive Officer since June 2002. Prior to his appointment, Mr. Chia
had served as our Chief Administrative Officer since September 2000, as our
Senior Vice President since February 2000 and as our Chief Financial Officer
since December 1997. Mr. Chia was our Director of Finance from April 1996 to
December 1997. Since joining our company in 1996, his responsibilities have
steadily expanded to include the areas of finance, strategic development,
technology alliances and legal. From May 1992 through December 1994, Mr. Chia
was Regional Financial Controller (Asia and Middle East) for Anadrill Technical
Services, Inc. From January 1995 to April 1996, Mr. Chia was Regional
Controller (Asia, Australia and Middle East) for Sedco Forex Technical
Services, Inc. Mr. Chia received his Bachelor of Business (Accountancy), with
distinction, from Edith Cowan University, Australia and is a Certified
Practicing Accountant by the Australian Society of CPAs.

SUM SOON LIM

Sum Soon Lim has served on our Board of Directors since February 1994. He is
currently a corporate adviser to Singapore Technologies Pte Ltd and Temasek
Holdings (Private) Limited. Mr. Sum had worked with the Singapore Economic
Development Board, DBS Bank, J.P. Morgan Inc., Overseas Union Bank and Nuri
Holdings (S) Pte Ltd, a private investment holding company. He is also a member
of the Securities Industry Council. Mr. Sum currently also sits on the board of
various companies, including CapitaLand Ltd, Singapore Health Services Pte Ltd,
Singapore Technologies Telemedia Pte Ltd and Singapore Press Holdings Ltd. He
is also a Commissioner in P.T. Indonesian Satellite Corporation. Mr. Sum
received his B.Sc (Honors) in Production Engineering from the University of
Nottingham, England.

ROBERT E. LA BLANC

Robert E. La Blanc has served on our Board of Directors since May 1998 and is
the President of Robert E. La Blanc Associates, Inc., an information
technologies consulting and investment banking firm. From 1979 to 1981, Mr. La
Blanc was Vice Chairman of Continental Telecom, Inc. and from 1969 to 1979, a
General Partner of Salomon Brothers Inc. Mr. La Blanc has also held various
senior positions within companies in the telecommunications industry including
AT&T, Bell Telephone Laboratories and New York Telephone Company. Mr. La Blanc
received his B.E.E. from Manhattan College and his MBA from New York
University. Mr. La Blanc also is a graduate of the Operating Engineers Program
at Bell Telephone Laboratories and the USAF Communications Officers School.

ANDRE BORREL

Andre Borrel has served on our Board of Directors since July 1998 and is
currently working as a consultant in the semiconductor industry. Prior to
joining our Board of Directors, Mr. Borrel was Senior Vice President and

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General Manager of Communications, Power and Signal Technology Group at
Motorola Inc. Mr. Borrel is also an Officer of the French National Order of
Merit and holds a Master Degree in Electronics from Ecole Nationale Superieure
des Telecommunications in Paris, France.

CHARLES E. THOMPSON

Charles E. Thompson has served on our Board of Directors since September 1998
and is currently working as a consultant in the information
technology/semiconductor technology industry. From 1973 to 1996, Mr. Thompson
was World Marketing Senior Vice President at Motorola Inc. Prior thereto, Mr.
Thompson was Computer Department Sales Director at General Electric. Mr.
Thompson received his Bachelor of Science in Mathematics from the University of
Washington.

TSUGIO MAKIMOTO, PhD

Tsugio Makimoto has served on our Board of Directors since September 1999 and
has more than 40 years of working experience in the semiconductor industry. He
is currently Corporate Adviser / Chief Technology Officer to Sony Corporation
or Sony. Prior to joining Sony, Dr. Makimoto has worked for Hitachi Ltd since
1959 where he has held various senior positions, including Executive Managing
Director in 1993, Senior Executive Managing Director in 1999 and Corporate
Chief Technologist since 1998. Dr. Makimoto is an Auditor of Hitachi Chemical
Corporation since 2000. He was also nominated a Fellow of the Institute of
Electrical and Electronics Engineers, Inc. in 1997. Dr. Makimoto is also a
visiting professor at Toyo University.

TAY SIEW CHOON

Tay Siew Choon has served on our Board of Directors since July 2001. Mr. Tay
is the Managing Director and Chief Operating Officer of Singapore Technologies
Pte Ltd and Deputy Chairman and Chief Executive Officer of Green Dot Capital
Pte Ltd, a wholly owned subsidiary of Singapore Technologies Pte Ltd. Prior to
joining Singapore Technologies Pte Ltd, he was the Managing Director and Deputy
Chief Executive Officer of SembCorp Industries Ltd and has held various senior
positions in Singapore Technologies Industrial Corporation Ltd. Mr. Tay
currently also sits on the board of various companies including Sembcorp
Industries Ltd, Singapore Computer Systems Limited, SNP Corporation Ltd and, ST
Assembly Test Services Ltd. Mr. Tay received his Bachelor of Engineering
(Electrical) (Honors) Degree from Auckland University and his Masters of
Science in Systems Engineering from the former University of Singapore (now
National University of Singapore).

PETER SEAH LIM HUAT

Peter Seah has served on our Board of Directors since January 2002. Mr. Seah is
the President and Chief Executive Officer of Singapore Technologies Pte Ltd.
Prior to joining Singapore Technologies Pte Ltd, he has been a banker for the
past 32 years, 22 of which have been with the Overseas Union Bank Ltd and
before that with Citibank. He retired from his position as Vice Chairman and
CEO at Overseas Union Bank Ltd in September 2001. Mr. Seah currently sits on
the board of various companies including SembCorp Industries Ltd, CapitaLand
Ltd, ST Engineering Ltd and ST Assembly Test Services Ltd. Mr. Seah graduated
from the University of Singapore in 1968 with an honors degree in Business
Administration. For his public service, he was awarded the Public Service
Medal (1995) as well as the Public Service Star in 1999 by the Singapore
Government.

PHILIP TAN YUEN FAH

Philip Tan has served on our Board of Directors and as our Chairman of the
Audit Committee since October 2003. He is currently an independent consultant
and also sits on the boards of companies such as Overseas Union Insurance Ltd
and Singapore Food Industries Ltd. Mr. Tan is a veteran in the banking and
financial industry. He retired in 2002 from Overseas Union Bank Ltd after
holding various positions since joining the company in 1979. Mr. Tan holds a
Bachelor of Accountancy from the University of Singapore and a Bachelor of Laws
from the University of Wolverhampton, UK. In addition, Mr Tan also holds a
graduate diploma in Business Administration from the Manchester Business
School, UK. He is a Certified Public Accountant and a member of the Accounting
Standards Committee of the Institute of Certified Public Accountants of
Singapore. He is also a Chartered Management Accountant of the Chartered
Institute of Management Accountants of UK and a Fellow of CPA (Australia).

ANG KAY CHAI

Ang Kay Chai has served as our Senior Vice President, Fab Operations, since
September 2002. Mr. Ang is responsible for manufacturing strategy and
operational excellence across all of Chartereds fabs. Mr. Ang returned to
Chartered after spending four years at Silterra Malaysia Sdn, Bhd., where he
was responsible for fab operations. There, he led teams in technology partner
selection, green field fab startup, transfer of 0.25um and

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0.18um technology
and developing foundry-compatible process capabilities. Prior to that, Mr. Ang
spent nine years at Chartered where he led the initial conception, development
and ramp up of Fab 2 and Fab 3. Mr. Ang first joined Chartered in 1989 and was
one of the pioneers on Chartereds Fab 1 team. Mr. Ang holds a Master of
Science degree in Engineering from the University of Texas and a Bachelor of
Engineering degree from the National University of Taiwan.

MICHAEL J. REKUC

Michael J. Rekuc has served as our Senior Vice President, Worldwide Sales and
Marketing since August 2003. He has the overall responsibility for global
sales, marketing and services, customer support and regional business
operations. From January 1999 to July 2003, Mr. Rekuc served as our President
of our Americas operations. Mr. Rekuc brings nearly 30 years of electronics and
semiconductor industry experience. From 1976 until joining Chartered in
January 1999, Mr. Rekuc held sales, management and director positions in the
semiconductor product sector of Motorola Inc. His most recent positions at
Motorola Inc. included worldwide responsibilities as global sales director for
wireless subscriber systems and a 2 year role as vice president and sales
director for PC, computing and peripherals. Mr. Rekuc holds a BSEE from
Lawrence University of Michigan.

SUN SHI-CHUNG, PhD

Sun Shi-Chung has served as our Senior Vice President, Technology Development
since December 2001. Dr. Sun has the overall responsibility for technology
development and execution according to the competitive technology roadmap. Dr.
Sun has more than 29 years of experience in the semiconductor industry. He
joined us from Promos Technologies in Taiwan, where he was the head of research
and development. During his career, he has held various positions with TSMC,
Advanced Micro Devices Inc., Catalyst Semiconductor, Hewlett-Packard and AT & T
Bell Labs. Dr. Sun received his PhD in electrical engineering from Stanford
University, his M.S. in electrical engineering from the State University of New
York and his B.S. in electrical engineering from National Cheng Kung University
in Taiwan. Dr. Sun has been awarded several U.S. patents with several more
pending, and his work has been featured in more than 100 technical
publications.

GEORGE THOMAS

George Thomas has served as our Vice President and Chief Financial Officer
since June 2002 and has overall responsibility for our companys finance,
investor relations and legal functions. From September 2000 to June 2002. Mr.
Thomas served as Vice President, Finance. He joined our company in May 2000 as
Group Controller. Mr. Thomas began his Finance/Accounting career with Canadian
Met-Chem, a subsidiary of U.S. Steel Corporation as Internal Auditor and Senior
Accounts Executive in 1978. From June 1983 to April 2000, he held various
positions at Schlumbergers Sedco Forex Division, including Controller,
Operations-Worldwide, Regional Controller, Asia & Australia, Controller,
Indonesia Operations, and Finance Manager of Arabian Drilling Company, a joint
venture between Schlumberger and Petromin. He has served on the Board of
Directors of Chartered Silicon Partners Pte Ltd since April 2001 and the Board
of Directors of Silicon Manufacturing Partners Pte Ltd as an alternate director
since July 2003. Mr. Thomas received his Bachelor Degree in Commerce and in
General Law. He is also a member of the Institute of Chartered Accountants of
India.

ANG TANG YONG

Ang Tang Yong has served as our Vice President, Quality, Reliability Assurance
and Support Operations since July 2002. He has overall responsibility for facilities, supply
management and quality assurance. Mr. Ang first joined our company in 1993 as
Facilities Director and during the next seven years served consecutively as
Vice President and Operations Manager of our Fab 1, General Manager of Silicon
Manufacturing Partners (SMP or Fab 5), and as General Manager of Chartered
Silicon Partners (CSP or Fab 6). Mr. Ang has more than 20 years of working
experience in the semiconductor industry. Prior to joining our company, Mr. Ang
held positions in the United States and Singapore with AT&T, Hitachi and Texas
Instruments. From March 2001 to July 2002, he was president of Ellipsiz, a
provider of semiconductor engineering and manufacturing services, headquartered
in Singapore. Mr. Ang received a diploma in electrical engineering from
Singapore Polytechnic and a masters degree in business administration from the
State University of New York.

ROY KANNAN

Roy Kannan has served as our Vice President and Chief Information Officer (CIO)
since September 2003. Mr. Kannan is responsible for our global information
technology organization and for driving our companys strategic initiative to
extend a virtual business systems network for supporting the business systems
network for supporting the business requirements of customers, partners,
suppliers and employees. He joined us from the RGM group, a multi-divisional
conglomerate, where he was the CIO. His responsibilities included the revamp of

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the companys data, voice, network and security infrastructure, as well as the
management of IS operations and data centers. During Mr. Kannans more than 20
years of experience in the information systems (IS) industry, he has held
senior positions at leading IS solutions companies such as Compaq, Mastek,
Digital Equipment and Patni. Mr. Kannan holds a Bachelor of Chemical
Engineering Degree from the Indian Institute of Technology, Madras, and a
post-graduate diploma in management from the Indian Institute of Management,
Ahmedabad.

NG SENG HUWI

Ng Seng Huwi has served as our Vice President, Human Resources since July 2003.
Mr. Ng is responsible for the overall development and implementation of
policies and processes in our companys human resources management system. Mr.
Ng brings with him extensive work experience in a number of large
multi-national companies. He joined us from Praxair Inc., where he was vice
president of Asia Human Resources with responsibilities that included ensuring
organizational effectiveness, improving productivity and managing performance.
During his 22 year professional career, Mr. Ng has lived and worked around the
world, holding a variety of human resources, engineering and operations
positions in global companies, including Schlumberger, Unilever and ICI. Mr. Ng
holds a Bachelor of Engineering (Honors) from the University of Aberdeen in
Scotland and an MBA from the University of Sheffield, England.

TAN SENG CHAI

Tan Seng Chai has served as our Vice President, Strategy Resources since July
2003. Mr. Tan has overall responsibility for the coordination of Chartereds
long-term strategic initiatives and serves as the liaison with the management
team, as well as the external communication teams. Prior to his appointment,
Mr. Tan served as our Vice President, Human Resources from July 1999 to July
2003. He joined our company in April 1996 as a human resource manager. Mr. Tan
has more than 16 years of experience in the semiconductor industry. He began
his career at National Semiconductor in 1987 where he held various positions in
engineering, production and human resource management. Mr. Tan later joined
Creative Technology Ltd in 1994 and prior to joining our company, he was
Creative Technology Ltds Senior Manager, Human Resource. Mr. Tan holds a
Bachelor of Engineering (Hons) from the National University of Singapore in
1987 and a M.Sc (Industrial and System Eng) from the National University of
Singapore in 1991.



|B. |  | COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
|-- |  | -----------------------------------------------

The aggregate compensation we paid to or accrued for all of our directors and
senior management for services rendered to us and our subsidiaries during the
fiscal year ended December 31, 2003 was approximately $3 million. We also
provide our directors and our senior management with customary director or
senior management insurance, as appropriate.

The table below sets out the compensation paid to our directors during the
fiscal year ended December 31, 2003:

(in $ thousands)

|                              |  |            |     |           |  |            |     |      |  |       |     |  |  |            |     |  |  |  |       | 
|----------------------------- |  | ---------- | --- | --------- |  | ---------- | --- | ---- |  | ----- | --- |  |  | ---------- | --- |  |  |  | ----- | 
|                              |  |            |     |           |  |            |     |      |  |       |     |  |  | Directors |     |  |  | 
|                              |  | Salary (1) |     | Bonus (2) |  | Others (3) |     | Fees |  | Total
|                              |  |            |     |           |  |            |     |      |  |      
|James A. Norling              |  |            |    |           |  |            |    |      |  |       | 1   |  |  |            | 75  |  |  |  | 76    | 
|Lim Ming Seong                |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 43  |  |  |  | 43    | 
|Chia Song Hwee                |  |            | 284 |           |  |            | 11  |      |  |       | 44  |  |  |            |    |  |  |  | 339   | 
|Sum Soon Lim                  |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 38  |  |  |  | 38    | 
|Robert E. La Blanc            |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 35  |  |  |  | 35    | 
|Andre Borrel                  |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 46  |  |  |  | 46    | 
|Charles E. Thompson           |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 35  |  |  |  | 35    | 
|Tsugio Makimoto               |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 28  |  |  |  | 28    | 
|Tay Siew Choon                |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 35  |  |  |  | 35    | 
|Peter Seah Lim Huat           |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 35  |  |  |  | 35    | 
|Philip Tan Yuen Fah           |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 9   |  |  |  | 9     | 
|James H. Van Tassel(4)        |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 13  |  |  |  | 13    | 
|Aubrey C. Tobey(4)            |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 15  |  |  |  | 15    | 
|Koh Beng Seng(5)              |  |            |    |           |  |            |    |      |  |       |    |  |  |            | 24  |  |  |  | 24    | 
|Premod Paul Thomas(6)         |  |            |    |           |  |            |    |      |  |       |    |  |  |            |    |  |  |  |      | 
|                              |  |            |     |           |  |            |     |      |  |       |     |  |  |            |     |  |  |  |       | 
|Total as of December 31, 2003 |  |            | 284 |           |  |            | 11  |      |  |       | 45  |  |  |            | 431 |  |  |  | 771   | 
|                              |  |            |     |           |  |            |     |      |  |       |     |  |  |            |     |  |  |  |       | 
|Total as of December 31, 2002 |  |            | 825 |           |  |            | 683 |      |  |       | 552 |  |  |            | 439 |  |  |  | 2,499 | 
|                              |  |            |     |           |  |            |     |      |  |       |     |  |  |            |     |  |  |  |       | 



|(1) |  | Base salary (inclusive of employers Central Provident Fund (CPF)).                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Economic Value Added (EVA) (inclusive of employers CPF). In 2003, Chia
Song Hwee received the final payment of EVA bonus, which was paid to all
of the companys eligible employees, which had accrued while he was the
Chief Financial Officer in year 2000. He did not receive any other bonus
in 2003.
|   
|(3) |  | Allowances (inclusive of employers CPF) and others.                                                                                                                                                                                                                                                      
|   
|(4) |  | Retired as Director on May 14, 2003.                                                                                                                                                                                                                                                                      
|   
|(5) |  | Resigned as Director on October 1, 2003.                                                                                                                                                                                                                                                                  
|   
|(6) |  | Resigned as Alternate Director on April 24, 2003.                                                                                                                                                                                                                                                         

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During 2003, we also granted options to purchase 3,780,000 ordinary shares to
our directors and senior management. These options were granted under our 1999
Option Plan. The exercise prices of these options range from S$0.72 to
S$1.10. The expiration dates of these options range from February 28, 2004 to
August 29, 2013, subject to annual vesting requirements.

All of our senior management and employees are eligible to participate in our
employee bonus plans. The plans provide for bonus payments based upon our
achievement of certain operational, financial and customer satisfaction
targets. Upon achievement of these targets, the participants in our plans are
awarded bonuses based on either a percentage of their annual salary or a fixed
amount. Our President and Chief Executive Officer does not have a guaranteed
minimum annual bonus. None of our directors receive benefits upon termination
of their appointment in their capacity as directors.



|C. |  | BOARD PRACTICES
|-- |  | ---------------

BOARD COMPOSITION

Our Articles of Association set the minimum number of directors at two. As of
January 31, 2004 we have 11 directors. A portion of our directors (including
our President and Chief Executive Officer) are re-elected at each annual
general meeting of shareholders. The number of directors retiring and eligible
to stand for re-election each year varies, but generally it is equal to
one-third of the board, with the directors who have been in office longest
since their re-election or appointment standing for re-election. Singapore
Technologies, through its affiliate, owns 60.28% of our outstanding ordinary
shares. As such, it is able to control actions over many matters requiring
approval by our shareholders, including the election of directors.

Under the Nasdaq rules, companies that satisfy the definition of a Controlled
Company may be exempt from certain regulatory requirements. The regulatory
requirements which Controlled Companies are exempt from are:



|(i)   |  | the requirement that the majority of Board members must be independent;                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(ii)  |  | the requirement that the independent directors must meet without
management in regular executive sessions;                                                                                                                     
|     
|(iii) |  | the requirement that the compensation committee must be comprised solely
of independent directors, or that compensation of our senior management
must be made by a majority of the independent directors on the full Board;
and
|     
|(iv)  |  | the requirement that the nomination committee must be comprised solely of
independent directors or that nominations must be made by a majority of
the independent directors on the full Board.                                 

A Controlled Company is defined as a company of which more than 50% of the
voting power is held by an individual, group or another company. As Singapore
Technologies through its affiliate owns more than 50% of our outstanding
ordinary shares, our company falls under the definition of Controlled Company
and our Board has resolved to rely on the exemption for Controlled Companies
as provided under the Nasdaq rules. However, our Board may from time to time
review this decision.

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In addition, the current Nasdaq rules require that our Audit Committee be
comprised solely of independent directors. Although one of our Audit Committee
members does not qualify as independent director under the Nasdaq rules, we are
currently exempt from this requirement pursuant to an exemption we previously
received from Nasdaq. In the event we are no longer able to rely on this
exemption in the future, we anticipate that we would rely on the Nasdaq rule
which permits one non-independent director to be appointed to the Audit
Committee for a period of up to two years if the Board makes a determination
that, under exceptional and limited circumstances, the directors membership on
the committee is in the best interests of the company and its shareholders.

The Board of Directors held five meetings during the fiscal year ended December
31, 2003, including four regularly scheduled meetings and one special meeting.
The Board of Directors also held meetings without senior management in regular
sessions which are generally held immediately after a regularly scheduled Board
meeting.

COMMITTEES OF THE BOARD OF DIRECTORS



|(a) |  | Executive Committee
|--- |  | -------------------

The Executive Committee of our Board of Directors was established to enable our
Board to delegate some of its powers and functions regarding the governing of
the affairs of the company and its subsidiaries to the Executive Committee in
order to facilitate timely decision-making processes within the limits of
authority as determined by our Board. The members of the Executive Committee
are Messrs. James A. Norling (chairman), Peter Seah Lim Huat, Tay Siew Choon
and Chia Song Hwee. The Executive Committee held two meetings during fiscal
year ended December 31, 2003.



|(b) |  | Audit Committee
|--- |  | ---------------

The Audit Committee of our Board of Directors consists of four members. The
Audit Committee reviews, acts on and reports to the Board of Directors
regarding various auditing and accounting matters. In particular, the Audit
Committee reviews the financial statements of our company, the scope and
results of annual audits (both internal and external), the recommendation of
our independent auditors and the response of our companys management to both
the internal and external audits. The Audit Committee meets up at least once a
year with the external and internal auditors without the presence of
management. It also oversees related party transactions, including all material
transactions between our company and the Singapore Technologies group. The members of
the Audit Committee are Messrs. Philip Tan Yuen Fah (chairman), Sum Soon Lim,
Robert E. La Blanc and Andre Borrel (appointed as of February 5, 2004). The
Audit Committee held eight meetings during fiscal year ended December 31, 2003.



|(c) |  | Executive Resource and Compensation Committee
|--- |  | ---------------------------------------------

The Executive Resource and Compensation Committee, or the ERCC, of our Board of
Directors oversees executive compensation and development in our company with
the goal of building capable and committed management teams through competitive
compensation, focused management and progressive policies which can attract,
motivate and retain a pool of talented executives to meet our current and
future growth plans. The ERCC establishes compensation policies for key
executives, approves salary reviews, bonuses and incentives for key executives,
approves share incentives, including share options and share ownership for
executives, approves key appointments and reviews succession plans for key
positions, and oversees the development of key executives and talented
executives.

The members of the ERCC are Messrs. Peter Seah Lim Huat (chairman), James A.
Norling, Andre Borrel, Lim Ming Seong, Charles E. Thompson, Sum Soon Lim, Tay
Siew Choon and Ms. Cheo Hock Kuan (co-opted member). The ERCC held four
meetings during fiscal year ended December 31, 2003.



|(d) |  | Nominating Committee
|--- |  | --------------------

The Nominating Committee of our Board of Directors was established in October
2003 and its primary purpose is to support and advise the company in ensuring
that the Board of the company is comprised of individuals who are best able to
discharge their responsibilities as directors having regard to the law and the
highest standards of governance. The Nominating Committee is responsible for
recommending suitable candidates to

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the Board for election as directors of the
company focusing, in particular, on candidates who can add value to the
management through their contributions in the relevant strategic business areas
and who collectively will result in a strong and diverse board. The members of
the Nominating Committee are Messrs. Peter Seah Lim Huat (chairman), James A.
Norling, Andre Borrel, Lim Ming Seong, Charles E. Thompson, Sum Soon Lim, Tay
Siew Choon and Ms. Cheo Hock Kuan (co-opted member).



|(e) |  | Budget Committee
|--- |  | ----------------

The Budget Committee of our Board of Directors is responsible for reviewing our
annual budget and our quarterly financial performance in relation to our budget
as well as our capital spending and financial plans. The members of the Budget
Committee are Messrs. Andre Borrel (chairman), Lim Ming Seong, Sum Soon Lim and
Tay Siew Choon. The Budget Committee held four meetings during fiscal year
ended December 31, 2003.



|D. |  | EMPLOYEES
|-- |  | ---------

As of December 31, 2003 our total staff strength (including our subsidiary,
CSPs employees) was 3,283 employees. The following tables sets forth the total
number of employees, as of the dates indicated by functional responsibility and
by geographical locations.

|                                                                                  |  |                                     |       |      |  |      |       |  |  |  |       | 
|--------------------------------------------------------------------------------- |  | ----------------------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                                  |  | No. of employees as of December 31,
|                                                                                  |  |                                    
|Functions                                                                         |  | 2001                                |       | 2002 |  | 2003
|                                                                                  |  |                                     |       |      |  |     
|Engineering                                                                       |  |                                     | 1,494 |      |  |      | 1,214 |  |  |  | 1,186 | 
|(Modules, YE, Process Integration,
Product Engineering, JV Technology, Metrology) |  |                                     |       |      |  |      |       |  |  |  |       | 
|Manufacturing Operations                                                          |  |                                     | 1,309 |      |  |      | 1,047 |  |  |  | 890   | 
|Manufacturing Support                                                             |  |                                     | 438   |      |  |      | 589   |  |  |  | 591   | 
|Research and Development                                                          |  |                                     | 241   |      |  |      | 279   |  |  |  | 225   | 
|Administration, Marketing and Finance                                             |  |                                     | 500   |      |  |      | 414   |  |  |  | 391   | 
|                                                                                  |  |                                     |       |      |  |      |       |  |  |  |       | 
|Total                                                                             |  |                                     | 3,982 |      |  |      | 3,543 |  |  |  | 3,283 | 
|                                                                                  |  |                                     |       |      |  |      |       |  |  |  |       | 

|                                    |  |                                     |       |      |  |      |       |  |  |  |       | 
|----------------------------------- |  | ----------------------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                    |  | No. of employees as of December 31,
|                                    |  |                                    
|Geographical Locations              |  | 2001                                |       | 2002 |  | 2003
|                                    |  |                                     |       |      |  |     
|Singapore                           |  |                                     | 3,845 |      |  |      | 3,417 |  |  |  | 3,161 | 
|Americas                            |  |                                     | 97    |      |  |      | 87    |  |  |  | 84    | 
|Europe                              |  |                                     | 22    |      |  |      | 21    |  |  |  | 17    | 
|Asia-Pacific (other than Singapore) |  |                                     | 18    |      |  |      | 18    |  |  |  | 21    | 
|                                    |  |                                     |       |      |  |      |       |  |  |  |       | 
|Total                               |  |                                     | 3,982 |      |  |      | 3,543 |  |  |  | 3,283 | 
|                                    |  |                                     |       |      |  |      |       |  |  |  |       | 

In February 2003, we announced our plans to phase out Fab 1 and to consolidate
its business into Fab 2 over an estimated 13 month transition period. The
consolidation process is progressing as scheduled and the operations at Fab 1
are expected to cease by the end of March 2004. We currently employ
approximately 500 people in Fab 1, about half of whom are in manufacturing
operations. We have taken measures to incentivize Fab 1 employees to stay on
during the transition period so that employment in Fab 1 will be maintained
through March 31, 2004 in order to ensure the smooth transfer of business to
Fab 2.

Our employees are not covered by any collective bargaining agreements and are
not members of a union. We have not experienced any strikes or work stoppages
by our employees. We consider our relationship with our employees to
be good.
We provide our employees with customary compensation and benefit plans,
including employee bonus plans, an employee share option plan and an employee
share purchase plan. Employees of SMP, our 49% owned affiliate, are
eligible to receive option grants under our companys employee share
option plan subject to certain exceptions as provided in the plan. In
addition, employees of SMP also
participate in an employee share purchase plan with terms substantially similar
to the share purchase plan for our employees. Please see Item 6. Directors,
Senior Management and Employees  Employee Benefit Plans for a discussion of
our share option plan and our share purchase plan.

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|E. |  | SHARE OWNERSHIP FOR DIRECTORS AND SENIOR MANAGEMENT
|-- |  | ---------------------------------------------------

The following table sets forth certain information with respect to the
beneficial ownership of our ordinary shares for each of our directors and our
president and chief executive officer and all of our directors and senior
management as a group as of December 31, 2003, based on an aggregate of
2,505,480,456 ordinary shares outstanding as of such date.

|                                                                |  |                        |           |         |  |  |   | 
|--------------------------------------------------------------- |  | ---------------------- | --------- | ------- |  |  | - | 
|                                                                |  | Ordinary Shares (1)   
|                                                                |  | Beneficially Owned (2)
|                                                                |  |                       
|Directors                                                       |  | Number                 |           | Percent
|James A. Norling                                                |  |                        | 1,492,631 |         |  |  | * | 
|Lim Ming Seong                                                  |  |                        | 279,436   |         |  |  | * | 
|Chia Song Hwee                                                  |  |                        | 2,063,230 |         |  |  | * | 
|Sum Soon Lim                                                    |  |                        | 902,490   |         |  |  | * | 
|Robert E. La Blanc                                              |  |                        | 337,964   |         |  |  | * | 
|Andre Borrel                                                    |  |                        | 516,800   |         |  |  | * | 
|Charles E. Thompson                                             |  |                        | 393,792   |         |  |  | * | 
|Tsugio Makimoto                                                 |  |                        | 231,546   |         |  |  | * | 
|Tay Siew Choon                                                  |  |                        | 359,073   |         |  |  | * | 
|Peter Seah Lim Huat                                             |  |                        | 110,330   |         |  |  | * | 
|Philip Tan Yuen Fah                                             |  |                        |          |         |  |  |  | 
|All directors and senior management (3) as a group (19 persons) |  |                        | 9,592,476 |         |  |  | * | 



---

*     Less than 1% of our outstanding shares.



|(1) |  | The number of ordinary shares listed in this table includes ordinary
shares held directly or in the form of ADSs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Gives effect to the ordinary shares issuable within 60 days from December
31, 2003 upon the exercise of all options and other rights beneficially
owned by the indicated shareholders on that date. Beneficial ownership is
determined in accordance with the rules of the SEC and includes voting and
investment power with respect to ordinary shares. Except for 36,000 shares
held by James A. Norling and 101,560 shares held by Michael J. Rekuc which
are jointly held, the persons named in the table have sole voting and sole
investment control with respect to all ordinary shares beneficially owned.
|   
|(3) |  | None of our directors or senior management individually owns 1% or more
of our outstanding shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

SHARE OPTIONS FOR DIRECTORS

The following table contains information pertaining to share options held by
directors as of December 31, 2003.

|                 |  |              |           |          |  |             |      |  |  |                          |  | 
|---------------- |  | ------------ | --------- | -------- |  | ----------- | ---- |  |  | ------------------------ |  | 
|                 |  | As of        |           | Exercise |  |             |      | 
|                 |  | December 31, |           | price    |  | Exercisable
|                 |  | 2003         |           | S$       |  | period     
|                 |  |              |           |          |  |            
|James A. Norling |  |              | 58,609    |          |  |             | 4.05 |  |  | 28/03/2002 to 28/03/2006
|                 |  |              | 58,609    |          |  |             | 4.26 |  |  | 15/08/2002 to 15/08/2006
|                 |  |              | 58,609    |          |  |             | 3.46 |  |  | 22/02/2003 to 22/02/2007
|                 |  |              | 1,172,195 |          |  |             | 3.88 |  |  | 01/05/2002 to 01/05/2012
|                 |  |              | 58,609    |          |  |             | 1.86 |  |  | 30/08/2003 to 30/08/2007
|                 |  |              | 50,000    | +        |  |             | 0.72 |  |  | 28/02/2004 to 28/02/2008
|                 |  |              | 60,000    | +        |  |             | 1.10 |  |  | 29/08/2004 to 29/08/2008
|Lim Ming Seong   |  |              | 58,609    |          |  |             | 4.05 |  |  | 28/03/2002 to 28/03/2006
|                 |  |              | 58,609    |          |  |             | 4.26 |  |  | 15/08/2002 to 15/08/2006
|                 |  |              | 58,609    |          |  |             | 3.46 |  |  | 22/02/2003 to 22/02/2007
|                 |  |              | 58,609    |          |  |             | 1.86 |  |  | 30/08/2003 to 30/08/2007
|                 |  |              | 45,000    | +        |  |             | 0.72 |  |  | 28/02/2004 to 28/02/2008
|                 |  |              | 45,000    | +        |  |             | 1.10 |  |  | 29/08/2004 to 29/08/2008

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|                    |  |              |           |          |  |             |       |  |  |                          |  | 
|------------------- |  | ------------ | --------- | -------- |  | ----------- | ----- |  |  | ------------------------ |  | 
|                    |  | As of        |           | Exercise |  |             |       | 
|                    |  | December 31, |           | price    |  | Exercisable
|                    |  | 2003         |           | S$       |  | period     
|                    |  |              |           |          |  |            
|Chia Song Hwee      |  |              | 10,467    |          |  |             | 1.18  |  |  | 07/10/1999 to 28/10/2006
|                    |  |              | 20,935    |          |  |             | 1.00  |  |  | 07/10/1999 to 28/11/2007
|                    |  |              | 61,704    |          |  |             | 0.80  |  |  | 30/11/1998 to 29/11/2008
|                    |  |              | 26,444    |          |  |             | 0.80  |  |  | 30/04/1999 to 29/04/2009
|                    |  |              | 70,331    |          |  |             | 2.86  |  |  | 29/04/2000 to 29/10/2009
|                    |  |              | 234,439   |          |  |             | 2.86  |  |  | 29/10/1999 to 29/10/2009
|                    |  |              | 410,268   |          |  |             | 14.24 |  |  | 06/04/2001 to 06/04/2010
|                    |  |              | 527,487   |          |  |             | 10.12 |  |  | 03/10/2001 to 03/10/2010
|                    |  |              | 263,743   |          |  |             | 4.05  |  |  | 28/03/2002 to 28/03/2011
|                    |  |              | 263,743   |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2011
|                    |  |              | 234,439   |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2012
|                    |  |              | 2,344,391 |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2012
|                    |  |              | 300,000   | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2013
|                    |  |              | 700,000   | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2013
|Sum Soon Lim        |  |              | 16,748    |          |  |             | 0.94  |  |  | 07/10/1999 to 07/10/2004
|                    |  |              | 41,870    |          |  |             | 0.80  |  |  | 07/10/1999 to 07/10/2004
|                    |  |              | 70,331    |          |  |             | 2.86  |  |  | 29/04/2000 to 29/10/2004
|                    |  |              | 23,443    |          |  |             | 2.86  |  |  | 29/10/2000 to 29/10/2004
|                    |  |              | 93,775    |          |  |             | 14.24 |  |  | 06/04/2001 to 06/04/2005
|                    |  |              | 93,775    |          |  |             | 10.12 |  |  | 03/10/2001 to 03/10/2005
|                    |  |              | 46,887    |          |  |             | 4.05  |  |  | 28/03/2002 to 28/03/2006
|                    |  |              | 46,887    |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2006
|                    |  |              | 46,887    |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 46,887    |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 25,000    | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 35,000    | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008
|Robert E. La Blanc  |  |              | 41,870    |          |  |             | 0.86  |  |  | 07/10/1999 to 07/10/2004
|                    |  |              | 11,721    |          |  |             | 2.86  |  |  | 29/04/2000 to 29/10/2004
|                    |  |              | 11,721    |          |  |             | 2.86  |  |  | 29/10/2000 to 29/10/2004
|                    |  |              | 23,443    |          |  |             | 14.24 |  |  | 06/04/2001 to 06/04/2005
|                    |  |              | 58,609    |          |  |             | 10.12 |  |  | 03/10/2001 to 03/10/2005
|                    |  |              | 29,304    |          |  |             | 4.05  |  |  | 28/03/2002 to 28/03/2006
|                    |  |              | 29,304    |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2006
|                    |  |              | 29,304    |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 29,304    |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 25,000    | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 35,000    | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008
|Andre Borrel        |  |              | 42,199    |          |  |             | 2.86  |  |  | 29/04/2000 to 29/10/2004
|                    |  |              | 23,443    |          |  |             | 2.86  |  |  | 29/10/2000 to 29/10/2004
|                    |  |              | 93,775    |          |  |             | 14.24 |  |  | 06/04/2001 to 06/04/2005
|                    |  |              | 93,775    |          |  |             | 10.12 |  |  | 03/10/2001 to 03/10/2005
|                    |  |              | 46,887    |          |  |             | 4.05  |  |  | 28/03/2002 to 28/03/2006
|                    |  |              | 46,887    |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2006
|                    |  |              | 46,887    |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 46,887    |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 40,000    | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 45,000    | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008
|Charles E. Thompson |  |              | 41,870    |          |  |             | 0.86  |  |  | 07/10/1999 to 07/10/2004
|                    |  |              | 35,165    |          |  |             | 2.86  |  |  | 29/04/2000 to 29/10/2004
|                    |  |              | 23,443    |          |  |             | 2.86  |  |  | 29/10/2000 to 29/10/2004
|                    |  |              | 58,609    |          |  |             | 14.24 |  |  | 06/04/2001 to 06/04/2005
|                    |  |              | 58,609    |          |  |             | 10.12 |  |  | 03/10/2001 to 03/10/2005
|                    |  |              | 29,304    |          |  |             | 4.05  |  |  | 28/03/2002 to 28/03/2006
|                    |  |              | 29,304    |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2006
|                    |  |              | 29,304    |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 29,304    |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 25,000    | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 35,000    | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008

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|                    |  |              |         |          |  |             |       |  |  |                          |  | 
|------------------- |  | ------------ | ------- | -------- |  | ----------- | ----- |  |  | ------------------------ |  | 
|                    |  | As of        |         | Exercise |  |             |       | 
|                    |  | December 31, |         | price    |  | Exercisable
|                    |  | 2003         |         | S$       |  | period     
|                    |  |              |         |          |  |            
|Tsugio Makimoto     |  |              | 11,721  |          |  |             | 14.24 |  |  | 06/04/2001 to 06/04/2005
|                    |  |              | 58,609  |          |  |             | 10.12 |  |  | 03/10/2001 to 03/10/2005
|                    |  |              | 29,304  |          |  |             | 4.05  |  |  | 28/03/2002 to 28/03/2006
|                    |  |              | 29,304  |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2006
|                    |  |              | 29,304  |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 29,304  |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 25,000  | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 35,000  | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008
|Tay Siew Choon      |  |              | 23,443  |          |  |             | 4.26  |  |  | 15/08/2002 to 15/08/2006
|                    |  |              | 29,304  |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 234,439 |          |  |             | 3.88  |  |  | 01/05/2002 to 01/05/2007
|                    |  |              | 46,887  |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 25,000  | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 35,000  | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008
|Peter Seah Lim Huat |  |              | 23,443  |          |  |             | 3.46  |  |  | 22/02/2003 to 22/02/2007
|                    |  |              | 46,887  |          |  |             | 1.86  |  |  | 30/08/2003 to 30/08/2007
|                    |  |              | 40,000  | +        |  |             | 0.72  |  |  | 28/02/2004 to 28/02/2008
|                    |  |              | 45,000  | +        |  |             | 1.10  |  |  | 29/08/2004 to 29/08/2008



|+ |  | Options that were granted in 2003.
|- |  | ----------------------------------

EMPLOYEE BENEFIT PLANS

Share Option Plan 1999

On March 30, 1999, we adopted our Share Option Plan 1999 (1999 Option Plan).
The purpose of the plan is to put our company in a competitive position as an
employer. Options granted under the 1999 Option Plan may be non-statutory
options or incentive stock options intended to qualify under Section 422 of the
U.S. Internal Revenue Code.

The 1999 Option Plan is administered
by the ERCC. Our employees, employees of SMP, our outside
directors and consultants are eligible to receive option grants subject to
certain exceptions as provided in the 1999 Option Plan. An individual who owns
more than 10% of the total combined voting power of all classes of our
outstanding shares is not eligible for the grant of options unless:



| |  | the exercise price of the option is at least 110% of the fair market value of a share on the date of grant; and                                 
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | in the case of an incentive stock option, such option by its terms is not exercisable after the expiration of five years
from the date of grant.

The aggregate number of shares that may be issued under the 1999 Option Plan
and under any other share incentive and option schemes or agreements may not
exceed 227,647,883 shares, as adjusted from 197,160,000 to give effect to the
October 2002 Rights Offering.

If an outstanding option expires for any reason or is cancelled or otherwise
terminated, the shares allocable to the unexercised portion of such option will
again be available for the purposes of the plan and all other share incentive
and option schemes approved by the ERCC. The exercise price of an incentive
stock option shall not
be less than 100% of the fair market value of a share on the date of grant. In
no event will the exercise price for an option be below par value.

The exercisability of options outstanding under the 1999 Option Plan may be
fully or partially accelerated under certain circumstances such as a change in
control of our company, as defined in the 1999 Option Plan. The vesting periods
of 17,273,481 outstanding options were accelerated by 12 months upon the
closing of our initial public offering in 1999. We amended the 1999 Option Plan
in connection with our initial public offering to enable the plan and, at the
ERCCs discretion, awards granted thereunder, to comply with Section 162(m) of
the U.S. Internal Revenue Code.

Each grant under the 1999 Option Plan is evidenced by a share option agreement
and the term of options granted may not exceed 10 years from the date of grant.
If the optionees service with us is terminated, the

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optionees outstanding
options, to the extent then exercisable, remain exercisable for a specified
period (which is based on the reason for the termination) following the date of
termination. All options which are not exercisable at the date of termination
lapse when the optionees service terminates.

As of December 31, 2003, options to purchase 104,223,577 ordinary shares were
issued and outstanding under our 1999 Option Plan, of which 16,686,575 were
held by our directors and senior management. The exercise prices of these
outstanding options range from S$0.69 to S$14.24 and the expiration dates of
these options range from April 2004 to December 2013.

On February 27, 2004, we granted
options to purchase approximately 17,930,570 ordinary shares under
our 1999 Option Plan at an exercise price of S$1.70, which is the
fair market value of our ordinary shares at the time of the grant.
The optionees are given up to April 12, 2004 to accept those
option grants.

The 1999 Option Plan will terminate automatically on January 28, 2009, ten
years after the date on which the Board adopted the 1999 Option Plan. The ERCC
may amend, suspend or terminate the 1999 Option Plan at any time and for any
reason, provided that any amendment which increases the number of shares
available for issuance under the 1999 Option Plan, or which materially changes
the class of persons who are eligible for the grant of incentive share options,
will be subject to the approval of our shareholders.

Employee Share Purchase Plans

In May 2001, we implemented a Chartered Employee Share Purchase Plan 2001
(the Chartered ESPP 2001). The purpose of the Chartered ESPP 2001 is to
put our company in a competitive position as an employer. Employees
purchase shares from our company through payroll deductions.

In May 2001, we also implemented a separate Share Purchase Plan for Employees
of SMP 2001 (the SMP ESPP 2001). Chartered holds a 49% equity interest in
SMP. The terms of this plan are substantially similar to the terms of the
Chartered ESPP 2001.

The aggregate number of shares that were available for purchase under the
Chartered ESPP 2001 and the SMP ESPP 2001 was 10,000,000 ordinary shares of our
company. As a result of our October 2002 Rights Offering, the number of shares
available under the Chartered ESPP 2001 and the SMP ESPP 2001 was adjusted to
an aggregate number of 11,721,955 shares.

