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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
              Annual report pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

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For the fiscal year ended June 30, 2000                         Commission file number 0-20784
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                           TRIDENT MICROSYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

                Delaware                               77-0156584
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)                Identification No.)

            2450 Walsh Avenue
         Santa Clara, California                       95051-1303
 (Address of principal executive offices)              (Zip code)

       Registrant's telephone number, including area code: (408) 496-1085

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

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

                         Common Stock, $0.001 Par Value
                                (Title of class)

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

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price of the Common Stock on August 31,
2000 ($11.688 per share), as reported on the NASDAQ National Market was
approximately $98,322,590. Shares of Common Stock held by executive officers and
directors and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliate. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

        The number of shares of the registrant's $0.001 par value Common Stock
outstanding on August 31, 2000, was 12,785,327.

        Part III incorporates by reference from the definitive proxy statement
for the registrant's 2000 annual meeting of stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.



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                                TABLE OF CONTENTS

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PART I ...........................................................................................3
        Item 1. Business..........................................................................3
        Item 2. Properties.......................................................................11
        Item 3. Legal Proceedings................................................................11
        Item 4. Submission of Matters to a Vote of Securities Holders............................11

PART II .........................................................................................13
        Item 5. Market for The Registrant's Common Stock and Related Stockholder Matters.........13
        Item 6. Selected and Supplementary Financial Data........................................14
        Item 7. Management's Discussion and Analysis of Financial Condition and Results
                of Operations....................................................................15
        Item 7A.Quantitative and Qualitative Disclosures About Risk..............................23
        Item 8. Financial Statements and Supplementary Data......................................23
        Item 9. Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure.............................................................23

PART III.........................................................................................24
        Item 10. Directors and Executive Officers of the Registrant .............................24
        Item 11. Executive Compensation .........................................................24
        Item 12. Security Ownership of Certain Beneficial Owners and Management .................24
        Item 13. Certain Relationships and Related Transactions .................................24

PART IV .........................................................................................25
        Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...............25

POWER OF ATTORNEY................................................................................43

SIGNATURES.......................................................................................43

INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT.........................................44
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PART I

ITEM 1. BUSINESS

        When used in this report, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements concerning the timing of
availability and functionality of products under development, product mix,
trends in average selling prices, the percentage of export sales and sales to
strategic customers and the availability and cost of products from our
suppliers, are subject to risks and uncertainties, including those set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Factors That May Affect Our Results" and elsewhere in this
report, that could cause actual results to differ materially from those
projected. These forward-looking statements speak only as of the date hereof. We
expressly disclaim any obligation or undertaking to release publicly any updates
or revisions to any forward-looking statements contained herein to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.

        We design, develop and market very large scale integrated circuit ("IC")
for videographics, multi-media and digital process television products for the
desktop and portable personal computer (PC) and consumer television market. Our
graphics, video and audio controllers typically are sold with software drivers,
a BIOS and related system integration support. Our strategy is to apply our
design expertise, which helped us succeed in the market for Super Video Graphics
Array ("SVGA") graphics controllers and GUI accelerators, to other high volume
graphics, multimedia and digital process television markets such for the general
mass public, flat-panel LCD controllers for notebooks, acceleration of Digital
Versatile Disc ("DVD") based live-video playback, and three-dimensional ("3D")
display for game and entertainment application markets.

        The overall PC marketplace is characterized by extreme price competition
and rapid technological change as leading PC systems manufacturers compete among
themselves and other PC clone makers for market share. As a result, PC systems
manufacturers require low-cost, feature-rich, advanced graphics and multimedia
solutions. We believe that the systems manufacturers are moving towards reducing
system cost to the sub-$1000 level by purchasing IC graphics and multimedia
solutions that integrate functions formerly performed by several separate
components. Moreover, as DVD and video processing capabilities become more
popular, an increasing percentage of computer users require a high-performance,
low-cost graphics system that can display photo-realistic images or display
full-motion video on a sub-$1000 PC system.