All available shares under the Chartered ESPP 2001 and the SMP
ESPP 2001 were issued and allotted by the end of February 2004, and as a
result, both the Chartered ESPP 2001 and the SMP ESPP 2001 were terminated.
We are therefore proposing a new Chartered ESPP 2004 and the SMP ESPP 2004 for
approval by shareholders at our forthcoming Annual General Meeting. The details
of this new Chartered ESPP 2004 and the SMP ESPP 2004 will be set out in the
Proxy Statement.

EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003

|                                                       |  |                             |             |                      |  |                      |       |  |  |                          |             | 
|------------------------------------------------------ |  | --------------------------- | ----------- | -------------------- |  | -------------------- | ----- |  |  | ------------------------ | ----------- | 
|                                                       |  |                             |             |                      |  |                      |       |  |  | (c) Number of securities
|                                                       |  |                             |             |                      |  |                      |       |  |  | remaining available for 
|                                                       |  |                             |             |                      |  |                      |       |  |  | future issuance under   
|                                                       |  | (a) Number of securities to |             | (b)Weighted-average  |  | equity compensation 
|                                                       |  | be issued upon exercise of  |             | exercise price of    |  | plans (excluding    
|                                                       |  | outstanding options,        |             | outstanding options, |  | securities in column
|Plan Category                                          |  | warrants and rights         |             | warrants and rights  |  | (a))                
|                                                       |  |                             |             |                      |  |                     
|Equity compensation
plans approved by
shareholders     |  |                             | 104,223,577 |                      |  | $                    | 2.67  |  |  |                          | 105,837,421 | 
|Equity compensation
plans not approved
by
shareholders |  |                             | N.A.*       |                      |  |                      | N.A.* |  |  |                          | N.A.*       | 
|Total                                                  |  |                             | 104,223,577 |                      |  | $                    | 2.67  |  |  |                          | 105,837,421 | 

*     Note:
Our company does not have any equity compensation plans which have not
been approved by shareholders.

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|ITEM 7. |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- |  | -------------------------------------------------



|A. |  | MAJOR SHAREHOLDERS
|-- |  | ------------------

The following table sets forth certain information with respect to each person
or group of affiliated persons who is known by us to beneficially own 5% or
more of our ordinary shares as of January 31, 2004 based on an aggregate of
2,505,518,801 ordinary shares outstanding as of such date:

|                                              |  |                        |               |         |  |  |       |  
|--------------------------------------------- |  | ---------------------- | ------------- | ------- |  |  | ----- | -
|                                              |  | Ordinary Shares (1)   
|                                              |  | Beneficially Owned (2)
|Shareholders Holding 5% Or More               |  | Number                 |               | Percent
|Singapore Technologies Semiconductors Pte Ltd |  |                        | 1,510,324,883 |         |  |  | 60.28 | %



|(1) |  | The number of ordinary shares listed in this table includes ordinary
shares held directly or in the form of ADSs.                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and investment power with respect to ordinary
shares. Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all ordinary
shares beneficially owned.

As of January 31, 2004, Temasek Holdings (Private) Limited, or Temasek, the
principal holding company of the Government of Singapore, owned directly and
indirectly, 100% of Singapore Technologies which in turn, owned 100% of ST
Semiconductors. Temasek and Singapore Technologies may be deemed to
beneficially own the shares owned by ST Semiconductors because they are the
parent companies of Singapore Technologies and ST Semiconductors, respectively.
On December 29, 2003, Singapore Technologies, as part of its consolidation and
streamlining process of its semiconductor investments, transferred all of its
898,409,073 shares, which was equivalent to 35.86% of our outstanding shares,
to ST Semiconductors. Hence, as of January 31, 2004, ST Semiconductors held
1,510,324,883 shares, which is 60.28% of our outstanding
shares.

As of January 31, 2004, 500,931 of our ordinary shares, representing 0.02% of
our outstanding shares, were held by a total of 82 holders of record with
addresses in the U.S. As of the same date, 10,289,348 of our ADSs (representing
102,893,480 ordinary shares), representing 4.1% of our outstanding shares, were
held by a total of 13 registered holders of record with addresses in the U.S.
Since certain of these ordinary shares and ADSs were held by brokers or other
nominees, the number of record holders in the U.S. may not be representative of
the number of beneficial holders or where the beneficial holders are resident.



|B. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

The Singapore Technologies Group

Singapore Technologies is a holding company for a group of companies. As of
January 31, 2004, Singapore Technologies was, directly and indirectly, wholly
owned by Temasek through which the corporate investments of the Government of
Singapore are held. Temasek is owned by the Minister for Finance (Incorporated)
of Singapore. Singapore Technologies owns 100% of ST Semiconductors. As of
January 31, 2004, ST Semiconductors held 1,510,324,883 shares which is 60.28%
of our outstanding shares. As ST Semiconductors
is wholly owned by Singapore Technologies, which in turn is directly and
indirectly wholly owned by Temasek, both Temasek and Singapore Technologies
are deemed to have an interest in ST Semiconductors shareholding interest in
our company.

Singapore Technologies has five principal business groups: engineering,
technology, infrastructure, property and financial services. Singapore
Technologies has two operating subsidiaries that are engaged in the
semiconductor business, namely Chartered and STATS.

STATS specializes in assembly and testing of semiconductors. Singapore
Technologies may in the future establish other subsidiaries, or form strategic
alliances with companies, which are engaged in the semiconductor business.

As of January 31, 2004, Singapore Technologies through its affiliate owns
60.28% of our outstanding ordinary shares and, as a result, is able to control
actions over many matters requiring approval by our shareholders,

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including the
election of directors and approval of significant corporate transactions.
Messrs. Lim Ming Seong, Peter Seah Lim Huat and Tay Siew Choon, each a member
of our Board of Directors, are employed by companies in the Singapore
Technologies group. Mr. Sum Soon Lim is a corporate adviser to both Singapore
Technologies and Temasek.

We also have contractual and other business relationships with Singapore
Technologies and its affiliates and we engage in material transactions with
Singapore Technologies from time to time. Consequently, conflicts of interest
may arise between us in certain circumstances. However, we are not obligated
to conduct any business with members of the Singapore Technologies group if the
costs of doing so are greater than they would be if we were conducting business
with unaffiliated third parties.

Financial Support Provided By The Singapore Technologies Group

Singapore Technologies provides us with short-term financing and guarantees
some of our debt. As of December 31, 2003, approximately $54.1 million of our
debt was guaranteed by Singapore Technologies. Certain of our loan agreements
require Singapore Technologies to own at least a majority of our outstanding
ordinary shares.

We also contract with Singapore Technologies, a majority of our forward
purchases of foreign exchange. From time to time, we advance funds to or borrow
funds from Singapore Technologies at interest rates comparable to rates offered
by commercial banks in Singapore. We also participate with Singapore
Technologies and/or its affiliates in a pooled cash management arrangement
managed by a bank. Under the arrangement, cash balances are pooled and daily
cash surpluses or shortfalls may, on a short-term basis, be lent to or borrowed
from other Singapore Technologies affiliates participating in the arrangement
at prevailing interbank rates. We also place short-term deposits with
Singapore Technologies and/or its affiliates having maturities of less than
three months. The interest income received in 2001, 2002 and 2003 was $20.2
million, $7.5 million and $6.7 million respectively.

We have an oral agreement for a multi-currency $100.0 million short-term credit
facility with Singapore Technologies. Interest on the facility accrues at the
monthly average interest rate of three specific banks as indicated by Singapore
Technologies. Borrowings are unsecured. As of December 31, 2003, there were no
borrowings outstanding under this facility. There is a possibility that
Singapore Technologies may cease to make this credit facility available to us,
as we have not utilized it during the last four years.

While Singapore Technologies has historically provided credit and other support
to us, Singapore Technologies has no obligation to continue doing so and the
availability and amount of such support will depend on various factors,
including our ability to raise funds and the expenses relating to such
fundraising.

Corporate Services Provided By Singapore Technologies

We have a service agreement with Singapore Technologies pursuant to which it
provides us with services and support which are tangible as well as intangible
in nature. In 2003, we revised the rates and amount payable for the services
rendered by Singapore Technologies. The services provided by Singapore
Technologies include management and corporate support services, such as
treasury, cash management, internal audit, training and executive resources,
information technology, bank guarantees and provision of standby credit
facilities. In
addition, Singapore Technologies is able to offer us the benefits of a global
network and the Singapore Technologies name and Singapore Technologies wide
spectrum of industries provide us with operational and financial leverage in
our dealings with external third parties. In return for those services, support
and benefits, we currently pay Singapore Technologies an annual management fee
based on a service based fee arrangement. In addition, we reimburse Singapore
Technologies for the third-party costs and expenses it incurs on our behalf.

In 2001, 2002 and 2003 management fees paid or payable to Singapore
Technologies amounted to $4.0 million, $4.0 million and $3.4 million,
respectively. In addition, we reimbursed Singapore Technologies for costs and
expenses incurred on our behalf, principally certain of our payroll expenses
paid through Singapore Technologies. Those reimbursements totaled $18.3
million, $14.8 million and $8.5 million in 2001, 2002 and 2003, respectively.

The service agreement expires in the event we cease to be a subsidiary of
Singapore Technologies. It can be terminated by Singapore Technologies upon our
prolonged failure to pay the management fees due to

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Singapore Technologies. The
management fees we pay Singapore Technologies under the service agreement are
itemized to allow us to compare them with similar services provided by
unrelated third parties. We also believe that we derive economic benefits from
the corporate services and support Singapore Technologies provides us. For
example, Singapore Technologies guarantees a portion of our debt and provides
standby credit facilities. In addition, we have used Singapore Technologies
leverage to secure loans and terms (including interest rates and covenants)
that we would not otherwise have obtained.

Other Transactions With The Singapore Technologies Group

We transact business with Singapore Technologies and its affiliates in the
normal course of our respective businesses.

We paid STATS $9.2 million, $10.4 million and $13.5 million in 2001, 2002 and
2003 respectively, for services rendered in those years. We also paid other
affiliates of Singapore Technologies $1.7 million, $1.3 million and $1.4
million in 2001, 2002 and 2003, respectively, for services rendered in those
years. We purchased $0.02 million, $0.3 million and $0.2 million in assets
from affiliates of Singapore Technologies in 2001, 2002 and 2003, respectively.

Fabs 2 and 3 and our corporate offices are located on land leased to Singapore
Technologies by JTC. These leases run until 2024 with conditional options to
extend for another 30 years. We have entered into sub-leases with Singapore
Technologies for the entire term of the leases for Fabs 2 and 3. The sub-leases
for Fab 2 and Fab 3 require us to make rental payments to Singapore
Technologies at rates equal to the rent paid by Singapore Technologies to JTC
for the subject land through 2006 for Fab 2 and 2024 for Fab 3. The rental
rates may be re-negotiated thereafter. In total, we paid Singapore Technologies
$1.3 million, $1.1 million and $1.2 million, respectively, in lease payments
for 2001, 2002 and 2003.

CSP leases the land on which Fab 6 is located from Singapore Technologies,
which in turn leases it from JTC. The agreement provides for the land to be
leased to Singapore Technologies until 2027, with a conditional option to
extend for an additional 30 years. CSP makes rental payments to Singapore
Technologies at rates equal to the rent paid by Singapore Technologies to JTC
for the subject land through 2027. CSP paid Singapore Technologies $0.6
million, $0.5 million and $0.5 million in lease payments for 2001, 2002 and
2003, respectively.

Fab 7 is located on land licensed to Singapore Technologies by JTC for a period
of three years commencing from March 1, 2000 under the terms of a Building
Agreement dated July 30, 2001 for the purpose of entering and building on the
land (see Item 19. Exhibits  Exhibit 4.56). Under an Agreement for
Sub-License and Sub-Lease with Singapore Technologies dated July 30, 2001, (see
Item 19. Exhibits  Exhibit 4.55) we have a sub-license from Singapore
Technologies to this land for a term of three years less one day commencing
from March 1, 2000, with license fee payments equal to the license fees payable
by Singapore Technologies to JTC under the Building Agreement. We have
successfully negotiated with Singapore Technologies to extend the sub-license
to December 2004. Upon the completion of the Fab 7 building and the
satisfaction of certain conditions contained in the Building Agreement, JTC
will lease the land where Fab 7 is located to Singapore Technologies. We will
sub-lease this land from Singapore Technologies for a term of 30 years less 1
day with rental payments equal to the rent paid by Singapore Technologies to
JTC.

Some of our insurance coverage is held under various insurance policies which
are negotiated and maintained by Singapore Technologies but billed directly to
us. This enables us to benefit from the group rates negotiated by Singapore
Technologies.

We also engage in transactions with other companies directly or indirectly
controlled by Temasek, the parent company of Singapore Technologies, in the
ordinary course of business. These transactions, such as, phone services from
Singapore Telecom and airline tickets from Singapore Airlines are at their
prevailing market rates/prices (including where appropriate, preferential rates
and discounts) and on customary terms and conditions and are generally not
subject to review by the Audit Committee.



|C. |  | INTERESTS OF EXPERTS AND COUNSEL
|-- |  | --------------------------------

Not applicable.

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|ITEM 8. |  | FINANCIAL INFORMATION
|------- |  | ---------------------

Please see Item 18. Financial Statements for a list of financial statements filed under Item 17.

EXPORT SALES

Please see Item 4. Information On Our Company  Business Overview 
Customers and Markets.

DIVIDEND POLICY

In December 1995 and January 1997, we paid a cash dividend on our ordinary
shares in an amount equivalent to US$87,000 and US$93,000, respectively, for
the purpose of qualifying our ordinary shares as trustee stock eligible for
investment by account holders of the Central Provident Fund, a mandatory
employee pension plan administered by the Government of Singapore. Except for
these dividends, we have not, since our inception, declared or paid any cash
dividends on our ordinary shares. We do not currently anticipate paying any
cash dividends for 2004. We may, by ordinary resolution, declare dividends at a
general meeting, but we may not pay dividends in excess of the amount
recommended by our Board of Directors. Our Board of Directors may also declare
interim dividends without seeking shareholder approval. We must pay all
dividends out of our profits or pursuant to Section 69 of the Companies Act
(Chapter 50) of Singapore (the Companies Act). In making its recommendation,
our Board of Directors will consider, among other things, our future earnings,
operations, capital requirements and general financial condition, as well as
general business conditions and other factors which our Board of Directors may
determine are appropriate. Some of our loan agreements restrict the payment of
dividends without the prior consent of the lender. We currently intend to
retain future earnings, if any, to finance expansion of our business.

LEGAL PROCEEDINGS

As of January 31, 2004, we are not involved in any legal proceedings that we
believe would be harmful to our company.






|ITEM 9. |  | THE OFFER AND LISTING
|------- |  | ---------------------

PRICE RANGE OF OUR ADSs AND ORDINARY SHARES

The following table sets forth, for the periods indicated, the high and low
last reported sales prices per ADS and ordinary share since trading on October
29, 1999 as furnished by Nasdaq and the Singapore Exchange. The initial public
offering price of our ADSs on October 29, 1999 was $20.00 per ADS and S$3.344
per ordinary share. Per ADS and per share prices below reflect the adjustment
due to the October 2002 Rights Offering.



|(a) |  | Annual high and low market prices
|--- |  | ---------------------------------

|                                      |  |        |       |     |  |   |       | 
|------------------------------------- |  | ------ | ----- | --- |  | - | ----- | 
|                                      |  | Nasdaq
|                                      |  |       
|                                      |  | High   |       | Low
|                                      |  |        |       |    
|October 29, through December 31, 1999 |  | $      | 65.63 |     |  | $ | 28.09 | 
|January 1, through December 31, 2000  |  | $      | 95.07 |     |  | $ | 23.71 | 
|January 1, through December 31, 2001  |  | $      | 32.37 |     |  | $ | 14.72 | 
|January 1, through December 31, 2002  |  | $      | 27.10 |     |  | $ | 3.94  | 
|January 1, through December 31, 2003  |  | $      | 11.00 |     |  | $ | 3.48  | 

|                                      |  |                    |       |     |  |    |      | 
|------------------------------------- |  | ------------------ | ----- | --- |  | -- | ---- | 
|                                      |  | Singapore Exchange
|                                      |  |                   
|                                      |  | High               |       | Low
|                                      |  |                    |       |    
|November 1, through December 31, 1999 |  | S$                 | 8.75  |     |  | S$ | 4.46 | 
|January 1, through December 31, 2000  |  | S$                 | 16.03 |     |  | S$ | 4.11 | 
|January 1, through December 31, 2001  |  | S$                 | 5.46  |     |  | S$ | 2.59 | 
|January 1, through December 31, 2002  |  | S$                 | 4.81  |     |  | S$ | 0.71 | 
|January 1, through December 31, 2003  |  | S$                 | 1.93  |     |  | S$ | 0.63 | 

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|(b) |  | Quarterly high and low market prices
|--- |  | ------------------------------------

|                                     |  |        |       |     |  |   |       | 
|------------------------------------ |  | ------ | ----- | --- |  | - | ----- | 
|                                     |  | Nasdaq
|                                     |  |       
|                                     |  | High   |       | Low
|                                     |  |        |       |    
|January 1, through March 31, 2002    |  | $      | 27.10 |     |  | $ | 19.64 | 
|April 1, through June 30, 2002       |  | $      | 24.20 |     |  | $ | 17.52 | 
|July 1, through September 30, 2002   |  | $      | 19.20 |     |  | $ | 5.43  | 
|October 1, through December 31, 2002 |  | $      | 6.63  |     |  | $ | 3.94  | 
|January 1, through March 31, 2003    |  | $      | 5.17  |     |  | $ | 3.48  | 
|April 1, through June 30, 2003       |  | $      | 5.75  |     |  | $ | 3.50  | 
|July 1, through September 30, 2003   |  | $      | 9.01  |     |  | $ | 5.29  | 
|October 1, through December 31, 2003 |  | $      | 11.00 |     |  | $ | 8.51  | 

|                                     |  |                    |      |     |  |    |      | 
|------------------------------------ |  | ------------------ | ---- | --- |  | -- | ---- | 
|                                     |  | Singapore Exchange
|                                     |  |                   
|                                     |  | High               |      | Low
|                                     |  |                    |      |    
|January 1, through March 31, 2002    |  | S$                 | 4.81 |     |  | S$ | 3.47 | 
|April 1, through June 30, 2002       |  | S$                 | 4.28 |     |  | S$ | 2.96 | 
|July 1, through September 30, 2002   |  | S$                 | 3.29 |     |  | S$ | 0.98 | 
|October 1, through December 31, 2002 |  | S$                 | 1.20 |     |  | S$ | 0.71 | 
|January 1, through March 31, 2003    |  | S$                 | 0.90 |     |  | S$ | 0.63 | 
|April 1, through June 30, 2003       |  | S$                 | 1.00 |     |  | S$ | 0.64 | 
|July 1, through September 30, 2003   |  | S$                 | 1.54 |     |  | S$ | 0.92 | 
|October 1, through December 31, 2003 |  | S$                 | 1.93 |     |  | S$ | 1.44 | 



|(c) |  | Monthly high and low market prices
|--- |  | ----------------------------------

|                                        |  |        |       |     |  |   |       | 
|--------------------------------------- |  | ------ | ----- | --- |  | - | ----- | 
|                                        |  | Nasdaq
|                                        |  |       
|                                        |  | High   |       | Low
|                                        |  |        |       |    
|September 1, through September 30, 2003 |  | $      | 9.01  |     |  | $ | 6.64  | 
|October 1, through October 31, 2003     |  | $      | 11.00 |     |  | $ | 8.72  | 
|November 1, through November 30, 2003   |  | $      | 10.30 |     |  | $ | 8.51  | 
|December 1, through December 31, 2003   |  | $      | 10.10 |     |  | $ | 8.83  | 
|January 1, through January 31, 2004     |  | $      | 11.35 |     |  | $ | 10.16 | 
|February 1,
through February 29, 2004   |  | $      | 10.72 |     |  | $ | 9.76  | 

|                                        |  |                    |      |     |  |    |      | 
|--------------------------------------- |  | ------------------ | ---- | --- |  | -- | ---- | 
|                                        |  | Singapore Exchange
|                                        |  |                   
|                                        |  | High               |      | Low
|                                        |  |                    |      |    
|September 1, through September 30, 2003 |  | S$                 | 1.54 |     |  | S$ | 1.14 | 
|October 1, through October 31, 2003     |  | S$                 | 1.93 |     |  | S$ | 1.48 | 
|November 1, through November 30, 2003   |  | S$                 | 1.80 |     |  | S$ | 1.44 | 
|December 1, through December 31, 2003   |  | S$                 | 1.73 |     |  | S$ | 1.55 | 
|January 1, through January 31, 2004     |  | S$                 | 1.89 |     |  | S$ | 1.77 | 
|February 1,
through February 29, 2004   |  | S$                 | 1.81 |     |  | S$ | 1.66 | 

The last reported sale price of the
ADSs as quoted on Nasdaq on February 27,
2004 was $9.97 per ADS. The last reported sale price of the ordinary shares as
quoted on the Singapore Exchange on February 27, 2004 was S$1.71 per ordinary
share.

Please see Item 3. Key Information  Risk Factors  Risks Related to Our
Securities and Our Trading Market regarding the nature of the trading market
for our ADSs and ordinary shares.






|ITEM 10. |  | ADDITIONAL INFORMATION
|-------- |  | ----------------------
|        
|A.       |  | SHARE CAPITAL         

Not applicable.

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|B. |  | OUR MEMORANDUM AND ARTICLES OF ASSOCIATION
|-- |  | ------------------------------------------

A summary of various provisions in our Memorandum and Articles of Association
is provided below. This summary is qualified in its entirety by reference to
our Memorandum and Articles of Association (see Item 19. Exhibits  Exhibit
1).

Objects and purposes

Our objects and purposes are found in paragraph 3 of our Memorandum of
Association. Our main object and purpose includes, but is not limited to, the
business of manufacturing, assembling and testing semiconductor components and
related activities.

Directors

A Director is not entitled to vote in respect of any contract or arrangement or
any other proposal whatsoever in which he has any interest, directly or
indirectly. A Director will not be counted in a quorum at a Board of Directors
meeting in relation to a resolution in which he is not entitled to vote.

The compensation of our Directors is determined by our shareholders in general
meeting. Our Directors may vote on the payment of extra compensation to an
executive Director, a Director who serves on a Directors committee or to a
Director who performs services which are outside the scope of the ordinary
duties of a Director. Our Directors have the power to determine pensions and
other retirement, superannuation, death or disability benefits for an executive
Director and to fix the compensation of a President or Chief Executive Officer.

Our Directors may exercise all powers of our company to borrow money, to
mortgage or charge its undertaking, property and uncalled capital and to issue
debentures and other securities.

At each annual general meeting, at least one-third of our Directors must retire
from office by rotation. A retiring Director is eligible for re-election and
the Directors to retire every year are those who have been longest in office
since their last re-election or appointment. A Director holding office as
President or Chief Executive Officer is subject to retirement by rotation as
with the other Directors of the company.

No shares are required to be held by a Director for directors qualification.

No person over the age of 70 years may be appointed as a Director of our
company unless an ordinary resolution is passed at our companys annual general
meeting to appoint such person as a director.

New ordinary shares

We have only one class of shares, known as ordinary shares. New ordinary
shares may only be issued with the prior approval in a general meeting of our
shareholders. The approval, if granted, will lapse at the conclusion of the
annual general meeting following the date on which the approval was granted or
the date by which such annual general meeting is required to be held, whichever
is earlier. Our shareholders have given us general
authority to issue any remaining approved but unissued ordinary shares prior to
our next annual general meeting. Subject to the foregoing, the provisions of
the Companies Act and any special rights attached to any class of shares
currently issued, all new ordinary shares are under the control of our Board of
Directors who may allot and issue the same with such rights and restrictions as
it may think fit, provided that new ordinary shares may not be issued to
transfer a controlling interest in our company without the prior approval in
general meeting of our shareholders. Our shareholders are not entitled to
pre-emptive rights under our Articles of Association.

Our Directors may make calls upon our shareholders in respect of any moneys
unpaid on their shares (whether on account of the nominal value of the shares,
or when permitted, by way of premium) but subject to the terms of issue of such
shares. This call right does not apply to our currently outstanding ordinary
shares, all of which are fully paid.

Transfer of ordinary shares

There is no restriction on the transfer of fully paid ordinary shares except
where required by law. Our Board of Directors may only decline to register any
transfer of ordinary shares which are not fully paid shares or ordinary

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shares
on which we have a lien. Ordinary shares may be transferred by a duly signed
instrument of transfer in any form acceptable to our Board of Directors. Our
Board of Directors may also decline to register any instrument of transfer
unless, among other things, it has been duly stamped and is presented for
registration together with the share certificate and such other evidence of
title as they may require. We will replace lost or destroyed certificates for
ordinary shares if we are properly notified and if the applicant pays a fee
which will not exceed S$2 and furnishes any evidence and indemnity that our
Board of Directors may require.

General meetings of shareholders

We are required to hold an annual general meeting every year. Our Board of
Directors may convene an extraordinary general meeting whenever it thinks fit
and must do so if shareholders representing not less than 10 per cent. of the
total voting rights of all shareholders request in writing that such a meeting
be held. In addition, two or more shareholders holding not less than 10 per
cent. of our issued share capital may call a meeting. Unless otherwise required
by law or by our Articles of Association, voting at general meetings is by
ordinary resolution, requiring an affirmative vote of a simple majority of the
votes cast at that meeting. An ordinary resolution suffices, for example, for
the appointment of directors. A special resolution, requiring the affirmative
vote of at least 75 per cent. of the votes cast at the meeting, is necessary
for certain matters under Singapore law, including the voluntary winding up of
the company, amendments to our Memorandum and Articles of Association, a change
of our corporate name and a reduction in our share capital, share premium
account or capital redemption reserve fund. We must give at least 21 days
notice in writing for every general meeting convened for the purpose of passing
a special resolution. Ordinary resolutions generally require at least 14 days
notice in writing. The notice must be given to every shareholder who has
supplied us with an address in Singapore for the giving of notices and must set
forth the place, the day and the hour of the meeting and, in the case of
special business, the general nature of that business.

Voting rights

A shareholder is entitled to attend, speak and vote at any general meeting, in
person or by proxy. A proxy need not be a shareholder. A person who holds
ordinary shares in the book-entry clearance system maintained by The Central
Depository (Pte) Limited, or CDP, will only be entitled to vote at a general
meeting as a shareholder if his name appears on the depository register
maintained by CDP 48 hours before the general meeting. Except as otherwise
provided under our Articles of Association, two or more shareholders holding at
least 331⁄3 per cent. of our issued and outstanding ordinary shares must be
present in person or by proxy to constitute a quorum at any general meeting.
Under our Articles of Association, on a show of hands, every shareholder
present in person and each proxy shall have one vote, and on a poll, every
shareholder present in person or by proxy shall have one vote for each ordinary
share held. A poll may be demanded in certain circumstances, including by the
chairman of the meeting or by any shareholder present in person or by proxy.

Dividends

We may, by ordinary resolution, declare dividends at a general meeting, but we
may not pay dividends in excess of the amount recommended by our Board of
Directors. We must pay all dividends out of our profits or
pursuant to Section 69 of the Companies Act. Our Board of Directors may also
declare interim dividends without seeking shareholder approval. All dividends
are paid pro rata among the shareholders in proportion to the amount paid up on
each shareholders ordinary shares, unless the rights attaching to an issue of
any ordinary share provides otherwise. Unless otherwise directed, dividends
are paid by cheque or warrant sent through the post to each shareholder at his
registered address. Notwithstanding the foregoing, our payment to CDP of any
dividend payable to a shareholder whose name is entered in the depository
register shall, to the extent of payment made to CDP, discharge us from any
liability to that shareholder in respect of that payment.

Bonus and rights issue

Our Board of Directors may, with the approval of our shareholders at a general
meeting, capitalize any reserves or profits (including profit or monies carried
and standing to any reserve or to the share premium account) and distribute the
same as bonus shares credited as paid-up to the shareholders in proportion to
their shareholdings. Our Board of Directors may also issue rights to take up
additional ordinary shares to shareholders in proportion to their
shareholdings. Such rights are subject to any conditions attached to such
issue.

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Liquidation or other return of capital

If our company liquidates or in the event of any other return of capital,
holders of ordinary shares will be entitled to participate in any surplus
assets in proportion to their shareholdings.

Limitations on rights to hold or vote shares

Except as described in Voting Rights above, there are no limitations imposed
by our Articles of Association on the rights of shareholders who are
non-resident in Singapore to hold or vote ordinary shares.

Provisions discriminating against any existing or prospective holder of shares

There are no provisions in our Articles of Association discriminating against
any existing or prospective holder of shares as a result of a shareholder
owning a substantial number of shares.

Takeovers

The Singapore Code on Takeovers and Mergers (the Take-Over Code) regulates
the acquisition of, among others, ordinary shares of public companies and
contains certain provisions that may delay, deter or prevent a future takeover
or change in control of our company. Any person acquiring an interest, either
on his own or together with parties acting in concert with him, in 30% or more
of our voting shares or, if such person holds, either on his own or together
with parties acting in concert with him, between 30% and 50% (both inclusive)
of our voting shares, and acquires additional voting shares representing more
than 1% of our voting shares in any six month period, must extend a takeover
offer for the remaining voting shares in accordance with the provisions of the
Take-Over Code.

Parties acting in concert comprise individuals or companies who, pursuant to
an arrangement or understanding (whether formal or informal), co-operate,
through the acquisition by any of them of shares in a company, to obtain or
consolidate effective control of that company. Certain persons are presumed
(unless the presumption is rebutted) to be acting in concert with each other.
They are as follows: a company and its related and associated companies and
companies whose associated companies include any of these companies, a company
and its directors (including their close relatives, related trusts and
companies controlled by any of the directors, their close relatives and related
trusts), a company and its pension funds and employee share schemes, a person
and any investment company, unit trust or other fund whose investment such
person manages on a discretionary basis, a financial or other professional
adviser and its client in respect of shares held by the adviser and persons
controlling, controlled by or under the same control as the adviser and all the
funds managed by the adviser on a discretionary basis, where the shareholding
of the adviser and any of those funds in the client total 10% or more of the
clients equity share capital, directors of a company (including their close
relatives, related trusts and companies controlled by any of such directors,
their close relatives and related trusts) which is subject to an offer or where
the directors have reason to believe a bona fide offer for the company may be
imminent, partners, and an individual and his close relatives, related trusts,
any person who is accustomed to act in accordance with his instructions and
companies controlled by the individual, his close relatives, his related trusts
or any person who is accustomed to act in accordance with his instructions.

An offer for consideration other than cash must, subject to certain exceptions,
be accompanied by a cash alternative at not less than the highest price paid by
the offeror or parties acting in concert with the offeror within the preceding
six months.

Under the Take-Over Code, where effective control of a company is acquired or
consolidated by a person, or persons acting in concert, a general offer to all
other shareholders is normally required. An offeror must treat all
shareholders of the same class in an offeree company equally. A fundamental
requirement is that shareholders in the company subject to the takeover offer
must be given sufficient information, advice and time to consider and decide on
the offer.

Indemnity

As permitted by Singapore law, our Articles of Association provide that,
subject to the Companies Act, we will indemnify our Board of Directors and
officers against any liability incurred in defending any proceedings, whether
civil or criminal, which relate to anything done or omitted to have been done
as an officer, director or employee and in which judgment is given in their
favor or in which they are acquitted or in connection with any

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application under any statute for relief from liability in respect thereof in which relief
is granted by the court. We may not indemnify directors and officers against
any liability which by law would otherwise attach to them in respect of any
negligence, default, breach of duty or breach of trust of which they may be
guilty in relation to our company.

Substantial shareholdings

The Companies Act (Chapter 50) and the Securities and Futures Act (Chapter 289)
of Singapore require the substantial shareholders of our company to give notice
to our company and the Singapore Exchange, including particulars of their
interest and the circumstances by reason of which they have such interest,
within two business days of their becoming substantial shareholders of our
company and of any change in the percentage level of their interest.

Under the Companies Act, a person has a substantial shareholding in our company
if he has an interest (or interests) in one or more voting shares in our
company and the nominal amount of that share (or the aggregate amount of the
nominal amounts of those shares) is not less than 5 per cent. of the aggregate
of the nominal amount of all voting shares in our company.

Minority rights

The rights of minority shareholders of Singapore-incorporated companies are
protected under Section 216 of the Companies Act, which gives the Singapore
courts a general power to make any order, upon application by any shareholder
of the company, as they think fit to remedy any of the following situations:



| |  | the affairs of the company are being conducted or the powers of the
board of directors are being exercised in a manner oppressive to, or
in disregard of the interests of, one or more of the shareholders; or                                                      
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the company takes an action, or threatens to take an action, or the
shareholders pass a resolution, or propose to pass a resolution, which
unfairly discriminates against, or is otherwise prejudicial to, one or
more of the shareholders, including the applicant.

Singapore courts have wide discretion as to the reliefs they may grant and
those reliefs are in no way limited to those listed in the Companies Act
itself. Without prejudice to the foregoing, Singapore courts may:



| |  | direct or prohibit any act or cancel or vary any transaction or resolution;                                                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | regulate the conduct of our affairs in the future;                                                                                                                                                     
| 
| |  | authorize civil proceedings to be brought in the name of, or on behalf of, our company by a person or persons and on such
terms as the court may direct;                                               
| 
| |  | provide for the purchase of a minority shareholders shares by the other shareholders or by our company and, in the case of
a purchase of shares by us, a corresponding reduction of the share capital;
| 
| |  | provide that the Memorandum or Articles of Association be amended; or                                                                                                                                  
| 
| |  | provide that our company be wound up.                                                                                                                                                                  



|C. |  | MATERIAL CONTRACTS
|-- |  | ------------------

The following is a summary of each contract that is material to us and which
was entered into by us in the last 2 years. These agreements are also listed in
Item 19  Exhibits.



|(a) |  | Loan agreements
|--- |  | ---------------

CSP entered into a U.S. dollar term loan (the CSP First Phase Credit
Agreement) for an amount of $143.2 million with several banks and financial
institutions for capital expenditure and equipment in March 1998. This loan was
fully repaid in 2002. CSP subsequently entered into a Loan Agreement with a
syndicate of banks and ABN Amro Bank N.V., Singapore Branch, as agent in
September 2000 for an amount of up to $820 million

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(known as the CSP Second
Phase Credit Agreement). On September 18, 2003, CSP entered into a
Supplemental Agreement to the Second Phase Credit Agreement to extend the
availability period of the loan for a further one year period. See Item 19.
Exhibits  Exhibit 4.3.2.

In 2002, we announced that we were seeking consents from one or more of our
lenders and several of CSPs lenders to allow us to substantially increase
CSPs net worth to enable CSP to satisfy a total debt to net worth ratio for
the CSP First and Second Phase Credit Agreements. Such increase in CSPs net
worth was effected by converting amounts payable by CSP to us into a loan from
us to CSP (the Chartered Loan). We obtained the necessary consents from the
lenders and CSP was in compliance with the total debt to net worth ratio for
both loans as of December 31, 2003.

In obtaining the consents, two CSP loan agreements were amended to provide for
the subordination of the amount of the Chartered Loan to the amounts due by CSP
to its other lenders under the above loans. For copies of the respective Letter
Agreements incorporating the Subordination Agreements, see Item 19. Exhibits
 Exhibit 4.1.6 and Exhibit 4.3.4 and for copies of the respective
Subordination Agreements, see Item 19. Exhibits  Exhibit 4.1.5 and Exhibit
4.3.3.



|(b) |  | Strategic alliances
|--- |  | -------------------

CSP

Our subsidiary, CSP, is a joint venture between Chartered (51%), EDB
Investments (26.5%), Agilent Technologies Europe B.V. (15%) (previously
Hewlett-Packard Europe B.V.), and Singapex Investments Pte Ltd, or Singapex
(7.5%).

As part of Agilent Technologies, Inc.s strategy that led to Agilent
Technologies Europe B.V. reducing its ownership in CSP in October 2001, Agilent
Technologies Europe B.V. relinquished the voting rights of its nominees on the
Board of Directors of CSP. The parties entered into Amendment No. 1 dated
January 31, 2002 to the Restated Joint Venture Agreement dated October 23, 2001
to effect such change (see Item 19. Exhibits  Exhibit 4.14).

SMP

We entered into a Joint Venture Agreement with Lucent Technologies
Microelectronics Pte Ltd, now known as Agere Systems Singapore Pte Ltd, to form
the Silicon Manufacturing Partners strategic alliance relating to the joint
ownership of Fab 5.
As part of the SMP alliance, we also entered into a License and Technology
Agreement with SMP and Lucent Technologies Microelectronics Pte Ltd. This
agreement has been amended several times, most recently on July 1, 2003 (See
Item 19. Exhibits  Exhibit 4.25) to provide for additional process
technologies to be transferred (for a summary of this arrangement, see Item 4.
Information on Our Company  Business Overview  Strategic Alliances 
Silicon Manufacturing Partners).



|(c) |  | Technology transfer, licenses, joint development and other related
agreements
|--- |  | -----------------------------------------------------------------------------

Agere Systems

We entered into a Technology Transfer Agreement with Lucent Technologies Inc.,
now known as Agere Systems Inc. in February 1998 to transfer technology to one
another. Under this Agreement, Lucent and our company transferred to one
another 0.25um process technology. The agreement has been amended several
times, most recently on March 28, 2002 (see Item 19. Exhibits  Exhibit
4.29), for the purpose of updating the list of process technologies
transferred to one another.

We also entered into a Patent License Agreement with Agere Systems Inc. in
January 1998 which was amended in 2000. Under this Agreement, Agere Systems
Inc. and our company granted to one another a license to use certain of each
others patents and for us to provide wafer capacity to Agere Systems Inc. in
lieu of royalty payments for the use of Agere Systems Inc.s patents.

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On September 26, 2002, we entered into a Letter Agreement with Agere Systems
Inc. (see Item 19. Exhibits  Exhibit 4.32), where in exchange for our
agreement to waive Agere Systems Inc.s capacity shortfall fees under our
manufacturing agreement with them, Agere Systems Inc. agreed to treat our
royalty obligations under the patent license agreement with Agere Systems Inc.
as satisfied until such time as Agere Systems Inc.s ownership interest in SMP
falls below 49%. Thereafter, the existing provisions in the patent license
agreement allowing us to offset royalty payments in exchange for the provision
of short and long term flexibility in wafer capacity to Agere Systems Inc.
continue to apply.

IBM

We entered into a Patent Cross-License Agreement with IBM dated January 1, 2001
(see Item 19. Exhibits  Exhibit 4.34). Under this agreement, IBM and our
company granted to one another a license to use certain of each others
patents.

This Agreement was amended effective as of November 26, 2002 to expand the
scope of the licenses and to extend the term of the licenses granted to each
party (see Item 19. Exhibits  Exhibit 4.35).

Effective as of November 26, 2002, we entered into the following agreements
with IBM: SF Process Development and Cost Sharing Agreement (see Item 19.
Exhibits  Exhibit 4.36), Copper/Related FEOL Technology License Agreement
(see Item 19. Exhibits  Exhibit 4.37) and Refundable Cross Deposit
Agreement (see Item 19. Exhibits  Exhibit 4.39). The SF Process
Development and Cost Sharing Agreement provides for the development of 90 nm
and 65 nm logic processes on 300 mm silicon wafers. Effective as of June 26,
2003, the SF Process Development and Cost Sharing Agreement was amended to
address certain matters between the parties pertaining to the SF Process
65nm/45nm Development and Cost Sharing Agreement which the parties entered into
together with Infineon (see Item 19. Exhibits  Exhibit 4.38). Under the
Copper/Related FEOL Technology License Agreement, IBM transferred and licensed
to Chartered certain know-how and skills relating to certain copper back end of
line and related front end of line techniques. Under the Refundable Cross
Deposit Agreement, each of IBM and Chartered would deposit certain funds with
the other party to secure certain manufacturing capacity in each others
facility. In addition, effective as of December 19, 2003, a Supplemental
Agreement to the Refundable Cross Deposit Agreement was entered into to revise
some of the terms relating to the deposit and pricing of the goods sold by
Chartered to IBM. (see Item 19. Exhibits  Exhibit 4.40).

IBM and Infineon

In August 2003, we extended the SF Process Development and Cost Sharing
Agreement described above to include Infineon Technologies AG, or Infineon.
The IBM, Infineon and Chartered joint development agreement known as SF
Process 65nm/45nm Development and Cost Sharing Agreement is aimed at 65nm
semiconductor manufacturing process technology (see Item 19. Exhibits 
Exhibit 4.41). For more information on the joint development agreements with
IBM and Infineon, please see Item 4. Information on Our Company  Business
Overview  Research and Development.

Motorola

We entered into a Patent License Agreement with Motorola Inc., or Motorola,
dated July 1, 2003 (see Item 19. Exhibits  Exhibit 4.42). Under this
Agreement, Motorola and our company granted to one another a license to use
certain of each others patents.



|(d) |  | Related Party Agreements
|--- |  | ------------------------

We entered into a Group Management and Support Services Agreement with
Singapore Technologies in 1999. In 2003, we revised the rates and amount
payable for the services rendered by Singapore Technologies (see Item 19.
Exhibits  Exhibit 4.57 and Exhibit 4.58).

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|D. |  | EXCHANGE CONTROLS
|-- |  | -----------------

Currently, no exchange control restrictions exist in Singapore. There are no
provisions under Singapore law or under our Articles of Association that limit
our ADS holders ability to exercise their voting rights. However, under the
deposit agreement for the ADSs, there may be practical limitations upon the
ability of our ADS holders to exercise their voting rights. Please see Item 3.
Key Information  Risk Factors  Risks Related to Our Securities And Our
Trading Market  Your voting rights with respect to the ADSs are limited by
the terms of the deposit agreement for the ADSs regarding the practical
limitations applicable to holders of our ADSs with respect to voting rights.

Exchange rates

Fluctuations in the exchange rate between the Singapore dollar and the U.S.
dollar will affect the U.S. dollar equivalent of the Singapore dollar price of
the ordinary shares on the Singapore Exchange and, as a result, are expected to
affect the market price of ADSs. These fluctuations will also affect the U.S.
dollar conversion by the depositary of any cash dividends paid in Singapore
dollars on the ordinary shares represented by ADSs or any other distribution
received by the depositary in connection with the payment of dividends on the
ordinary shares.

The following table sets forth, for the fiscal years indicated, information
concerning the exchange rates between Singapore dollars and U.S. dollars based
on the average of the noon buying rate in the City of New York on the last
business day of each month during the period for cable transfers in Singapore
dollars as certified for customs purposes by the Federal Reserve Bank of New
York. The table illustrates how many Singapore dollars it would take to buy one
U.S. dollar.

|                               |  |                                  |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|------------------------------ |  | -------------------------------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|                               |  | Singapore Dollars Per U.S. $1.00
|                               |  | Noon Buying Rate                
|                               |  |                                 
|Fiscal Year Ended December 31, |  | Average (1)                      |        | High |  | Low |        | Period End
|                               |  |                                  |        |      |  |     |        |           
|1999                           |  |                                  | 1.6951 |      |  |     | 1.7370 |            |  |  | 1.6565 |  |  |  | 1.6670 | 
|2000                           |  |                                  | 1.7250 |      |  |     | 1.7600 |            |  |  | 1.6535 |  |  |  | 1.7315 | 
|2001                           |  |                                  | 1.7937 |      |  |     | 1.8540 |            |  |  | 1.7275 |  |  |  | 1.8470 | 
|2002                           |  |                                  | 1.7908 |      |  |     | 1.8525 |            |  |  | 1.7310 |  |  |  | 1.7352 | 
|2003                           |  |                                  | 1.7432 |      |  |     | 1.7838 |            |  |  | 1.6990 |  |  |  | 1.6990 | 

|               |  |  |  |      |  |     |        |  |  |  |        |  |  |  |  | 
|-------------- |  |  |  | ---- |  | --- | ------ |  |  |  | ------ |  |  |  |  | 
|Month          |  |  |  | High |  | Low
|               |  |  |  |      |  |    
|September 2003 |  |  |  |      |  |     | 1.7585 |  |  |  | 1.7295 |  |  |  | 
|October 2003   |  |  |  |      |  |     | 1.7455 |  |  |  | 1.7214 |  |  |  | 
|November 2003  |  |  |  |      |  |     | 1.7457 |  |  |  | 1.7132 |  |  |  | 
|December 2003  |  |  |  |      |  |     | 1.7243 |  |  |  | 1.6990 |  |  |  | 
|January 2004   |  |  |  |      |  |     | 1.7070 |  |  |  | 1.6914 |  |  |  | 
|February
2004  |  |  |  |      |  |     | 1.7030 |  |  |  | 1.6708 |  |  |  | 



|(1) |  | The average of the daily Noon Buying Rates on the last business day of each
month during the year.
|--- |  | --------------------------------------------------------------------------------------------------

Certain Singapore dollar amounts contained in this document have been
translated to U.S. dollars as of December 31, 2003, at an exchange rate of
S$1.707 = US$1.00. No representation is made that the Singapore dollar or U.S.
dollar amounts shown in this document could have been or could be converted at
such rate or at any other rate.



|E. |  | TAXATION
|-- |  | --------

SINGAPORE TAXATION

The following discussion is a summary of the material Singapore income tax,
stamp duty and estate duty consequences of the purchase, ownership and disposal
of the ordinary shares or ADSs (collectively the securities) to a holder of
the securities that is not resident in Singapore. This discussion does not
purport to be a comprehensive description of all of the Singapore tax
considerations that may be relevant to a decision to purchase, own or dispose
of the securities and does not purport to deal with the Singapore tax
consequences applicable to all categories of investors. Holders of the
securities and prospective purchasers of the securities

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should consult their
own tax advisers as to the Singapore or other tax consequences of the purchase,
ownership or disposal of the securities including, in particular, the effect of
any foreign, state or local tax laws to which they are subject.

This discussion is based on tax laws in effect in Singapore and on
administrative and judicial interpretations of these tax laws, as of the date
of this document, all of which are subject to change, possibly on a retroactive
basis.

Income tax

General. Non-resident corporate taxpayers are subject to income tax on income
that is accrued in or derived from Singapore, and on foreign income received or
deemed received in Singapore, subject to certain exceptions. A non-resident
individual is subject to income tax on the income accrued in or derived from
Singapore.

Subject to the provisions of any applicable double taxation treaty,
non-resident taxpayers who derive certain types of income from Singapore are
subject to a withholding tax on that income at a current rate of 22% for the
years of assessment 2003 and 2004 (or 15% in the case of interest, royalty and
rental of movable equipment), subject to certain exceptions. We are obligated
by law to withhold tax at the source.

A corporation will be regarded as being resident in Singapore if the control
and management of its business is exercised in Singapore (for example, if the
corporations board of directors meets and conducts the business of the
corporation in Singapore). An individual is tax resident in Singapore in a year
of assessment if, in the preceding year, he or she was physically present in
Singapore or exercised an employment in Singapore (other than as a director of
a company) for 183 days or more, or if he or she resides in Singapore.

Dividend distributions

Dividends received in respect of the ordinary shares or ADSs by either a
resident or non-resident of Singapore are not subject to Singapore withholding
tax.

Dividends paid out of Tax-Exempt Income or Income subject to Concessionary Tax
Rates.

If we pay dividends on the ordinary shares or ADSs out of income received that
is exempt from tax because of our pioneer status or out of our income received
that is subject to tax at a concessionary rate, if any, such dividends will be
free from Singapore tax in the hands of the holders of the ordinary shares and
ADSs. Please
see Item 5. Operating and Financial Review and Prospects  Special Tax
Status for a discussion of our tax incentive status.

Dividends paid out of income subject to normal corporate taxation

Imputation System. Before January 1, 2003 (and to a certain extent between
January 1, 2003 and December 31, 2007, pursuant to the transitional rules for
the new one-tier corporate tax system (see New One-Tier Corporate Tax System
below)), the imputation system of corporate taxation applied in Singapore.
Under this system, the tax we paid on income subject to tax at the prevailing
corporate income tax rate (currently 22% for the years of assessment 2003 and
2004) would be imputed to, and deemed to be paid on behalf of, our shareholders
upon distribution of such income as dividends. Our shareholders would have
received dividends (Franked Dividends) net of such tax and would be taxed on
the gross amount of dividends (that is, on the amount of net dividends plus an
amount equal to the amount of gross dividends multiplied by the prevailing
corporate tax rate). In this way, the tax we paid would have been available to
our shareholders as a tax credit to offset their tax liability on their overall
income subject to Singapore income tax (including the gross amount of
dividends).

A non-resident shareholder is effectively taxed on Franked Dividends at the
corporate income tax rate. Thus, because tax deducted from the dividend and
paid by us at the corporate income tax rate is in effect imputed to, and deemed
paid on behalf of, our shareholders (as discussed in the preceding paragraph),
no further Singapore income tax will be imposed on net dividends received by a
non-resident holder of ordinary shares or ADSs. Further, the non-resident
shareholder which does not have a permanent establishment in Singapore and
deductible expenses attributed to such dividend income would normally not
receive any tax refund from the Inland Revenue Authority of Singapore.

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New one-tier corporate tax system

A new one-tier corporate tax system became effective from January 1, 2003
(subject to certain transitional rules). Under this new system, the tax on
corporate profits is final and dividends paid by a Singapore resident company
will be tax exempt in the hands of a shareholder, regardless of whether the
shareholder is a company or an individual and whether or not the shareholder is
a Singapore tax resident. Accordingly, under the one-tier corporate tax system,
no further Singapore income tax will be imposed on the net dividends received
by a non-resident holder of ordinary shares or ADSs.

However, to enable companies to make use of their unutilized dividend franking
credits as of December 31, 2002, there will be a five year transition period
from January 1, 2003 to December 31, 2007, during which a company may remain on
the imputation system for the purposes of paying Franked Dividends out of its
unutilized dividend franking credits as of December 31, 2002.

Accordingly, for so long as we have not moved to the one-tier corporate tax
system, shareholders may continue to receive dividends with credits attached as
described above under Imputation System.

For the period up to 31 December 2007, when the imputation system will co-exist
with the one-tier corporate tax system, if we have not moved to the one-tier
system, tax vouchers issued by us will distinguish between franked dividends
and normal tax exempt dividends not being exempt dividends under the one-tier
system, such as dividends paid out of tax-exempt income, approved deduction or
further deduction of expenses or foreign tax credit allowed. If we have fully
utilized our dividend franking credits (that is, we are required to move to the
one-tier system) or if we elect to move to the one-tier system at an earlier
date, tax vouchers issued by us will distinguish between normal tax exempt
dividends and exempt dividends under the one-tier system. We do not presently
intend to migrate to the new one tier corporate tax system until our dividend
franking credits as of December 31, 2002 are fully utilized or until the
transition period comes to an end, whichever is earlier.

No comprehensive tax treaty currently exists between Singapore and the U.S.

Gains on Disposal of the Ordinary Shares or ADSs. Singapore does not impose tax
on capital gains. However, there are currently no specific laws or regulations
which address the characterization of capital gains; hence, gains or profits
may be construed to be of an income nature and subject to tax, especially if
they arise from activities which the Inland Revenue Authority of Singapore
regards as the carrying on of a trade or business in Singapore. Thus, any gains
or profits from the disposal of the ordinary shares or ADSs are not taxable in
Singapore unless the seller is regarded as carrying on a trade or business (for
example, one of dealing in securities) in Singapore, in which case the disposal
profits would be taxable as such profits would be considered revenue in nature.

Stamp duty

There is no stamp duty payable in respect of the issuance and holding of
ordinary shares or ADSs. Where existing ordinary shares or ADSs evidenced in
certificated form are acquired in Singapore, stamp duty is payable on the
instrument of transfer of the ordinary shares or ADSs at the rate of S$2.00 for
every S$1,000 or part thereof of the consideration for, or market value of, the
ordinary shares or ADSs, whichever is higher. The stamp duty is borne by the
purchaser unless there is an agreement to the contrary. Where an instrument of
transfer is executed outside Singapore or no instrument of transfer is
executed, no stamp duty is payable on the acquisition of existing ordinary
shares or ADSs. However, stamp duty may be payable if the instrument of
transfer is executed outside Singapore and received in Singapore.

Estate duty

In the case of an individual who is not domiciled in Singapore, Singapore
estate duty is imposed on the value of immovable properties of the individual
situated in Singapore. Estate duty is not imposed on the movable properties in
Singapore owned by a non-domiciled person. Thus, an individual holder of the
ordinary shares or ADSs who is not domiciled in Singapore at the time of his or
her death will not be subject to Singapore estate duty on the value of the
ordinary shares or ADSs held by the individual upon the individuals death.

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Prospective purchasers of ordinary shares or ADSs who are individuals, whether
or not domiciled in Singapore, should consult their own tax advisers regarding
the Singapore estate duty consequences of their investment and ownership of
such ordinary shares and/or ADSs.

U.S. FEDERAL TAXATION

The following is a summary of certain material U.S. federal income and estate
tax consequences that may be relevant to a U.S. holder with respect to the
acquisition, ownership and disposition of ordinary shares or ADSs. For purposes
of this summary, a U.S. holder is a beneficial owner of ordinary shares or
ADSs who is included in at least one of the following categories:



| |  | citizens or residents of the U.S. for U.S. federal income tax purposes,                                                                                                                                                                                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | corporations or other entities created or organized under the laws of the U.S. or of any political subdivision thereof,                                                                                                                                                                                                      
| 
| |  | estates the income of which is subject to U.S. federal income taxation regardless of source,                                                                                                                                                                                                                                 
| 
| |  | any trust the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S.
persons who have the authority to control all substantial decisions of the trust, or, if the trust was in existence on
August 20, 1996, has elected to continue to be treated as a U.S. person, or
| 
| |  | persons otherwise subject to U.S. federal income taxation on their worldwide income regardless of its source.                                                                                                                                                                                                                

This summary deals only with ordinary shares and ADSs held as capital assets
(within the meaning of section 1221 of the Internal Revenue Code of 1986, as
amended (the Code)) and does not address the tax consequences applicable to
holders that may be subject to special tax rules, including without limitation
financial institutions, insurance companies, regulated investment companies,
dealers in securities or currencies, persons holding ordinary shares or ADSs as
a hedge against currency risks or as a position in a straddle or conversion
transaction or other integrated investment transaction for tax purposes,
persons whose functional currency is not the U.S. dollar, or holders of 10%
or more, by voting power or value, of the stock of our company. This summary is
based upon the Code, existing temporary and proposed Treasury Regulations,
Internal Revenue Service (IRS) rulings and judicial decisions as now in
effect and as currently interpreted and does not take into account possible
changes in such tax laws or interpretations, any of which may be applied
retroactively and could affect the tax consequences described below. This
summary further is based in part on the assumption that each obligation in the
deposit agreement and any related agreement will be performed in accordance
with its terms.

Ownership of ADSs

For U.S. federal income tax purposes, U.S. holders of ADSs will be treated as
the owners of the ordinary shares represented by such ADSs.

Dividends

Subject to the passive foreign investment company rules discussed below,
distributions of cash or property (other than certain distributions of ordinary
shares, if any) with respect to ordinary shares will be generally included in
income by a U.S. holder as foreign source dividend income at the time of
receipt, which in the case of a U.S. holder of ADSs generally will be the date
of receipt by the depositary, to the extent such distributions are made from
the current or accumulated earnings and profits of our company (as determined
under U.S. federal income tax principles). Such dividends will not be eligible
for the dividends received deduction generally allowed to corporate U.S.
holders. To the extent, if any, that the amount of any distribution by our
company exceeds our companys current and accumulated earnings and profits as
determined under U.S. federal income tax principles, it will be treated first
as a tax-free return of the U.S. holders tax basis in the ordinary shares or
ADSs and thereafter as capital gain.

A U.S. holder will not be eligible for a foreign tax credit against its U.S.
federal income tax liability for Singapore dividend distribution taxes, if any,
paid by our

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company. U.S. holders should be aware that dividends paid by our
company generally will constitute passive income or, in the case of certain
U.S. holders, financial services income for purposes of the foreign tax
credit.

If dividends are paid in Singapore dollars, the amount of the dividend
distribution includible in the income of a U.S. holder will be the U.S. dollar
value of the payments made in Singapore dollars, determined at a spot exchange
rate between Singapore dollars and U.S. dollars on the date the dividend is
includible in income by the U.S. holder in accordance with its method of
accounting, regardless of whether the payment is in fact converted into U.S.
dollars. Generally, gain or loss, if any, resulting from currency exchange
fluctuations during the period from the date of distribution to the date such
payment is converted into U.S. dollars will be treated as ordinary income or
loss.

Dividends received by a non-corporate U.S. holder on the ordinary shares or
ADSs for taxable years of such holder beginning after December 1, 2002 and
before January 1, 2009 may be taxed at the lower applicable capital gains rate
provided that (1) we are not a PFIC (as discussed below) for either our taxable
year in which the dividend was paid or the preceding taxable year, (2) our ADSs
or ordinary shares are readily tradeable on an established securities market in
the United States and (3) certain holding period requirements are met. You
should consult your own tax advisors regarding the availability of the lower
rate for dividends paid with respect to ADSs or ordinary shares.

Sale or exchange of ordinary shares or ADSs

Subject to the passive foreign investment company rules discussed below, a U.S.
holder generally will recognize capital gain or loss on the sale or exchange of
ordinary shares or ADSs equal to the difference between the amount realized on
such sale or exchange and the U.S. holders tax basis in the ordinary shares or
ADSs, as the case may be. Such gain or loss will be long-term capital gain or
loss if the ordinary shares or ADSs, as the case may be, were held for more
than one year. Gain or loss, if any, recognized by a U.S. holder generally will
be treated as U.S. source income or loss for U.S. foreign tax credit purposes.

PFIC rules

A non-U.S. corporation will be classified as a PFIC for U.S. federal income tax
purposes if either (i) 75% or more of its gross income for the taxable year is
passive income, or (ii) on a quarterly average for the taxable year by value
(or, if it is not a publicly traded corporation and so elects, by adjusted
basis), 50% or more of its gross assets produce or are held for the production
of passive income.

We do not believe that we satisfied either of the tests for PFIC status in
2003. However, there can be no assurances that we will not be a PFIC in 2004
or a later year. If, for example, the passive income earned by us exceeds
75% or more of our gross income, we will be a PFIC under the income test.
In addition, it is also possible that we will be a PFIC under the asset test.
The determination of the value of our assets will be based in part on the
market price of our ordinary shares and ADSs. Because we have historically
held, and may continue to hold a substantial amount of passive assets, there is
a substantial risk that we may be a PFIC in 2004 or in a later year. Passive
income for PFIC purposes includes, among other things, interest, dividends,
royalties, rents and annuities. For manufacturing businesses, gross income for
PFIC purposes should be determined by reducing total sales by the cost of goods
sold. Although not free from doubt, if our cost of goods sold exceeds our
total sales by an amount greater than the amount of all of our other income
(excluding total sales), such that we are treated as if we had no gross income
for PFIC purposes, we would not be a PFIC as a result of the income test.

If we were to be a PFIC at any time during a U.S. holders holding period, such
U.S. holder would be required to either: (i) pay an interest charge together
with tax calculated at maximum ordinary income rates on excess distributions,
which is defined to include gain on a sale or other disposition of ordinary
shares or ADSs, or (ii) so long as the ordinary shares or ADSs are regularly
traded on a qualifying exchange, elect to recognize as ordinary income each
such year the excess in the fair market value, if any, of its ordinary shares
or ADSs at the end of the taxable year over such holders adjusted basis in
such ordinary shares or ADSs and, to the extent of prior inclusions of ordinary
income, recognize ordinary loss for the decrease in value of such ordinary
shares or ADSs (the mark to market election). For this purpose, the Nasdaq
National Market will qualify as a qualifying exchange. U.S. holders are
strongly urged to consult their own tax advisers regarding the application of
the PFIC rules.

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Estate taxes

An individual shareholder who is a citizen or resident of the U.S. for U.S.
federal estate tax purposes will have the value of the ordinary shares or ADSs
owned by such holder included in his or her gross estate for U.S. federal
estate tax purposes. An individual holder who actually pays Singapore estate
tax with respect to the ordinary shares or ADSs will, however, be entitled to
credit the amount of such tax against his or her U.S. federal estate tax
liability, subject to certain conditions and limitations.

Backup withholding tax and information reporting requirements

In general, information reporting requirements will apply to payments of
dividends in respect of the ordinary shares or ADSs or the proceeds received on
the sale, exchange or redemption of the ordinary shares or ADSs by a paying
agent within the U.S. to a non-corporate U.S. holder that is not otherwise
exempt, and a backup withholding tax may apply to such amounts if the U.S.
holder fails to provide an accurate taxpayer identification number to the
paying agent. Amounts withheld as backup withholding will be creditable against
the U.S. holders U.S. federal income tax liability, provided that the required
information is furnished in a timely manner to the Internal Revenue Service.

The above summary is not intended to constitute a complete analysis of all tax
consequences relating to ownership of ordinary shares or ADSs. You should
consult your tax adviser concerning the tax consequences of your particular
situation.



|F. |  | DIVIDENDS AND PAYING AGENTS
|-- |  | ---------------------------

Not applicable.



|G. |  | STATEMENT BY EXPERTS
|-- |  | --------------------

Not applicable.



|H. |  | DOCUMENTS ON DISPLAY
|-- |  | --------------------

Publicly filed documents concerning our company can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates.

The SEC maintains a website at www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that make
electronic filings with the SEC using its EDGAR system. As a foreign private
issuer, we are now required to use the EDGAR system. We have done so in the
past and will continue to do in order to make our reports available over the
Internet.



|I. |  | SUBSIDIARY INFORMATION
|-- |  | ----------------------

For more information on our subsidiaries, please see Item 4. Information on
Our Company  Organizational Structure.






|ITEM 11. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- |  | ----------------------------------------------------------

Quantitative and qualitative disclosures about market risk

Our exposure to financial market risks derives primarily from the changes in
interest rates and foreign exchange rates. To mitigate these risks, our company
utilizes derivative financial instruments, the application of which is
primarily for hedging purposes and not for speculative purposes.

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Interest rate risk

Our cash equivalents and short-term investments are exposed to financial market
risk due to fluctuation in interest rates, which may affect our interest income
and the fair market value of our investments. We manage the exposure to
financial market risk by performing on-going evaluations of our investment
portfolio and investing in short-term investment-grade corporate securities.
These securities are highly liquid and generally mature within 12 months from
our purchase date. Due to the short maturities of our investments, the carrying
value approximates the fair value. In addition, we do not use our investments
for trading or other speculative purposes.

We are exposed to interest rate risk on our existing floating rate debt and on
additional debt financing that may be periodically needed for the capital
expenditures associated with our capacity expansion and new fabs. The interest
rate that we will be able to obtain on debt financing will depend on market
conditions at that time, and may differ from the rates we have secured on our
current debt.

As of December 31, 2003, our debt obligations are as follows:

As Of December 31, 2003

Expected Maturity Date
(In Thousands, Except Interest Rate)

|                                   |  |      |         |      |  |      |         |       |  |       |         |            |  |                                |   |  |  |   |           |  |  |   |           |  |  |  |        |  
|---------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ----- |  | ----- | ------- | ---------- |  | ------------------------------ | - |  |  | - | --------- |  |  | - | --------- |  |  |  | ------ | -
|                                   |  |      |         |      |  |      |         |       |  |       |         |            |  | There-                         |   |  |  |   |           |  |  |   |           |  |  | 
|                                   |  | 2004 |         | 2005 |  | 2006 |         | After |  | Total |         | Fair Value |  | Weighted Average Interest Rate
|                                   |  |      |         |      |  |      |         |       |  |       |         |            |  |                               
|LONG TERM DEBT                     |  |      |         |      |  |      |         |       |  |       |         |            |  |                                |   |  |  |   |           |  |  |   |           |  |  |  |        |  
|Singapore dollar
at fixed rate (1) |  | $    | 56,327  |      |  | $    | 56,327  |       |  | $     | 14,645  |            |  |                                |  |  |  | $ | 127,299   |  |  | $ | 131,253   |  |  |  | 5.7774 | %
|U.S. dollar at
floating rate       |  |      | 167,333 |      |  |      | 167,333 |       |  |       | 167,334 |            |  |                                |  |  |  |   | 502,000   |  |  |   | 502,000   |  |  |  | 1.9375 | %
|2.5% convertible
notes(2)          |  |      |        |      |  |      |        |       |  |       | 575,000 |            |  |                                |  |  |  |   | 575,000   |  |  |   | 607,059   |  |  |  | 5.2500 | %
|Other                              |  |      |        |      |  |      |        |       |  |       | 8,453   |            |  |                                |  |  |  |   | 8,453     |  |  |   | 8,453     |  |  |  | 5.2500 | %
|                                   |  |      |         |      |  |      |         |       |  |       |         |            |  |                                |   |  |  |   |           |  |  |   |           |  |  |  |        |  
|Total                              |  | $    | 223,660 |      |  | $    | 223,660 |       |  | $     | 765,432 |            |  |                                |  |  |  | $ | 1,212,752 |  |  | $ | 1,248,765 |  |  |  |        |  
|                                   |  |      |         |      |  |      |         |       |  |       |         |            |  |                                |   |  |  |   |           |  |  |   |           |  |  |  |        |  

|                                   |       |   |                         |           |            |   |         |           | 
|---------------------------------- | ----- | - | ----------------------- | --------- | ---------- | - | ------- | --------- | 
|                                   |       |   | As Of December 31, 2002
|                                   |       |   |                        
|                                   |       |   | Total                   |           | Fair Value
|                                   |       |   |                         |           |           
|LONG TERM DEBT                     |       |   |                         |           |            |   |         |          
|Singapore dollar
at fixed rate (1) |       | $ | 188,692                 |           |            | $ | 195,091 |          
|U.S. dollar at
floating rate       |       |   | 377,000                 |           |            |   | 377,000 |          
|2.5% convertible
notes(2)          |       |   | 575,000                 |           |            |   | 616,308 |          
|Other                              |       |   | 39,239                  |           |            |   | 39,065  |          
|                                   |       |   |                         |           |            |   |         |          
|                                   | Total |   | $                       | 1,179,931 |            |   | $       | 1,227,464 | 
|                                   |       |   |                         |           |            |   |         |          

|                 |  |                   |         |      |  |   |        | 
|---------------- |  | ----------------- | ------- | ---- |  | - | ------ | 
|                 |  | As Of December 31
|                 |  |                  
|                 |  | 2002              |         | 2003
|                 |  |                   |         |     
|ACCOUNTS PAYABLE |  |                   |         |      |  |   |        | 
|U.S. dollar      |  | $                 | 84,456  |      |  | $ | 39,136 | 
|Singapore dollar |  |                   | 16,156  |      |  |   | 15,383 | 
|Japanese yen     |  |                   | 14,906  |      |  |   | 4,158  | 
|Others           |  |                   | 11,474  |      |  |   | 1,876  | 
|                 |  |                   |         |      |  |   |        | 
|Total Payable    |  | $                 | 126,993 |      |  | $ | 60,553 | 
|                 |  |                   |         |      |  |   |        | 



|(1) |  | We have entered into forward foreign contracts related to a portion of
these amounts to exchange the related cash flows to U.S. dollars. Please
see Foreign Currency Risk below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In January 2003, we entered into an additional swap in connection with a
previously executed swap in 2001. The previously executed interest rate
swap contract is in respect of the fixed-rate obligations associated with
$200.0 million of the convertible notes issued in April 2001, with the
effect of swapping the fixed-rate interest obligations to a floating-rate
obligation based on LIBOR rates to hedge against fair value risk. The
additional swap has incorporated the hedging of the accreting portion of
the bond that was not included in the original swap, thereby increasing
the hedge effectiveness. The fair value of the two interest rate swap
contracts at December 31, 2003 was $4.1 million.
|   
|    |  | In August 2003, we entered into an interest rate swap contract in respect
of the fixed-rate obligations associated with $375.0 million of the
convertible notes issued in April 2001, with the effect of swapping the
fixed-rate interest obligations to a floating-rate obligation based on
LIBOR rates to hedge against fair value risk. The swap also incorporated
hedging of the accreting portion of the convertible notes. The fair value
of this interest rate swap contract at December 31, 2003 was $32.9
million.                                                                                                                                                                                              

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As of December 31, 2003, 10.6% of our outstanding debt obligations bore fixed
interest rates (inclusive of Singapore dollar floating rate debt which has been
swapped to U.S. dollar fixed rate debt). We have no cash flow or earnings
exposure due to market interest rate changes for our fixed debt obligations.
89.4% of our outstanding debt obligations bear floating interest rates
(inclusive of the $575 million fixed rate interest obligations associated with
the convertible notes which was swapped into a floating rate obligation). We
have cash flow and earnings exposure due to market interest rate changes for
our floating debt obligations. A half percentage point change in interest rates
would affect our interest payments by 24.5% annually.

Foreign currency risk

Our foreign currency exposures give rise to market risk associated with
exchange rate movements of the U.S. dollar, which is our functional currency,
against the Japanese yen, the Singapore dollar and the Euros. A substantial
part of our debt is denominated in foreign currencies, primarily Singapore
dollars. Substantially all of our revenue was denominated in U.S. dollars
during the year ended December 31, 2003 and as a result, we had relatively
little foreign currency exchange risk with respect to any of our revenue. In
2003, approximately 21% of our cost of revenue was denominated in Singapore
dollars. In addition, approximately 53% of our capital expenditures were
denominated in U.S. dollars, approximately 20% were denominated in Euros,
approximately 11% were denominated in Japanese yen and approximately 16% were
denominated in Singapore dollars.

To protect against reductions in value and the volatility of future cash flows
caused by changes in foreign exchange rates, we utilize currency forward
contracts to minimize the impact of foreign currency fluctuations on our
results of operations. We utilize, from time to time, currency forward
contracts as economic hedges so as to minimize our exposure to specific
currency risks related to equipment purchase commitments, primarily in Japanese
yen and Euros. In addition, we minimize our currency risk by purchasing certain
raw materials and equipment in U.S. dollars and borrowing in U.S. dollars. The
table below provides information about our derivative financial instruments and
presents the information in U.S. dollar equivalents.

|                                        |  |                                            |        |                    |  |       |        |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 
|--------------------------------------- |  | ------------------------------------------ | ------ | ------------------ |  | ----- | ------ | ----- |  | ------ | - | ----- |  | ----- | ------ | ---- |  | - | ----- |  |  | ---- | ------- |  |  | - | ----- | 
|                                        |  | As Of December 31, 2003                    |        |                   
|                                        |  | Expected Maturity Date Of Notional Amounts |        | As Of December 31,
|                                        |  | (In Thousands, Except Exchange Rate)       |        | 2002              
|                                        |  |                                            |        |                   
|                                        |  |                                            |        |                    |  |       |        |       |  | There- |   |       |  |       |        | Fair |  |   |       |  |  | Fair
|                                        |  | 2004                                       |        | 2005               |  | After |        | Total |  | Value  |   | Total |  | Value
|                                        |  |                                            |        |                    |  |       |        |       |  |        |   |       |  |      
|FORWARD FOREIGN EXCHANGE
AGREEMENTS     |  |                                            |        |                    |  |       |        |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 
|(Receive Yen/Pay US$)
Contract Amount   |  | $                                          | 11,614 |                    |  |       |       |       |  |        |  |       |  | $     | 11,614 |      |  | $ | 958   |  |  | $    | 11,401  |  |  | $ | 84    | 
|Average Contractual
Exchange Rate       |  |                                            | 115.05 |                    |  |       |        |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 
|(Receive S$/Pay US$)
Contract Amount    |  | $                                          | 54,137 |                    |  | $     | 27,846 |       |  |        |  |       |  | $     | 81,983 |      |  | $ | 1,516 |  |  | $    | 93,948  |  |  | $ | 1,181 | 
|Average Contractual
Exchange Rate       |  |                                            | 1.73   |                    |  |       | 1.73   |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 
|(Receive Euros/Pay US$)
Contract Amount |  | $                                          | 3,295  |                    |  |       |       |       |  |        |  |       |  | $     | 3,295  |      |  | $ | 354   |  |  | $    | 12,676  |  |  | $ | 183   | 
|Average Contractual
Exchange Rate       |  |                                            | 1.146  |                    |  |       |        |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 
|                                        |  |                                            |        |                    |  |       |        |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 
|Total Contract Amount                   |  | $                                          | 69,046 |                    |  | $     | 27,846 |       |  |        |  |       |  | $     | 96,892 |      |  | $ | 2,828 |  |  | $    | 118,025 |  |  | $ | 1,448 | 
|                                        |  |                                            |        |                    |  |       |        |       |  |        |   |       |  |       |        |      |  |   |       |  |  |      |         |  |  |   |       | 

|                                           |  |                                            |        |                    |  |      |        |       |  |       |        |       |  |        |   |       |  |   |        |      |  |   |        |   |  |      |         |  |  |   |        |  
|------------------------------------------ |  | ------------------------------------------ | ------ | ------------------ |  | ---- | ------ | ----- |  | ----- | ------ | ----- |  | ------ | - | ----- |  | - | ------ | ---- |  | - | ------ | - |  | ---- | ------- |  |  | - | ------ | -
|                                           |  | As Of December 31, 2003                    |        |                   
|                                           |  | Expected Maturity Date Of Notional Amounts |        | As Of December 31,
|                                           |  | (In Thousands, Except Exchange Rate)       |        | 2002              
|                                           |  |                                            |        |                   
|                                           |  |                                            |        |                    |  |      |        |       |  |       |        |       |  | There- |   |       |  |   |        | Fair |  |   |        |   |  | Fair
|                                           |  | 2004                                       |        | 2005               |  | 2006 |        | After |  | Total |        | Value |  | Total  |   | Value
|                                           |  |                                            |        |                    |  |      |        |       |  |       |        |       |  |        |   |      
|CROSS CURRENCY SWAP                        |  |                                            |        |                    |  |      |        |       |  |       |        |       |  |        |   |       |  |   |        |      |  |   |        |   |  |      |         |  |  |   |        |  
|(Swapping S$ into US$)
Contract Amount (1) |  | $                                          | 29,290 |                    |  | $    | 29,290 |       |  | $     | 14,645 |       |  |        |  |       |  | $ | 73,225 |      |  | $ | (4,495 | ) |  | $    | 100,415 |  |  | $ | (8,853 | )
|                                           |  |                                            |        |                    |  |      |        |       |  |       |        |       |  |        |   |       |  |   |        |      |  |   |        |   |  |      |         |  |  |   |        |  
|Total                                      |  | $                                          | 29,290 |                    |  | $    | 29,290 |       |  | $     | 14,645 |       |  |        |  |       |  | $ | 73,225 |      |  | $ | (4,495 | ) |  | $    | 100,415 |  |  | $ | (8,853 | )
|                                           |  |                                            |        |                    |  |      |        |       |  |       |        |       |  |        |   |       |  |   |        |      |  |   |        |   |  |      |         |  |  |   |        |  



|(1) |  | We have entered into a cross currency swap to convert one of the
Singapore dollar fixed rate loans to a U.S. dollar denominated fixed rate
instrument.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

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|                                |                  |       |   |                         |         |                         |   |            |         |          |  |        |       |            |   |         |         |  |   |         |         |  |  |       |      |  
|------------------------------- | ---------------- | ----- | - | ----------------------- | ------- | ----------------------- | - | ---------- | ------- | -------- |  | ------ | ----- | ---------- | - | ------- | ------- |  | - | ------- | ------- |  |  | ----- | ---- | -
|                                |                  |       |   | As Of December 31, 2003 |         | As Of December 31, 2002
|                                |                  |       |   |                         |         |                        
|                                |                  |       |   | Carrying                |         | Amount                  |   | Percentage |         | Carrying |  | Amount |       | Percentage
|                                |                  |       |   | Amount                  |         | Hedged                  |   | Hedged     |         | Amount   |  | Hedged |       | Hedged    
|                                |                  |       |   |                         |         |                         |   |            |         |          |  |        |       |           
|NON-US DOLLAR LIABILITIES       |                  |       |   |                         |         |                         |   |            |         |          |  |        |       |            |   |         |         |  |   |         |         |  |  |      
|Accounts Payable                |                  |       |   |                         |         |                         |   |            |         |          |  |        |       |            |   |         |         |  |   |         |         |  |  |      
|                                | Japanese yen     |       | $ | 4,158                   |         |                         | $ | 4,158      |         |          |  | 100.0  | %     |            | $ | 14,906  |         |  | $ | 11,401  |         |  |  | 76.0  | %   
|                                | Singapore dollar |       |   | 15,383                  |         |                         |   | 15,383     |         |          |  | 100.0  |       |            |   | 16,156  |         |  |   |        |         |  |  |      |     
|                                | Others           |       |   | 1,876                   |         |                         |   | 1,876      |         |          |  | 100.0  |       |            |   | 11,474  |         |  |   | 11,474  |         |  |  | 100.0 |     
|Foreign Currency Loan          
|                                | Singapore dollar |       |   | 127,299                 |         |                         |   | 127,299    |         |          |  | 100.0  |       |            |   | 188,692 |         |  |   | 188,692 |         |  |  | 100.0 |     
|Future Interest Payable on Debt
|                                | Singapore dollar |       |   | 2,507                   |         |                         |   | 2,507      |         |          |  | 100.0  |       |            |   | 3,647   |         |  |   | 3,647   |         |  |  | 100.0 |     
|                                |                  |       |   |                         |         |                         |   |            |         |          |  |        |       |            |   |         |         |  |   |         |         |  |  |       |     
|                                |                  | Total |   | $                       | 151,223 |                         |   | $          | 151,223 |          |  |        | 100.0 | %          |   | $       | 234,875 |  |   | $       | 215,214 |  |  |       | 91.6 | %
|                                |                  |       |   |                         |         |                         |   |            |         |          |  |        |       |            |   |         |         |  |   |         |         |  |  |       |     






|ITEM 12. |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- |  | ------------------------------------------------------

Not applicable.




PART II






|ITEM 13. |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- |  | -----------------------------------------------

None.






|ITEM 14. |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
|-------- |  | ----------------------------------------------------------------------------

Not applicable.






|ITEM 15. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------

The company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Companys Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is
accumulated and communicated to the companys management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Also, the
company has investments in certain unconsolidated entities. As the companys
control is limited only to certain management and operational aspects of these
entities, its disclosure controls and procedures with respect to such entities
are necessarily limited compared to those it maintains with respect to its
consolidated subsidiaries.

The company carried out an evaluation, under the supervision and with the
participation of the companys management, including the companys Chief
Executive Officer and the companys Chief Financial Officer, of the
effectiveness of the design and operation of the companys disclosure controls
and procedures as of December 31, 2003. Based on the foregoing, the companys
Chief Executive Officer and Chief Financial Officer concluded that the
companys disclosure controls and procedures were effective as of such date.

There have been no significant changes in the companys internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the company completed its evaluation.

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ITEM 16.






|A. |  | AUDIT COMMITTEE FINANCIAL EXPERT
|-- |  | --------------------------------

Our Audit Committee members are Messrs. Philip Tan Yuen Fah (chairman), Sum
Soon Lim, Robert E. La Blanc and Andre Borrel (as of February 5, 2004). Please
see Item 6. Directors, Senior Management and Employees for their experience
and qualifications. The Board has determined that none of these individuals, as
of February 5, 2004, meet all of the criteria required to be named a Financial
Expert, as defined in applicable rules of the Securities and Exchange Commission.
In view of the very specific criteria required to be satisfied in order to qualify
as a Financial Expert, the Board has not been able to identify such a person
within this period and is making efforts to identify an
individual who will be able to meet those criteria.






|B. |  | CODE OF ETHICS
|-- |  | --------------

The company has adopted a Code of Ethics that is applicable to all its
directors, senior management and employees. The Code of Ethics contains general
guidelines for conducting the business of the company.

The company will make available a copy of the Code of Ethics to any person
without charge, if a written request is made to its Company Secretary at the
companys registered address at 60 Woodlands Industrial Park D, Street 2,
Singapore 738406.






|C. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-- |  | --------------------------------------

|     |  |            |     |                    |  |                  |     |        |  |       |     |  |  |  |   |  |  |  |     | 
|---- |  | ---------- | --- | ------------------ |  | ---------------- | --- | ------ |  | ----- | --- |  |  |  | - |  |  |  | --- | 
|     |  |            |     |                    |  | (in $ thousands) |     |        |  |       |     |  |  | 
|     |  | Audit fees |     | Audit-related fees |  | Tax fees         |     | Others |  | Total
|2002 |  |            | 632 |                    |  |                  | 37  |        |  |       | 30  |  |  |  | 2 |  |  |  | 701 | 
|2003 |  |            | 466 |                    |  |                  | 109 |        |  |       | 157 |  |  |  | 1 |  |  |  | 733 | 

Audit-related fees

Services provided primarily consist of services connected with securities
filing documents, accounting issues research and technical assistance.

Tax fees

Services provided primarily consist of routine corporate tax advisory services
and compilation of corporate tax returns.

Others

Services provided primarily consist of provision of training and research
materials.

In April 2003, the Audit Committee pre-approved a list of services that could
be rendered by the principal accountant in 2003 pursuant to pre-approval
policies and procedures established by the Audit Committee. For services other
than those specified, approval would need to be obtained from the Audit
Committee prior to the performance of such services. Services provided by the
principal accountant in 2003 were allowable services that were pre-approved by
the Audit Committee.






|D. |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|-- |  | ----------------------------------------------------------

The current Nasdaq rules require that our Audit Committee be comprised solely
of independent directors. Although one of our Audit Committee members does not
qualify as independent director under the Nasdaq rules, we are currently exempt from
this requirement pursuant to an exemption we previously received from Nasdaq.
In the event we are no longer able to rely on this exemption in the future, we
anticipate that we would rely on the Nasdaq rule which permits one
non-independent director to be appointed to the Audit Committee for a period of
up to two years if the Board makes a determination that, under exceptional and
limited circumstances, the directors membership on the committee is in the
best interests of the company and its shareholders.

87



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##### Table of Contents






PART III






|ITEM 17. |  | FINANCIAL STATEMENTS
|-------- |  | --------------------

See Item 18 for a list of financial statements filed under Item 17.






|ITEM 18. |  | FINANCIAL STATEMENTS
|-------- |  | --------------------

The following financial statements are filed as part of this document, together
with the report of the independent auditors:

Chartered Semiconductor Manufacturing Ltd, Consolidated Financial Statements



| |  | Independent Auditors Report                                                                               
| |  | -----------------------------------------------------------------------------------------------------------
|
| |  | Consolidated Balance Sheets as of December 31, 2002 and 2003                                               
|
| |  | Consolidated Statements of Operations for the years ended December 31,
2001, 2002 and 2003                 
|
| |  | Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2001, 2002 and 2003
|
| |  | Consolidated Statements of Shareholders Equity for the years ended
December 31, 2001, 2002 and 2003       
|
| |  | Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2002 and 2003                 
|
| |  | Notes to Consolidated Financial Statements                                                                 

Silicon Manufacturing Partners Pte Ltd, Financial Statements



| |  | Independent Auditors Report                                                        
| |  | ------------------------------------------------------------------------------------
|
| |  | Balance Sheets as of December 31, 2002 and 2003                                     
|
| |  | Profit and Loss Accounts for the years ended December 31, 2001, 2002 and
2003       
|
| |  | Statements of Changes in Equity for the years ended December 31, 2001,
2002 and 2003
|
| |  | Statements of Cash Flows for the years ended December 31, 2001, 2002 and
2003       
|
| |  | Notes to the Financial Statements                                                   






|ITEM 19. |  | EXHIBITS
|-------- |  | --------

|       |  |                                                                                                                                                                                                                                                                                      
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1(1)   |  | Memorandum and Articles of Association of the company.                                                                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                      
|2.1(2) |  | Specimen certificate for ordinary shares.                                                                                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                      
|2.2(3) |  | Deposit Agreement dated November 4, 1999 by and among the
company, Citibank, N.A. and the holders and beneficial owners
of American Depositary Shares evidenced by American
Depositary Receipts issued thereunder (including as an
exhibit, the form of American Depositary Receipt).