        Our overall strategy is to capture these market opportunities by using
our design expertise to develop and manufacture videographics and multimedia
products that offer a superior combination of price, performance and features.
We are employing this strategy in the fast-growing graphics and multimedia
markets with significant volume potential, and we are focusing on providing high
performance and feature-rich products that we believe will appeal to leading PC
systems manufacturers.

MARKETS AND PRODUCTS

        We have targeted the PC desktop, portable, multimedia and digital
process television markets. The desktop market is the largest segment of the PC
industry for our graphics and multimedia products and is characterized by
intense price competition and rapid technological advances. The desktop market
includes adapter card manufacturers, who build graphics controllers onto adapter
cards that serve as graphics subsystems, and PC systems manufacturers and
motherboard suppliers, who may either include adapter cards in their systems or
design graphics controllers onto their motherboards. Following the introduction
of our third 3D product Blade 3D, we have introduced a new family of 3D products
the CyberBlade XP and the Blade XP for the next generation of high-end and
mainstream mobile and desktop PCs.

        We entered the portable market in 1995. Our portable strategy is to
leverage our product positioning and continue to deliver a broad product
offering. Our product line includes: the CyberBlade XP, 3D portable graphics
controllers, embedded SDRAM graphics controllers, the Cyber9525DVD
(3D/AGP2x/DVD/2.5MB) integrated, the CyberBlade e4-128 (3D/AGP2x/DVD/4MB
integrated), and the integrated core-logic graphics controller, the



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CyberBlade i7 (3D/AGP/DVD/north bridge), the CyberBlade i1, and the CyberBlade
Ai1. Our development direction in the portable market is a three-way technology
drive with 3D, DVD, embedded SDRAM solutions. Our portable vision is to be "The
only other chip on the notebook(SM)" by integrating 2D/3D, DVD, AGP embedded
memory, and audio in the future into one product. The CyberBlade XP, CyberBlade
e4-128 and the Cyber9525DVD are the tangible core of this vision.

        We have made an effort to design products to fill the needs of leading
PC systems manufacturers as well as the needs of adapter card manufacturers.
Sales to leading PC systems manufacturers represented approximately 46% of net
sales for fiscal 2000.

        In addition, we are in the development stage of a videographic solution
for the greater consumer digital video television marketplace. The DPTV-DX is
the main component in our TV chipset solution in this market. Designed for
system design flexibility, users of our single chip DPTV(TM) Video Processors(s)
will benefit from feature rich devices at competitive prices with existing
solution(s). The DPTV-DX converts analog TV into an advanced progressive digital
quality TV. It also accepts HDTV broadcast through a direct MPEG2 interface.
While we have limited experience with digital video television, we anticipate
this market to generate an increasing percentage of our revenues. However, there
can be no guarantee that our digital television solution will be accepted by the
market or increase our revenues or profitability.


CURRENT PRODUCTS

Desktop Computer Market:

        BLADE 3D 9880. This is our third 3D graphics accelerator for the desktop
market. It features new advanced 3D features including: 32 bit 3D rendering
engine, Trilinear filtering, anisotropic filtering and hardware texture
compression to deliver fine 3D quality for Gamers. This accelerator is equipped
with 4K internal texture cache with the advanced set-up engine to deliver a
performance with 2 to 3 times improved 3D benchmarks than the 3DImage line.

        3DIMAGE975. This is our first 3D graphics accelerator for the desktop
market. It features a high performance 3D rendering engine, set-up engine,
TrueVideo(R) processor, motion video capture port, and ClearTV(TM) for
flicker-free TV-out support.

        PROVIDIA9685. This is our first 64-bit desktop GUI accelerator with
refined flicker removal for more effective TV display. Other features include
dual hardware windows for video conferencing, improved GUI acceleration and
improved MPEG display performance.

Portable Computer Market:

        CYBER9525DVD. The industry's first 3D/AGP2x/DVD graphics controller with
2.5MB of embedded memory. The space and power saving allow the notebook
designers to design high performance and full feature 3D notebook with minimum
constraints. It is forward pin compatible to the CyberBlade e4-128.


Multi-media Products:

        4DWAVE-DX. This is our first PCI audio accelerator and is based on
Microsoft's PC9x and Intel's AC'97 initiatives. It provides acceleration of up
to 64 stereo audio streams and offers audio effects, such as reverb and chorus.
Its wavetable engine provides high quality audio output without requiring
expensive external components. It also accelerates 3D positional audio for most
of today's more popular games. This product is mainly focused on the segment
zero portion of the PC market by providing high performance at a low price.

        4DWAVE-NX. This is our second PCI audio accelerator and is based on the
4DWAVE-DX. It includes all of the features of the previous device and has added
4-speaker output, SPDIF output, Serial EEPROM Support



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and other PC `98/99 requirements. This product is mainly focused on the segment
zero portion of the PC market by providing high performance at a low price.

        TVXPRESS. High quality TV encoder designed and optimized for
Cyber9525DVD, CyberBlade e4-128, CyberBlade i7, Blade3D (desktop) and our other
graphics controllers. It features support for NSTC and PAL as well as
Macrovision protection for DVD playback.

NEW PRODUCTS

        The following products are being sampled in limited quantities. Our
future success depends upon the successful completion of these and other new
products. There can be no assurance that we will be able to commence shipment of
these products in a timely manner or that they will be successful in the
marketplace.

        CYBERBLADE(TM) i7. This highly integrated, low power single device,
combines flat panel display controller and North Bridge cores for 66MHz-100MHz
64-bit Socket-7 based Notebook PCs. It reduces the system BOM price by as much
as $15, occupies less board space, and reduces power consumption by up to 1.5W.
The CyberBlade(TM)i7's notebook graphics controller core incorporates high
performance 2D and 3D graphics engine, video accelerator, advanced DVD playback,
video capture and TV output capabilities.

        CYBERBLADE(TM) i1. This highly integrated, low power single device
combines a LCD controller and North Bridge core for 66 MHz-100MHz Slot-1 based
Notebook PCs. It reduces the system BOM price by as much as $15, occupies less
board space, and reduces power consumption by up to 1.5W. Its AGP Notebook
graphics controller core incorporates a high performance 2D and 3D graphics
engine, video accelerator, advanced DVD playback, video capture and TV output
capabilities.

        CYBERBLADE(TM) Ai1. This 3D/DVD integrated chipset for mobile PCs
features our CyberBlade 3D/DVD video graphics and Ali's Aladdin Slot 1/Socket
370 Northbridge. With the industry's best power management and extensive
integration, this chipset supports all Pentium (TM) II, Pentium III and
Celeron(TM) CPUs, providing notebook PC manufacturers with unprecedented
price/performance advantages. This mobile chipset includes the CyberBlade
Aladdin i1 3D/DVD Graphics with Intel Slot 1-licensed Northbridge and Ali's
Mobile Southbridge. The Chipset is targeted at the value and mainstream notebook
market segments.

        CYBERBLADE e4-128. Pin compatible with Cyber 9525DVD, it features 4MB of
embedded SDRAM memory and has the high performance Blade 3D (desktop) core
adapted for the portable market. An LVDS transmitter is integrated. It is
implemented in a 0.25mm process.

        DPTV(TM)-DX. The DPTV-DX is the main component in the premier TV chipset
solution on the market. Designed for maximum system design flexibility, users of
our single chip DPTV(TM) Video Processor(s) will benefit from one of the most
feature rich devices available while maintaining a price competitive advantage
over the existing solutions(s). The DPTV-DX converts today's analog TV into an
advanced progressive quality TV.

        CYBERBLADE(TM) XP. In April, 2000, Trident introduced the CyberBlade XP
family for next generation high-end and mainstream AGP 4X/2X 128-bit 3D / DVD
capable mobile PCs. The new line consists of the CyberBlade XP discrete device,
which supports up to 32MB of external video memory, and Multi-Chip-Module (MCM)
products - the CyberBlade XPm16 with 16MB SDRAM packaged and the CyberBlade XPm8
with 8MB SDRAM packaged - further removing board space and power constraints for
ultra-portable designs. The MCM devices offer AGP 4X / DX7 / memory upgrade and
pin compatibility from Trident's 4MB SDRAM embedded 3D product - the CyberBlade
e4.