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|         |  |                                                                                                                                                                                                                                                                                                                                    
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | Loan Agreements and Indentures                                                                                                                                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.1.1(8) |  | Credit Agreement dated March 12, 1998 by and among Chartered
Silicon Partners Pte Ltd, the banks named on the signature
pages thereto, as lenders, and ABN Amro Bank N.V. Singapore
Branch, as agent, as amended by the First Supplemental
Agreement dated December 14, 1998.                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.1.2(3) |  | Second Supplemental Agreement dated November 9, 1999 by and
among Chartered Silicon Partners Pte Ltd, the banks on the
signature pages thereto, as Lenders, and ABN Amro Bank N.V.
Singapore Branch, as agent.                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.1.3(6) |  | Third Supplemental Agreement dated December 14, 2000 by and
among Chartered Silicon Partners Pte Ltd, the banks on the
signature pages thereto, as Lenders and ABN Amro Bank N.V.
Singapore Branch, as agent.                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.1.4(5) |  | Fourth Supplemental Agreement dated May 21, 2002 by and among
Chartered Silicon Partners Pte Ltd, the banks on the
signature pages thereto, as Lenders and ABN Amro Bank N.V.
Singapore Branch, as agent.                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.1.5(5) |  | Subordination Agreement dated June 28, 2002 by and among the
company, Chartered Silicon Partners Pte Ltd as Borrower and
ABN Amro Bank N.V. Singapore Branch as Security Trustee,
relating to the CSP First Phase Credit Agreement.                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.1.6(5) |  | Letter dated June 26, 2002 from ABN Amro Bank N.V., Singapore
Branch to Chartered Silicon Partners Pte Ltd amending the CSP
First Phase Credit Agreement by incorporating the
Subordination Agreement relating to the CSP First Phase
Credit Agreement.                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.2.1(8) |  | Shareholders Undertaking dated July 1, 1998 by and among the
company, Chartered Silicon Partners Pte Ltd, EDB Investments
Pte Ltd, Hewlett-Packard Europe B.V. and ABN Amro Bank N.V.
Singapore Branch, as Agent, as supplemented on December 16,
1998.                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.2.2(3) |  | Second Supplemental Shareholders Undertaking dated November
9, 1999 by and among Chartered Silicon Partners Pte Ltd, as
Borrower, the company, EDB Investments Pte Ltd, Agilent
Technologies Europe B.V., as Shareholders, Hewlett-Packard
Europe B.V., as Retiring Shareholder, and ABN Amro Bank N.V.
Singapore Branch, as Agent.
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.2.3(6) |  | Third Supplemental Shareholders Undertaking dated December
14, 2000 by and among Chartered Silicon Partners Pte Ltd, as
Borrower, the company, EDB Investments Pte Ltd, Agilent
Technologies Europe B.V., as Shareholders, and ABN Amro Bank
N.V. Singapore Branch, as Agent.                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.3.1(4) |  | Credit Agreement dated September 28, 2000 by and among
Chartered Silicon Partners Pte Ltd, the banks on the
signature pages thereto, as Lenders, and ABN Amro Bank N.V.,
Singapore Branch, as agent and security trustee (the CSP
Second Phase Credit Agreement).                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.3.2(7) |  | Supplemental Agreement dated September 18, 2003 by and among
Chartered Silicon Partners Pte Ltd as Borrower, the banks on
the signature pages thereto, as Lenders, and ABN Amro Bank
N.V., Singapore Branch, as Agent and Security Trustee
relating to the CSP Second Phase Credit Agreement.                                      
|         |  |                                                                                                                                                                                                                                                                                                                                    
|4.3.3(5) |  | Subordination Agreement dated June 28, 2002 by and among the
company, Chartered Silicon Partners Pte Ltd as Borrower and
ABN Amro Bank N.V. Singapore Branch as Security Trustee,
relating to the CSP Second Phase Credit Agreement.                                                                                               

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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3.4(5) |  | Letter dated June 26, 2002 from ABN Amro Bank N.V., Singapore
Branch to Chartered Silicon Partners Pte Ltd amending the CSP
Second Phase Credit Agreement by incorporating the
Subordination Agreement relating to the CSP Second Phase
Credit Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.4(6)   |  | Shareholders Undertaking dated December 14, 2000 by and
among Chartered Silicon Partners Pte Ltd as Borrower, the
company, EDB Investments Pte Ltd, Agilent Technologies Europe
B.V., as Shareholders and ABN Amro Bank N.V., Singapore
Branch as Security Trustee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.5(8)   |  | Syndicated Credit Facilities Agreement dated September 3,
1999 by and among Silicon Manufacturing Partners Pte Ltd as
Borrower, ABN Amro Bank N.V. Singapore Branch, Citibank,
N.A. Singapore Branch and Overseas Union Bank Limited, as
Lead Arrangers, the banks and financial institutions named on
the signature pages thereto, as Lenders, Citicorp Investment
Bank (Singapore) Limited, as Facility Agent and Security
Agent.                                                                                                                                                                                                                                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.6(9)   |  | Supplemental Agreement dated July 20, 2000 (the Supplemental
Agreement) to the Syndicated Credit Facilities Agreement
dated September 3, 1999 by and among Silicon Manufacturing
Partners Pte Ltd as Borrower, ABN Amro Bank N.V. Singapore
Branch, Citibank, N.A. (Singapore Branch) and Overseas Union
Bank Limited, as Lead Arrangers, the banks and financial
institutions named on the signature pages thereto, as
Lenders, Citicorp Investment Bank (Singapore) Limited, as
Facility Agent, and Security Agent.                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.7(8)   |  | Shareholders Undertaking dated September 3, 1999 by and among
the company, Lucent Technologies Microelectronics Pte Ltd,
Silicon Manufacturing Partners Pte Ltd and Citicorp
Investment Bank (Singapore) Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.8(9)   |  | Amendment dated May 2, 2001 to (a) the Syndicated Credit
Facilities Agreement dated September 3, 1999 by and among
Silicon Manufacturing Partners Pte Ltd as Borrower, ABN Amro
Bank N.V. Singapore Branch, Citibank, N.A. (Singapore
Branch) and Overseas Union Bank Limited, as Lead Arrangers,
the banks and financial institutions named on the signature
pages thereto, as Lenders, Citicorp Investment Bank
(Singapore) Limited, as Facility Agent, and Security Agent,
the company and Lucent Technologies Microelectronics Pte Ltd,
as amended by the Supplemental Agreement and to (b) the
Shareholders Undertaking dated September 3, 1999 by and among
the company, Lucent Technologies Microelectronics Pte Ltd,
Silicon Manufacturing Partners Pte Ltd and Citicorp
Investment Bank (Singapore) Ltd.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.9(6)   |  | Loan Agreement dated November 24, 1999 by and between
Economic Development Board and Chartered Silicon Partners Pte
Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.10(8)  |  | EDB Loan Agreement dated April 14, 1997 by and between the
company and the Economic Development Board of Singapore, as
supplemented on May 29, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.11(10) |  | Indenture dated as of April 2, 2001 by and between the
company and Wells Fargo Bank Minnesota, National Association.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.12(10) |  | Supplemental Indenture dated as of April 2, 2001, by and
between the company and Wells Fargo Bank Minnesota, National
Association.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|            |  |                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  | Strategic Alliances                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|            |  | CSP                                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.13(11)    |  | Deed of Accession and Ratification dated October 22, 2001 by
and among the company, EDB Investments Pte Ltd, Agilent
Technologies Europe B.V. and Singapex Investments Pte Ltd
relating to the Joint Venture Agreement dated March 13, 1997,
as amended and restated on October 23, 2001(the Restated
Joint Venture Agreement dated October 23, 2001).
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.14(11)    |  | Amendment Agreement No. 1 dated January 31, 2002 to Restated
Joint Venture Agreement dated October 23, 2001.                                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.15(2)(+)  |  | Assured Supply and Demand Agreement dated July 4, 1997 by and
among the company, Chartered Silicon Partners Pte Ltd and
Hewlett-Packard Company.                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.16(2)(+)  |  | Amendment Agreement No. 2 to Assured Supply and Demand
Agreement dated June 17, 1999 by and among the company,
Chartered Silicon Partners Pte Ltd and Hewlett-Packard
Company, which replaces the amendments contained in Amendment
Agreement No. 1 to Assured Supply and Demand Agreement dated
November 5, 1998.                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.17(3)     |  | Novation and Amendment Agreement dated November 9, 1999 by
and among Chartered Silicon Partners Pte Ltd, the company,
Hewlett-Packard Company and Agilent Technologies, Inc.
relating to the Assured Supply and Demand Agreement 64-225
dated July 4, 1997, as amended.                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|            |  | SMP                                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.18(2)(+)  |  | Joint Venture Agreement dated December 19, 1997 by and
between the company and Lucent Technologies Microelectronics
Pte Ltd.                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.19(2)(+)  |  | Assured Supply and Demand Agreement dated February 17, 1998
by and among the company, Silicon Manufacturing Partners Pte
Ltd and Lucent Technologies Microelectronics Pte Ltd.                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.20(2)(+)  |  | Supplemental Assured Supply and Demand Agreement dated

September 3, 1999 by and among the company, Silicon
Manufacturing Partners Pte Ltd and Lucent Technologies
Microelectronics Pte Ltd.                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.21(2)(+)  |  | License and Technology Transfer Agreement dated February 17,
1998 by and among the company, Lucent Technologies
Microelectronics Pte Ltd and Silicon Manufacturing Partners
Pte Ltd.                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.22(15)(+) |  | Amendment Agreement (No. 1) to License and Technology
Transfer Agreement dated July 27, 2000 by and between the
company, Lucent Technologies Microelectronics Pte Ltd and
Silicon Manufacturing Partners Pte Ltd.                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.23(13)(+) |  | Amendment Agreement (No. 2) dated March 22, 2001 to License
and Technology Transfer Agreement dated February 17, 1998 by
and between the company, Agere Systems Singapore Pte Ltd
(formerly known as Lucent Technologies Microelectronics Pte
Ltd) and Silicon Manufacturing Partners Pte Ltd.                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.24(14)(+) |  | Amendment Agreement (No. 3) dated March 28, 2002 to License
and Technology Transfer Agreement dated February 17, 1998 by
and among the company, Agere Systems Singapore Pte Ltd
(formerly known as Lucent Technologies Microelectronics Pte
Ltd) and Silicon Manufacturing Partners Pte Ltd.                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                         
|4.25(7)(+)  |  | Amendment Agreement (No. 4) dated July 1, 2003 to License and
Technology Transfer Agreement dated February 17, 1998 by and
among the company, Agere Systems Singapore Pte Ltd (formerly
known as Lucent Technologies Microelectronics Pte Ltd) and
Silicon Manufacturing Partners Pte Ltd.                                                            

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|             |  |                                                                                                                                                                                                                                   
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             |  | Technology transfer, license, joint development and other
related agreements                                                                                                                                                      
|            
|             |  | Agere/Lucent                                                                                                                                                                                                                      
|             |  |                                                                                                                                                                                                                                   
|4.26(2)(+)   |  | Technology Transfer Agreement dated February 17, 1998 by and
between the company and Lucent Technologies Inc.                                                                                                                     
|             |  |                                                                                                                                                                                                                                   
|4.27(13)(+)  |  | Amendment Agreement (No. 1) dated July 31, 2000 to Technology
Transfer Agreement dated February 17, 1998 between Lucent
Technologies Inc. and the company.                                                                        
|             |  |                                                                                                                                                                                                                                   
|4.28(13)(+)  |  | Amendment Agreement (No. 2) dated March 20, 2001 to
Technology Transfer Agreement dated February 17, 1998 between
Agere Systems Inc. (formerly known as the Microelectronics
Group of Lucent Technologies Inc.) and the company.
|             |  |                                                                                                                                                                                                                                   
|4.29(14)(+)  |  | Amendment Agreement (No. 3) dated March 28, 2002 to
Technology Transfer Agreement dated February 17, 1998 between
Agere Systems Inc. (formerly known as the Microelectronics
Group of Lucent Technologies Inc.) and the company.
|             |  |                                                                                                                                                                                                                                   
|4.30(2)(+)   |  | Patent License Agreement dated January 1, 1998 by and between
the company and Lucent Technologies Inc.                                                                                                                            
|             |  |                                                                                                                                                                                                                                   
|4.31(19)(+)  |  | Patent License Agreement Amendment dated August 3, 2000 by
and between the company and Lucent Technologies Inc.                                                                                                                   
|             |  |                                                                                                                                                                                                                                   
|4.32(15)     |  | Letter Agreement dated September 26, 2002 by and between the
company and Agere Systems Inc. amending the Patent License
Agreement between the parties dated January 1, 1998.                                                      
|             |  |                                                                                                                                                                                                                                   
|             |  | Toshiba                                                                                                                                                                                                                           
|             |  |                                                                                                                                                                                                                                   
|4.33(2)(+)   |  | Patent Cross License Agreement dated August 12, 1999 by and
between the company and Toshiba Corporation.                                                                                                                          
|             |  |                                                                                                                                                                                                                                   
|             |  | IBM                                                                                                                                                                                                                               
|             |  |                                                                                                                                                                                                                                   
|4.34(11)(+)  |  | Patent Cross-License Agreement dated January 1, 2001 by and
between the company and International Business Machines
Corporation (IBM).                                                                                          
|             |  |                                                                                                                                                                                                                                   
|4.35(16)(+)  |  | Amendment No. 1 dated November 26, 2002 to Patent License
Agreement dated January 1, 2001 by and between the company
and IBM.                                                                                                     
|             |  |                                                                                                                                                                                                                                   
|4.36(16)(+)  |  | SF Process Development and Cost Sharing Agreement dated
November 26, 2002 by and between the company and IBM.                                                                                                                   
|             |  |                                                                                                                                                                                                                                   
|4.37(16)(+)  |  | Copper / Related FEOL Technology License Agreement dated
November 26, 2002 by and between the company and IBM.                                                                                                                    
|             |  |                                                                                                                                                                                                                                   
|4.38(17)(+)  |  | Amendment No. 1 dated June 26, 2003 to SF Process
Development and Cost Sharing Agreement dated November 26,
2002 by and between the company and IBM.                                                                            
|             |  |                                                                                                                                                                                                                                   
|4.39(16)(+)  |  | Refundable Cross Deposit Agreement dated November 26, 2002 by
and between the company and IBM.                                                                                                                                    
|             |  |                                                                                                                                                                                                                                   
|4.40(20)(++) |  | First Supplemental Agreement dated December 19, 2003 to the
Refundable Cross Deposit Agreement dated November 26, 2002 by
and between the company and IBM.                                                                        
|             |  |                                                                                                                                                                                                                                   
|             |  | IBM and Infineon                                                                                                                                                                                                                  
|             |  |                                                                                                                                                                                                                                   
|4.41(17)(+)  |  | SF Process 65nm/45nm Development and Cost Sharing Agreement
dated June
26, 2003, by and among the company, IBM and
Infineon Technologies, AG.                                                                                   

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|           |  |                                                                                                                                                                                                                                 
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           |  | Motorola                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                 
|4.42(7)(+) |  | Patent License Agreement dated July 1, 2003 by and between
the company and Motorola, Inc.                                                                                                                                       
|           |  |                                                                                                                                                                                                                                 
|           |  | Property Agreements                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                 
|           |  | Fab 1                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                 
|4.43(8)    |  | Lease of Lot 2164 Mukim 3-2 Science Park Drive dated January
18, 1995 by and between Ascendas Land (Singapore) Pte Ltd
(formerly known as Technology Parks Private Limited) and
the company.                                  
|           |  |                                                                                                                                                                                                                                 
|           |  | Fab 2                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                 
|4.44(8)    |  | Building Agreement relating to Private Lot A12787 Mukim No.
13 Sembawang dated April 11, 1995 by and between Jurong Town
Corporation and Singapore Technologies Pte Ltd.                                                        
|           |  |                                                                                                                                                                                                                                 
|4.45(8)    |  | Agreement for Sub-License and Sub-Lease dated September 30,
1997 by and between Singapore Technologies Pte Ltd and the
company relating to Private Lot A12787 Mukim No. 13
Sembawang.                                           
|           |  |                                                                                                                                                                                                                                 
|           |  | Fab 3                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                 
|4.46(8)    |  | Building Agreement relating to Private Lot A12787(a)
Woodlands Industrial Park D, Mukim No. 13 Sembawang dated
February 17, 1998 by and between Jurong Town Corporation and
Singapore Technologies Pte Ltd.                     
|           |  |                                                                                                                                                                                                                                 
|4.47(8)    |  | First Supplementary Agreement to Building Agreement relating
to Private Lot A12787(a) Woodlands Industrial Park D, Mukim
No. 13 dated October 7, 1998 by and between Jurong Town
Corporation and Singapore Technologies Pte Ltd.
|           |  |                                                                                                                                                                                                                                 
|4.48(8)    |  | Agreement for Sub-License and Sub-Lease (Private Lot
A12787(a)) dated February 17, 1998 by and between Singapore
Technologies Pte Ltd and the company.                                                                          
|           |  |                                                                                                                                                                                                                                 
|4.49(8)    |  | Building Agreement relating to Private Lot A12787(b)
Woodlands Industrial Park D, Mukim No. 13 Sembawang dated
February 17, 1998 by and between Jurong Town Corporation and
Singapore Technologies Pte Ltd.                     
|           |  |                                                                                                                                                                                                                                 
|4.50(8)    |  | First Supplementary Agreement to Building Agreement relating
to Private Lot A12787(b) Woodlands Industrial Park D, Mukim
No. 13 dated October 7, 1998 by and between Jurong Town
Corporation and Singapore Technologies Pte Ltd.
|           |  |                                                                                                                                                                                                                                 
|4.51(8)    |  | Agreement for Sub-License and Sub-Lease (Private Lot
A12787(b)) dated February 17, 1998 by and between Singapore
Technologies Pte Ltd and the company.                                                                          
|           |  |                                                                                                                                                                                                                                 
|4.52(8)    |  | Sub-Lease dated February 17, 1998 by and between the company
and Silicon Manufacturing Partners Pte Ltd.                                                                                                                        
|           |  |                                                                                                                                                                                                                                 
|           |  | Fab 6                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                 
|4.53(8)    |  | Building Agreement relating to Private Lot A12787(d) Mukim
No. 13 Sembawang dated September 24, 1999 by and between
Jurong Town Corporation and Singapore Technologies Pte Ltd.                                                 
|           |  |                                                                                                                                                                                                                                 
|4.54(8)    |  | Agreement for Sub-License and Sub-Lease (Private Lot
A12787(d)) dated September 24, 1999 by and between Singapore
Technologies Pte Ltd and Chartered Silicon Partners Pte Ltd.                                                  

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|         |  |                                                                                                                                                                                                              
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | Fab 7                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                              
|4.55(18) |  | Agreement for Sub-License and Sub-Lease (Private Lot
A12787(e)) dated July 30, 2001 by and between Singapore
Technologies Pte Ltd and the company.                                                           
|         |  |                                                                                                                                                                                                              
|4.56(18) |  | Building Agreement relating to Private Lot A12787(e)
Woodlands Industrial Park D, G.S. No. 3696K, Mukim No. 13
dated July 30, 2001 by and between Jurong Town Corporation
and Singapore Technologies Pte Ltd.
|         |  |                                                                                                                                                                                                              
|         |  | Related Party Agreements                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                              
|4.57(3)  |  | ST Group Management & Support Services Agreement dated November
1, 1999 by and between the company and Singapore Technologies Pte
Ltd.                                                                       
|         |  |                                                                                                                                                                                                              
|4.58(20) |  | Supplemental Agreement dated November 1, 2002, to the ST Group
Management & Support Services Agreement Dated November 1, 1999.                                                                               
|         |  |                                                                                                                                                                                                              
|4.59(16) |  | Amended and Restated Turnkey Subcontract Agreement for Sort,
Assembly and/or Final Test Services dated October 30, 2002 by and
between the company and ST Assembly Test Services Ltd.                        
|         |  |                                                                                                                                                                                                              
|4.60(20) |  | Mr. Chia Song Hwees, President and CEO, Contract of Employment.                                                                                                                                             
|         |  |                                                                                                                                                                                                              
|8(16)    |  | Table of the companys subsidiaries.                                                                                                                                                                         
|         |  |                                                                                                                                                                                                              
|10(20)   |  | Consent of KPMG.                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                              
|12.1(20) |  | Certification of the President and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                        
|         |  |                                                                                                                                                                                                              
|12.2(20) |  | Certification of the Vice President and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                   
|         |  |                                                                                                                                                                                                              
|13.1(20) |  | Certification of the President and Chief Executive Officer
pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002                                           
|         |  |                                                                                                                                                                                                              
|13.2(20) |  | Certification of the Vice President and Chief Financial Officer
pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002                                      

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|(1)  |  | Filed as an exhibit to our companys Registration Statement on Form F-1
(Registration No. 333-88397), as filed with the Securities and Exchange
Commission on October 4, 1999. The Memorandum and Articles of Association
were amended by shareholders resolutions which are filed as an exhibit to
our companys Current Report on Form 6-K (File No. 000-27811), as
submitted with the Securities and Exchange Commission on June 29, 2001,
and were as set forth in the proxy statement for the companys annual
general meeting in May 2001 which is filed as an exhibit to our companys
Current Report on Form 6-K (File No. 000-27811), as submitted with the
Securities and Exchange Commission on April 18, 2001, which exhibits are
incorporated herein by reference.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Filed as an exhibit to our companys Amended Registration Statement on
Form F-1/A, as filed with the Securities and Exchange Commission on
October 25, 1999, which exhibit is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(3)  |  | Filed as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on
November 23, 1999, which exhibit is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(4)  |  | Filed as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on
September 28, 2000, which exhibit is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(5)  |  | Filed as an exhibit to our companys Second Quarterly Report 2002 on Form
6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on August 14, 2002, which exhibit is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(6)  |  | Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March
21, 2001, which exhibit is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(7)  |  | Filed as an exhibit to our companys Third Quarterly Report 2003 on Form
6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on November 13, 2003, which exhibit is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(8)  |  | Filed as an exhibit to our companys Registration Statement on Form F-1
(Registration No. 333-88397), as filed with the Securities and Exchange
Commission on October 4, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(9)  |  | Filed as an exhibit to our companys Second Quarterly Report 2001 on Form
6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on August 14, 2001, which exhibit is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(10) |  | Filed as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on
April 4, 2001, which exhibit is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(11) |  | Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March
11, 2002, which exhibit is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(12) |  | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(13) |  | Filed as an exhibit to our companys First Quarterly Report 2001 on Form
6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on May 15, 2001, which exhibit is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(14) |  | Filed as an exhibit to our companys First Quarterly Report 2002 on Form
6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on May 14, 2002, which exhibit is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

95



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|(15) |  | Filed as an exhibit to our companys Third Quarterly Report 2002 on Form
6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on November 14, 2002, which exhibit is incorporated herein by
reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(16) |  | Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March
13, 2003, which exhibit is incorporated herein by reference.                    
|    
|(17) |  | Filed as an exhibit to our companys Second Quarterly Report 2003 on
Form 6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on August 13, 2003, which exhibit is incorporated herein by
reference. 
|    
|(18) |  | Filed as an exhibit to our
companys Third Quarterly Report 2001 on Form 6-K (File No. 000-27811), as submitted with the Securities and Exchange
Commission on November 14, 2001, which exhibit is incorporated herein by
reference.
|    
|(19) |  | Filed as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on
November 14, 2000, which exhibit is incorporated herein by reference.             
|    
|(20) |  | Filed herewith.                                                                                                                                                                                                                     
|    
|(+)  |  | Certain portions of this exhibit have been omitted pursuant to a
confidential treatment order of the Securities and Exchange Commission.
The omitted portions have been separately filed with the Commission.                       
|    
|(++) |  | Certain portions of this exhibit have been omitted pursuant to a
request for confidential treatment filed with the Securities and Exchange
Commission. The omitted portions have been separately filed with the
Commission.         

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SIGNATURES

The company certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized on this 3rd day of March 2004.

| |  |                                           |  |        |  |                                           
| |  | ----------------------------------------- |  | ------ |  | ------------------------------------------
| |  | CHARTERED SEMICONDUCTOR MANUFACTURING LTD
| |  |                                           |  |        |  |                                           
| |  |                                           |  | By:    |  | /s/ George Thomas                         
| |  |                                           |  |        |  |                                           
| |  |                                           |  | Name:  |  | George Thomas                             
| |  |                                           |  | Title: |  | Vice President and Chief Financial Officer

This annual report has been signed by the following persons in the
capacities indicated:

|                                           |  |                                                                                         |  |              
|------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | -------------
|SIGNATURE                                  |  | TITLE                                                                                   |  | DATE         
|                                          
|/s/ James A. NorlingJAMES A. NORLING       |  | Chairman of the Board                                                                   |  | March 3, 2004
|                                          
|/s/ Lim Ming SeongLIM MING SEONG           |  | Deputy Chairman of the Board                                                            |  | March 3, 2004
|                                          
|/s/ Chia Song HweeCHIA SONG HWEE           |  | President and Chief Executive Officer
(principal executive
officer)                     |  | March 3, 2004
|                                          
|/s/ George ThomasGEORGE THOMAS             |  | Vice President and Chief
Financial Officer
(principal financial and
accounting officer) |  | March 3, 2004
|                                          
|/s/ Sum Soon LimSUM SOON LIM               |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Robert E. La BlancROBERT E. LA BLANC   |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Andre BorrelANDRE BORREL               |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Charles E. ThompsonCHARLES E. THOMPSON |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Tsugio MakimotoTSUGIO MAKIMOTO         |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Tay Siew ChoonTAY SIEW CHOON           |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Peter Seah Lim HuatPETER SEAH LIM HUAT |  | Director                                                                                |  | March 3, 2004
|                                          
|/s/ Philip Tan Yuen FahPHILIP TAN YUEN FAH |  | Director                                                                                |  | March 3, 2004

97



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CHARTERED SEMICONDUCTOR MANUFACTURING LTD
AND SUBSIDIARIES

Financial Statements for the Year Ended
December 31, 2001, 2002 and 2003





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CHARTERED SEMICONDUCTOR MANUFACTURING LTD
AND SUBSIDIARIES

FINANCIAL STATEMENTS INDEX

|                                                       |  |             |     | 
|------------------------------------------------------ |  | ----------- | --- | 
|                                                       |  | Page Number
|Independent Auditors Report                           |  |             | F-1 | 
|Consolidated Balance Sheets                            |  |             | F-2 | 
|Consolidated Statements of Operations                  |  |             | F-3 | 
|Consolidated Statements of Comprehensive Income (Loss) |  |             | F-4 | 
|Consolidated Statements of Shareholders Equity        |  |             | F-5 | 
|Consolidated Statements of Cash Flows                  |  |             | F-6 | 
|Notes to the Financial Statements                      |  |             | F-7 | 





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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Shareholders
Chartered Semiconductor Manufacturing Ltd:

We have audited the accompanying consolidated balance sheets of Chartered
Semiconductor Manufacturing Ltd and subsidiaries as of December 31, 2002
and 2003, and the related consolidated statements of operations, comprehensive income (loss), shareholders
equity and cash flows for the years ended December 31, 2001, 2002 and 2003.
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 the
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 consolidated financial
position of Chartered Semiconductor Manufacturing Ltd and subsidiaries as
of December 31, 2002 and 2003, and the results of their operations and
their cash flows for the years ended December 31, 2001, 2002 and 2003, in
conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 23 to the
consolidated financial statements, the Company changed its method of
accounting for asset retirement obligations in 2003.

/s/ KPMG

Singapore
January 30, 2004

F-1



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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  in US Dollars
As of December 31
In thousands (except per share data)

|                                                   |                                                                               |                                            |           |         |           |      |            |         |           | 
|-------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------- | --------- | ---- | ---------- | ------- | --------- | 
|                                                   |                                                                               |                                            |           | 2002    |           | 2003
|ASSETS                                             |                                                                               |                                            |           |         |           |      |            |        
|Cash and cash equivalents                          |                                                                               | $                                          | 1,210,925 |         |           | $    | 905,472    |        
|Receivables, net                                   |                                                                               |                                            | 72,481    |         |           |      | 156,383    |        
|Receivables from related parties                   |                                                                               |                                            | 18,846    |         |           |      | 35,642     |        
|Inventories                                        |                                                                               |                                            | 21,275    |         |           |      | 56,433     |        
|Prepaid expenses                                   |                                                                               |                                            | 4,081     |         |           |      | 5,027      |        
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|                                                   |                                                                               | Total current assets                       |           |         | 1,327,608 |      |            |         | 1,158,957 | 
|Investment in SMP                                  |                                                                               |                                            | 33,764    |         |           |      | 62,257     |        
|Other non-current assets                           |                                                                               |                                            | 94,320    |         |           |      | 133,660    |        
|Technology licenses, net                           |                                                                               |                                            | 16,540    |         |           |      | 126,713    |        
|Property, plant and equipment, net                 |                                                                               |                                            | 1,861,231 |         |           |      | 1,539,440  |        
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|                                                   |                                                                               | Total assets                               |           | $       | 3,333,463 |      |            | $       | 3,021,027 | 
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|LIABILITIES AND SHAREHOLDERS EQUITY               |                                                                               |                                            |           |         |           |      |            |        
|Payables                                           |                                                                               |                                            | 126,993   |         |           |      | 60,553     |        
|Payables to related parties                        |                                                                               |                                            | 7,757     |         |           |      | 10,990     |        
|Current installments of long-term debt             |                                                                               |                                            | 64,001    |         |           |      | 223,660    |        
|Accrued operating expenses                         |                                                                               |                                            | 136,579   |         |           |      | 115,520    |        
|Income taxes payable                               |                                                                               |                                            | 20,578    |         |           |      | 28,607     |        
|Other current liabilities                          |                                                                               |                                            | 29,641    |         |           |      | 37,305     |        
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|                                                   |                                                                               | Total current liabilities                  |           |         | 385,549   |      |            |         | 476,635   | 
|Long-term debt, excluding current installments     |                                                                               |                                            | 1,115,930 |         |           |      | 989,092    |        
|Other non-current liabilities                      |                                                                               |                                            | 38,885    |         |           |      | 60,745     |        
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|                                                   |                                                                               | Total liabilities                          |           |         | 1,540,364 |      |            |         | 1,526,472 | 
|Minority interest                                  |                                                                               |                                            | 7,640     |         |           |      |           |        
|Share capital: ordinary shares of S$0.26 par value |                                                                               |                                            |           |         |           |      |            |        
|                                                   | Authorized 3,076,923 shares                                                   |                                            |           |         |           |      |            |         |          
|                                                   | Issued and outstanding: 2,497,179 shares in 2002
and 2,505,480 shares in 2003 |                                            |           | 443,713 |           |      |            | 444,953 |          
|Additional paid-in capital                         |                                                                               |                                            | 2,238,752 |         |           |      | 2,233,708  |        
|Accumulated deficit                                |                                                                               |                                            | (834,013  | )       |           |      | (1,125,225 | )      
|Accumulated other comprehensive loss               |                                                                               |                                            | (62,993   | )       |           |      | (58,881    | )      
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|                                                   |                                                                               | Total shareholders equity                 |           | $       | 1,785,459 |      |            | $       | 1,494,555 | 
|                                                   |                                                                               |                                            |           |         |           |      |            |        
|Commitments and contingencies                      |                                                                               |                                            |           |         |           |      |            |        
|                                                   |                                                                               | Total liabilities and shareholders equity |           | $       | 3,333,463 |      |            | $       | 3,021,027 | 
|                                                   |                                                                               |                                            |           |         |           |      |            |        

See accompanying notes to consolidated financial statements.

F-2



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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS  in US Dollars
For the Years Ended December 31
In thousands

|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |         |         | 
|----------------------------------------------------------------------- | ------------------------------------- | ------------------------ | --------- | ------ | ------- | ---- | --------- | ------ | ------- | - | --------- | ------- | ------- | 
|                                                                        |                                       |                          |           | 2001   |         | 2002 |           | 2003  
|Net revenue                                                             |                                       | $                        | 462,656   |        |         | $    | 449,241   |        |         | $ | 551,911   |        
|Cost of revenue                                                         |                                       |                          | (665,261  | )      |         |      | (628,726  | )      |         |   | (648,330  | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Gross loss                                                              |                                       |                          | (202,605  | )      |         |      | (179,485  | )      |         |   | (96,419   | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|OPERATING EXPENSES                                                      |                                       |                          |           |        |         |      |           |        |         |   |           |        
|                                                                        | Research and development              |                          |           | 82,897 |         |      |           | 95,285 |         |   |           | 124,533 |        
|                                                                        | Fab start-up costs                    |                          |           | 13,329 |         |      |           | 8,338  |         |   |           | 9,219   |        
|                                                                        | Sales and marketing                   |                          |           | 38,659 |         |      |           | 41,182 |         |   |           | 38,272  |        
|                                                                        | General and administrative            |                          |           | 42,671 |         |      |           | 43,103 |         |   |           | 35,885  |        
|                                                                        | Other operating expenses              |                          |           |       |         |      |           | 10,025 |         |   |           | (6,124  | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|                                                                        |                                       | Total operating expenses |           |        | 177,556 |      |           |        | 197,933 |   |           |         | 201,785 | 
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Operating loss                                                          |                                       |                          | (380,161  | )      |         |      | (377,418  | )      |         |   | (298,204  | )      
|Equity in income (loss) of SMP                                          |                                       |                          | (92,683   | )      |         |      | (84,846   | )      |         |   | 23,194    |        
|Other income                                                            |                                       |                          | 19,718    |        |         |      | 23,632    |        |         |   | 23,186    |        
|Interest income                                                         |                                       |                          | 46,225    |        |         |      | 16,637    |        |         |   | 12,168    |        
|Interest expense                                                        |                                       |                          | (39,652   | )      |         |      | (41,661   | )      |         |   | (42,222   | )      
|Foreign exchange gain (loss)                                            |                                       |                          | 4,216     |        |         |      | (1,966    | )      |         |   | (733      | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Loss before income taxes                                                |                                       |                          | (442,337  | )      |         |      | (465,622  | )      |         |   | (282,611  | )      
|Income tax expense                                                      |                                       |                          | (14,244   | )      |         |      | (7,029    | )      |         |   | (11,671   | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Loss before minority interest                                           |                                       |                          | (456,581  | )      |         |      | (472,651  | )      |         |   | (294,282  | )      
|Minority interest in loss of CSP                                        |                                       |                          | 72,629    |        |         |      | 55,563    |        |         |   | 9,491     |        
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Net loss prior to cumulative effect adjustment                          |                                       |                          | (383,952  | )      |         |      | (417,088  | )      |         |   | (284,791  | )      
|Cumulative effect adjustment                                            |                                       |                          |          |        |         |      |          |        |         |   | (6,421    | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Net loss                                                                |                                       | $                        | (383,952  | )      |         | $    | (417,088  | )      |         | $ | (291,212  | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Basic and diluted net loss per share:                                   |                                       |                          |           |        |         |      |           |        |         |   |           |        
|                                                                        | Prior to cumulative effect adjustment |                          | $         | (0.24  | )       |      | $         | (0.23  | )       |   | $         | (0.11   | )      
|                                                                        | Cumulative effect adjustment          |                          |           |       |         |      |           |       |         |   |           | (0.01   | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Net loss per share                                                      |                                       | $                        | (0.24     | )      |         | $    | (0.23     | )      |         | $ | (0.12     | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Basic and diluted net loss per ADS:                                     |                                       |                          |           |        |         |      |           |        |         |   |           |        
|                                                                        | Prior to cumulative effect adjustment |                          | $         | (2.42  | )       |      | $         | (2.32  | )       |   | $         | (1.14   | )      
|                                                                        | Cumulative effect adjustment          |                          |           |       |         |      |           |       |         |   |           | (0.02   | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Net loss per ADS                                                        |                                       | $                        | (2.42     | )      |         | $    | (2.32     | )      |         | $ | (1.16     | )      
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Number of shares used in computing
basic and diluted net loss per share |                                       |                          | 1,588,969 |        |         |      | 1,799,106 |        |         |   | 2,502,294 |        
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        
|Number of ADSs used in computing
basic and diluted net loss per ADS     |                                       |                          | 158,897   |        |         |      | 179,911   |        |         |   | 250,229   |        
|                                                                        |                                       |                          |           |        |         |      |           |        |         |   |           |        

Share and per share data for 2001 and 2002 reflect a retroactive adjustment due
to an eight-for-ten rights offering completed in October 2002.

See accompanying notes to consolidated financial statements.

F-3



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  in US Dollars
For the Years Ended December 31
In thousands

|                                                  |  |      |          |      |  |      |          |   |  |   |          |  
|------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                  |  | 2001 |          | 2002 |  | 2003
|Net loss                                          |  | $    | (383,952 | )    |  | $    | (417,088 | ) |  | $ | (291,212 | )
|Net changes in hedging activity derivatives       |  |      | (15,617  | )    |  |      | 1,313    |   |  |   | (473     | )
|Reclassification into earnings                    |  |      | (1,476   | )    |  |      | (1,813   | ) |  |   | 1,003    |  
|Cumulative effect type adjustment for derivatives |  |      | 8,144    |      |  |      |         |   |  |   |         |  
|Share of other comprehensive income (loss) of SMP |  |      | (1,889   | )    |  |      | 1,009    |   |  |   | 5,298    |  
|Foreign currency translation                      |  |      | (22      | )    |  |      | 54       |   |  |   | (1,716   | )
|                                                  |  |      |          |      |  |      |          |   |  |   |          |  
|Other comprehensive income (loss)                 |  |      | (10,860  | )    |  |      | 563      |   |  |   | 4,112    |  
|                                                  |  |      |          |      |  |      |          |   |  |   |          |  
|Comprehensive loss                                |  | $    | (394,812 | )    |  | $    | (416,525 | ) |  | $ | (287,100 | )
|                                                  |  |      |          |      |  |      |          |   |  |   |          |  

See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY  in US Dollars
In thousands

|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  |             |         |       |  |  |           |  
|----------------------------------------------------------------------------- |  | --------------- | --------- | ------- |  | ------- | ------- | ---- |  | ---------- | --------- | ----------- |  | ------- | ---------- | -------- |  | ----------- | ------- | ----- |  |  | --------- | -
|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  | Accumulated |         |       |  | 
|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  | Other       |         | Total
|                                                                              |  |                 |           |         |  |         |         |      |  | Additional |           |             |  |         |            | Compre-  |  | Share      
|                                                                              |  |                 |           |         |  |         |         |      |  | Paid-in    |           | Accumulated |  | hensive |            | holders
|                                                                              |  | Ordinary Shares |           | Capital |  | Deficit |         | Loss |  | Equity    
|                                                                              |  | No.             |           | $       |  | $       |         | $    |  | $          |           | $          
|Balance at January 1, 2001                                                    |  |                 | 1,379,691 |         |  |         | 279,893 |      |  |            | 1,775,059 |             |  |         | (32,973    | )        |  |             | (52,696 | )     |  |  | 1,969,283 |  
|Net loss                                                                      |  |                 |          |         |  |         |        |      |  |            |          |             |  |         | (383,952   | )        |  |             |        |       |  |  | (383,952  | )
|Issuance of shares                                                            |  |                 | 4,065     |         |  |         | 587     |      |  |            | 3,838     |             |  |         |           |          |  |             |        |       |  |  | 4,425     |  
|Employee stock compensation                                                   |  |                 |          |         |  |         |        |      |  |            | 763       |             |  |         |           |          |  |             |        |       |  |  | 763       |  
|Derivative and hedging activities
including cumulative
effect-type-adjustment |  |                 |          |         |  |         |        |      |  |            |          |             |  |         |           |          |  |             | (10,838 | )     |  |  | (10,838   | )
|Foreign currency translation                                                  |  |                 |          |         |  |         |        |      |  |            |          |             |  |         |           |          |  |             | (22     | )     |  |  | (22       | )
|Non-employee stock compensation                                               |  |                 |          |         |  |         |        |      |  |            | 2,973     |             |  |         |           |          |  |             |        |       |  |  | 2,973     |  
|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  |             |         |       |  |  |           |  
|Balance at December 31, 2001                                                  |  |                 | 1,383,756 |         |  |         | 280,480 |      |  |            | 1,782,633 |             |  |         | (416,925   | )        |  |             | (63,556 | )     |  |  | 1,582,632 |  
|Net loss                                                                      |  |                 |          |         |  |         |        |      |  |            |          |             |  |         | (417,088   | )        |  |             |        |       |  |  | (417,088  | )
|Issuance of shares                                                            |  |                 | 3,799     |         |  |         | 547     |      |  |            | 4,750     |             |  |         |           |          |  |             |        |       |  |  | 5,297     |  
|Rights offering, net of expenses                                              |  |                 | 1,109,624 |         |  |         | 162,686 |      |  |            | 448,964   |             |  |         |           |          |  |             |        |       |  |  | 611,650   |  
|Employee stock compensation                                                   |  |                 |          |         |  |         |        |      |  |            | (253      | )           |  |         |           |          |  |             |        |       |  |  | (253      | )
|Derivative and hedging activities                                             |  |                 |          |         |  |         |        |      |  |            |          |             |  |         |           |          |  |             | 509     |       |  |  | 509       |  
|Foreign currency translation                                                  |  |                 |          |         |  |         |        |      |  |            |          |             |  |         |           |          |  |             | 54      |       |  |  | 54        |  
|Non-employee stock compensation                                               |  |                 |          |         |  |         |        |      |  |            | 2,658     |             |  |         |           |          |  |             |        |       |  |  | 2,658     |  
|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  |             |         |       |  |  |           |  
|Balance at December 31, 2002                                                  |  |                 | 2,497,179 |         |  |         | 443,713 |      |  |            | 2,238,752 |             |  |         | (834,013   | )        |  |             | (62,993 | )     |  |  | 1,785,459 |  
|Net loss                                                                      |  |                 |          |         |  |         |        |      |  |            |          |             |  |         | (291,212   | )        |  |             |        |       |  |  | (291,212  | )
|Issuance of shares                                                            |  |                 | 8,301     |         |  |         | 1,240   |      |  |            | 1,753     |             |  |         |           |          |  |             |        |       |  |  | 2,993     |  
|Employee stock compensation                                                   |  |                 |          |         |  |         |        |      |  |            | 4         |             |  |         |           |          |  |             |        |       |  |  | 4         |  
|Derivative and hedging activities                                             |  |                 |          |         |  |         |        |      |  |            |          |             |  |         |           |          |  |             | 5,828   |       |  |  | 5,828     |  
|Foreign currency translation                                                  |  |                 |          |         |  |         |        |      |  |            |          |             |  |         |           |          |  |             | (1,716  | )     |  |  | (1,716    | )
|Non-employee stock compensation                                               |  |                 |          |         |  |         |        |      |  |            | (6,801    | )           |  |         |           |          |  |             |        |       |  |  | (6,801    | )
|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  |             |         |       |  |  |           |  
|Balance at December 31, 2003                                                  |  |                 | 2,505,480 |         |  |         | 444,953 |      |  |            | 2,233,708 |             |  |         | (1,125,225 | )        |  |             | (58,881 | )     |  |  | 1,494,555 |  
|                                                                              |  |                 |           |         |  |         |         |      |  |            |           |             |  |         |            |          |  |             |         |       |  |  |           |  

See accompanying notes to consolidated financial statements.

F-5



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  in US Dollars
For the Years Ended December 31
In thousands

|                                                                                |                                                          |   |           |         |      |   |           |         |   |   |           |         |  
|------------------------------------------------------------------------------- | -------------------------------------------------------- | - | --------- | ------- | ---- | - | --------- | ------- | - | - | --------- | ------- | -
|                                                                                |                                                          |   | 2001      |         | 2002 |   | 2003     
|Operating Activities                                                            |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Net loss                                                                        |                                                          | $ | (383,952  | )       |      | $ | (417,088  | )       |   | $ | (291,212  | )      
|Adjustments to reconcile net loss to net cash provided by
operating activities: |                                                          |   |           |         |      |   |           |         |   |   |           |        
|                                                                                | Cumulative effect adjustment                             |   |           |        |      |   |           |        |   |   |           | 6,421   |  
|                                                                                | Equity in loss (income) of SMP                           |   |           | 2,722   |      |   |           | 44,651  |   |   |           | (23,194 | )
|                                                                                | Depreciation and amortization                            |   |           | 444,061 |      |   |           | 452,417 |   |   |           | 439,283 |  
|                                                                                | Foreign exchange loss (gain)                             |   |           | 2,637   |      |   |           | (1,642  | ) |   |           | 26      |  
|                                                                                | Loss (gain) on disposal of property, plant and equipment |   |           | 100     |      |   |           | (784    | ) |   |           | (5,917  | )
|                                                                                | Cancellation of employee bonus award plan                |   |           |        |      |   |           |        |   |   |           | (27,531 | )
|                                                                                | Minority interest in loss of CSP                         |   |           | (72,629 | )    |   |           | (55,563 | ) |   |           | (9,491  | )
|                                                                                | Stock-based compensation                                 |   |           | 763     |      |   |           | (253    | ) |   |           | 4       |  
|                                                                                | Others                                                   |   |           | (7,342  | )    |   |           | 6,093   |   |   |           | 5,547   |  
|Change in operating working capital:                                            |                                                          |   |           |         |      |   |           |         |   |   |           |        
|                                                                                | Receivables                                              |   |           | 97,342  |      |   |           | 14,340  |   |   |           | (44,065 | )
|                                                                                | Receivables/payables with related parties, net           |   |           | 31,614  |      |   |           | (30,661 | ) |   |           | (7,873  | )
|                                                                                | Inventories                                              |   |           | 21,237  |      |   |           | (8,509  | ) |   |           | (35,158 | )
|                                                                                | Prepaid expenses                                         |   |           | (381    | )    |   |           | (2,176  | ) |   |           | (946    | )
|                                                                                | Payables and accrued operating expenses                  |   |           | (54,585 | )    |   |           | (5,971  | ) |   |           | 26,756  |  
|                                                                                | Other current liabilities                                |   |           | (804    | )    |   |           | (1,680  | ) |   |           | 7,404   |  
|                                                                                | Income taxes payable                                     |   |           | 3,986   |      |   |           | (4,089  | ) |   |           | 8,029   |  
|                                                                                |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Net cash provided by (used in) operating activities                             |                                                          |   | 84,769    |         |      |   | (10,915   | )       |   |   | 48,083    |        
|                                                                               
|Investing Activities                                                            |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Proceeds from sale of property, plant, equipment
and other assets               |                                                          |   | 15,654    |         |      |   | 20,978    |         |   |   | 6,119     |        
|Purchase of property, plant and equipment                                       |                                                          |   | (489,645  | )       |      |   | (419,501  | )       |   |   | (220,761  | )      
|Payments for technology licenses                                                |                                                          |   | (6,000    | )       |      |   | (48,803   | )       |   |   | (59,705   | )      
|Payments for other investments and deposits                                     |                                                          |   |          |         |      |   |          |         |   |   | (110,000  | )      
|                                                                                |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Net cash used in investing activities                                           |                                                          |   | (479,991  | )       |      |   | (447,326  | )       |   |   | (384,347  | )      
|                                                                               
|Financing Activities                                                            |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Debt                                                                            |                                                          |   |           |         |      |   |           |         |   |   |           |        
|-    borrowings                                                                 |                                                          |   | 679,625   |         |      |   | 228,000   |         |   |   | 125,000   |        
|-    repayments                                                                 |                                                          |   | (155,540  | )       |      |   | (206,176  | )       |   |   | (65,033   | )      
|Customer deposits, net                                                          |                                                          |   | (8,919    | )       |      |   | (11,599   | )       |   |   | (32,123   | )      
|Issuance of ordinary shares                                                     |                                                          |   | 4,425     |         |      |   | 616,947   |         |   |   | 2,993     |        
|Capital lease payments                                                          |                                                          |   | (6,883    | )       |      |   |          |         |   |   |          |        
|                                                                                |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Net cash provided by financing activities                                       |                                                          |   | 512,708   |         |      |   | 627,172   |         |   |   | 30,837    |        
|                                                                               
|Net increase (decrease) in cash and cash equivalents                            |                                                          |   | 117,486   |         |      |   | 168,931   |         |   |   | (305,427  | )      
|Effect of exchange rate changes on cash
and cash equivalents                    |                                                          |   | 14        |         |      |   | 378       |         |   |   | (26       | )      
|Cash and cash equivalents at the beginning of the year                          |                                                          |   | 924,116   |         |      |   | 1,041,616 |         |   |   | 1,210,925 |        
|                                                                                |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Cash and cash equivalents at the end of the year                                |                                                          | $ | 1,041,616 |         |      | $ | 1,210,925 |         |   | $ | 905,472   |        
|                                                                                |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Supplemental Cash Flow Information                                              |                                                          |   |           |         |      |   |           |         |   |   |           |        
|Interest paid (net of amounts capitalized)                                      |                                                          | $ | 25,091    |         |      | $ | 27,099    |         |   | $ | 26,407    |        
|Income taxes paid                                                               |                                                          | $ | 12,141    |         |      | $ | 10,956    |         |   | $ | 6,291     |        

See accompanying notes to consolidated financial statements.

F-6



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|1. |  | Background and Summary of Significant Accounting Policies
|-- |  | ---------------------------------------------------------



| |  | (a) Business and Organization
| |  | -----------------------------



| |  | Chartered Semiconductor Manufacturing Ltd (the Company) is an
independent semiconductor foundry providing wafer fabrication services and
technologies. The Company operates in Singapore and has service
operations in eight countries in North America, Europe and Asia, including
Singapore. Its principal markets are the United States of America,
Taiwan, Europe and Japan.                                                                                                                                                                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In December 2003, the Companys majority shareholder Singapore
Technologies Pte Ltd (ST), transferred all of its shares to Singapore
Technologies Semiconductors Pte Ltd (ST Semiconductors), which is its
100% owned subsidiary company. ST is ultimately wholly-owned by Temasek
Holdings (Private) Limited (Temasek). Temasek is a holding company
through which corporate investments of the government of Singapore are
held.                                                                                                                                                                                                                                                                      
|
| |  | In March 1997, the Company, Hewlett-Packard Europe B.V. (HP Europe) and
EDB Investments Pte Ltd (EDBI) formed Chartered Silicon Partners Pte Ltd
(CSP). The Company owns a controlling 51% and therefore consolidates
CSP. HP Europe subsequently assigned its interest in CSP to Agilent
Technologies Europe B.V. (Agilent Technologies Europe). In October and
November 2001, Agilent Technologies Europe sold 7.5% each of its 30% share
in CSP to Singapex Investments Pte Ltd (Singapex), a wholly-owned
subsidiary of ST, and EDBI, respectively. Thereafter, the Company, EDBI,
Agilent Technologies Europe and Singapex own a 51%, 26.5%, 15% and 7.5%
equity interest in CSP, respectively.
|
| |  | In January 1998, the Company and Lucent Technologies Microelectronics Pte
Ltd formed Silicon Manufacturing Partners Pte Ltd (SMP), in which the
Company has a 49% equity interest. Subsequently, Lucent Technologies Inc.
spun-off its microelectronics business to Agere Systems Inc. As part of
the restructuring, Lucent Technologies Microelectronics Pte Ltd was
renamed Agere Systems Singapore Pte Ltd (Agere). The Company accounts
for SMP on the equity method.                                                                                                                                                                                                                                 



| |  | (b) Accounting Principles
| |  | -------------------------



| |  | The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America (US GAAP) consistently applied for all periods.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | (c) Principles of Consolidation
| |  | -------------------------------



| |  | The consolidated financial statements reflect the consolidated accounts of
Chartered Semiconductor Manufacturing Ltd and its majority-owned and
controlled affiliates. Significant intercompany accounts and transactions
have been eliminated. Where losses applicable to the minority interest in
a subsidiary exceed the minority interest in the equity capital of the
subsidiary, such excess and any further losses applicable to the minority
interest have been charged to the Companys consolidated statements of
operations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-7



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The investment in CSP is accounted for as a consolidated subsidiary. Due
to cumulative losses, the losses applicable to the minority interest
exceeded the minority interest in the equity capital of CSP during 2003,
thereby requiring the Company to recognize 100% of CSPs losses (and
profits) until the minority interest becomes positive. Accordingly, from
that point forward, none of the losses in CSP were allocated to the
minority interest during the year.                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (d) Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Certain reclassifications have been made in prior years financial
statements to conform to classifications used in the current year.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | (e) Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The preparation of the consolidated financial statements in accordance
with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported revenues and expenses during the reporting period.
Actual results could differ from these estimates.                                                                                                                                                       
|
| |  | (f) Foreign Currency Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Company utilizes the US dollar as its functional currency. Assets and
liabilities which are denominated in foreign currencies are converted into
the functional currency at the rates of exchange prevailing at the balance
sheet date. Income and expenses are converted at the average rates of
exchange prevailing during the period. Foreign currency transaction gains
or losses are included in consolidated statements of operations.                                                                                                                             
|
| |  | (g) Concentration of Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company is an independent foundry that fabricates integrated circuits
on silicon wafers for customers in the semiconductor industry. The five
largest customers of the Company accounted for 43%, 53% and 41% of net
revenue in the years ended December 31, 2001, 2002 and 2003, respectively.
As a result, loss or cancellation of business from, or significant
changes in scheduled deliveries or decreases in the prices of products
sold to any of these customers could materially and adversely affect the
Companys results of operations or financial position.
|
| |  | Certain of the Companys treasury management activities are undertaken by
ST or carried out together with other companies in the ST Group as further
described in Note 2.                                                                                                                                                                                                                                                                                                                                                                                                    

F-8



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (h) Derivative Instruments and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities, as amended by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities on January 1, 2001.
SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets or liabilities measured at fair value. In accordance with
the transition provisions of SFAS No. 133, the company recorded a
cumulative-effect-type adjustment of $8,144 in 2001 in accumulated other
comprehensive income to recognize at fair value all derivatives that were
designated as cash-flow hedging instruments and to derecognize net gains
or losses on derivatives that had been previously deferred. Gains and
losses on derivatives that were previously deferred as adjustments to the
carrying amount of hedged items were not adjusted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Derivatives are recognized on the balance sheet at their fair value in
other assets or other liabilities. On the date a derivative contract is
entered into, the Company will consider if the derivative instrument is
part of a hedging relationship. If the derivative will be designated as a
hedge, the Company designates the derivative as either a hedge of the fair
value of a recognized asset or liability or of an unrecognized firm
commitment (fair-value hedge), a hedge of a forecasted transaction or of
the variability of cash flows to be received or paid related to a
recognized asset or liability (cash-flow hedge), or a foreign-currency
fair-value or cash-flow hedge (foreign-currency hedge). The Company
formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair-value, cash-flow, or
foreign-currency hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions. The
Company also formally assesses, both at the hedges inception and on an
ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or
cash flows of hedged items.
|
| |  | Changes in the fair value of derivatives that are highly effective and
that are designated and qualify as fair-value hedges are recorded in
earnings, along with the loss or gain on the hedged assets or liabilities
or unrecognized firm commitment of the hedged item that are attributable
to the hedged risks. Changes in the fair value of derivatives that are
highly effective and that are designated and qualify as cash-flow hedges
are recorded in other comprehensive income, until earnings are affected by
the variability in cash flows of the designated hedged items. Changes in
the fair value of derivatives that are highly effective as hedges and that
are designated and qualify as foreign-currency hedges are recorded in
either earnings or other comprehensive income, depending on whether the
hedge transaction is a fair-value hedge or a cash-flow hedge. Changes in
the fair value of derivative instruments that are not designated as part
of a hedging relationship are reported in current period earnings.                                                                                                                                                                                                                                                                                                                                                                             

F-9



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The Company discontinues hedge accounting prospectively when it is
determined that a derivative is no longer effective in offsetting changes
in the fair value or cash flows of the hedged item, the derivative expires
or is sold, terminated, or exercised, the derivative is de-designated as a
hedging instrument because it is unlikely that a forecasted transaction
will occur, a hedged firm commitment no longer meets the definition of a
firm commitment, or management determines that designation of the
derivative as a hedging instrument is no longer appropriate. When hedge
accounting is discontinued because it is determined that the derivative no
longer qualifies as an effective fair-value hedge, the Company continues
to carry the derivative on the balance sheet at its fair value, and no
longer adjusts the hedged asset or liability for changes in fair value.
The adjustment of the carrying amount of the hedged asset or liability is
accounted for in the same manner as other components of the carrying
amount of that asset or liability. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm
commitment, the Company continues to carry the derivative on the balance
sheet at its fair value, removes any asset or liability that was recorded
pursuant to recognition of the firm commitment from the balance sheet and
recognizes any gain or loss in earnings. When hedge accounting is
discontinued because it is probable that a forecasted transaction will not
occur, the Company continues to carry the derivative on the balance sheet
at its fair value, and gains and losses that were accumulated in other
comprehensive income are recognized immediately in earnings. In all other
situations in which hedge accounting is discontinued, the Company
continues to carry the derivative at its fair value on the balance sheet,
and recognizes any changes in its fair value in earnings.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (i) Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Cash equivalents consist of highly liquid investments that are readily
convertible into cash and have original maturities of three months or
less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | (j) Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Inventories are stated at the lower of standard cost, which approximates
actual cost determined on the weighted average basis, or market (net
realizable value).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | (k) Technology Licenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Technology license agreements are stated at cost and amortized to results
of operations on the straight-line basis over the shorter of the expected
technology life or the license period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-10



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (l) Property, Plant and Equipment                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on the straight-line method over
the following periods:

|                                        |  |   |  |                                                                                                            
|--------------------------------------- |  | - |  | -----------------------------------------------------------------------------------------------------------
|Buildings                               |  | - |  | 20 years (or, if shorter, the
remaining period of the lease of
the land on which the buildings
are erected)
|Mechanical and electrical installations |  | - |  | 10 years                                                                                                   
|Equipment and machinery                 |  | - |  | 5 years                                                                                                    
|Office and computer equipment           |  | - |  | 2 to 5 years                                                                                               



| |  | The Company capitalizes interest with respect to major assets under
installation and construction until such assets are ready for use.
Interest capitalized is based on the average cost of the companys pooled
borrowings. Repairs and replacements of a routine nature are expensed,
while those that extend the life of an asset are capitalized.                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Plant and equipment under capital leases are stated at the present value
of minimum lease payments. Plant and equipment held under capital leases
and leasehold improvements are amortized straight-line over the estimated
useful life of the asset.                                                                                                                                                                                                                                                                                                                                                                
|
| |  | (m) Impairment of Long-Lived Assets and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable. Recoverability of long-lived
asset groups to be held and used are measured by a comparison of the
carrying amount to the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset group. If an
asset group is considered to be impaired, the impairment loss is measured
as the amount by which the carrying amount of the long-lived assets exceed
their fair value.
|
| |  | For intangible assets that are subject to amortization, an impairment loss
is recognized if the carrying amount exceeds the fair value. Intangible
assets with an indefinite useful life are evaluated at each reporting
period to determine whether events and circumstances continue to support
an indefinite useful life. If an intangible asset that is not being
amortized is subsequently determined to have a finite useful life, it is
amortized prospectively over its estimated remaining useful life and is
subject to impairment testing for intangible assets subject to
amortization.                  
|
| |  | Long-lived assets to be disposed of by sale are measured at the lower of
their carrying amounts or fair value less cost to sell, and depreciation
is ceased. Long-lived assets to be abandoned will be considered held and
used until disposed of.                                                                                                                                                                                                                                                                                                                                                                   

F-11



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (n) Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company applies SFAS No. 130, Reporting Comprehensive Income with
respect to reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive income
(loss) consists of net income (loss), foreign currency translation
adjustments and adjustments relating to derivatives and hedging activities
including cumulative effect-type-adjustments, and is presented in the
consolidated statements of comprehensive income (loss).                                                                                                                                                                                                                                        
|
| |  | (o) Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company derives revenue primarily from the production of wafers,
providing associated subcontracted assembly and test services and from
certain arrangements for pre-fabrication services, including engineering
services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In accordance with Securities Exchange Commission Staff Accounting
Bulletin No. 104 (SAB 104), revenue from the production of wafers is
recognized upon shipment provided title and risk of loss has passed to the
customer, there is evidence of an arrangement, fees are fixed or
determinable and collectibility is reasonably assured. Revenue represents
the invoiced value of goods and services supplied excluding goods and
services tax, less allowances for sales return and doubtful accounts. The
Company estimates allowances for sales returns based on historical
experience.                                                                                                                                          
|
| |  | In multiple elements revenue arrangements, the Company divides the
deliverables into separate units of accounting upon meeting certain
specified criteria. From July 1, 2003 onwards, the Company adopted the
methodology in FASB Emerging Issues Task Force Issue 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21) The total
consideration is allocated to each component of the multiple-element
arrangement based on its relative fair value. Revenue on each element is
recognized when title and risk of loss have passed to the customer or the
contractual obligations have been performed, there is evidence of an
arrangement, fees are fixed or determinable, and collectibility is
reasonably assured.
|
| |  | Intellectual property license income is classified as non-operating income
and is recognized when the license is delivered, collection is reasonably
assured and no further obligations with the other party exist.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | (p) Grants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Asset-related government grants consist of grants for the purchase of
equipment used for research and development activities. Asset-related
grants are presented in the consolidated balance sheet as deferred grants
and are credited to other income on the straight-line basis over the
shorter of the estimated useful lives of the relevant assets or the
remaining lives of the relevant grant projects.                                                                                                                                                                                                                                                                                                                          
|
| |  | Income-related government grants are subsidies of training and research
and development expenses. Income-related grants are credited to other
income when it becomes probable that expenditures already incurred will
constitute qualifying expenditures for purposes of reimbursement under the
grants, which is typically substantially concurrent with the expenditures.                                                                                                                                                                                                                                                                                                                                                             

F-12



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (q) Stock-Based Employee Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company measures stock-based employee compensation cost for financial
statement purposes in accordance with the intrinsic method of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations and includes pro forma
information in Note 17 in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. Employee
compensation cost is measured as the excess of fair market value of the
stock subject to the option at the grant date over the exercise price of
the option.                                                                                                                                                                                                                                                         
|
| |  | Compensation cost for stock options granted to non-employees, primarily
employees of SMP, are measured in accordance with the fair-value method as
the fair market value of the stock options based upon an option pricing
model. This cost is recognized over the period in which the options vest
in accordance with SFAS No. 123, as amended by SFAS No. 148.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | (r) Operating Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Rental payments under operating leases are expensed on a straight-line
basis over the periods of the respective leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | (s) Product Warranties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The Company guarantees that products will meet the stated functionality as
agreed to in each sales arrangement. The Company provides for the
estimated warranty costs under these guarantees based upon historical
experience and managements estimate of the level of future claims, and
accrues for specific items at the time their existence is known and the
amounts are determinable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | (t) Fab Start-up Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The Company expenses costs related to start-up activities, including fab
start-up costs, as they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | (u) 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 carrying amounts of
existing assets and liabilities in the financial statements and their
respective tax bases, and operating loss and tax credit carryforwards.
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. A valuation
allowance is recorded for loss carryforwards and other deferred tax assets
where it is more likely than not that such loss carryforwards and deferred
tax assets will not be realized.

F-13



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (v) Net Income (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Basic net income (loss) per share is computed using the weighted-average
number of common shares outstanding. Diluted net income (loss) per share
is computed using the weighted average number of common shares outstanding
and dilutive potential common shares from the assumed exercise of options
outstanding during the period, if any, using the treasury stock method
plus other potentially dilutive securities outstanding, such as
convertible notes. The share and ADS amounts for 2001 and 2002 have been
adjusted for the bonus element of the eight-for-ten rights offering
completed in October 2002 and described in Note 16. The bonus element
arises because the exercise price of the shares at issuance was less than
their fair value, and is imputed as the number of shares issued that
exceeds the expected number of shares. The expected number of shares is
calculated using the fair value per share immediately prior to the rights
exercise compared to the actual proceeds of the rights exercise.
|
| |  | The Company excluded potentially dilutive securities for each period
presented from its diluted net income (loss) per share computation because
the Company had net losses, and therefore these securities were
anti-dilutive. A summary of the excluded potentially dilutive securities
and the range of related exercise prices are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                 |  |                          |         |      |  |      |         |  |  |  |         | 
|---------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                 |  | Years ended December 31,
|                 |  | 2001                     |         | 2002 |  | 2003
|Convertible debt |  |                          | 214,792 |      |  |      | 214,792 |  |  |  | 214,792 | 
|Stock options    |  |                          | 87,925  |      |  |      | 99,693  |  |  |  | 104,223 | 



| |  | The conversion price of convertible debt outstanding was S$4.7980 per
share (equivalent to approximately US$26.7701 per ADS) as of December 31,
2003. The weighted average exercise prices of options outstanding were
$4.19, $3.49 and $2.67 as of December 31, 2001, 2002 and 2003,
respectively. The excluded stock options have per share exercise prices
ranging from $0.46 to $8.31, $0.46 to $8.31 and $0.39 to $8.31 for the
years ended December 31, 2001, 2002 and 2003, respectively.                                                                                                                                                                                                                     
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (w) New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In June 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, which addresses financial accounting and reporting for costs
associated with exit and disposal activities to be recorded at their fair
values when a liability has been incurred. SFAS No. 146 was effective in
fiscal 2003 for exit or disposal activities that were initiated after
December 31, 2002. As a result, the Company recorded a charge of $12,421
for the year ended December 31, 2003 associated with the closure of Fab 1
and consolidation of its business into Fab 2, announced in February 2003.
Refer to Note 22 for further information.

F-14



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | In November 2002, a consensus was reached on EITF 00-21. The EITF
addresses certain aspects of accounting by a vendor for arrangements
relating to performance of multiple revenue-generating activities. EITF
00-21 requires revenue arrangements with multiple deliverables to be
divided into separate units of accounting if the deliverables in the
arrangement meet certain specified criteria, allocation of the arrangement
consideration among the separate units of accounting based on their
relative fair values, and separate revenue recognition for separate units
of accounting. The guidance in EITF 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
The adoption of EITF 00-21 did not have a material impact on the
Companys financial condition and consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (VIE)  an interpretation
of Accounting Research Bulletin No. 51, Consolidated Financial
Statements (FIN No. 46). A VIE is an entity in which equity investors
do not have characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from investors. Among
other things, FIN No. 46 requires the consolidation of the assets,
liabilities and results of operations of VIEs by the primary beneficiary.
FIN No. 46 also requires the disclosure of information concerning VIEs by
entities that hold significant variable interest but may not be the
primary beneficiary. FIN No. 46 applies immediately to VIEs created after
January 31, 2003 and is effective for interim periods beginning after June
15, 2003 for interests in VIEs that were acquired before February 1, 2003.
In October 2003, the FASB issued FASB Staff Position No. 46-6 to defer
the effective date for applying the provisions of FIN No. 46 for interests
in VIEs that were created before February 1, 2003. FIN No. 46 also
requires the disclosure of the nature, purpose, size and activities of
VIEs, as well as the maximum exposure to loss in connection with VIEs for
any financial statements issued after January 31, 2003, if it is
reasonably possible that an entity will consolidate or disclose
information about a VIE. The effect of adoption of FIN No. 46 did not
have and is not expected to have any impact on the Companys financial
condition and consolidated statements of operations.
|
| |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of
FASB Statement No. 123. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation, as prescribed under SFAS
No. 123. In addition, SFAS No. 148 requires prominent disclosure in the
footnotes to both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of that
method on reported results. The Company does not plan to adopt the fair
value accounting model for stock-based employee compensation at this time;
accordingly SFAS No. 148 will not have an impact on the Companys current
financial condition and consolidated statements of operations. The
Company adopted the disclosure requirements of SFAS No. 148 in the notes
to the consolidated financial statements for the year ended December 31,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. Among other things,
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and all of its
provisions should be applied prospectively. The adoption of SFAS No. 149
did not have a material impact on the Companys financial condition and
consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-15



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments With Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for how an issuer classifies
and measures financial instruments with characteristics of both
liabilities and equity and requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 also revises the definition of a liability
to encompass obligations that a reporting entity can or must settle by
issuing its own equity shares, depending on the nature of the relationship
established between the holder and the issuer. SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003.
The adoption of SFAS No. 150 did not have any impact on the Companys
financial condition and consolidated statements of operations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | Related Party Transactions
|-- |  | --------------------------



| |  | (a) ST and affiliates                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | ST, one of Singapores largest industrial conglomerates, is ultimately
wholly-owned by Temasek. Temasek is a holding company through which the
Corporate investments of the government of Singapore are held. The
Company transacts business with ST and its affiliates in the normal course
of their respective businesses, including ST Assembly Test Services Ltd
(STATS).
|
| |  | In addition to the transactions with related parties disclosed in Note 3,
Note 9 and Note 11, the Company had the following significant transactions
with related parties:                                                                                                                                                                                                     

|                 |                                                             |  |      |        |      |  |      |        |  |  |   |        | 
|---------------- | ----------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                 |                                                             |  | 2001 |        | 2002 |  | 2003
|ST               |                                                             |  |      |        |      |  |      |        |  |  |   |       
|                 | Management fees                                             |  | $    | 4,012  |      |  | $    | 4,014  |  |  | $ | 3,384  | 
|                 | Reimbursement of expenses incurred on
behalf of the Company |  |      | 18,281 |      |  |      | 14,753 |  |  |   | 8,528  | 
|                 | Rental for leasehold land                                   |  |      | 1,916  |      |  |      | 1,800  |  |  |   | 2,482  | 
|Affiliates of ST |                                                             |  |      |        |      |  |      |        |  |  |   |       
|                 | Services purchased from STATS                               |  |      | 9,209  |      |  |      | 10,356 |  |  |   | 13,541 | 
|                 | Other services purchased                                    |  |      | 1,682  |      |  |      | 1,329  |  |  |   | 1,355  | 
|                 | Property, plant and equipment purchased                     |  |      | 22     |      |  |      | 275    |  |  |   | 175    | 
|                 | Building construction costs                                 |  |      | 105    |      |  |      | 90     |  |  |   | 43     | 
|                 | Interest income                                             |  |      | 20,213 |      |  |      | 7,514  |  |  |   | 6,689  | 



| |  | Included in receivables from related parties and payables to related
parties are amounts due from or to ST and its affiliates:
| |  | ------------------------------------------------------------------------------------------------------------------------------

|                               |              |   |       |  |      |   |       |  |  |  |  |  |  | 
|------------------------------ | ------------ | - | ----- |  | ---- | - | ----- |  |  |  |  |  |  | 
|                               | December 31,
|                               |              |   |       |  | 2002 |   | 2003 
|Amounts due from ST affiliates |              | $ | 4     |  |      | $ | 31    | 
|Amounts due to ST              |              | $ | 3,218 |  |      | $ | 2,703 | 
|Amounts due to ST affiliates   |              | $ | 4,365 |  |      | $ | 7,695 | 

F-16



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | Under a service agreement, annual management fees are payable to ST for
the provision of specified services on mutually agreed terms which the
Company believes approximates the cost of providing those services. Fees
are also payable to ST as a proportion of revenues for affiliation and
network benefits, and as a percentage of guarantees and similar financial
support provided. Expenses incurred on behalf of, or allocated to, the
Company by ST are charged to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Short-term financing is provided by ST to the Company, using STs cost
competitive corporate banking advantage in the banking community,
generally on 3 to 6 months renewable basis. The Company also contracts
with ST a majority of its forward purchases of foreign exchange as further
discussed in note 19. Advances to and from ST bear interest at rates
comparable to rates offered by commercial banks in Singapore. The Company
also participates with ST and/or its affiliates in a pooled cash
management arrangement managed by a bank. Under the arrangement, cash
balances are pooled and daily cash surpluses or shortfalls may, on a
short-term basis, be lent to or borrowed from other ST affiliates
participating in the arrangement at prevailing inter-bank rates. The
Company also places short-term deposits with ST and/or its affiliates
having maturities of less than three months.
|
| |  | The fabs of the Company are built on land held on long-term operating
leases from entities controlled by the government of Singapore. Fab 1 is
built on land leased by the Company from Ascendas Land (Singapore) Pte Ltd
(Ascendas), a private company wholly-owned by Jurong Town Corporation
(JTC), under a long-term lease which expires in 2017, with an option,
subject to certain conditions, to extend by another 30 years. JTC is a
statutory board established by the Singapore government to develop and
manage industrial estates in Singapore.                                                                                                                                                                                                                                                                                                                                                
|
| |  | Fabs 2, 3, 5 (occupied by SMP) and 6 (occupied by CSP) occupy land leased
by ST from JTC. The Company has entered into sub-leases in respect of the
underlying land for the entire term of the leases between ST and JTC,
expiring in 2024 and 2027, with an option, subject to certain conditions,
to extend for another 30 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Fab 7 occupies land licensed by ST from JTC. The Company has a
sub-license with ST which expires in December 2004. Upon expiry of the
sub-license and satisfaction of certain conditions in the agreement, JTC
will lease the land to ST and the Company will enter into a sub-lease in
respect of the underlying land, expiring in 2030.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Rental rates on ST and Ascendas leases are subject to revisions at market
rates at periodic intervals in accordance with the rental agreements, with
such increases generally capped at 4% to 10% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Rental expense for land leased from ST for the years ended December 31,
2001, 2002 and 2003 was $1,916, $1,936 and $2,436, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Minimum future rental payments on non-cancellable operating leases of land
from ST as of December 31, 2003 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                    |            |   |        |        | 
|----------------------------------- | ---------- | - | ------ | ------ | 
|Payable in year ending December 31, |            |   |        |       
|                                    | 2004       |   | $      | 3,877  | 
|                                    | 2005       |   |        | 3,877  | 
|                                    | 2006       |   |        | 3,877  | 
|                                    | 2007       |   |        | 3,877  | 
|                                    | 2008       |   |        | 3,877  | 
|                                    | Thereafter |   |        | 67,478 | 
|                                    |            |   |        |       
|                                    |            | $ | 86,863 |       
|                                    |            |   |        |       

F-17



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (b) SMP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company provides management and corporate support services including
accounting, financial, sales and marketing services to SMP and allocates a
portion of its costs to SMP. Such charges to SMP amounted to $6,685,
$8,266 and $9,963 in the years ended December 31, 2001, 2002 and 2003,
respectively. The Company also recharged expenses paid on behalf of SMP
amounting to $20,928, $22,806 and $29,388 in the years ended December 31,
2001, 2002 and 2003, respectively. The Company is committed to purchase a
specified percentage of SMPs output or compensate SMP for any costs SMP
incurs in connection with unused capacity arising from such specified
percentage not purchased.
|
| |  | SMP leases its fab from the Company under a long-term lease agreement
which expires in 2008. The rental income from SMP for the years ending
December 31, 2001, 2002 and 2003 was $14,804, $14,713 and $15,024,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Company bought plant and equipment of $2,661, $1,918 and $3,350 from
SMP during 2001, 2002 and 2003, respectively. The Company also sold plant
and equipment of $17,338, $3,211 and $14,218 to SMP during 2001, 2002 and
2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company bought $10,601, $6,815 and $2,272 of processed wafers from SMP
for the years ending December 31, 2001, 2002 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Included in receivables from related parties and payables to related
parties are amounts due from or to SMP:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                     |  |              |        |      |  |   |        | 
|-------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                     |  | December 31,
|                     |  | 2002         |        | 2003
|Amounts due from SMP |  | $            | 18,842 |      |  | $ | 35,611 | 
|Amounts due to SMP   |  | $            | 174    |      |  | $ | 592    | 



|3. |  | Cash and Cash Equivalents
|-- |  | -------------------------



| |  | Cash and cash equivalents consist of the following:
| |  | ---------------------------------------------------

|                               |  |              |           |      |  |   |         | 
|------------------------------ |  | ------------ | --------- | ---- |  | - | ------- | 
|                               |  | December 31,
|                               |  | 2002         |           | 2003
|Cash at banks and on hand      |  | $            | 17,459    |      |  | $ | 101,091 | 
|ST pooled cash                 |  |              | 5,853     |      |  |   | 13,192  | 
|Cash equivalents               |  |              |           |      |  |   |         | 
|Short-term deposits with banks |  |              | 524,642   |      |  |   | 425,320 | 
|Short-term deposits with ST    |  |              | 662,971   |      |  |   | 365,869 | 
|                               |  |              |           |      |  |   |         | 
|                               |  | $            | 1,210,925 |      |  | $ | 905,472 | 
|                               |  |              |           |      |  |   |         | 



| |  | Certain of the Companys treasury management activities are undertaken by
ST or its affiliates, including a pooled cash management arrangement as
discussed in Note 2.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|4. |  | Receivables, Net                     
|-- |  | -------------------------------------
|  
|   |  | Receivables consist of the following:

|                                     |  |              |         |      |  |   |         |  
|------------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | -
|                                     |  | December 31,
|                                     |  | 2002         |         | 2003
|Trade receivables                    |  | $            | 78,918  |      |  | $ | 120,838 |  
|Allowance for doubtful accounts      |  |              | (2,460  | )    |  |   | (1,083  | )
|Allowance for sales returns          |  |              | (10,687 | )    |  |   | (9,556  | )
|                                     |  |              |         |      |  |   |         |  
|Trade receivables, net of allowances |  |              | 65,771  |      |  |   | 110,199 |  
|Other receivables                    |  |              | 6,710   |      |  |   | 46,184  |  
|                                     |  |              |         |      |  |   |         |  
|                                     |  | $            | 72,481  |      |  | $ | 156,383 |  
|                                     |  |              |         |      |  |   |         |  



| |  | Movements in the allowance for doubtful accounts are as follows:
| |  | ----------------------------------------------------------------

|                                                |  |      |       |      |  |      |        |   |  |   |        |  
|----------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                |  | 2001 |       | 2002 |  | 2003
|Beginning                                       |  | $    | 3,368 |      |  | $    | 4,036  |   |  | $ | 2,460  |  
|Utilized in year                                |  |      | (70   | )    |  |      | (1,078 | ) |  |   | (1,022 | )
|Charge for the year                             |  |      | 738   |      |  |      | 478    |   |  |   | 351    |  
|Reversal of specific reserves due to collection |  |      |      |      |  |      | (976   | ) |  |   | (706   | )
|                                                |  |      |       |      |  |      |        |   |  |   |        |  
|Ending                                          |  | $    | 4,036 |      |  | $    | 2,460  |   |  | $ | 1,083  |  
|                                                |  |      |       |      |  |      |        |   |  |   |        |  



| |  | Movements in the allowance for sales returns are as follows:
| |  | ------------------------------------------------------------

|                    |  |      |        |      |  |      |        |   |  |   |        |  
|------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                    |  | 2001 |        | 2002 |  | 2003
|Beginning           |  | $    | 4,421  |      |  | $    | 4,895  |   |  | $ | 10,687 |  
|Utilized in year    |  |      | (8,824 | )    |  |      | (5,075 | ) |  |   | (7,026 | )
|Charge for the year |  |      | 9,298  |      |  |      | 10,867 |   |  |   | 5,895  |  
|                    |  |      |        |      |  |      |        |   |  |   |        |  
|Ending              |  | $    | 4,895  |      |  | $    | 10,687 |   |  | $ | 9,556  |  
|                    |  |      |        |      |  |      |        |   |  |   |        |  



|5. |  | Inventories                          
|-- |  | -------------------------------------
|  
|   |  | Inventories consist of the following:

|                               |  |              |        |      |  |   |        | 
|------------------------------ |  | ------------ | ------ | ---- |  | - | ------ | 
|                               |  | December 31,
|                               |  | 2002         |        | 2003
|Raw materials                  |  | $            | 1,296  |      |  | $ | 2,609  | 
|Work in process                |  |              | 17,308 |      |  |   | 52,709 | 
|Consumable supplies and spares |  |              | 2,671  |      |  |   | 1,115  | 
|                               |  |              |        |      |  |   |        | 
|                               |  | $            | 21,275 |      |  | $ | 56,433 | 
|                               |  |              |        |      |  |   |        | 

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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|6. |  | Investment in SMP                               
|-- |  | ------------------------------------------------
|  
|   |  | The investment in SMP consists of the following:

|                                                |  |  |              |         |      |  |   |         |   |  |  | 
|----------------------------------------------- |  |  | ------------ | ------- | ---- |  | - | ------- | - |  |  | 
|                                                |  |  | December 31,
|                                                |  |  | 2002         |         | 2003
|SMP                                             |  |  |              |         |      |  |   |         |  
|Cost                                            |  |  | $            | 120,959 |      |  | $ | 120,959 |  
|Share of retained post-formation loss           |  |  |              | (77,924 | )    |  |   | (54,730 | )
|Share of accumulated other comprehensive losses |  |  |              | (9,271  | )    |  |   | (3,972  | )
|                                                |  |  |              |         |      |  |   |         |  
|                                                |  |  | $            | 33,764  |      |  | $ | 62,257  |  
|                                                |  |  |              |         |      |  |   |         |  



| |  | Under the strategic alliance agreement with Agere, the majority
shareholder of SMP, the parties do not share SMPs net results in the same
ratio as the equity holding. Instead, each party is entitled to the gross
profits from sales to the customers that it directs to SMP after deducting
its share of the overhead costs of SMP. Accordingly, the Company accounts
for its share of SMPs net results based on the gross sales to the
customers that it directs to SMP, after deducting its share of the
overhead costs.  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Consequently the equity in income (loss) of SMP and the share of retained
post formation loss that is included in the Companys consolidated
statements of operations and consolidated balance sheet respectively, are
different than the amount that would be obtained by applying a 49%
ownership percentage.                                                                                                                                                                                                                  
|
| |  | Under the assured supply and demand agreement that both the joint venture
partners signed with SMP, the joint venture partners are billed beginning
January 1, 2001 for allocated wafer capacity if the wafers started for
them are less than their allocated capacity. The allocated wafer capacity
billed and billable to the Company were $89,961, $40,195 and Nil for 2001,
2002 and 2003, respectively. Such costs are included in equity in income
(loss) of SMP in the accompanying consolidated statements of operations.
|
| |  | Reconciliation of equity in income (loss) of SMP between consolidated
statements of operations and consolidated statements of cash flows:                                                                                                                                                                                                                                                                                                                                                                                        

|                                                                        |  |      |         |      |  |      |         |   |  |   |        | 
|----------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | 
|                                                                        |  | 2001 |         | 2002 |  | 2003
|Equity in income (loss) of SMP in consolidated
statements of operations |  | $    | (92,683 | )    |  | $    | (84,846 | ) |  | $ | 23,194 | 
|Allocated wafer capacity cost                                           |  |      | 89,961  |      |  |      | 40,195  |   |  |   |       | 
|                                                                        |  |      |         |      |  |      |         |   |  |   |        | 
|Equity in income (loss) of SMP in consolidated
statements of cash flows |  | $    | (2,722  | )    |  | $    | (44,651 | ) |  | $ | 23,194 | 
|                                                                        |  |      |         |      |  |      |         |   |  |   |        | 



|7. |  | Other Non-Current Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Included in other non-current assets is a $30 million self-referenced
credit-linked deposit (CLD) placed with a financial institution in June
2003. If a credit event (as defined in the CLD) occurs, which includes
default in the payment of the Companys 2.50% Senior Convertible Notes Due
2006 or bankruptcy of the Company, the principal will not be returned in
full. Rather, the Company will receive the market value of $30 million
face amount of the Companys 2.50% Senior Convertible Notes Due 2006, less
costs incurred by the financial institution.

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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|8. |  | Technology Licenses
|-- |  | -------------------

|                             |  |              |        |                |  |      |         |      |  |                  |   |  |  |  |   | 
|---------------------------- |  | ------------ | ------ | -------------- |  | ---- | ------- | ---- |  | ---------------- | - |  |  |  | - | 
|                             |  |              |        |                |  |      |         |      |  | Weighted average
|                             |  |              |        |                |  |      |         |      |  | amortization    
|                             |  | December 31, |        | period (years)
|                             |  | 2002         |        | 2003           |  | 2002 |         | 2003
|Technology licenses, at cost |  | $            | 23,453 |                |  | $    | 148,009 |      |  |                  | 9 |  |  |  | 7 | 
|Accumulated amortization     |  |              | (6,913 | )              |  |      | (21,296 | )    |  |                  |   |  |  |  |   | 
|                             |  |              |        |                |  |      |         |      |  |                  |   |  |  |  |   | 
|                             |  | $            | 16,540 |                |  | $    | 126,713 |      |  |                  |   |  |  |  |   | 
|                             |  |              |        |                |  |      |         |      |  |                  |   |  |  |  |   | 



| |  | During the year, the Company acquired licenses to enhance manufacturing
process technology.                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Amortization charged to results of operations amounted to $2,000, $2,080
and $14,383, for 2001, 2002 and 2003, respectively. Estimated
amortization for future periods is as follows

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 15,486  | 
|2005       |  |   | 19,822  | 
|2006       |  |   | 21,934  | 
|2007       |  |   | 20,784  | 
|2008       |  |   | 19,917  | 
|Thereafter |  |   | 28,770  | 
|           |  |   |         | 
|           |  | $ | 126,713 | 
|           |  |   |         | 



|   |  | Obligations payable under the licence agreements are included in other
current liabilities (see Note 15).
|-- |  | ---------------------------------------------------------------------------------------------------------
|  
|9. |  | Property, plant and equipment                                                                            
|  
|   |  | Property, plant and equipment consist of the following:                                                  

|                                           |            |   |              |           |      |   |           |           | 
|------------------------------------------ | ---------- | - | ------------ | --------- | ---- | - | --------- | --------- | 
|                                           |            |   | December 31,
|                                           |            |   | 2002         |           | 2003
|Cost                                       |            |   |              |           |      |   |           |          
|Buildings                                  |            | $ | 195,480      |           |      | $ | 192,230   |          
|Mechanical and electrical installations    |            |   | 389,212      |           |      |   | 403,027   |          
|Equipment and machinery                    |            |   | 2,628,758    |           |      |   | 2,808,521 |          
|Office and computer equipment              |            |   | 81,430       |           |      |   | 84,818    |          
|Assets under installation and construction |            |   | 519,332      |           |      |   | 394,254   |          
|                                           |            |   |              |           |      |   |           |          
|                                           | Total cost |   | $            | 3,814,212 |      |   | $         | 3,882,850 | 
|                                           |            |   |              |           |      |   |           |          
|Accumulated depreciation                   |            | $ | 1,952,981    |           |      | $ | 2,343,410 |          
|                                           |            |   |              |           |      |   |           |          
|Property, plant and equipment (net)        |            | $ | 1,861,231    |           |      | $ | 1,539,440 |          
|                                           |            |   |              |           |      |   |           |          

F-21



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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|    |  | Depreciation was charged to consolidated statements of operations and
amounted to $429,502, $434,327 and $418,195 for the years ended December
31, 2001, 2002 and 2003, respectively. Buildings consist of wafer plants,
including administrative offices, built on land licensed to ST and
Ascendas, and sub-leased to the Company, as discussed in Note 2.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Capitalized interest relating to property, plant and equipment amounted to
$15,236, $10,400 and $5,466 in the years ended December 31, 2001, 2002 and
2003, respectively.                                                                                                                                                                                   
|   
|10. |  | Payables                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Payables consist of the following:                                                                                                                                                                                                                                                                                                                          

|                      |  |              |         |      |  |   |        | 
|--------------------- |  | ------------ | ------- | ---- |  | - | ------ | 
|                      |  | December 31,
|                      |  | 2002         |         | 2003
|Trade payables        |  | $            | 16,495  |      |  | $ | 38,244 | 
|Fixed asset purchases |  |              | 110,498 |      |  |   | 22,309 | 
|                      |  |              |         |      |  |   |        | 
|                      |  | $            | 126,993 |      |  | $ | 60,553 | 
|                      |  |              |         |      |  |   |        | 



|11. |  | Long-term Debt                           
|--- |  | -----------------------------------------
|   
|    |  | Long-term debt consists of the following:

|                                                     |  |              |           |      |  |   |           |  
|---------------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                                                     |  | December 31,
|                                                     |  | 2002         |           | 2003
|Singapore dollar loans at fixed rates of 4% to 4.25% |  | $            | 188,692   |      |  | $ | 127,299   |  
|US dollar loans at floating rates                    |  |              | 377,000   |      |  |   | 502,000   |  
|2.50% Senior convertible notes                       |  |              | 575,000   |      |  |   | 575,000   |  
|Other                                                |  |              | 39,239    |      |  |   | 8,453     |  
|                                                     |  |              |           |      |  |   |           |  
|                                                     |  |              | 1,179,931 |      |  |   | 1,212,752 |  
|Less current installments                            |  |              | (64,001   | )    |  |   | (223,660  | )
|                                                     |  |              |           |      |  |   |           |  
|Long-term debt, excluding current installments       |  | $            | 1,115,930 |      |  | $ | 989,092   |  
|                                                     |  |              |           |      |  |   |           |  



| |  | All Singapore dollar loans are unsecured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Fixed rate Singapore dollar loans of $88,277 and $54,074 as of December
31, 2002 and 2003, respectively, are guaranteed by ST. The Companys
management and services support agreement with ST includes a charge for
such guarantees as discussed in Note 2. The fixed rate Singapore dollar
loans contain certain covenants which restrict the ability of the Company
to pay dividends without prior approval from the lender. The loans are
repayable in semi-annual installments and mature between 2005 and 2006.                                                                                                                                                                                                                                                                                                                                        
|
| |  | The US dollar floating rate loan matures on September 28, 2006. The loan
facility is for an amount of $820,000 of which $377,000 and $502,000 was
outstanding as of December 31, 2002 and 2003, respectively. The loan bears
interest at 0.60% to 0.85% (depending on certain criteria relating to
wafer starts and debt/equity ratio) above the LIBOR rates for US dollars
deposits quoted by specified banks to the lender. As of December 31, 2002
and 2003, this rate was 2.2875% and 1.9375% respectively. Interest is
payable semi-annually in US dollars and principal is payable in six
semi-annual installments commencing March 28, 2004. Borrowings under this
facility are secured by a floating charge over a project bank account and
a fixed charge over a debt service reserve account, both of which were
established pursuant to this loan.

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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | On April 2, 2001, the Company issued $575,000 of senior unsecured
convertible notes due April 2, 2006, which bear interest at the rate of
2.50% per year and have a yield to maturity of 5.25% per year. The notes
are convertible into the Companys ordinary shares or American Depository
Shares (ADS). The Company may redeem all or a portion of the
convertible notes at any time on or after April 2, 2003 at a price to
yield of 5.25% per year on the redemption date if the Companys shares or
ADSs trade at 125% of the conversion price for a period of 20 days in any
consecutive 30 trading day period.                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In October 2002, the Company completed a rights offering pursuant to which
it issued to holders of its ordinary shares, rights to subscribe for new
ordinary shares (ordinary share rights), and to holders of its American
Depository Shares (ADSs), rights to subscribe for new ADSs (ADS
rights). The terms of the convertible notes required an adjustment to
the note conversion price per ordinary share as a result of the issuance
by the Company of the ordinary share rights and the ADS rights. The
conversion price per ordinary share was adjusted to S$4.7980 (equivalent
to approximately US$26.7701 per ADS, based on a fixed exchange rate of
US$1.00 = S$1.7923 and the ordinary share to ADS ratio of 10:1).
|
| |  | Annual maturities of long-term debt as of December 31, 2003 are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                         |      |   |           |         | 
|---------------------------------------- | ---- | - | --------- | ------- | 
|Payable in year ending December 31,
2004 |      | $ | 223,660   |        
|                                         | 2005 |   |           | 223,660 | 
|                                         | 2006 |   |           | 765,432 | 
|                                         |      |   |           |        
|                                         |      | $ | 1,212,752 |        
|                                         |      |   |           |        



|12. |  | Unutilized Credit Facilities                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As of December 31, 2003, the Company has unutilized banking facilities of
approximately $392,279 for short-term advances, term loans and bankers
guarantees, and an unutilized short-term oral credit facility with ST of
approximately $100,000.
|   
|13. |  | Accrued Operating Expenses                                                                                                                                                                                                                        
|   
|    |  | Accrued operating expenses consist of the following:                                                                                                                                                                                              

|                                      |  |              |         |      |  |   |         | 
|------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                      |  | December 31,
|                                      |  | 2002         |         | 2003
|Employee bonuses and related expenses |  | $            | 44,965  |      |  | $ | 29,402  | 
|Unbilled raw materials                |  |              | 38,643  |      |  |   | 39,890  | 
|Others                                |  |              | 52,971  |      |  |   | 46,228  | 
|                                      |  |              |         |      |  |   |         | 
|                                      |  | $            | 136,579 |      |  | $ | 115,520 | 
|                                      |  |              |         |      |  |   |         | 

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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|14. |  | Income Taxes                                 
|--- |  | ---------------------------------------------
|   
|    |  | Income tax expense consists of the following:

|         |  |      |        |      |  |      |       |   |  |   |        |  
|-------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | -
|         |  | 2001 |        | 2002 |  | 2003
|        
|Current  |  | $    | 16,127 |      |  | $    | 7,204 |   |  | $ | 14,313 |  
|Deferred |  |      | (1,883 | )    |  |      | (175  | ) |  |   | (2,642 | )
|         |  |      |        |      |  |      |       |   |  |   |        |  
|Total    |  | $    | 14,244 |      |  | $    | 7,029 |   |  | $ | 11,671 |  
|         |  |      |        |      |  |      |       |   |  |   |        |  



| |  | The Company has been granted pioneer status under the Economic Expansion
Incentives (Relief from Income Tax) Act, Chapter 86 of Singapore (the
Act), for sub-micron technology manufacturing in three of its fabs,
effective for ten years from July 1, 1996, July 1, 1999, and January 1,
2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During the pioneer status period, the Singapore-resident income from
pioneer trade is exempt from income tax, subject to compliance with the
conditions stated in the certificate and the Act. Income derived from
non-pioneer trade during the pioneer period, however, is subject to income
tax at the prevailing enacted rate of tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Company has been granted post-pioneer status for one of its fabs (Fab
1), which entitles it to a concessionary tax rate of 10% for the five
years after the expiration of its pioneer status on December 31, 2000. On
February 13, 2003, the Company announced that, as a result of continuing
under-utilization of its fabs resulting from the deep and continuing
semiconductor industry downturn, it would close Fab 1 and consolidate its
business currently in Fab 1 into Fab 2. The production in Fab 1 is
expected to cease by the end of March 2004. As a result of the
restructuring of Fab 1, the Company accrued tax expense based on the full
corporate tax rate of 22% since the conditions required to maintain the
post-pioneer status may no longer be met. The company is currently in
discussions with the relevant authorities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The Company has also been granted post-pioneer status for another three of
the fabs, which entitles them to a concessionary tax rate of 10% for five
years from the expiration of their pioneer status in 2006, 2009 and 2013.
The concessionary tax rate is subject to compliance with conditions stated
in the post-pioneer certificate and the Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The tax-exempt profits arising from the pioneer trade can be distributed
as tax-exempt dividends which are not subject to Singapore income tax in
the hands of the holders of ordinary shares. Losses arising in the
pioneer and post-pioneer status period are available for carryforward to
be offset against profits arising in subsequent periods, including profits
arising after the pioneer and post-pioneer status period. Pioneer and
post-pioneer loss carryforwards are determined on a fab-by-fab basis. As
of December 31, 2003, the Company has nil pioneer loss carryforwards and
unutilized property, plant and equipment related wear and tear allowances
carryforwards of $623,267. Pioneer and
post-pioneer loss carryforwards as well as unutilized wear and tear
allowances are available indefinitely, subject to 50% or more of the
Companys equity staying with the same shareholders from the
incurrence of the tax loss to its utilization. Since profits during the pioneer status period
are tax exempted and a total of $290,464 of such unutilized wear and tear
allowances carryforwards as of December 31, 2003 are expected to reverse
within the pioneer status period, deferred tax assets have been recognized
for the balance of such carryforwards which are expected to reverse after
the post pioneer period.

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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The income tax expense for the years ended December 31, 2001, 2002 and 2003
represents income tax payable on non-pioneer trade income, principally
interest and rental income.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Deferred tax assets and liabilities consist of the following:                                                                                                                 

|                         |                                     |   |              |       |      |   |         |        | 
|------------------------ | ----------------------------------- | - | ------------ | ----- | ---- | - | ------- | ------ | 
|                         |                                     |   | December 31,
|                         |                                     |   | 2002         |       | 2003
|Deferred tax assets      |                                     |   |              |       |      |   |         |       
|                         | Unutilized wear and tear allowances |   | $            |      |      |   | $       | 71,290 | 
|                         | Deferred interest                   |   |              | 6,285 |      |   |         | 9,717  | 
|                         | Property, plant and equipment       |   |              | 3,767 |      |   |         | 9,091  | 
|                         | Other accrued expenses              |   |              |      |      |   |         | 92     | 
|                         |                                     |   |              |       |      |   |         |       
|                         |                                     |   | 10,052       |       |      |   | 90,190  |       
|Valuation allowance      |                                     |   | (6,285       | )     |      |   | (82,003 | )     
|                         |                                     |   |              |       |      |   |         |       
|                         |                                     | $ | 3,767        |       |      | $ | 8,187   |       
|                         |                                     |   |              |       |      |   |         |       
|Deferred tax liabilities |                                     |   |              |       |      |   |         |       
|                         | Property, plant and equipment       |   | $            | 921   |      |   |         | 2,247  | 
|                         | Intangibles                         |   |              |      |      |   |         | 438    | 
|                         | Other                               |   |              |      |      |   |         | 14     | 
|                         |                                     |   |              |       |      |   |         |       
|                         |                                     | $ | 921          |       |      | $ | 2,699   |       
|                         |                                     |   |              |       |      |   |         |       
|Net deferred tax asset   |                                     | $ | 2,846        |       |      | $ | 5,488   |       
|                         |                                     |   |              |       |      |   |         |       



| |  | In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment.                                                                                                                                                                                                                                                                                                                               
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of December 31, 2003, the Company recorded deferred tax assets of
$71,290 relating to the Companys unutilized wear and tear allowances that
are expected to be carried forward to offset future taxable income arising
after the expiration of the Companys pioneer periods. Based upon the
level of historical taxable income and projections for future taxable
income over the periods that the deferred tax assets are deductible,
management believes it is more likely than not the Company will not
realize the benefits of these deductible differences. Accordingly, a
valuation allowance for this amount was recorded as at December 31, 2003.
As at December 31, 2002, no such deferred tax assets were recognized as at
that time the unutilized wear and tear allowances carryforwards were
expected to be utilized during the 0% tax rate pioneer period.
|
| |  | The balance of valuation allowance as of December 31, 2003 primarily
relates to the yield to maturity interest expense for the Companys
convertible debt. As of December 31, 2003, the Company has recorded a
deferred tax asset for the differences in the tax and book basis for this
interest expense. Based on the projections of future interest income
against which this interest expense would be deductible, management
believes that it is more likely than not that the Company will not realize
the benefits of this deduction, and accordingly has recorded a valuation
allowance.                                                                                                                                                                                                                                                                             

F-25



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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The deferred tax effects of the remaining difference in the tax and book
basis of property, plant and equipment are recognized because the Company
believes that it is more likely than not that future taxable income will
be generated over the periods which the deferred tax assets are
deductible. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period differ materially from current
estimates.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | A reconciliation of the expected tax expense computed by applying
statutory rates to pre-tax loss to the actual tax expense is as follows:                                                                                                                                                                                                                                                                                                                                                                                   

|                                                                                                 |  |              |          |      |  |      |          |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------ | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                                                 |  | December 31,
|                                                                                                 |  | 2001         |          | 2002 |  | 2003
|Income taxes computed at Singapore
statutory tax rate of 22% (2001: 24.5%,
2002 and 2003: 22%)   |  | $            | (108,373 | )    |  | $    | (102,437 | ) |  | $ | (62,174 | )
|Permanent non-deductible expenses                                                                |  |              | 48,039   |      |  |      | 33,372   |   |  |   | 44,360  |  
|Effect of pioneer status, including losses and allowances
not recognized as deferred tax benefit |  |              | 75,536   |      |  |      | 65,383   |   |  |   | 38,480  |  
|Effect of recognizing deferred tax assets at post-pioneer
concessionary tax rate                 |  |              | (1,883   | )    |  |      | (175     | ) |  |   | (2,642  | )
|Effect of equity method investee loss (income)                                                   |  |              | 667      |      |  |      | 9,823    |   |  |   | (5,103  | )
|All other items, net                                                                             |  |              | 258      |      |  |      | 1,063    |   |  |   | (1,250  | )
|                                                                                                 |  |              |          |      |  |      |          |   |  |   |         |  
|Income tax expense                                                                               |  | $            | 14,244   |      |  | $    | 7,029    |   |  | $ | 11,671  |  
|                                                                                                 |  |              |          |      |  |      |          |   |  |   |         |  



|    |  | The pioneer tax status had the effect of increasing basic and diluted net
loss per share by $0.05, $0.04 and $0.02 and basic and diluted net loss
per ADS by $0.48, $0.36 and $0.15 for the years ended December 31, 2001,
2002 and 2003, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|15. |  | Other Current Liabilities                                                                                                                                                                                                                              
|   
|    |  | Other current liabilities consist of the following:                                                                                                                                                                                                    

|                                                        |  |              |        |      |  |   |        | 
|------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                                        |  | December 31,
|                                                        |  | 2002         |        | 2003
|Customer deposits                                       |  | $            | 24,251 |      |  | $ |       | 
|Obligations payable under technology license
agreements |  |              | 650    |      |  |   | 25,000 | 
|Others                                                  |  |              | 4,740  |      |  |   | 12,305 | 
|                                                        |  |              |        |      |  |   |        | 
|                                                        |  | $            | 29,641 |      |  | $ | 37,305 | 
|                                                        |  |              |        |      |  |   |        | 



| |  | The Company entered into deposit and supply agreements with several
customers under which the customers are required to maintain deposits with
the Company to secure wafer capacity. These non-interest bearing deposits
are refundable at the end of the agreed period of such allocated capacity,
typically within three to five years. These agreements require the
Company to make available production capacity to customers over the terms
of the agreements.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|16. |  | Shareholders Equity                    
|--- |  | ----------------------------------------
|   
|    |  | Share Capital                           
|   
|    |  | Share capital consists of the following:

|                                 |  |              |         |      |  |   |         | 
|-------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                 |  | December 31,
|                                 |  | 2002         |         | 2003
|Issued and paid-up share capital |  | $            | 382,552 |      |  | $ | 383,792 | 
|Capital reduction                |  |              | 61,161  |      |  |   | 61,161  | 
|                                 |  |              |         |      |  |   |         | 
|                                 |  | $            | 443,713 |      |  | $ | 444,953 | 
|                                 |  |              |         |      |  |   |         | 



| |  | In November 1992, the Company reorganized its paid-up share capital by the
extinguishment of accumulated losses of $61,161 against the paid-up share
capital in a capital reduction sanctioned by the High Court of Singapore.
The capital reduction does not qualify as a quasi-reorganization under US
GAAP and accordingly has not been reflected in the financial statements.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In October 2002, the Company completed a rights offering pursuant to which
it issued to holders of :                                                                                                                                                                                                                                                                             



| |  |  | its ordinary shares rights to subscribe for new ordinary shares
in the ratio of eight ordinary shares for every ten ordinary shares
held. The ordinary share subscription price was S$1.00.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | its ADSs rights to subscribe for new ADSs in the ratio of eight
ADSs for every ten ADSs held. The ADSs subscription price was $5.58.                                                       



| |  | The Company issued 1,109,624 new ordinary shares (directly or in the form
of ADSs) and received net proceeds of $611,650 from the rights offering.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under Singapore law, all increases in share capital (including rights
issues) require shareholders approval. Singapore law does not provide
for the issue of shares of no par value and, except with court approval,
prohibits the issue of shares at a discount to par value.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Additional Paid-in Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Additional paid-in capital as of December 31, 2002 and 2003 represents
principally the excess of proceeds received from issue of share capital
(net of the costs of issue) over the par value of shares issued, which
under Singapore law must be credited to the share premium account. The
share premium may only be applied in paying up unissued shares to be
issued to shareholders, paying up in whole or in part the balance unpaid
on shares in issue, in writing off preliminary expenses and share and
debenture issue expenses and by provision for premiums payable on the
redemption of redeemable preferred shares. The share premium account had
a balance of $2,206,361 as at December 31, 2003.

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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | Accumulated Deficit                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Singapore law allows dividends to be paid only out of profits of the
Company. Shareholders of ordinary shares are not liable for Singapore
income tax on dividends paid by the Company out of its tax exempt profits
from pioneer activities.                                                                                        
|
| |  | Distributions of profits from non-pioneer activities which have been
subject to income tax are paid with a franking tax credit which Singapore
tax-resident shareholders can apply as a prepayment of income tax on the
dividend. Shareholders who are not tax-resident in Singapore are not
liable for further Singapore income tax.
|
| |  | Under the new one-tier system with effect from January 1, 2003, tax
payable by the Company on its non-pioneer chargeable income would
constitute a final tax. Companies that have moved to the one-tier system
can henceforth pay dividends that are exempt from tax in the hands of

their shareholders.                            
|
| |  | During the transitional period, the Company has up to December 31, 2007 to
utilize any available balance under the old imputation system to pay a
franked dividend to its shareholders.                                                                                                                                              
|
| |  | Some of the Companys loan agreements restrict the ability of the Company
to pay dividends without prior approval from the lender.                                                                                                                                                                                                   
|
| |  | Accumulated Other Comprehensive Loss                                                                                                                                                                                                                                                                                                 
|
| |  | Accumulated other comprehensive loss consists of the following:                                                                                                                                                                                                                                                                      

|                                  |  |              |        |      |  |   |        | 
|--------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                  |  | December 31,
|                                  |  | 2002         |        | 2003
|Currency translation loss         |  | $            | 52,664 |      |  | $ | 54,380 | 
|Derivative and hedging activities |  |              | 10,329 |      |  |   | 4,501  | 
|                                  |  |              |        |      |  |   |        | 
|                                  |  | $            | 62,993 |      |  | $ | 58,881 | 
|                                  |  |              |        |      |  |   |        | 



|17. |  | Share Options and Incentive Plans
|--- |  | ---------------------------------



| |  | (a) 1999 Option Plan
| |  | --------------------



| |  | Effective March 1999, the Company adopted the Chartered Semiconductor
Manufacturing Ltd Share Option Plan 1999 (the 1999 Option Plan) which
provided for a maximum of 107,160 shares (subject to adjustment under the
plan) to be reserved for option grants. This amount was revised to 197,160
shares in May 2002. As a result of the Companys rights offering in
October 2002, the shares available for future grants were increased by
30,488 shares. The total shares provided under the 1999 Option Plan is
hence 227,648 shares. The remaining shares available for future grants at
December 31, 2003, are 103,150. Options granted under the plan may
include nonstatutory options as well as incentive stock options intended
to qualify under Section 422 of the United States Internal Revenue Code.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The plan is administered by a committee appointed by the Directors.
Employees, outside directors and consultants are eligible for the grant of
options subject to certain exceptions as provided in the 1999 Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The exercise price of an incentive stock option is generally the fair
market value of the shares at the date of the grant. In certain
circumstances, the exercise price may be higher than the fair market value
but in no event will the exercise price be below the par value of the
share.                                                                                                                                                                                                                                                                                                                                          
|
| |  | As a result of the Companys rights offering which was completed in
October 2002, changes were made to both the exercise price and the number
of shares of all outstanding options offered or granted. The adjustments
were made so that the aggregate intrinsic value of the options and the
ratio of the exercise price per share to the market value per share for
each outstanding option tranche remain unchanged immediately after the
rights offering. The adjustments were made by multiplying each existing
option exercise price by 0.8531 and dividing the number of shares issuable
upon exercise of each option by 0.8531.
|
| |  | Option periods do not exceed 10 years from the date of grant. Upon
leaving the employment of the Company, outstanding options remain
exercisable for a specified period.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Information on options granted is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                 |  |         |         |       |  |          |      | 
|-------------------------------- |  | ------- | ------- | ----- |  | -------- | ---- | 
|                                 |  |         |         |       |  | Weighted
|                                 |  |         |         |       |  | Average 
|                                 |  |         |         |       |  | Exercise
|                                 |  | Options |         | Price
|Outstanding at January 1, 2001   |  |         | 70,414  |       |  | $        | 4.90 | 
|Granted                          |  |         | 30,022  |       |  | $        | 2.35 | 
|Exercised                        |  |         | (4,765  | )     |  | $        | 1.00 | 
|Lapsed                           |  |         | (7,746  | )     |  | $        | 5.37 | 
|                                 |  |         |         |       |  |          |      | 
|Outstanding at December 31, 2001 |  |         | 87,925  |       |  | $        | 4.19 | 
|Granted                          |  |         | 31,457  |       |  | $        | 1.46 | 
|Exercised                        |  |         | (3,018  | )     |  | $        | 1.10 | 
|Lapsed                           |  |         | (16,671 | )     |  | $        | 3.78 | 
|                                 |  |         |         |       |  |          |      | 
|Outstanding at December 31, 2002 |  |         | 99,693  |       |  | $        | 3.49 | 
|Granted                          |  |         | 29,528  |       |  | $        | 0.55 | 
|Expired                          |  |         | (4      | )     |  | $        | 0.88 | 
|Exercised                        |  |         | (461    | )     |  | $        | 0.52 | 
|Lapsed                           |  |         | (24,533 | )     |  | $        | 3.52 | 
|                                 |  |         |         |       |  |          |      | 
|Outstanding at December 31, 2003 |  |         | 104,223 |       |  | $        | 2.67 | 
|Exercisable at end of year       |  |         | 37,251  |       |  | $        | 3.92 | 
|                                 |  |         |         |       |  |          |      | 



| |  | Weighted average fair values of options granted in 2001, 2002 and 2003
were $1.99, $1.13 and $0.40 respectively.
| |  | ----------------------------------------------------------------------------------------------------------------

F-29



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | The following table summarizes information about fixed stock options
outstanding at December 31, 2003.

|               |  |                     |         |             |  |           |  |                     |      |          |  |          |       |  |        |   |      |  |  | 
|-------------- |  | ------------------- | ------- | ----------- |  | --------- |  | ------------------- | ---- | -------- |  | -------- | ----- |  | ------ | - | ---- |  |  | 
|               |  | Options Outstanding |         |             |  |           |  | Options Exercisable
|               |  |                     |         |             |  | Weighted  |  |                     |      |          |  |          |       |  |        |   |      | 
|               |  | Number              |         | average     |  | Weighted  |  |                     |      |          |  | Weighted
|Range          |  | outstanding         |         | remaining   |  | average   |  | Number              |      | average 
|of exercise    |  | at                  |         | contractual |  | exercise  |  | exercisable         |      | exercise
|prices         |  | 12/31/2003          |         | life        |  | price     |  | 12/31/2003          |      | price   
|               |  |                     |         |             |  |           |  |                     |      |         
|$0.39 to $0.94 |  |                     | 30,898  |             |  | 8.7 years |  | $                   | 0.55 |          |  |          | 2,337 |  |        | $ | 0.53 | 
|$1.06 to $1.95 |  |                     | 27,053  |             |  | 7.5 years |  | $                   | 1.43 |          |  |          | 9,439 |  |        | $ | 1.52 | 
|$2.14 to $2.44 |  |                     | 21,043  |             |  | 6.9 years |  | $                   | 2.33 |          |  |          | 9,791 |  |        | $ | 2.31 | 
|$5.81          |  |                     | 14,445  |             |  | 6.2 years |  | $                   | 5.81 |          |  |          | 8,960 |  |        | $ | 5.81 | 
|$8.31          |  |                     | 10,784  |             |  | 5.6 years |  | $                   | 8.31 |          |  |          | 6,724 |  |        | $ | 8.31 | 
|               |  |                     |         |             |  |           |  |                     |      |          |  |          |       |  |        |   |      |  |  | 
|               |  |                     | 104,223 |             |  |           |  |                     |      |          |  |          |       |  | 37,251 |   |      |  |  | 
|               |  |                     |         |             |  |           |  |                     |      |          |  |          |       |  |        |   |      |  |  | 



| |  | The options vest over one to five years and expire on dates ranging from
November 2003 to September 2012. The 1999 Option Plan is accounted for in
accordance with fixed-plan accounting under APB 25 and related
interpretations. Total compensation expense recognized for 2001, 2002 and
2003 totalled $763, $(253) and $4, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The fair value of the option grants are estimated using the Black-Scholes
option pricing model with the following assumptions used for grants in
2001, 2002 and 2003.                                                                                                                                                                       

|                        |  |            |        |            |  |           |       |   |  |  |       |  
|----------------------- |  | ---------- | ------ | ---------- |  | --------- | ----- | - |  |  | ----- | -
|                        |  | 2001       |        | 2002       |  | 2003     
|                        |  |            |        |            |  |          
|Risk free interest rate |  | 4.550% to  |        | 3.195% to  |  | 2.710% to
|                        |  |            | 4.854  | %          |  |           | 5.060 | % |  |  | 4.450 | %
|Expected volatility     |  | 81.130% to |        | 67.690% to |  | 66.61% to
|                        |  |            | 90.540 | %          |  |           | 75.89 | % |  |  | 70.16 | %
|Expected lives          |  | 5 to       |        | 5 to       |  | 5 to     
|                        |  | 10 years   |        | 10 years   |  | 9 years  
|Dividend yield          |  | NA         |        | NA         |  | NA       



| |  | Options of 1,789, 1,474 and 1,284 shares of the Company were granted to
employees of SMP in 2001, 2002 and 2003, respectively. SMP bears the
stock-based compensation charge in respect of these options.                                               
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Had the Company determined employee compensation cost based on the fair
value at the grant date for its share options under SFAS No. 123 as
amended by SFAS No. 148, the Companys net loss would have changed to the
pro forma amounts indicated below:

|                                       |                                |  |      |          |      |  |      |          |   |  |   |          |  
|-------------------------------------- | ------------------------------ |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                       |                                |  | 2001 |          | 2002 |  | 2003
|Stock-based employee compensation cost |                                |  |      |          |      |  |      |          |   |  |   |         
|                                       | As reported (intrinsic method) |  | $    | 763      |      |  | $    | (253     | ) |  | $ | 4        |  
|                                       | Pro forma (fair-value method)  |  | $    | 78,580   |      |  | $    | 49,921   |   |  | $ | 13,526   |  
|Net loss                               |                                |  |      |          |      |  |      |          |   |  |   |         
|                                       | As reported                    |  | $    | (383,952 | )    |  | $    | (417,088 | ) |  | $ | (291,212 | )
|                                       | Pro forma                      |  | $    | (461,769 | )    |  | $    | (467,262 | ) |  | $ | (304,734 | )

F-30



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)

|                                     |             |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------ | ----------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                     |             |  | 2001 |       | 2002 |  | 2003
|Basic and diluted net loss per share |             |  |      |       |      |  |      |       |   |  |   |      
|                                     | As reported |  | $    | (0.24 | )    |  | $    | (0.23 | ) |  | $ | (0.12 | )
|                                     | Pro forma   |  | $    | (0.29 | )    |  | $    | (0.26 | ) |  | $ | (0.12 | )
|Basic and diluted net loss per ADS   |             |  |      |       |      |  |      |       |   |  |   |      
|                                     | As reported |  | $    | (2.42 | )    |  | $    | (2.32 | ) |  | $ | (1.16 | )
|                                     | Pro forma   |  | $    | (2.91 | )    |  | $    | (2.60 | ) |  | $ | (1.22 | )



| |  | (b) 2001 Share Purchase Plans
| |  | -----------------------------



|    |  | As approved by the shareholders in May 2001, the Company has adopted the
Chartered Semiconductor Manufacturing Ltd Employee Share Purchase Plan
2001 (the Chartered Purchase Plan) and the Share Purchase Plan 2001 for
Employees of Silicon Manufacturing Partners Pte Ltd (the SMP Purchase
Plan), collectively the Plans, which provides for the issuance of a
maximum of 10,000 shares (subject to adjustment under the Plans). The
amount was subsequently revised to 11,722 shares as a result of the
Companys rights offering which was completed in October 2002.                                                                                                                                                                                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Plans permit eligible employees to purchase shares through payroll
deductions of between 1 percent to 10 percent of an employees
compensation, including salaries, wages, bonuses, incentive compensations,
commissions, overtime pay and shift premiums. The offering periods
consist of the six-month periods commencing on each March 1 and September
1. The purchase price for each share purchased at the close of an
offering period shall be the lower of 85% of the fair market value of the
share on the last trading day in such offering period or last trading day
before the commencement of such offering period. The purchase price for
each share shall in no event be less than the par value of each share.
The plans are intended to qualify under Section 423 of the United States
Tax Code.
|   
|    |  | The Plans are administered by a committee appointed by the Directors.
Approximately 7,800 shares were purchased at $0.35 (S$0.61) in 2003 under
the Plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|18. |  | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |  | (a) Commitments
| |  | ---------------



| |  | The Company has a patent license agreement with a technology partner under
which the parties grant to one another a license to use certain of each
others patents. Under the terms of the patent license agreement, the
Company may provide wafer capacity in lieu of payment for royalties. Such
royalties under the patent license agreement are waived until such time as
the interest of the technology partner in SMP falls below 49%. In
exchange the Company has waived capacity shortfall obligations from the
technology partner. The patent license agreement continues for as long as
the joint venture agreement between the parties remains.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-31



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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The Company entered into subscription and participation agreements with
seven customers (the Equity Investor Customers), a technology partner
and an investor to raise equity for the establishment of a new fab. Under
the agreements, the Equity Investor Customers, technology partner and the
investor subscribed for shares with the right to subscribe for new shares
pro-rata to their interest in the Company. The subscription and
participation agreements were terminated on November 5, 1999. The Company
is committed to provide the Equity Investor Customers and technology
partner with rights to wafer capacity first granted under those agreements
through August 2005.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Pursuant to the assured supply and demand agreement that the Company and
the joint venture partner signed with SMP, each partner is required to
purchase a specified percentage of SMPs output. However, if one party
does not purchase its share of wafers, the other party is entitled to
utilize that unused capacity. In the event such other party does not
utilize the unused capacity, the party who does not purchase its
entitlement will be required to compensate SMP for any unrecovered costs
it incurs in connection with such unused capacity.                                                                                                                              
|
| |  | The Company has entered into agreements to purchase technology licenses,
jointly perform research and development, and swap capacity commitments.
The future payment obligations under these agreements as at December 31,
2003 are $217 million.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The Company has the following capital commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                  |  |              |         |      |  |   |         | 
|--------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                  |  | December 31,
|                                  |  | 2002         |         | 2003
|Contracts for capital expenditure |  | $            | 446,380 |      |  | $ | 398,296 | 



| |  | Minimum future rental payments on non-cancellable operating leases
excluding amounts payable to ST disclosed in Note 2 as at December 31,
2003, are as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |            |   |        |       | 
|----------------------------------- | ---------- | - | ------ | ----- | 
|Payable in year ending December 31, |            |   |        |      
|                                    | 2004       |   | $      | 3,786 | 
|                                    | 2005       |   |        | 2,572 | 
|                                    | 2006       |   |        | 1,847 | 
|                                    | 2007       |   |        | 379   | 
|                                    | 2008       |   |        | 341   | 
|                                    | Thereafter |   |        | 2,787 | 
|                                    |            |   |        |      
|                                    |            | $ | 11,712 |      
|                                    |            |   |        |      



| |  | Rental expense, excluding amounts payable to ST disclosed in Note 2, for
the years ended December 31, 2001, 2002 and 2003 was $5,236, $5,748 and
$5,307 respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-32



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | (b) Contingencies
| |  | -----------------



|    |  | The Company may from time to time be a party to claims that arise in the
normal course of business. These claims include allegations of
infringement of intellectual property rights of others as well as other
claims of liability. In addition, the Company is subject to various taxes
in the different jurisdictions in which it operates. These include taxes
on income, property, goods and services, and other taxes. The Company
submits tax returns and claims with the respective government taxing
authorities which are subject to agreement by those taxing authorities.
The Company accrues costs associated with these matters when they become
probable and reasonably estimable. The Company does not believe that it
is probable that losses associated with these matters beyond those already
recognized will be incurred in amounts that would be material to its
financial position or consolidated statements of operations.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|19. |  | Derivative Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Company has the following notional amounts of derivative
instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                             |                                                               |   |              |        |      |   |         |        | 
|-------------------------------------------- | ------------------------------------------------------------- | - | ------------ | ------ | ---- | - | ------- | ------ | 
|                                             |                                                               |   | December 31,
|                                             |                                                               |   | 2002         |        | 2003
|Forward foreign exchange contracts to hedge: |                                                               |   |              |        |      |   |         |       
|                                             | -Singapore dollar debt                                        |   | $            | 94,102 |      |   | $       | 81,983 | 
|                                             | -Plant and equipment purchases (mainly Japanese yen
and Euro) |   |              | 24,185 |      |   |         | 14,909 | 
|Cross currency swap                          |                                                               |   | 100,415      |        |      |   | 73,225  |       
|Convertible notes interest rate swap         |                                                               |   | 200,000      |        |      |   | 575,000 |       
|                                             |                                                               |   |              |        |      |   |         |       
|                                             |                                                               | $ | 418,702      |        |      | $ | 745,117 |       
|                                             |                                                               |   |              |        |      |   |         |       



| |  | The Company does not use derivative financial instruments for trading
purposes. The Company uses derivative instruments principally to manage
interest rate risks. During 2001, the Company entered into an interest
rate swap contract to hedge fixed-rate interest obligations associated
with $200,000 of the convertible notes issued in April 2001, with the
effect of swapping the fixed-rate coupon interest obligations to
floating-rate obligations based on LIBOR rates. The Company has
designated this interest rate swap contract as a fair-value hedge. In
January 2003, the Company entered into an additional swap to incorporate
hedging of the accreting portion of the bond which was not included in the
original swap, thereby increasing the hedge effectiveness. In August
2003, the Company entered into an interest rate swap contract in respect
of the fixed-rate coupon interest obligations associated with the
remaining $375,000 of the convertible notes issued in April 2001, with the
effect of swapping the fixed-rate interest obligations to a floating-rate
obligation based on LIBOR rates. The Company has designated this interest
rate swap contract as a fair-value hedge. The swap incorporated hedging
of the accreting portion of the convertible notes. For the fair-value
hedge transactions, changes in fair value of the derivative and changes in
the fair value of the item being hedged are recorded in earnings.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-33



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



| |  | The Company also uses derivative instruments to manage identified foreign
currency risks resulting from its Singapore dollar denominated debt and,
to a lesser extent, its foreign currency denominated purchase commitments
which are denominated principally in Japanese yen and Euro. The Company
has entered into a cross currency swap to convert a Singapore dollar fixed
rate loan to a US dollar denominated fixed rate instrument. The Company
uses foreign currency forward contracts to manage these risks and has
designated them as foreign currency cash-flow hedges. The Company uses
foreign currency forward contracts which match the terms of the individual
foreign currency exposures and, as a result, any ineffectiveness of the
Companys hedges is negligible. Amounts included in other comprehensive
income related to hedges of Singapore dollar denominated debt are
reclassified into earnings in amounts equal to the transaction gain or
loss resulting from the remeasurement of the debt into US dollars. The
amounts reclassified into earnings are included in foreign exchange gain
(loss). Amounts included in other comprehensive income related to hedges
of foreign currency purchase commitments are reclassified into earnings
(cost of revenue) when the asset related to the purchase commitment is
depreciated. The maximum term over which the Company is hedging exposures
to the variability of cash flows for currency exchange rates risk is 3
years.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Most of the Companys derivatives are formally designated as cash flow
foreign currency hedges and fair value hedges. However, certain
derivative instruments are not designated as part of a hedging
relationship. These consist primarily of foreign currency forward
contracts related to groups of forecasted foreign currency denominated
payments. While the Company expects these derivatives to be effective in
hedging the variability in cash flows resulting from changes in foreign
exchange rates, it does not believe it is practicable to formally document
the hedging relationship and link the derivatives to specific forecasted
transactions. Gains and losses on these instruments are included in
foreign exchange gain (loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | At December 31, 2003, the estimated net amount of existing losses from
cash flow hedges expected to be reclassified into earnings within the next
year is $87. For the year ended December 31, 2003, net realized gains
recognized from cash flow hedges were $1,003 and from fair value hedges
were $1,516.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The components of other comprehensive income (loss) related to derivative
and hedging activities consist of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                                |  |              |         |      |  |   |         |  
|--------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                                |  | December 31,
|                                                                |  | 2002         |         | 2003
|Beginning                                                       |  | $            | (10,838 | )    |  | $ | (10,329 | )
|Reclassifications into earnings                                 |  |              | (1,813  | )    |  |   | 1,003   |  
|Net current period changes associated with hedging transactions |  |              | 1,313   |      |  |   | (473    | )
|Share of other comprehensive income of SMP                      |  |              | 1,009   |      |  |   | 5,298   |  
|                                                                |  |              |         |      |  |   |         |  
|Ending                                                          |  | $            | (10,329 | )    |  | $ | (4,501  | )
|                                                                |  |              |         |      |  |   |         |  

F-34



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|    |  | By using derivative instruments to hedge exposures to changes in foreign
currency rates and interest rates, the Company exposes itself to credit
risk and market risk. Credit risk is the failure of the counterparty to
perform under the terms of the derivative contract. When the fair value
of a derivative contract is positive, the counterparty owes the Company,
which creates credit risk for the Company. When the fair value of a
derivative contract is negative, the Company owes the counterparty and,
therefore, it does not possess credit risk. The Company anticipates,
however, that counterparties will be able to fully satisfy their
obligations under the contracts. The Company does not obtain collateral
or other security to support financial instruments subject to credit risk
but monitors the credit standing of counterparties.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Market risk is the adverse effect on the value of a financial instrument
that results from a change in interest rates or currency exchange rates.
The market risk associated with interest rate contracts is managed by
establishing and monitoring parameters that limit the types and degree of
market risk that may be undertaken. The Company assesses interest rate
cash flow risk and currency exchange cash flow risk by continually
identifying and monitoring changes in interest rate or currency exchange
rate exposures that may adversely impact expected future cash flows and by
evaluating hedging opportunities.                                                                                                                                                                                                                                
|   
|20. |  | Fair Values of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                   |  |              |            |            |  |          |            |            |  |  |            |   |  |  |            |  
|---------------------------------- |  | ------------ | ---------- | ---------- |  | -------- | ---------- | ---------- |  |  | ---------- | - |  |  | ---------- | -
|                                   |  | December 31,
|                                   |  | 2002         |            | 2003      
|                                   |  | Carrying     |            | Estimated  |  | Carrying |            | Estimated 
|                                   |  | amount       |            | fair value |  | amount   |            | fair value
|Asset/(Liability)                  |  | $            |            | $          |  | $        |            | $         
|Long term debt                     |  |              | (1,179,931 | )          |  |          | (1,227,464 | )          |  |  | (1,212,752 | ) |  |  | (1,248,765 | )
|Forward foreign exchange
contracts |  |              | 1,448      |            |  |          | 1,448      |            |  |  | 2,828      |   |  |  | 2,828      |  
|Cross currency swap                |  |              | (8,853     | )          |  |          | (8,853     | )          |  |  | (4,495     | ) |  |  | (4,495     | )
|Interest rate swap                 |  |              | 8,526      |            |  |          | 8,526      |            |  |  | (37,008    | ) |  |  | (37,008    | )
|Credit default swap                |  |              |           |            |  |          |           |            |  |  | 1,479      |   |  |  | 1,479      |  



| |  | Cash and cash equivalents, amounts owing from and to ST and affiliates,
accounts receivable and accounts payable.The carrying amounts
approximate fair value in view of the short term nature of these balances.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Long-term debt.The fair value is based on current interest rates
available to the Company for issuance of debts of similar terms and
remaining maturities, or by obtaining quotes from brokers.                 
|
| |  | Forward foreign exchange contracts.The fair value is estimated by
reference to market quotations for forward contracts with similar terms,
adjusted where necessary for maturity differences.                   

F-35



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|    |  | Cross currency swap.The fair value is estimated by obtaining quotes from
brokers.                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Interest rate swap.The fair value is estimated by obtaining quotes from
brokers.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | Credit default swap. The fair value is estimated by obtaining quotes from
brokers.                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Limitations.Fair value estimates are made at a specific point in time,
and are based on relevant market information and information about the
financial instruments. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.                                                                         
|   
|21. |  | Business Segment, Geographic and Major Customer Data                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Operating segments, as defined under SFAS No. 131 Disclosures About
Segments of an Enterprise and Related Information, are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. The Company operates
in a single reportable segment. All of the Companys products are
manufactured in Singapore.
|   
|    |  | The following table presents a summary of revenues by country of domicile
of customers and long-lived assets by geographic region. The Company
geographically categorizes a sale based on the country in which the
customer is headquartered.                                                                                                                                                                                                                           

|                  |  |      |           |      |  |      |           |  |  |   |           | 
|----------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                  |  | 2001 |           | 2002 |  | 2003
|Revenues          |  |      |           |      |  |      |           |  |  |   |           | 
|Americas          |  | $    | 308,093   |      |  | $    | 317,218   |  |  | $ | 353,921   | 
|Europe            |  |      | 41,958    |      |  |      | 38,643    |  |  |   | 72,249    | 
|Japan             |  |      | 27,485    |      |  |      | 43,967    |  |  |   | 24,799    | 
|Singapore         |  |      | 449       |      |  |      | 485       |  |  |   | 871       | 
|Taiwan            |  |      | 75,977    |      |  |      | 44,894    |  |  |   | 92,245    | 
|Others            |  |      | 8,694     |      |  |      | 4,034     |  |  |   | 7,826     | 
|                  |  |      |           |      |  |      |           |  |  |   |           | 
|                  |  | $    | 462,656   |      |  | $    | 449,241   |  |  | $ | 551,911   | 
|                  |  |      |           |      |  |      |           |  |  |   |           | 
|Long-lived assets |  |      |           |      |  |      |           |  |  |   |           | 
|Singapore         |  | $    | 1,852,473 |      |  | $    | 1,860,555 |  |  | $ | 1,538,782 | 
|Others            |  |      | 948       |      |  |      | 676       |  |  |   | 658       | 
|                  |  |      |           |      |  |      |           |  |  |   |           | 
|                  |  | $    | 1,853,421 |      |  | $    | 1,861,231 |  |  | $ | 1,539,440 | 
|                  |  |      |           |      |  |      |           |  |  |   |           | 



| |  | Revenues from major customers, as a percentage of total revenue, were as follows:
| |  | ---------------------------------------------------------------------------------

|           |  |      |       |      |  |      |       |   |  |  |       |  
|---------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|           |  | 2001 |       | 2002 |  | 2003
|Customer A |  |      | 21.0  | %    |  |      | 19.2  | % |  |  | 15.1  | %
|Customer B |  |      | 4.0   |      |  |      | 11.0  |   |  |  | 9.2   |  
|Customer C |  |      | 6.4   |      |  |      | 10.7  |   |  |  | 6.9   |  
|Others     |  |      | 68.6  |      |  |      | 59.1  |   |  |  | 68.8  |  
|           |  |      |       |      |  |      |       |   |  |  |       |  
|           |  |      | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|           |  |      |       |      |  |      |       |   |  |  |       |  

F-36



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)



|    |  | The top five customers of the Company accounted for 43%, 53% and 41%, of
the Companys net revenue in the years ended December 31, 2001, 2002 and
2003, respectively. As a result, loss or cancellation of business from,
or significant changes in scheduled deliveries or decreases in the prices
of products sold to any of these customers could materially and adversely
affect the Companys results of operations or financial position. The
Company believes that the concentration of its credit risk in trade
receivables is mitigated substantially by its credit evaluation process,
credit policies, credit control and collection procedures.                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|22. |  | Other Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | During 2002, other operating expenses include a property, plant and
equipment impairment charge of $4,868 and a restructuring charge of
$5,157. The impairment charge resulted from the decision to abandon
certain production processes. As the associated machinery had no further
productive use, it was taken out of service and, as the associated
machinery had no value on the secondary machinery market, its carrying
value was reduced to zero. The restructuring charge relates to a
workforce reduction in the fourth quarter, and represents the cost of the
compensation package paid to the affected employees. The compensation was
substantially paid during the fourth quarter of 2002.                                                                                                                                                                                                      
|   
|    |  | During 2003, other operating expenses related to the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | A gain of $27,531 associated with the cancellation of the Companys
employee bonus award plan. In prior years, the Company had implemented an
employee bonus award plan with respect to the payment of bonuses to
employees. As a result of the cancellation, compensation accrued for past
services under the bonus award plan of $27,531 was eliminated by
decreasing compensation expense in the period of cancellation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | An impairment charge of $8,986 on certain machinery and equipment which
were classified as held for sale as at December 31, 2003. The impairment
charge resulted from the decision to rationalize capacity across the
Company. The machinery are expected to be sold on the open market within
twelve months of classification as held for sale. These assets were
written down to the lower of their fair value, less costs to sell or their
net book value.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | A restructuring charge of $12,421 relating to the phase out of the
Companys Fab 1, in accordance with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. In February 2003, the
Company announced that, as a result of continuing under-utilization of its
fabs resulting from the deep and continuing semiconductor industry
downturn, it would close Fab 1 and consolidate its business into Fab 2.
The production in Fab 1 is expected to cease by the end of March 2004. A
summary of estimated and actual costs incurred is shown below. These
amounts do not include potential gain on disposition of fixed assets.
Plant closure, customer assistance and related expenses mainly relate to
product qualification, prototyping, reticles, unhook and decommissioning
of equipment and other activities to be carried out for consolidating the
Fab 1 business into Fab 2.

F-37



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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)

|                                                        |  |                   |       |            |        |   |       | 
|------------------------------------------------------- |  | ----------------- | ----- | ---------- | ------ | - | ----- | 
|                                                        |  | Total             |       | Cumulative
|                                                        |  | estimated         |       | expense   
|                                                        |  | costs             |       | to-date   
|                                                        |  |                   |       |           
|Employee termination benefits                           |  | $                 | 8,000 |            |        | $ | 6,627 | 
|Plant closure, customer assistance
and related expenses |  | 10,000 to 14,000  |       |            | 5,794  |  
|                                                        |  |                   |       |            |        |  
|Total                                                   |  | $18,000 to 22,000 |       | $          | 12,421 |  
|                                                        |  |                   |       |            |        |  

|                                                        |  |                              |   |           |  |        |        |           |  |        |       |  |  |   |       | 
|------------------------------------------------------- |  | ---------------------------- | - | --------- |  | ------ | ------ | --------- |  | ------ | ----- |  |  | - | ----- | 
|                                                        |  | Year Ended December 31, 2003
|                                                        |  | Beginning                    |   | Current   |  |        |        |           |  | Ending
|                                                        |  | liability                    |   | year      |  | Amount |        | liability
|                                                        |  | balances                     |   | additions |  | paid   |        | balances 
|                                                        |  |                              |   |           |  |        |        |          
|Employee termination benefits                           |  | $                            |  |           |  | $      | 6,627  |           |  | $      |      |  |  | $ | 6,627 | 
|Plant closure, customer
assistance and related
expenses |  |                              |  |           |  |        | 5,794  |           |  |        | 3,455 |  |  |   | 2,339 | 
|                                                        |  |                              |   |           |  |        |        |           |  |        |       |  |  |   |       | 
|Total                                                   |  | $                            |  |           |  | $      | 12,421 |           |  | $      | 3,455 |  |  | $ | 8,966 | 
|                                                        |  |                              |   |           |  |        |        |           |  |        |       |  |  |   |       | 



|23. |  | Cumulative Effect Adjustment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Effective January 1, 2003, the Company adopted the provisions of SFAS No. 143,
Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and associated asset retirement costs. Accordingly,
the Company recorded a liability of $13,223 related to the requirements in its
lease agreements for the return of buildings to tenantable condition and the
return of land on which fabs have been built to its original condition. The
associated cost was capitalized as an increase in property, plant and
equipment of the same amount and will be depreciated over its remaining useful
lives. The adoption of SFAS No. 143 as of January 1, 2003, resulted in a
cumulative effect loss of $6,421, after a reduction in minority interest of
$475. The cumulative effect loss represents the depreciation and accretion
expense that would have been recorded previously if SFAS No. 143 had been in
effect in prior years. The proforma effect of retroactive application of SFAS
No. 143 in 2001 and 2002 would not have had a material impact on the net loss,
net loss per share and net loss per ADS, as reported.

F-38



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD

Financial Statements for the years ended
December 31, 2001, 2002 and 2003





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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD

FINANCIAL STATEMENTS INDEX

|                                  |  |             |      | 
|--------------------------------- |  | ----------- | ---- | 
|                                  |  | Page Number
|Independent Auditors Report      |  |             | F-39 | 
|Balance Sheets                    |  |             | F-40 | 
|Profit and Loss Accounts          |  |             | F-41 | 
|Statements of Changes in Equity   |  |             | F-42 | 
|Statements of Cash Flows          |  |             | F-43 | 
|Notes to the Financial Statements |  |             | F-45 | 





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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Members of
Silicon Manufacturing Partners Pte Ltd:

We have audited the accompanying balance sheets of Silicon Manufacturing
Partners Pte Ltd as of December 31, 2002, and the related profit and loss
accounts, statements of changes in equity and statements of cash flows for
the years ended December 31, 2001 and 2002. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits 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 the
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 Silicon Manufacturing
Partners Pte Ltd as of December 31, 2002, and the results of its operations
and cash flows for the years ended December 31, 2001 and 2002 in conformity
with Singapore Financial Reporting Standards.

The financial statements as of
December 31, 2002 and for the two years then ended have been restated as described
in Note 19. We have audited that restatement but have not performed any
other audit procedures after March 13, 2003, the date of our report on the
2002 financial statements.

Singapore Financial Reporting Standards vary in certain significant
respects from accounting principles generally accepted in the United States
of America. Information relating to the nature and effect of such
differences is presented in Note 24 to the financial statements.

We have not audited or reviewed the accompanying 2003 financial statements
and, accordingly, do not express an opinion or any other form of assurance
on them.

/s/ KPMG

SINGAPORE

March 13, 2003 (except for Note 19, as
to which the date is January 30, 2004)

F-39



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
BALANCE SHEETS
As of December 31, 2002 and 2003
In thousands of US Dollars (except share and per share data)

|                              |       |  |      |  |            |   |             |   |  |   |         |   | 
|----------------------------- | ----- |  | ---- |  | ---------- | - | ----------- | - |  | - | ------- | - | 
|                              |       |  | Note |  | 2002       |   | 2003       
|                              |       |  |      |  | (Restated) |   | (Unaudited)
|                              |       |  |      |  | $          |   | $          
|Non-current assets            |       |  |      |  |            |   |             |   |  |   |         |  
|Property, plant and equipment |       |  | 3    |  |            | $ | 404,681     |   |  | $ | 262,160 |  
|Intangible assets             |       |  | 4    |  |            |   | 436         |   |  |   | 189     |  
|Deferred expense              |       |  | 5    |  |            |   | 2,688       |   |  |   | 1,680   |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              |       |  |      |  |            |   | 407,805     |   |  |   | 264,029 |  
|Current assets                |       |  |      |  |            |   |             |   |  |   |         |  
|Inventories                   |       |  | 6    |  |            |   | 17,116      |   |  |   | 31,127  |  
|Trade and other receivables   |       |  | 7    |  |            |   | 30,233      |   |  |   | 56,250  |  
|Cash and cash equivalents     |       |  | 8    |  |            |   | 112,721     |   |  |   | 129,625 |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              |       |  |      |  |            |   | 160,070     |   |  |   | 217,002 |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              | Less: |  |      |  |            |   |             |   |  |   |         |   | 
|Current liabilities           |       |  |      |  |            |   |             |   |  |   |         |  
|Trade and other payables      |       |  | 9    |  |            |   | 38,413      |   |  |   | 91,670  |  
|Provisions                    |       |  | 10   |  |            |   | 2,656       |   |  |   | 3,055   |  
|Interest-bearing liabilities  |       |  | 11   |  |            |   | 107,142     |   |  |   | 107,142 |  
|Current tax payable           |       |  |      |  |            |   | 1,167       |   |  |   | 1,383   |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              |       |  |      |  |            |   | 149,378     |   |  |   | 203,250 |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|Net current assets            |       |  |      |  |            |   | 10,692      |   |  |   | 13,752  |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              |       |  |      |  |            |   | 418,497     |   |  |   | 277,781 |  
|Non-current liability         |       |  |      |  |            |   |             |   |  |   |         |  
|Interest-bearing liabilities  |       |  | 11   |  |            |   | 171,429     |   |  |   | 64,286  |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              |       |  |      |  |            | $ | 247,068     |   |  | $ | 213,495 |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|Share capital                 |       |  | 12   |  |            | $ | 252,389     |   |  |   | 252,389 |  
|Accumulated losses            |       |  |      |  |            |   | (5,321      | ) |  |   | (38,894 | )
|                              |       |  |      |  |            |   |             |   |  |   |         |  
|                              |       |  |      |  |            | $ | 247,068     |   |  | $ | 213,495 |  
|                              |       |  |      |  |            |   |             |   |  |   |         |  

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

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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
PROFIT AND LOSS ACCOUNTS
For the Years Ended December 31, 2001, 2002 and 2003
In thousands of US Dollars (except share and per share data)

|                                                       |  |      |    |            |  |            |          |             |  |   |          |   |  |   |          |  
|------------------------------------------------------ |  | ---- | -- | ---------- |  | ---------- | -------- | ----------- |  | - | -------- | - |  | - | -------- | -
|                                                       |  | Note |    | 2001       |  | 2002       |          | 2003       
|                                                       |  |      |    | (Restated) |  | (Restated) |          | (Unaudited)
|                                                       |  |      |    | $          |  | $          |          | $          
|Revenue                                                |  |      |    |            |  | $          | 199,965  |             |  | $ | 205,458  |   |  | $ | 329,535  |  
|Cost of sales                                          |  |      |    |            |  |            | (227,020 | )           |  |   | (242,749 | ) |  |   | (286,462 | )
|                                                       |  |      |    |            |  |            |          |             |  |   |          |   |  |   |          |  
|Gross profit/(loss)                                    |  |      |    |            |  |            | (27,055  | )           |  |   | (37,291  | ) |  |   | 43,073   |  
|Other operating income                                 |  |      | 14 |            |  |            | 116,832  |             |  |   | 51,578   |   |  |   | 4,840    |  
|Sales and marketing expenses                           |  |      |    |            |  |            | (165     | )           |  |   | (85      | ) |  |   | (41      | )
|General and administrative expenses                    |  |      |    |            |  |            | (3,175   | )           |  |   | (3,954   | ) |  |   | (4,342   | )
|Other operating expenses                               |  |      | 15 |            |  |            |         |             |  |   |         |   |  |   | (178     | )
|                                                       |  |      |    |            |  |            |          |             |  |   |          |   |  |   |          |  
|Profit from operations                                 |  |      | 16 |            |  |            | 86,437   |             |  |   | 10,248   |   |  |   | 43,352   |  
|Finance costs                                          |  |      | 17 |            |  |            | (29,582  | )           |  |   | (30,080  | ) |  |   | (21,908  | )
|                                                       |  |      |    |            |  |            |          |             |  |   |          |   |  |   |          |  
|Profit/(Loss) from ordinary activities
before taxation |  |      |    |            |  |            | 56,855   |             |  |   | (19,832  | ) |  |   | 21,444   |  
|Income tax expense                                     |  |      | 18 |            |  |            | (326     | )           |  |   | (485     | ) |  |   | (275     | )
|                                                       |  |      |    |            |  |            |          |             |  |   |          |   |  |   |          |  
|Net profit/(loss) for the year                         |  |      |    |            |  | $          | 56,529   |             |  | $ | (20,317  | ) |  | $ | 21,169   |  
|                                                       |  |      |    |            |  |            |          |             |  |   |          |   |  |   |          |  

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

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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2001, 2002 and 2003
In thousands of US Dollars (except share and per share data)

|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | -- | ------- |  | ------- | ------- | --------- |  | ----------- | ------- | - |  | - | ------- | -
|                                                                                  |  |      |    |         |  |         |         |           |  | Accumulated |         |   |  |  
|                                                                                  |  |      |    |         |  | Share   |         | (losses)/ |  |             |         |  
|                                                                                  |  | Note |    | capital |  | profits |         | Total    
|                                                                                  |  |      |    | $       |  | $       |         | $        
|At January 1, 2001,as previously reported                                         |  |      |    |         |  |         | 252,389 |           |  |             | (43,001 | ) |  |   | 209,388 |  
|Restatement                                                                       |  |      | 19 |         |  |         |        |           |  |             | 1,468   |   |  |   | 1,468   |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At January 1, 2001, restated                                                      |  |      |    |         |  |         | 252,389 |           |  |             | (41,533 | ) |  |   | 210,856 |  
|Net profit for the year                                                           |  |      |    |         |  |         |        |           |  |             | 56,529  |   |  |   | 56,529  |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At December 31, 2001                                                              |  |      |    |         |  |         | 252,389 |           |  |             | 14,996  |   |  |   | 267,385 |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At January 1, 2002, as previously reported                                        |  |      |    |         |  |         | 252,389 |           |  |             | 10,792  |   |  |   | 263,181 |  
|Restatement                                                                       |  |      | 19 |         |  |         |        |           |  |             | 4,204   |   |  |   | 4,204   |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At January 1, 2002, restated                                                      |  |      |    |         |  |         | 252,389 |           |  |             | 14,996  |   |  |   | 267,385 |  
|Net loss for the year                                                             |  |      |    |         |  |         |        |           |  |             | (20,317 | ) |  |   | (20,317 | )
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At December 31, 2002                                                              |  |      |    |         |  |         | 252,389 |           |  |             | (5,321  | ) |  |   | 247,068 |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At January 1, 2003, as previously reported                                        |  |      |    |         |  |         | 252,389 |           |  |             | (12,640 | ) |  |   | 239,749 |  
|Restatement                                                                       |  |      | 19 |         |  |         |        |           |  |             | 7,319   |   |  |   | 7,319   |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At January 1, 2003, restated                                                      |  |      |    |         |  |         | 252,389 |           |  |             | (5,321  | ) |  |   | 247,068 |  
|Net profit for the year                                                           |  |      |    |         |  |         |        |           |  |             | 21,169  |   |  |   | 21,169  |  
|First interim dividend declared of $0.0011 per
B ordinary share less tax at 22% |  |      | 20 |         |  |         |        |           |  |             | (234    | ) |  |   | (234    | )
|Second interim dividend declared of $0.2515 per
B ordinary share, tax exempt    |  |      | 20 |         |  |         |        |           |  |             | (54,508 | ) |  |   | (54,508 | )
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  
|At December 31, 2003                                                              |  |      |    |         |  | $       | 252,389 |           |  | $           | (38,894 | ) |  | $ | 213,495 |  
|                                                                                  |  |      |    |         |  |         |         |           |  |             |         |   |  |   |         |  

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

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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2002 and 2003
In thousands of US Dollars (except share and per share data)

|                     |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |         |         |  
|-------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------------- |  | ---------- | ------- | ---------- |  | ----------- | ------- | - |  | ------- | ------- | -
|                     |                                                                                                           |                                                   |  | 2001       |         | 2002       |  | 2003       
|                     |                                                                                                           |                                                   |  | (Restated) |         | (Restated) |  | (Unaudited)
|                     |                                                                                                           |                                                   |  | $          |         | $          |  | $          
|Operating activities |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Profit/(loss) from ordinary activities
before taxation                                                    |                                                   |  | 56,855     |         |            |  | (19,832     | )       |   |  | 21,444  |        
|                     | Adjustments for:                                                                                          |                                                   |  |            |         |            |  |             |         |   |  |         |        
|                     |                                                                                                           | Amortization of deferred finance expenses         |  |            | 1,008   |            |  |             | 1,008   |   |  |         | 1,008   |  
|                     |                                                                                                           | Amortization of intangible assets                 |  |            | 1,325   |            |  |             | 795     |   |  |         | 324     |  
|                     |                                                                                                           | Depreciation of property, plant and
equipment     |  |            | 128,982 |            |  |             | 150,367 |   |  |         | 159,691 |  
|                     |                                                                                                           | Assets impairment                                 |  |            |        |            |  |             |        |   |  |         | 178     |  
|                     |                                                                                                           | Loss on disposal of property, plant and
equipment |  |            | 6       |            |  |             | 728     |   |  |         |        |  
|                     |                                                                                                           | Gain on disposal of intangible assets             |  |            |        |            |  |             | (178    | ) |  |         |        |  
|                     |                                                                                                           | Interest expense, net of amount capitalized       |  |            | 28,277  |            |  |             | 28,797  |   |  |         | 20,870  |  
|                     |                                                                                                           | Interest income                                   |  |            | (1,844  | )          |  |             | (1,882  | ) |  |         | (1,252  | )
|                     |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Operating profit before working
capital changes                                                           |                                                   |  | 214,609    |         |            |  | 159,803     |         |   |  | 202,263 |        
|                     | Changes in working capital:                                                                               |                                                   |  |            |         |            |  |             |         |   |  |         |        
|                     |                                                                                                           | Inventories                                       |  |            | 6,348   |            |  |             | (10,590 | ) |  |         | (14,011 | )
|                     |                                                                                                           | Trade and other receivables                       |  |            | (37,009 | )          |  |             | 42,155  |   |  |         | (26,114 | )
|                     |                                                                                                           | Trade and other payables                          |  |            | (20,941 | )          |  |             | 7,345   |   |  |         | 13,025  |  
|                     |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Cash generated from operations                                                                            |                                                   |  | 163,007    |         |            |  | 198,713     |         |   |  | 175,163 |        
|                     | Interest received                                                                                         |                                                   |  | 1,809      |         |            |  | 1,823       |         |   |  | 1,349   |        
|                     | Interest paid, net of amount capitalized                                                                  |                                                   |  | (28,425    | )       |            |  | (29,320     | )       |   |  | (21,357 | )      
|                     | Income taxes paid                                                                                         |                                                   |  | (70        | )       |            |  | (71         | )       |   |  | (59     | )      
|                     |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Cash flows from operating activities                                                                      |                                                   |  | 136,321    |         |            |  | 171,145     |         |   |  | 155,096 |        
|                    
|Investing activities |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Proceeds on disposal of property, plant
and equipment                                                     |                                                   |  |           |         |            |  | 4,595       |         |   |  | 3,350   |        
|                     | Purchase of property, plant and equipment
including interest paid of
$243 (2002: $1,240 and 2001: $3,780) |                                                   |  | (107,181   | )       |            |  | (49,918     | )       |   |  | (14,088 | )      
|                     | Proceeds on disposal of intangible assets                                                                 |                                                   |  |           |         |            |  | 294         |         |   |  |        |        
|                     | Purchase of intangible assets                                                                             |                                                   |  | (457       | )       |            |  | (109        | )       |   |  | (77     | )      
|                     |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Cash flows from investing activities                                                                      |                                                   |  | (107,638   | )       |            |  | (45,138     | )       |   |  | (10,815 | )      
|                     |                                                                                                           |                                                   |  |            |         |            |  |             |         |   |  |        
|                     | Balance carried forward                                                                                   |                                                   |  | 28,683     |         |            |  | 126,007     |         |   |  | 144,281 |        

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

F-43



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2002 and 2003
In thousands of US Dollars (except share and per share data)

|                                               |                                      |  |      |  |            |  |            |        |             |  |         |         |   |  |         |          |  
|---------------------------------------------- | ------------------------------------ |  | ---- |  | ---------- |  | ---------- | ------ | ----------- |  | ------- | ------- | - |  | ------- | -------- | -
|                                               |                                      |  | Note |  | 2001       |  | 2002       |        | 2003       
|                                               |                                      |  |      |  | (Restated) |  | (Restated) |        | (Unaudited)
|                                               |                                      |  |      |  | $          |  | $          |        | $          
|                                               | Balance brought forward              |  |      |  |            |  |            | 28,683 |             |  |         | 126,007 |   |  |         | 144,281  |  
|Financing activities                           |                                      |  |      |  |            |  |            |        |             |  |         |         |   |  |         |         
|                                               | Repayment of bank loan               |  |      |  |            |  |            |       |             |  |         | (96,429 | ) |  |         | (107,143 | )
|                                               | Dividends paid                       |  |      |  |            |  |            |       |             |  |         |        |   |  |         | (20,234  | )
|                                               | Cash flows from financing activities |  |      |  |            |  |            |       |             |  |         | (96,429 | ) |  |         | (127,377 | )
|                                               |                                      |  |      |  |            |  |            |        |             |  |         |         |   |  |         |         
|Net increase in cash and cash equivalents      |                                      |  |      |  |            |  | 28,683     |        |             |  | 29,578  |         |   |  | 16,904  |         
|Cash and cash equivalents at beginning
of year |                                      |  |      |  |            |  | 54,460     |        |             |  | 83,143  |         |   |  | 112,721 |         
|                                               |                                      |  |      |  |            |  |            |        |             |  |         |         |   |  |         |         
|Cash and cash equivalents at end of year       |                                      |  | 8    |  |            |  | 83,143     |        |             |  | 112,721 |         |   |  | 129,625 |         
|                                               |                                      |  |      |  |            |  |            |        |             |  |         |         |   |  |         |         

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

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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)

These notes form an integral part of the financial statements.

The financial statements were authorized for issue by the directors on
February 27, 2004.



|1. |  | Domicile and Activities                                                                                                                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Silicon Manufacturing Partners Pte Ltd (the Company) is incorporated in
the Republic of Singapore and has its registered office at 60 Woodlands
Industrial Park Street 2, Singapore 738406.                                           
|  
|   |  | The principal activities of the Company are those relating to an
independent foundry of semiconductor integrated circuits using its
advanced production facilities and proprietary integrated circuit
designs of its customers.       
|  
|   |  | The immediate and ultimate holding companies during the financial year
are Agere Systems Singapore Pte Ltd and Agere Systems Inc., which are
incorporated in the Republic of Singapore and the United States of
America, respectively.
|  
|2. |  | Summary of Significant Accounting Policies                                                                                                                                                                                            



| | (a) |  | Basis of Preparation                                                                                                                                                                                                                                                                                                                           
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The financial statements have been prepared in accordance with
Singapore Financial Reporting Standards (FRS) including related
Interpretations promulgated by the Council on Corporate Disclosure
and Governance (CCDG).                                                                                                                       
|
| |     |  | The financial statements were previously prepared in accordance
with Singapore Statements of Accounting Standard (SAS). There is
no effect on the financial statements due to the transition from
SAS to FRS.                                                                                                                                  
|
| |     |  | The historical cost basis is used. Amounts are expressed in the
United States (US) dollars, unless otherwise stated.                                                                                                                                                                                                                           
|
| | (b) |  | Measurement currency                                                                                                                                                                                                                                                                                                                           
|
| |     |  | The measurement currency of the Company is US dollars. As sales
and purchases are denominated primarily in US dollars and net
receipts from operations are usually retained in US dollars, the
directors are of the opinion that US dollars reflects the economic
substance of the underlying events and circumstances relevant to
the Company.
|
| | (c) |  | Foreign Currency Transactions                                                                                                                                                                                                                                                                                                                  
|
| |     |  | Monetary assets and liabilities in foreign currencies are
translated into US dollars at rates of exchange ruling at the balance sheet date. Transactions in foreign
currencies are translated at rates ruling on transaction dates.
Translation differences are included in the profit and loss
account.                                       

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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|2. |  | Summary of Significant Accounting Policies (contd)
|-- |  | ---------------------------------------------------



| | (d) |  | Property, Plant and Equipment
| | --- |  | -----------------------------
|

| | (i)   |  | Owned Assets                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses.                                                                                                                                                                                                                                                                                                              
|
| | (ii)  |  | Subsequent Expenditure                                                                                                                                                                                                                                                                                                                                                                                             
|
| |       |  | Subsequent expenditure relating to property, plant and
equipment that has already been recognized is added to the
carrying amount of the asset when it is probable that future
economic benefits, in excess of the originally assessed
standard of performance of the existing asset, will flow to
the Company. All other subsequent expenditure is recognized
as an expense in the period in which it is incurred.
|
| | (iii) |  | Disposal                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |       |  | Gains or losses arising from the retirement or disposal of
property, plant and equipment are determined as the
difference between the net disposal proceeds and
the carrying amount of the asset and are recognized in the
profit and loss account on the date of retirement or
disposal.                                                                                                                          
|
| | (iv)  |  | Depreciation                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |       |  | No depreciation is provided for property, plant and
equipment under installation or construction. Depreciation
is provided on a straight-line basis so as to write off the
cost of other property, plant and equipment over their
estimated useful lives as follows:                                                                                                                                               

|                                         |  |   |  |             
|---------------------------------------- |  | - |  | ------------
|Equipment and machinery                  |  | - |  | 5 years     
|Mechanical and electrical installations  |  | - |  | 10 years    
|Office furniture, fittings and equipment |  | - |  | 5 years     
|Computers                                |  | - |  | 2 to 3 years



| |  |  | Interest incurred during the year of construction or
acquisition of major items of property, plant and equipment
is capitalized into cost of property, plant and equipment.
Interest capitalized is based on the average cost of the
Companys pooled borrowings.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) |  | Intangible Assets
| | --- |  | -----------------
|

| | (i)  |  | Computer software                                                                                                                                                                                                            
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Computer software, not forming an integral part of a related
hardware, which is acquired by the Company, is stated at
cost less accumulated amortization and impairment losses.                                              
|
| | (ii) |  | Subsequent expenditure                                                                                                                                                                                                       
|
| |      |  | Subsequent expenditure on capitalized intangible assets is
capitalized only when it increases the future economic
benefits embodied in the specific asset to which it relates.
All other expenditure is expensed as incurred.

F-46



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|2. |  | Summary of Significant Accounting Policies (contd)
|-- |  | ---------------------------------------------------



| | (e) |  | Intangible Assets (contd)
| | --- |  | --------------------------
|

| | (iii) |  | Amortization                                                                                                                                             
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Amortization is charged to the profit and loss account on a
straight-line basis over the estimated useful lives of 2 to
3 years of the computer software.
|

| | (f) |  | Derivatives and Hedging                                                                                                                                                                                                                                                                 
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Derivative financial instruments are used to manage exposure to
foreign exchange and interest rate risks arising from operational,
financing and investment activities. Derivative financial
instruments are not used for trading purposes.                                             
|
| |     |  | The Company only recognizes the accounting effect of derivative
instruments as, and to the extent that, the derivative financial
instruments have an effect on the Companys cash flows.                                                                                                
|
| | (g) |  | Deferred Expense                                                                                                                                                                                                                                                                        
|
| |     |  | The deferred expenses represent the arrangement fees incurred for
the long-term bank loan. The amount is amortized over the
repayment term of the long-term bank loan.                                                                                                                  
|
| | (h) |  | Inventories                                                                                                                                                                                                                                                                             
|
| |     |  | Inventories are stated at the lower of cost and net realizable
value.                                                                                                                                                                                                                   
|
| |     |  | Cost is determined principally on a standard cost basis which
approximates actual cost on the weighted average basis. For
work-in-progress and manufactured inventories, cost consists of
the cost of raw materials, direct labor and an appropriate
proportion of production overheads.
|
| |     |  | In arriving at the net realizable value, due allowance is made for
all obsolete and slow-moving items.                                                                                                                                                                                  
|
| | (i) |  | Affiliated Companies                                                                                                                                                                                                                                                                    
|
| |     |  | An affiliated company is defined as one, other than a related
company, which has common direct or indirect shareholders or
common directors with the Company.                                                                                                                           
|
| | (j) |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                               
|
| |     |  | For the purpose of the statement of cash flows, cash and cash
equivalents comprise cash balances, bank deposits and highly
liquid investments which are readily convertible to cash and which
are subject to an insignificant risk of changes in value.                                 

F-47



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|2. |  | Summary of Significant Accounting Policies (contd)
|-- |  | ---------------------------------------------------



| | (k) |  | Impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The carrying amounts of the Companys assets, other than
inventories, are reviewed at each balance sheet date to determine
whether there is any indication of impairment. An impairment loss
is recognized whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment
losses are recognized in the profit and loss account.                                                                                                                                                                                                                                                   
|
| |     |  | An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the assets carrying
amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment
loss had been recognized. There were no impairment loss reversals for
the years ended December 31, 2001, 2002 and 2003.                                                                                                                                                                         
|
| | (l) |  | Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | A provision for warranties is recognized when the underlying
products or services are sold. The provision is based on
historical experience and managements estimate of the level of
future claims and accrues for specific items at the time their
estimate is known and the amounts are determinable.                                                                                                                                                                                                                                                                                                                           
|
| |     |  | Costs incurred are charged against the provision and any over or
under provision is charged to the profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (m) |  | Deferred Tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     |  | Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial
statements. Temporary differences are not recognized for goodwill
not deductible for tax purposes and the initial recognition of
assets or liabilities that affect neither accounting nor taxable
profit. The amount of deferred tax provided is based on the
expected manner of realization or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
|
| |     |  | A deferred tax asset is recognized to the extent that it is
probable that future taxable profit will be available against
which the temporary differences can be utilized.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (n) |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Dividends on ordinary shares are recognized as a liability in the
period in which they are declared.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (o) |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | Provided it is probable that the economic benefits will flow to
the Company and the revenue and costs, if applicable, can be
measured reliably, revenue is recognized in the profit and loss
account as follows:                                                                                                                                                                                                                                                                                                                                                                                                                   
|

| | (i) |  | Sale of goods                                                                                                                                                                                                                                                                                     
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Revenue is recognized when significant risks and rewards of
ownership have been transferred to the buyer. Revenue
represents the invoiced value of goods and services
supplied, excluding goods and services tax, less an
allowance for returns. Revenue is recognized upon the
shipment of goods.

F-48



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|2. |  | Summary of Significant Accounting Policies (contd)
|-- |  | ---------------------------------------------------



| | (o) |  | Revenue Recognition (contd)
| | --- |  | ----------------------------
|

| | (ii)  |  | Allocated wafer capacity cost recovery                                                                                                                                                                                                                                 
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Allocated wafer capacity cost recoveries are recognized in
accordance with the terms under the assured supply and
demand agreement between the shareholders. Such recoveries
represent the unrecovered cost when the capacity allocated
to the shareholders is not met.
|
| | (iii) |  | Interest income                                                                                                                                                                                                                                                        
|
| |       |  | Interest income from bank deposits and cash pool deposits
with an affiliated company is accrued on a time-apportioned
basis.                                                                                                                                           
|

| | (p) |  | Operating Leases                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Where the Company has the use of assets under operating leases,
payments made under the leases are recognized in the profit and
loss account on a straight-line basis over the term of the lease.
Lease incentives received are recognized in the profit and loss
account as an integral part of the total lease payments made.
Contingent rentals are charged to the profit and loss account in
the accounting period in which they are incurred.
|
| | (q) |  | Finance Costs                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | Finance costs are expensed in the profit and loss account in the
period in which they are incurred, except to the extent that they
are capitalized as being directly attributable to the acquisition,
construction or production of an asset which necessarily takes a
substantial period of time to get ready for its intended use or
sale.                                                                                                      



|3. |  | Property, Plant and Equipment
|-- |  | -----------------------------

|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|-------------------------------- |  | --------- | ------- | -------------- |  | ------------ | ----- | --------- |  | ------------ | --- | ---------------- |  |  | ----- |  |  |  | ------- | - |  |  | ------- | -
|                                 |  |           |         |                |  |              |       |           |  | Office       |     |                  |  |  |       |  |  |  |         |   |  | 
|                                 |  | Equipment |         | Mechanical and |  | furniture,   |       |           |  |              |     | Assets under     |  |  |       | 
|                                 |  | and       |         | electrical     |  | fittings and |       |           |  |              |     | installation and |  |  |       | 
|Cost                             |  | machinery |         | installations  |  | equipment    |       | Computers |  | construction |     | Total           
|                                 |  | $         |         | $              |  | $            |       | $         |  | $            |     | $               
|At January 1, 2002               |  |           | 712,838 |                |  |              | 2,773 |           |  |              | 975 |                  |  |  | 4,199 |  |  |  | 25,192  |   |  |  | 745,977 |  
|Additions                        |  |           |        |                |  |              |      |           |  |              |    |                  |  |  |      |  |  |  | 46,567  |   |  |  | 46,567  |  
|Transfers                        |  |           | 61,286  |                |  |              |      |           |  |              |    |                  |  |  | 20    |  |  |  | (61,306 | ) |  |  |        |  
|Disposals                        |  |           | (2,781  | )              |  |              |      |           |  |              |    |                  |  |  |      |  |  |  | (840    | ) |  |  | (3,621  | )
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|At December 31, 2002             |  |           | 771,343 |                |  |              | 2,773 |           |  |              | 975 |                  |  |  | 4,219 |  |  |  | 9,613   |   |  |  | 788,923 |  
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|Accumulated depreciation         |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|At January 1, 2002               |  |           | 230,160 |                |  |              | 923   |           |  |              | 601 |                  |  |  | 3,155 |  |  |  |        |   |  |  | 234,839 |  
|Depreciation charge for
the year |  |           | 149,188 |                |  |              | 277   |           |  |              | 194 |                  |  |  | 708   |  |  |  |        |   |  |  | 150,367 |  
|Disposals                        |  |           | (964    | )              |  |              |      |           |  |              |    |                  |  |  |      |  |  |  |        |   |  |  | (964    | )
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|At December 31, 2002             |  |           | 378,384 |                |  |              | 1,200 |           |  |              | 795 |                  |  |  | 3,863 |  |  |  |        |   |  |  | 384,242 |  
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|Carrying amount                  |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  
|December 31, 2002                |  |           | 392,959 |                |  |              | 1,573 |           |  |              | 180 |                  |  |  | 356   |  |  |  | 9,613   |   |  |  | 404,681 |  
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |  |  |  |         |   |  |  |         |  



|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |   |  |  |         |   |  |  |         |  
|-------------------------------- |  | --------- | ------- | -------------- |  | ------------ | ----- | --------- |  | ------------ | --- | ---------------- |  |  | ----- | - |  |  | ------- | - |  |  | ------- | -
|                                 |  |           |         |                |  |              |       |           |  | Office       |     |                  |  |  |       |   |  |  |         |   |  | 
|                                 |  | Equipment |         | Mechanical and |  | furniture,   |       |           |  |              |     | Assets under     |  |  |       |  
|                                 |  | and       |         | electrical     |  | fittings and |       |           |  |              |     | installation and |  |  |       |  
|Cost (unaudited)                 |  | machinery |         | installations  |  | equipment    |       | Computers |  | construction |     | Total           
|                                 |  | $         |         | $              |  | $            |       | $         |  | $            |     | $               
|At January 1, 2003               |  |           | 771,343 |                |  |              | 2,773 |           |  |              | 975 |                  |  |  | 4,219 |   |  |  | 9,613   |   |  |  | 788,923 |  
|Additions                        |  |           |        |                |  |              |      |           |  |              |    |                  |  |  |      |   |  |  | 20,698  |   |  |  | 20,698  |  
|Transfers                        |  |           | 28,543  |                |  |              | 1,483 |           |  |              |    |                  |  |  | 172   |   |  |  | (30,198 | ) |  |  |        |  
|Disposals                        |  |           | (5,911  | )              |  |              |      |           |  |              |    |                  |  |  | (41   | ) |  |  |        |   |  |  | (5,952  | )
|Assets impairment                |  |           | (2,406  | )              |  |              |      |           |  |              |    |                  |  |  |      |   |  |  |        |   |  |  | (2,406  | )
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |   |  |  |         |   |  |  |         |  
|At December 31, 2003             |  |           | 791,569 |                |  |              | 4,256 |           |  |              | 975 |                  |  |  | 4,350 |   |  |  | 113     |   |  |  | 801,263 |  
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |   |  |  |         |   |  |  |         |  
|Accumulated depreciation         |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |   |  |  |         |   |  |  |         |  
|At January 1, 2003               |  |           | 378,384 |                |  |              | 1,200 |           |  |              | 795 |                  |  |  | 3,863 |   |  |  |        |   |  |  | 384,242 |  
|Depreciation charge for
the year |  |           | 158,875 |                |  |              | 365   |           |  |              | 127 |                  |  |  | 324   |   |  |  |        |   |  |  | 159,691 |  
|Disposals                        |  |           | (2,561  | )              |  |              |      |           |  |              |    |                  |  |  | (41   | ) |  |  |        |   |  |  | (2,602  | )
|Assets impairment                |  |           | (2,228  | )              |  |              |      |           |  |              |    |                  |  |  |      |   |  |  |        |   |  |  | (2,228  | )
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |   |  |  |         |   |  |  |         |  
|At December 31, 2003             |  |           | 532,470 |                |  |              | 1,565 |           |  |              | 922 |                  |  |  | 4,146 |   |  |  |        |   |  |  | 539,103 |  
|                                 |  |           |         |                |  |              |       |           |  |              |     |                  |  |  |       |   |  |  |         |   |  |  |         |  

F-49



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|3. |  | Property, Plant and Equipment (contd)
|-- |  | --------------------------------------

|                  |  |           |         |                |  |              |       |           |  |              |    |                  |  |  |     |  |  |  |     |  |  |  |         | 
|----------------- |  | --------- | ------- | -------------- |  | ------------ | ----- | --------- |  | ------------ | -- | ---------------- |  |  | --- |  |  |  | --- |  |  |  | ------- | 
|                  |  |           |         |                |  |              |       |           |  | Office       |    |                  |  |  |     |  |  |  |     |  |  | 
|                  |  | Equipment |         | Mechanical and |  | furniture,   |       |           |  |              |    | Assets under     |  |  |     | 
|                  |  | and       |         | electrical     |  | fittings and |       |           |  |              |    | installation and |  |  |     | 
|                  |  | machinery |         | installations  |  | equipment    |       | Computers |  | construction |    | Total           
|                  |  | $         |         | $              |  | $            |       | $         |  | $            |    | $               
|Carrying amount   |  |           |         |                |  |              |       |           |  |              |    |                  |  |  |     |  |  |  |     |  |  |  |         | 
|December 31, 2003 |  |           | 259,099 |                |  |              | 2,691 |           |  |              | 53 |                  |  |  | 204 |  |  |  | 113 |  |  |  | 262,160 | 
|                  |  |           |         |                |  |              |       |           |  |              |    |                  |  |  |     |  |  |  |     |  |  |  |         | 



|   |  | During the year, interest expenses of approximately $237 (2002: $1,218;
2001: $3,760) were capitalized in the cost of property, plant and
equipment.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | Intangible Assets                                                                                                                                   

|                         |  |  |       |   |                  |  |       |  | 
|------------------------ |  |  | ----- | - | ---------------- |  | ----- |  | 
|                         |  |  | 2002  |   | 2003
(Unaudited)
|                         |  |  | $     |   | $               
|Computer
Software        |  |  |       |   |                  |  |       | 
|Cost                     |  |  |       |   |                  |  |       | 
|At January 1,            |  |  | 3,632 |   |                  |  | 3,448 | 
|Additions                |  |  | 109   |   |                  |  | 77    | 
|Disposals                |  |  | (293  | ) |                  |  |      | 
|                         |  |  |       |   |                  |  |       | 
|At December 31,          |  |  | 3,448 |   |                  |  | 3,525 | 
|                         |  |  |       |   |                  |  |       | 
|Accumulated amortization |  |  |       |   |                  |  |       | 
|At January 1,            |  |  | 2,394 |   |                  |  | 3,012 | 
|Charge for the year      |  |  | 795   |   |                  |  | 324   | 
|Disposals                |  |  | (177  | ) |                  |  |      | 
|                         |  |  |       |   |                  |  |       | 
|At December 31,          |  |  | 3,012 |   |                  |  | 3,336 | 
|                         |  |  |       |   |                  |  |       | 
|Carrying amount          |  |  |       |   |                  |  |       | 
|December 31,             |  |  | 436   |   |                  |  | 189   | 
|                         |  |  |       |   |                  |  |       | 



|5. |  | Deferred Expense
|-- |  | ----------------

|                                       |                            |  |       |       |             |  |       |       | 
|-------------------------------------- | -------------------------- |  | ----- | ----- | ----------- |  | ----- | ----- | 
|                                       |                            |  | 2002  |       | 2003       
|                                       |                            |  |       |       | (Unaudited)
|                                       |                            |  | $     |       | $          
|Deferred finance cost                  |                            |  | 6,048 |       |             |  | 6,048 |      
|                                       | Less:                      |  |       |       |             |  |       |       | 
|Amortization for deferred finance cost |                            |  |       |       |             |  |       |      
|                                       | At January 1,              |  |       | 2,352 |             |  |       | 3,360 | 
|                                       | Charge for the year        |  |       | 1,008 |             |  |       | 1,008 | 
|                                       |                            |  |       |       |             |  |       |      
|                                       | Balance as at December 31, |  |       | 3,360 |             |  |       | 4,368 | 
|                                       |                            |  |       |       |             |  |       |      
|                                       |                            |  | 2,688 |       |             |  | 1,680 |      
|                                       |                            |  |       |       |             |  |       |      

F-50



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|6. |  | Inventories
|-- |  | -----------

|                                       |       |  |        |  |             |  |        |  | 
|-------------------------------------- | ----- |  | ------ |  | ----------- |  | ------ |  | 
|                                       |       |  | 2002   |  | 2003       
|                                       |       |  |        |  | (Unaudited)
|                                       |       |  | $      |  | $          
|Raw materials                          |       |  | 690    |  |             |  | 1,118  | 
|Work-in-progress                       |       |  | 16,369 |  |             |  | 29,849 | 
|Consumable supplies and spares         |       |  | 596    |  |             |  | 568    | 
|                                       |       |  |        |  |             |  |        | 
|                                       |       |  | 17,655 |  |             |  | 31,535 | 
|                                       | Less: |  |        |  |             |  |        |  | 
|Allowance for inventories obsolescence |       |  | 539    |  |             |  | 408    | 
|                                       |       |  |        |  |             |  |        | 
|                                       |       |  | 17,116 |  |             |  | 31,127 | 
|                                       |       |  |        |  |             |  |        | 



|   |  | Included in work-in-progress is an amount of $Nil (2002: $186)
stated at net realizable value.
|-- |  | ----------------------------------------------------------------------------------------------
|  
|7. |  | Trade and Other Receivables                                                                   

|                                                           |                                         |  |        |        |             |  |        |        | 
|---------------------------------------------------------- | --------------------------------------- |  | ------ | ------ | ----------- |  | ------ | ------ | 
|                                                           |                                         |  | 2002   |        | 2003       
|                                                           |                                         |  |        |        | (Unaudited)
|                                                           |                                         |  | $      |        | $          
|Trade receivables                                          |                                         |  | 10,883 |        |             |  | 17,034 |       
|Deposits                                                   |                                         |  | 66     |        |             |  | 29     |       
|Prepayments                                                |                                         |  | 2,244  |        |             |  | 2,426  |       
|Staff loans and advances                                   |                                         |  | 14     |        |             |  | 11     |       
|Other receivables                                          |                                         |  | 46     |        |             |  | 260    |       
|Amount due from related companies and
affiliated companies |                                         |  |        |        |             |  |        |       
|                                                           | -    affiliated company (trade)         |  |        | 67     |             |  |        |       | 
|                                                           | -     minority shareholder (trade)      |  |        | 107    |             |  |        | 592    | 
|                                                           | -     related company (trade)           |  |        | 1,169  |             |  |        | 212    | 
|                                                           | -     immediate holding company
(trade) |  |        | 15,637 |             |  |        | 35,686 | 
|                                                           |                                         |  |        |        |             |  |        |       
|                                                           |                                         |  | 30,233 |        |             |  | 56,250 |       
|                                                           |                                         |  |        |        |             |  |        |       



|8. |  | Cash and Cash Equivalents
|-- |  | -------------------------

|                                              |  |      |         |             |  |  |         | 
|--------------------------------------------- |  | ---- | ------- | ----------- |  |  | ------- | 
|                                              |  | 2002 |         | 2003       
|                                              |  |      |         | (Unaudited)
|                                              |  | $    |         | $          
|Cash at bank and in hand                      |  |      | 21,856  |             |  |  | 129,625 | 
|Cash pool deposits with an affiliated
company |  |      | 90,865  |             |  |  |        | 
|                                              |  |      |         |             |  |  |         | 
|Cash and cash equivalents                     |  |      | 112,721 |             |  |  | 129,625 | 
|                                              |  |      |         |             |  |  |         | 

F-51



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|9. |  | Trade and Other Payables
|-- |  | ------------------------

|                                                          |  |            |        |             |  |  |        | 
|--------------------------------------------------------- |  | ---------- | ------ | ----------- |  |  | ------ | 
|                                                          |  | 2002       |        | 2003       
|                                                          |  | (Restated) |        | (Unaudited)
|                                                          |  | $          |        | $          
|                                                          |  |            |        |            
|Trade payables                                            |  |            | 4,077  |             |  |  | 5,942  | 
|Payables for purchase of property,
plant and equipment    |  |            | 5,982  |             |  |  | 107    | 
|Accrued operating expenses                                |  |            | 15,512 |             |  |  | 14,404 | 
|Liability for short-term accumulated
compensated absences |  |            | 107    |             |  |  | 210    | 
|Dividend payables                                         |  |            |       |             |  |  | 34,508 | 
|Other payables                                            |  |            | 708    |             |  |  | 247    | 
|Amount due to related companies and affiliated companies  |  |            |        |             |  |  |        | 
|-     affiliated company (trade)                          |  |            | 147    |             |  |  | 467    | 
|-     related company (trade)                             |  |            |       |             |  |  | 543    | 
|-     minority shareholder (trade)                        |  |            | 11,459 |             |  |  | 35,144 | 
|-     immediate holding company (trade)                   |  |            | 421    |             |  |  | 98     | 
|                                                          |  |            |        |             |  |  |        | 
|                                                          |  |            | 38,413 |             |  |  | 91,670 | 
|                                                          |  |            |        |             |  |  |        | 



|10. |  | Provisions
|--- |  | ----------

|                                    |  |      |        |             |  |  |        |  
|----------------------------------- |  | ---- | ------ | ----------- |  |  | ------ | -
|                                    |  | 2002 |        | 2003       
|                                    |  |      |        | (Unaudited)
|                                    |  | $    |        | $          
|Provisions for warranties           |  |      |        |             |  |  |        |  
|At January 1,                       |  |      | 1,907  |             |  |  | 2,656  |  
|Provisions made during the year     |  |      | 3,468  |             |  |  | 7,327  |  
|Provisions utilized during the year |  |      | (2,719 | )           |  |  | (6,928 | )
|                                    |  |      |        |             |  |  |        |  
|At December 31,                     |  |      | 2,656  |             |  |  | 3,055  |  
|                                    |  |      |        |             |  |  |        |  



|    |  | The provision for warranties is made based on historical experience and
managements estimate of the level of future claims. The Company
expects to incur the liability within one year.                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|11. |  | Interest-Bearing Liabilities                                                                                                                                                                                                      
|   
|    |  | The bank loan, which consists of $128,571 (2002: $214,286) from Tranche
A and $42,857 (2002: $64,285) from Tranche B, is secured by a
debenture, giving the holder thereof a first floating charge on all of
the Companys assets.
|   
|    |  | Tranche A bears interest at a margin rate of 1% to 1.35% above London
inter-bank offering rates (depending on the debt to equity ratio) and
is repayable over seven equal semi-annual instalments commencing on
March 17, 2002.   

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|11. |  | Interest-Bearing Liabilities (contd)                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Tranche B bears interest at a margin rate of 1% to 1.45% above London
inter-bank offering rates (depending on the debt to equity ratio) and is
repayable over seven equal semi-annual instalments commencing on
December 3, 2002.

|                      |                      |  |         |         |             |  |         |         | 
|--------------------- | -------------------- |  | ------- | ------- | ----------- |  | ------- | ------- | 
|                      |                      |  | 2002    |         | 2003       
|                      |                      |  |         |         | (Unaudited)
|                      |                      |  | $       |         | $          
|Repayable as follows: |                      |  |         |         |             |  |         |        
|                      | Due within 12 months |  |         | 107,142 |             |  |         | 107,142 | 
|                      | Due after 12 months  |  |         | 171,429 |             |  |         | 64,286  | 
|                      |                      |  |         |         |             |  |         |        
|                      |                      |  | 278,571 |         |             |  | 171,428 |        
|                      |                      |  |         |         |             |  |         |        



|12. |  | Share Capital
|--- |  | -------------

|                                                                            |  |      |         |             |  |    |         | 
|--------------------------------------------------------------------------- |  | ---- | ------- | ----------- |  | -- | ------- | 
|                                                                            |  | 2002 |         | 2003       
|                                                                            |  |      |         | (Unaudited)
|                                                                            |  | $    |         | $          
|Authorized:                                                                 |  |      |         |             |  |    |         | 
|490,000,000
(2002: 490,000,000)
A ordinary shares of S$1 (2002: S$1) each |  | S$   | 490,000 |             |  | S$ | 490,000 | 
|                                                                            |  |      |         |             |  |    |         | 
|510,000,000
(2002: 510,000,000)
B ordinary shares of S$1 (2002: S$1) each |  | S$   | 510,000 |             |  | S$ | 510,000 | 
|                                                                            |  |      |         |             |  |    |         | 
|Issued and fully-paid:                                                      |  |      |         |             |  |    |         | 
|208,250,000
(2002: 208,250,000)
A ordinary shares of S$1 (2002: S$1) each |  | $    | 123,670 |             |  | $  | 123,670 | 
|216,750,000
(2002: 216,750,000)
B ordinary shares of S$1 (2002: S$1) each |  | $    | 128,719 |             |  | $  | 128,719 | 
|                                                                            |  |      |         |             |  |    |         | 
|                                                                            |  | $    | 252,389 |             |  | $  | 252,389 | 
|                                                                            |  |      |         |             |  |    |         | 



| |  | The A and B ordinary shares rank pari passu in all respects, except
that the rates of dividend may differ. All shares issues have been
made at par for cash considerations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|13. |  | Shareholders Agreements                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Under the strategic alliance agreement with the two shareholders of the
Company, the shareholders do not share the Companys net results in the
same ratio as the equity holding. Instead, each shareholder is
entitled to the gross profits from sales to the customers that it
directs to the Company after deducting its share of the overhead costs
of the Company.                                        
|   
|    |  | Under the assured supply and demand agreement that both the
shareholders signed with the Company, the shareholders are billed with
effect from January 1, 2001 for allocated wafer capacity if the wafers
started for them are less than their allocated capacity. Such amounts
represent the unrecovered cost to the Company when the allocated
capacity is not taken up by one, or both, of the shareholders.
|   
|14. |  | Other Operating Income                                                                                                                                                                                                                                                                                                                                                                                         

|                                                    |  |      |       |   |  |      |         |      |  |             |        |  |  |  |       | 
|--------------------------------------------------- |  | ---- | ----- | - |  | ---- | ------- | ---- |  | ----------- | ------ |  |  |  | ----- | 
|                                                    |  |      |       |   |  | 2001 |         | 2002 |  | 2003       
|                                                    |  |      |       |   |  |      |         |      |  | (Unaudited)
|                                                    |  | Note |       | $ |  | $    |         | $   
|Allocated wafer capacity cost
recovery              |  |      | 13,21 |   |  |      | 112,413 |      |  |             | 49,512 |  |  |  |      | 
|Interest income                                     |  |      |       |   |  |      |         |      |  |             |        |  |  |  |       | 
|-     banks                                         |  |      |       |   |  |      | 214     |      |  |             | 133    |  |  |  | 914   | 
|-     cash pool deposits with an affiliated
company |  |      |       |   |  |      | 1,630   |      |  |             | 1,749  |  |  |  | 338   | 
|Reversal of Economic Value Added
bonus provision    |  |      |       |   |  |      |        |      |  |             |       |  |  |  | 3,578 | 
|Exchange gain                                       |  |      |       |   |  |      | 2,341   |      |  |             |       |  |  |  |      | 
|Gain on disposal of intangible assets               |  |      |       |   |  |      |        |      |  |             | 178    |  |  |  |      | 
|Others                                              |  |      |       |   |  |      | 234     |      |  |             | 6      |  |  |  | 10    | 
|                                                    |  |      |       |   |  |      |         |      |  |             |        |  |  |  |       | 
|                                                    |  |      |       |   |  |      | 116,832 |      |  |             | 51,578 |  |  |  | 4,840 | 
|                                                    |  |      |       |   |  |      |         |      |  |             |        |  |  |  |       | 



|    |  | In prior years, the Company had implemented an employee bonus plan with
respect to the payment of bonuses to employees. In March 2003, the
Company cancelled the employee bonus award plan. As a result,
compensation accrued for past services under the bonus award plan of
$3,578 was eliminated by decreasing compensation expense in the period
of the cancellation.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|15. |  | Other Operating Expenses                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Company recorded an impairment charge of $178 on certain property,
plant and equipment which have been identified for sale as at December
31, 2003. These assets were written down to their net selling prices.
The selling prices were determined based on independent quotes from
third party vendors.                                                             

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|16. |  | Profit From Operations                                                       
|--- |  | -----------------------------------------------------------------------------
|   
|    |  | The following items have been included in arriving at profit from
operations:

|                                                                    |  |      |   |   |  |      |         |      |  |             |         |  |  |  |         |  
|------------------------------------------------------------------- |  | ---- | - | - |  | ---- | ------- | ---- |  | ----------- | ------- |  |  |  | ------- | -
|                                                                    |  |      |   |   |  | 2001 |         | 2002 |  | 2003       
|                                                                    |  |      |   |   |  |      |         |      |  | (Unaudited)
|                                                                    |  | Note |   | $ |  | $    |         | $   
|Allowance made for inventories                                      |  |      |   |   |  |      | 38      |      |  |             | 501     |  |  |  | (131    | )
|Amortization of deferred expenses                                   |  |      | 5 |   |  |      | 1,008   |      |  |             | 1,008   |  |  |  | 1,008   |  
|Amortization of intangible assets                                   |  |      | 4 |   |  |      | 1,325   |      |  |             | 795     |  |  |  | 324     |  
|Loss on disposal of property, plant
and equipment                   |  |      |   |   |  |      | 6       |      |  |             | 728     |  |  |  |        |  
|Exchange loss                                                       |  |      |   |   |  |      |        |      |  |             | 547     |  |  |  | 357     |  
|Depreciation of property, plant and
equipment                       |  |      | 3 |   |  |      | 128,982 |      |  |             | 150,367 |  |  |  | 159,691 |  
|Operating lease expenses                                            |  |      |   |   |  |      | 15,166  |      |  |             | 15,705  |  |  |  | 15,567  |  
|Staff costs                                                         |  |      |   |   |  |      | 18,139  |      |  |             | 16,788  |  |  |  | 15,799  |  
|Contributions to defined contribution
plans included in staff costs |  |      |   |   |  |      | 1,019   |      |  |             | 931     |  |  |  | 964     |  



|    |  | The number of employees as at December 31, 2003 is 602 (2002: 551;
2001: 662).
|--- |  | ------------------------------------------------------------------------------
|   
|17. |  | Finance Costs                                                                 

|                                                             |       |  |        |   |      |  |             |   |  |  |        |   | 
|------------------------------------------------------------ | ----- |  | ------ | - | ---- |  | ----------- | - |  |  | ------ | - | 
|                                                             |       |  | 2001   |   | 2002 |  | 2003       
|                                                             |       |  |        |   |      |  | (Unaudited)
|                                                             |       |  | $      |   | $    |  | $          
|Interest paid and payable to banks                           |       |  | 32,037 |   |      |  | 30,015      |   |  |  | 21,107 |  
|Other finance costs paid and payable
to banks                |       |  | 1,305  |   |      |  | 1,283       |   |  |  | 1,038  |  
|                                                             |       |  |        |   |      |  |             |   |  |  |        |  
|Total finance costs                                          |       |  | 33,342 |   |      |  | 31,298      |   |  |  | 22,145 |  
|                                                             | Less: |  |        |   |      |  |             |   |  |  |        |   | 
|Finance costs capitalized into
property, plant and equipment |       |  | (3,760 | ) |      |  | (1,218      | ) |  |  | (237   | )
|                                                             |       |  |        |   |      |  |             |   |  |  |        |  
|                                                             |       |  | 29,582 |   |      |  | 30,080      |   |  |  | 21,908 |  
|                                                             |       |  |        |   |      |  |             |   |  |  |        |  

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|18. |  | Income Tax Expense
|--- |  | ------------------



| | (a) |  | Recognized in the profit and loss account
| | --- |  | -----------------------------------------

|                                   |  |      |     |      |  |             |     |  |  |  |     |  
|---------------------------------- |  | ---- | --- | ---- |  | ----------- | --- |  |  |  | --- | -
|                                   |  | 2001 |     | 2002 |  | 2003       
|                                   |  |      |     |      |  | (Unaudited)
|                                   |  | $    |     | $    |  | $          
|Current tax expense:               |  |      |     |      |  |             |     |  |  |  |     |  
|-     current year                 |  |      | 352 |      |  |             | 485 |  |  |  | 288 |  
|-     over provided in prior years |  |      | (26 | )    |  |             |    |  |  |  | (13 | )
|                                   |  |      |     |      |  |             |     |  |  |  |     |  
|                                   |  |      | 326 |      |  |             | 485 |  |  |  | 275 |  
|                                   |  |      |     |      |  |             |     |  |  |  |     |  



| | (b) |  | Reconciliation of effective tax rate
| | --- |  | ------------------------------------

|                                                                      |  |            |         |            |  |             |         |   |  |  |        |  
|--------------------------------------------------------------------- |  | ---------- | ------- | ---------- |  | ----------- | ------- | - |  |  | ------ | -
|                                                                      |  | 2001       |         | 2002       |  | 2003       
|                                                                      |  | (Restated) |         | (Restated) |  | (Unaudited)
|                                                                      |  | $          |         | $          |  | $          
|Profit/(Loss) before tax                                              |  |            | 56,855  |            |  |             | (19,832 | ) |  |  | 21,444 |  
|                                                                      |  |            |         |            |  |             |         |   |  |  |        |  
|Income taxes using Singapore tax rate
of 22% (2002: 22%, 2001: 24.5%) |  |            | 13,929  |            |  |             | (4,363  | ) |  |  | 4,718  |  
|Expenses not deductible for tax
purposes                              |  |            | 1,970   |            |  |             | 1,135   |   |  |  | 394    |  
|Exempt pioneer profits                                                |  |            | (15,547 | )          |  |             |        |   |  |  | (4,824 | )
|Pioneer losses and allowances not
recognized as deferred benefit      |  |            |        |            |  |             | 3,713   |   |  |  |       |  
|Over provided in prior years                                          |  |            | (26     | )          |  |             |        |   |  |  | (13    | )
|                                                                      |  |            |         |            |  |             |         |   |  |  |        |  
|                                                                      |  |            | 326     |            |  |             | 485     |   |  |  | 275    |  
|                                                                      |  |            |         |            |  |             |         |   |  |  |        |  



| |  | The Company has been granted pioneer status for a period of ten years
under the Singapore Economic Expansion Incentives (Relief from Income
Tax) Act, Chapter 86 (the Income Tax Act), for the manufacture of
integrated circuits using sub-micron technology effective from May 1,
2000. During the pioneer status period, income from pioneer trade is
exempt from income tax, subject to compliance with the conditions
stated in the pioneer certificate and the Income Tax Act.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The income tax expense of the Company is for income tax payable on
income derived from non-pioneer activities, principally interest
income.                                                                                                                                                                                                                                                                                                                                           
|
| |  | As at December 31, 2003, the Company has unutilized property, plant and
equipment related wear and tear allowance carryforwards of
approximately $Nil (2002: $6,315). Deferred tax assets and liabilities
arising from temporary differences relating to property, plant and
equipment have not been recognized as these deductible temporary
differences are expected to reverse within the pioneer status period
which is tax effected at 0%.                                       

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|19. |  | Restatement of Results                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The minority shareholder grants stock options to employees of the
Company and recovers the stock compensation charge arising from the
Company.                                                                                                                                                                                                                                       
|   
|    |  | In prior years, the measurement date used by the minority shareholder
in the calculation of stock compensation charge was based on the date
when the stock options were granted. During the current financial
year, the Company determined that the accounting used in prior years
was incorrect and that the measurement date should have been the date when the stock options vest.
|   
|    |  | This correction of an error  has the following impact on
the net profit/(loss) for the years ended December 31, 2001 and
2002:                                                                                                                                                                                                                                                       

|                                     |  |      |        |      |  |  |         |  
|------------------------------------ |  | ---- | ------ | ---- |  |  | ------- | -
|                                     |  | 2001 |        | 2002
|                                     |  |      |        |     
|                                     |  | $    |        | $   
|Net
profit/(loss) before restatement |  |      | 53,793 |      |  |  | (23,432 | )
|Effect
of restatement                |  |      | 2,736  |      |  |  | 3,115   |  
|                                     |  |      |        |      |  |  |         |  
|Net profit/(loss) for the year       |  |      | 56,529 |      |  |  | (20,317 | )
|                                     |  |      |        |      |  |  |         |  



|20. |  | Dividend                                                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As disclosed in note 13, under the strategic alliance agreement, the
shareholders of the Company do not share the Companys net results in
the same ratio as their equity holding.
|   
|    |  | During the year, the Company declared two interim dividends to the
holder of the B ordinary shares as follows:                                                                  

|                                                                        |  |      |   |      |  |             |   |  |  |  |        | 
|----------------------------------------------------------------------- |  | ---- | - | ---- |  | ----------- | - |  |  |  | ------ | 
|                                                                        |  | 2001 |   | 2002 |  | 2003       
|                                                                        |  |      |   |      |  | (Unaudited)
|                                                                        |  | $    |   | $    |  | $          
|First interim dividend declared of $0.0011
per share, net of tax at 22% |  |      |  |      |  |             |  |  |  |  | 234    | 
|Second interim dividend declared of $0.2515
per share, tax exempt       |  |      |  |      |  |             |  |  |  |  | 54,508 | 
|                                                                        |  |      |   |      |  |             |   |  |  |  |        | 
|                                                                        |  |      |  |      |  |             |  |  |  |  | 54,742 | 
|                                                                        |  |      |   |      |  |             |   |  |  |  |        | 



|21. |  | Significant Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | For the purpose of these financial statements, parties are considered
to be related to the Company if the Company has the ability, directly
or indirectly, to control the party or exercise significant influence
over the party in making financial and operating decisions, or vice
versa, or where the Company and the party are subject to common control
or common significant influence. Related parties may be individuals or
other entities.

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|21. |  | Significant Related Party Transactions (contd)                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the financial year, there were the following significant
transactions with related parties on terms agreed between the parties:

|                          |                                                         |  |      |    |            |  |            |         |             |  |      |         |   |  |  |         | 
|------------------------- | ------------------------------------------------------- |  | ---- | -- | ---------- |  | ---------- | ------- | ----------- |  | ---- | ------- | - |  |  | ------- | 
|                          |                                                         |  |      |    |            |  | 2001       |         | 2002        |  | 2003
|                          |                                                         |  | Note |    | (Restated) |  | (Restated) |         | (Unaudited)
|                          |                                                         |  |      |    | $          |  | $          |         | $          
|Immediate Holding Company |                                                         |  |      |    |            |  |            |         |             |  |      |         |   |  |  |        
|                          | Recharge of employee
expenses to Company                |  |      |    |            |  |            | 1       |             |  |      | 73      |   |  |  | 117     | 
|                          | Sale of processed wafers                                |  |      |    |            |  |            | 166,446 |             |  |      | 158,456 |   |  |  | 191,493 | 
|                          | Allocated wafer capacity cost
recovery                  |  |      | 14 |            |  |            | 22,452  |             |  |      | 9,317   |   |  |  |        | 
|                          | Purchase of wafers                                      |  |      |    |            |  |            | 3,812   |             |  |      | 3,599   |   |  |  | 2,277   | 
|                          | Dividend declared                                       |  |      |    |            |  |            |        |             |  |      |        |   |  |  | 54,742  | 
|Related Companies         |                                                         |  |      |    |            |  |            |         |             |  |      |         |   |  |  |        
|                          | Recharge of employee
expenses to Company                |  |      |    |            |  |            | 708     |             |  |      | 2,096   |   |  |  | 2,271   | 
|                          | Recharge of other expenses to
Company                   |  |      |    |            |  |            | 87      |             |  |      |        |   |  |  |        | 
|                          | Sale of processed wafers                                |  |      |    |            |  |            | 10,990  |             |  |      | 7,779   |   |  |  | 3,593   | 
|Minority Shareholder      |                                                         |  |      |    |            |  |            |         |             |  |      |         |   |  |  |        
|                          | Purchase of processed wafers                            |  |      |    |            |  |            | 23      |             |  |      | 724     |   |  |  |        | 
|                          | Purchase of property, plant and
equipment               |  |      |    |            |  |            | 15,582  |             |  |      | 3,211   |   |  |  | 12,703  | 
|                          | Payment of rental expense                               |  |      |    |            |  |            | 14,804  |             |  |      | 14,713  |   |  |  | 15,024  | 
|                          | Recharge of employee related
expenses to/(from) Company |  |      |    |            |  |            | 1,374   |             |  |      | (129    | ) |  |  | 805     | 
|                          | Recharge of other expenses to
Company                   |  |      |    |            |  |            | 23,503  |             |  |      | 28,086  |   |  |  | 45,747  | 
|                          | Sale of processed wafers                                |  |      |    |            |  |            | 10,601  |             |  |      | 6,650   |   |  |  | 1,818   | 
|                          | Allocated wafer capacity cost
recovery                  |  |      | 14 |            |  |            | 89,961  |             |  |      | 40,195  |   |  |  |        | 
|                          | Sale of property, plant and
equipment                   |  |      |    |            |  |            |        |             |  |      | 1,069   |   |  |  | 3,350   | 
|Affiliated Companies      |                                                         |  |      |    |            |  |            |         |             |  |      |         |   |  |  |        
|                          | Purchase of property, plant and
equipment               |  |      |    |            |  |            | 1,756   |             |  |      |        |   |  |  | 1,515   | 
|                          | Payment of car park rental                              |  |      |    |            |  |            | 96      |             |  |      | 93      |   |  |  | 97      | 
|                          | Purchase of processed wafers                            |  |      |    |            |  |            | 43      |             |  |      | 116     |   |  |  | 447     | 
|                          | Recharge of other expenses to
company                   |  |      |    |            |  |            |        |             |  |      |        |   |  |  | 118     | 
|                          | Sale of processed wafers                                |  |      |    |            |  |            |        |             |  |      | 165     |   |  |  | 454     | 
|                          | Sale of property, plant and
equipment                   |  |      |    |            |  |            | 2,661   |             |  |      | 849     |   |  |  |        | 
|                          | Interest income                                         |  |      |    |            |  |            | 1,630   |             |  |      | 1,749   |   |  |  | 338     | 
|                          |                                                         |  |      |    |            |  |            |         |             |  |      |         |   |  |  |         | 

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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|22. |  | Commitments
|--- |  | -----------
|   

| | (a) |  | Capital commitments
| | --- |  | -------------------

|                                  |  |      |         |      |  |             |        |  |  |  |        | 
|--------------------------------- |  | ---- | ------- | ---- |  | ----------- | ------ |  |  |  | ------ | 
|                                  |  | 2001 |         | 2002 |  | 2003       
|                                  |  |      |         |      |  | (Unaudited)
|                                  |  | $    |         | $    |  | $          
|Contracted but not provided for   |  |      | 15,026  |      |  |             | 6,434  |  |  |  | 6,148  | 
|Authorized but not contracted for |  |      | 210,313 |      |  |             | 10,661 |  |  |  | 10,391 | 
|                                  |  |      |         |      |  |             |        |  |  |  |        | 



| | (b) |  | Operating lease commitments                                                                                                                                                                                                                            
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company leases its fab from its minority shareholder, under a
long-term lease agreement which expires in 2008. At December 31,
the Company had commitments for future minimum lease payments
under the non-cancellable operating leases as follows:

|         |                                 |  |        |        |      |  |             |        |  |  |        |        | 
|-------- | ------------------------------- |  | ------ | ------ | ---- |  | ----------- | ------ |  |  | ------ | ------ | 
|         |                                 |  | 2001   |        | 2002 |  | 2003       
|         |                                 |  |        |        |      |  | (Unaudited)
|         |                                 |  | $      |        | $    |  | $          
|Payable: |                                 |  |        |        |      |  |             |        |  |  |        |       
|         | Within 1 year                   |  |        | 15,052 |      |  |             | 15,391 |  |  |        | 15,561 | 
|         | After 1 year but within 5 years |  |        | 58,310 |      |  |             | 60,640 |  |  |        | 50,169 | 
|         | After 5 years                   |  |        | 18,180 |      |  |             | 3,786  |  |  |        |       | 
|         |                                 |  |        |        |      |  |             |        |  |  |        |       
|         |                                 |  | 91,542 |        |      |  | 79,817      |        |  |  | 65,730 |       
|         |                                 |  |        |        |      |  |             |        |  |  |        |        | 



|23. |  | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company
uses derivative financial instruments principally to manage identified
interest rate risks resulting from its floating rate loan and, to a
lesser extent, its foreign currency purchase commitments which are
principally denominated in Japanese yen. While these are subject to
the risk of market rates changing subsequent to acquisition, such
changes are generally offset by opposite effects on the items being
hedged. The Companys accounting policies in relation to the
derivative financial instruments are set out in note 2(f).
|   
|    |  | By using derivative instruments to hedge exposures to changes in
interest rates and foreign currency rates, the Company exposes itself
to credit risk and market risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



| | (a) |  | Credit risk                                                                                                                                                                                                                                                                                                              
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Credit risk is the potential financial loss resulting from the
failure of a customer or a counterparty to settle its financial
and contractual obligations to the Company, as and when they fall
due.                                                                                                                    
|
| |     |  | The Company has established credit limits for customers and
monitors their balances. Cash and fixed deposits are placed with
banks and financial institutions which are regulated. Investments
and transactions involving derivative financial instruments are
allowed only with counterparties that are of high quality.

F-59



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|23. |  | Financial Instruments (contd)
|--- |  | ------------------------------



| | (b) |  | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company monitors and maintains a level of cash and cash
equivalents deemed adequate by management to finance the Companys
operations and to mitigate the effects of fluctuations in cash
flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (c) |  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | Interest rate risk is the adverse effect on the value of a
financial instrument that results from a change in interest rates
or currency exchange rates. The Company uses interest rate swaps
to redenominate its floating rate interest obligations of its loan
to fixed rate interest obligations. The swaps mature in 2005 and
have interest rates from 7.60% to 8.29%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The notional amounts indicate the volume of the open derivatives
at the balance sheet date and therefore do not reflect the
Companys exposures or risks from such transactions. The notional
amounts do not represent amounts exchanged by the parties, but
rather represent the contracts on which payments are calculated.
The potential risk relates to fluctuations in market prices as
well as the credit risk of contract partners. The fair values
indicate the accrued gains or losses to be recognized when the
hedged item affects the profit and loss account. The computation
of fair values does not consider the offsetting change in the
value of the item being hedged. The fair values of existing
interest rate swaps represent the amount that the Company would
have had to pay or would have received if the contracts were
terminated at the balance sheet date.
|
| | (d) |  | Foreign currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | The Company incurs foreign currency risk on purchases, primarily
of fixed assets, that are denominated in currencies other than US
dollars. The currencies giving rise to this risk are primarily
the Singapore dollar and the Japanese yen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | The Company uses forward exchange contracts to hedge its foreign
currency risk. The Company fully hedges its payables, and
estimated foreign currency exposure in respect of forecast
purchases over the following six months, relating to fixed asset
purchases. Where necessary, the forward exchange contracts are
rolled over at maturity at market rates. The Company only enters
into forward exchange contracts with maturities of less than one
year.                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | In respect of other monetary liabilities denominated in currencies
other than the US dollar, the Company ensures that the net
exposure is kept to an acceptable level by buying or selling
foreign currencies at spot rates, where necessary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (e) |  | Effective interest rates and repricing analysis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | In respect of interest-earning financial assets and
interest-bearing financial liabilities, the following table
indicates their effective interest rates at the balance sheet date
and the periods in which they reprice:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                          |  |      |   |      |  |           |      |        |  |  |         |        |  |         |         |       |  |  |  |  |   |  |  |  |  |  |   | 
|------------------------- |  | ---- | - | ---- |  | --------- | ---- | ------ |  |  | ------- | ------ |  | ------- | ------- | ----- |  |  |  |  | - |  |  |  |  |  | - | 
|                          |  |      |   |      |  | Effective |      |        |  |  |         |        |  |         |         |       |  |  |  |  |   |  |  |  |  | 
|                          |  |      |   |      |  | Interest  |      |        |  |  |         | Within |  | 1 to 5  |         | After
|                          |  | Note |   | Rate |  | Total     |      | 1 year |  |  | years   |        |  | 5 years
|                          |  |      |   | %    |  | $         |      | $      |  |  | $       |        |  | $      
|2003                      |  |      |   |      |  |           |      |        |  |  |         |        |  |         |         |       |  |  |  |  |   |  |  |  |  |  |   | 
|Financial Assets          |  |      |   |      |  |           |      |        |  |  |         |        |  |         |         |       |  |  |  |  |   |  |  |  |  |  |   | 
|Cash and cash equivalents |  |      | 8 |      |  |           | 1.02 |        |  |  | 129,625 |        |  |         | 129,625 |       |  |  |  |  |  |  |  |  |  |  |  | 
|                          |  |      |   |      |  |           |      |        |  |  |         |        |  |         |         |       |  |  |  |  |   |  |  |  |  |  |   | 

F-60



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|23. |  | Financial Instruments (contd)
|--- |  | ------------------------------



| | (e) |  | Effective interest rates and repricing analysis (contd)
| | --- |  | --------------------------------------------------------

|                                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|----------------------------------- |  | ---- | -- | ---- |  | --------- | ---- | ------ |  | ----- | -------- | ------- |  | ------ | -------- | ----- |  |  | -------- | - |  |  | - | 
|                                    |  |      |    |      |  | Effective |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  | 
|                                    |  |      |    |      |  | Interest  |      |        |  |       |          | Within  |  | 1 to 5 |          | After
|                                    |  | Note |    | Rate |  | Total     |      | 1 year |  | years |          | 5 years
|                                    |  |      |    | %    |  | $         |      | $      |  | $     |          | $      
|2003                                |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|Financial Liabilities               |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|Secured US$ floating rate
bank loan |  |      | 11 |      |  |           | 2.20 |        |  |       | (171,428 | )       |  |        | (171,428 | )     |  |  |         |   |  |  |  | 
|Effect of interest rate swaps       |  |      |    |      |  |           | 5.59 |        |  |       |         |         |  |        | 171,428  |       |  |  | (171,428 | ) |  |  |  | 
|                                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|                                    |  |      |    |      |  |           | 7.79 |        |  |       | (171,428 | )       |  |        |         |       |  |  | (171,428 | ) |  |  |  | 
|                                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|2002                                |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|Financial Assets                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|Cash and cash
equivalents           |  |      | 8  |      |  |           | 1.32 |        |  |       | 112,721  |         |  |        | 112,721  |       |  |  |         |   |  |  |  | 
|                                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|Financial Liabilities               |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|Secured US$ floating rate
bank loan |  |      | 11 |      |  |           | 2.54 |        |  |       | (278,571 | )       |  |        | (278,571 | )     |  |  |         |   |  |  |  | 
|Effect of interest rate swaps       |  |      |    |      |  |           | 5.34 |        |  |       |         |         |  |        | 278,571  |       |  |  | (278,571 | ) |  |  |  | 
|                                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 
|                                    |  |      |    |      |  |           | 7.88 |        |  |       | (278,571 | )       |  |        |         |       |  |  | (278,571 | ) |  |  |  | 
|                                    |  |      |    |      |  |           |      |        |  |       |          |         |  |        |          |       |  |  |          |   |  |  |   | 



| | (f) |  | Fair values
| | --- |  | -----------
|

| | (i)   |  | Recognized financial instruments, cash and cash
equivalents, amount due from and to related companies and
affiliated companies, accounts receivables and accounts
payable.                                                                          
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | The carrying amounts approximate fair value.                                                                                                                                                                                                        
|
| | (ii)  |  | Bank loan                                                                                                                                                                                                                                           
|
| |       |  | The carrying amount approximates fair value in view of the
debt bearing floating interest rate.                                                                                                                                                     
|
| | (iii) |  | Unrecognized financial instruments                                                                                                                                                                                                                  
|
| |       |  | The valuation of financial instruments not recognized in the
balance sheet reflects amounts which the Company expects to
pay or receive to terminate the contracts or replace the
contracts at their current market rates at the balance sheet
date.

F-61



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|23. |  | Financial Instruments (contd)
|--- |  | ------------------------------



| | (f) |  | Fair values (contd)
| | --- |  | --------------------
|

| |  |  | The notional amount and net fair value of financial
instruments not recognized in the balance sheet as at
December 31, are:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------

|                                   |  |          |          |       |  |             |         |             |  |  |          |   |  |  |         |  
|---------------------------------- |  | -------- | -------- | ----- |  | ----------- | ------- | ----------- |  |  | -------- | - |  |  | ------- | -
|                                   |  | Notional |          | Fair  |  | Notional    |         | Fair       
|                                   |  | amount   |          | value |  | amount      |         | value      
|                                   |  | 2002     |          | 2002  |  | 2003        |         | 2003       
|                                   |  |          |          |       |  | (Unaudited) |         | (Unaudited)
|                                   |  | $        |          | $     |  | $           |         | $          
|Interest rate
swap agreements      |  |          | (338,571 | )     |  |             | (24,118 | )           |  |  | (211,429 | ) |  |  | (10,714 | )
|Forward foreign
exchange contracts |  |          | (2,665   | )     |  |             | (24     | )           |  |  | (1,000   | ) |  |  | 1       |  
|                                   |  |          |          |       |  |             |         |             |  |  |          |   |  |  |         |  



|24. |  | Reconciliation from FRS to US GAAP                                                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys financial statements are prepared in accordance with FRS
which differs in certain respects from US GAAP. The effect of such
differences on net profit/(loss) and shareholders equity is summarized
below.                                                                                                  
|   
|    |  | Accounting for Derivative Financial Instruments                                                                                                                                                                                                                                                                           
|   
|    |  | Under FRS, there are no established principles for recognizing and
measuring derivative financial instruments. Consequently, the Company
only recognizes the accounting effect of derivative financial
instruments as, and to the extent, the derivative financial instruments
have an effect on the Companys cash flows.

F-62



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|24. |  | Reconciliation from FRS to US GAAP (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Under US GAAP, all derivatives are recognized on the balance sheet at
their fair value in other assets or other liabilities. On the date the
derivative contract is entered into, the Company designates the
derivative as either a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair-value hedge), a
hedge of a forecasted transaction or of the variability of cashflows to
be received or paid related to a recognized asset or liability
(cash-flow hedge), or a foreign-currency fair-value or cash-flow
hedge (foreign-currency hedge). The Company formally documents all
relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various
hedge transactions. This process includes linking all derivatives that
are designated as fair-value, cashflows, or foreign-currency hedges to
specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. The Company also formally
assesses, both at the hedges inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of
hedged items.
|   
|    |  | Changes in the fair value of a derivative that is highly effective and
that is designated and qualifies as a fair-value hedge, along with the
loss or gain on the hedged asset or liability or unrecognized firm
commitment of the hedged item that is attributable to the hedged risk
are recorded in earnings. Changes in the fair value of a derivative
that is highly effective and that is designated and qualifies as a
cash-flow hedge are recorded in other comprehensive income, until
earnings are affected by the variability in cash flows of the
designated hedged item. Changes in the fair value of derivatives that
are highly effective as hedges and that are designated and qualify as
foreign-currency hedges are recorded in either earnings or other
comprehensive income, depending on whether the hedge transaction is a
fair-value hedge or a cash-flow hedge. Changes in the fair value of
derivative instruments that are not designated as part of a hedging
relationship are reported in current period earnings.                                                                                                                                                                                                                                                        
|   
|    |  | Hedge accounting is discontinued prospectively when it is determined
that the derivative is no longer effective in offsetting changes in the
fair value or cash flows of the hedged item, the derivative expires or
is sold, terminated, or exercised, the derivative is dedesignated as a
hedging instrument, because it is unlikely that a forecasted
transaction will occur, a hedged firm commitment no longer meets the
definition of a firm commitment, or management determines that
designation of the derivative as a hedging instrument is no longer
appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-63



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|24. |  | Reconciliation from FRS to US GAAP (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Accounting for Derivative Financial Instruments (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair-value hedge, the
derivative continues to be carried on the balance sheet at its fair
value, and the hedged asset or liability is no longer adjusted for
changes in fair value. The adjustment of the carrying amount of the
hedged asset or liability is accounted for in the same manner as other
components of the carrying amount of that asset or liability.                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | When hedge accounting is discontinued because the hedged item no longer
meets the definition of a firm commitment, the derivative continues to
be carried on the balance sheet at its fair value, any asset or
liability that was recorded pursuant to recognition of the firm
commitment from the balance sheet is removed and any gain or loss is
recognized in earnings. When hedge accounting is discontinued because
it is probable that a forecasted transaction will not occur, the
derivative continues to be carried on the balance sheet at its fair
value, and gains and losses that were accumulated in other
comprehensive income are recognized immediately in earnings. In all
other situations in which hedge accounting is discontinued, the
derivative continues to be carried at its fair value on the balance
sheet, and any changes in its fair value is recognized in earnings.

|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         |  |         |  
|------------------------------------------------------------ | ----------- | ---------------------------------------------------------------------------- | ------- | ---------- | ------- | ---------- | ------- | ----------- | ------- | - | ------- |  | ------- | -
|                                                             |             |                                                                              |         | 2001       |         | 2002       |         | 2003       
|                                                             |             |                                                                              |         | (Restated) |         | (Restated) |         | (Unaudited)
|                                                             |             |                                                                              |         | $          |         | $          |         | $          
|Net profit/(loss) in accordance with FRS                     |             |                                                                              | 56,529  |            |         |            | (20,317 | )           |         |   | 21,169  | 
|                                                             | Adjustment: |                                                                              |         |            |         |            |         |             |         |   |         |  |        
|                                                             |             | Fair value adjustment for
ineffective hedge elements
of derivative contracts |         |            | (5,005  | )          |         |             | (217    | ) |         |  | 2,615   |  
|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         | 
|Net profit/(loss) in accordance
with US GAAP                 |             |                                                                              | 51,524  |            |         |            | (20,534 | )           |         |   | 23,784  | 
|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         | 
|Other comprehensive (loss)/income
in accordance with FRS     |             |                                                                              |        |            |         |            |        |             |         |   |        | 
|                                                             | Adjustment: |                                                                              |         |            |         |            |         |             |         |   |         |  |        
|                                                             |             | Fair value adjustment for
effective hedge elements
of derivative contracts   |         |            | (20,979 | )          |         |             | 2,059   |   |         |  | 10,815  |  
|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         | 
|Other comprehensive (loss)/income
in accordance with US GAAP |             |                                                                              | (20,979 | )          |         |            | 2,059   |             |         |   | 10,815  | 
|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         | 
|Shareholders equity in accordance
with FRS                  |             |                                                                              | 267,385 |            |         |            | 247,068 |             |         |   | 213,495 | 
|                                                             | Adjustment: |                                                                              |         |            |         |            |         |             |         |   |         |  |        
|                                                             |             | Fair value adjustment
related to derivative contracts                        |         |            | (25,984 | )          |         |             | (24,142 | ) |         |  | (10,712 | )
|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         | 
|Shareholders equity in accordance
with US GAAP              |             |                                                                              | 241,401 |            |         |            | 222,926 |             |         |   | 202,783 | 
|                                                             |             |                                                                              |         |            |         |            |         |             |         |   |         | 

F-64



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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS
In thousands of US Dollars (except share and per share data)



|24. |  | Reconciliation from FRS to US GAAP (contd)             
|--- |  | --------------------------------------------------------
|   
|    |  | Accounting for Derivative Financial Instruments (contd)

|                                                            |                                                                            |  |            |         |            |  |             |         |   |  |        |        |  
|----------------------------------------------------------- | -------------------------------------------------------------------------- |  | ---------- | ------- | ---------- |  | ----------- | ------- | - |  | ------ | ------ | -
|                                                            |                                                                            |  | 2001       |         | 2002       |  | 2003       
|                                                            |                                                                            |  | (Restated) |         | (Restated) |  | (Unaudited)
|                                                            |                                                                            |  | $          |         | $          |  | $          
|Accumulated other comprehensive
loss in accordance with FRS |                                                                            |  |           |         |            |  |            |         |   |  |       |       
|Adjustment:                                                 |                                                                            |  |            |         |            |  |             |         |   |  |        |       
|                                                            | Fair value adjustment for
effective hedge elements
of derivative contracts |  |            | (20,979 | )          |  |             | (18,920 | ) |  |        | (8,105 | )
|                                                            |                                                                            |  |            |         |            |  |             |         |   |  |        |       
|Other comprehensive loss
in accordance with US GAAP         |                                                                            |  | (20,979    | )       |            |  | (18,920     | )       |   |  | (8,105 | )     
|                                                            |                                                                            |  |            |         |            |  |             |         |   |  |        |       



|25. |  | Subsequent Event                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Subsequent to December 31, 2003, the Directors proposed a tax exempt
dividend to the holder of B ordinary shares of $0.0308 per share
amounting to a total of $6,680. These financial statements do not
reflect this dividend payable, which will be accounted for in the
shareholders equity as an appropriation of retained earnings in the
year ending December 31, 2004.
|   
|26. |  | Comparative Information                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | Comparative information in the financial statements have been changed from previous
years due to the restatement as described in Note 19.                                                                                                                                                                                                                                      

F-65