        BLADE 256XP(TM). The Blade XP family brings seven major technical
advances in video/graphics capability to mainstream desktop PCs: DirectX 7.0
Cubic Mapping, 256-bit pixel processing, dual memory bus architecture, AGP-4X
bus interface, state-of-the-art video de-interlacing, high-resolution flat panel
and only 2.8watt power consumption at a blazing 200MHz clock rate.



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PRODUCTS UNDER DEVELOPMENT

        We continue to invest in product development programs which we consider
crucial to our success. In particular, we are investing in extensions to our
current desktop, portable and multimedia product lines in an attempt to maintain
product competitiveness particularly in the important area of 3D graphics and
multimedia including video and audio. New product development also continues in
technologies where further integration is likely to be needed and may be applied
throughout our product line.

        There can be no assurance that we will be able to successfully complete
the development of these products or to commence shipments of these products in
a timely manner, or that product specifications required by the market will not
change during the development period. In addition, even if successfully
developed and shipped, there can be no assurance that new products will be
successful in the marketplace.

SALES, MARKETING AND DISTRIBUTION

        We sell our products primarily through direct sales efforts. We have
sales offices in Taipei, Taiwan; Hong Kong, China; Houston, Texas and Santa
Clara, California. Our offices are staffed with sales, applications engineering,
technical support, customer service and administrative personnel to support its
direct customers. We also market our products through independent sales
representatives and distributors.

        Our desktop customers have been primarily Asian adapter card
manufacturers who sell their products to PC manufacturers, VARs and
distributors. However, in the past few years leading systems manufacturers have
significantly increased their share of the PC market, displacing in part some of
the Asian adapter card manufacturers. While many manufacturers based in Asia may
sell PCs to leading systems manufacturers for resale, the choice of components
for these PCs generally is made by the leading systems manufacturers. We have
made a major effort to design products to fill the needs of leading PC systems
manufacturers as well as the needs of adapter card manufacturers.

        Our notebook customers have been primarily worldwide brandname portable
PC manufacturers and Taiwanese OEM/ODM portable PC manufacturers. The product is
distributed through brandname sales channels. With long design-in cycles, we
have solid technical support to ensure successful product launching and
delivery.

        Our future success depends in large part on the success of our sales to
leading PC systems and the sales of digital television manufacturers. We
continue to focus our sales and marketing efforts with the goal of increasing
sales to the leading PC systems manufacturers, digital television manufacturers
and OEM channels. Competitive factors of particular importance in such markets
include performance and the integration of functions on a single IC chip.

        During fiscal 2000, we generated 99% of our revenues from Asia. Major
systems manufacturers often take delivery of their products in Asia for
production purposes, and such sales by us are reflected in the Company's
revenues in Asia. Sales to three customers Compaq, Fujitsu, and Toshiba
accounted for approximately 18%, 11%, and 10% of net sales for fiscal 2000,
respectively. A small number of customers frequently account for a majority of
our sales in any quarter. However, sales to any particular customer may
fluctuate significantly from quarter to quarter. Future operating performance
may be dependent in part on the ability to replace significant customers or win
new design-ins with current customers from one quarter to the next. Fluctuations
in sales to key customers may adversely affect our operating results in the
future. For additional information on foreign and domestic operations, see Note
8 of Notes to Financial Statements.

MANUFACTURING

        We have adopted a "fabless" manufacturing strategy whereby we
contract-out our wafer fabricating needs to qualified contractors that we
believe provide cost, technology or capacity advantages for specific products.
As a result, we have generally been able to avoid the significant capital
investment required for wafer fabrication facilities and to focus our resources
on product design, quality assurance, marketing and customer support. We



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have, however, made a substantial investment in a manufacturing joint venture as
described below. Our wholly-owned subsidiary, Trident Microsystems (Far East)
Ltd. ("Trident Far East"), manages our manufacturing operations.

        In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, we entered into a joint
venture agreement in August 1995 with United Microelectronics Corporation
("UMC"), a Taiwanese publicly traded company and one of the our current
foundries, under which we invested a certain amount of New Taiwan dollars,
equivalent to approximately U.S.$49.3 million for a 7.25% equity interest in a
joint venture with UMC and other venture partners. We have been guaranteed a
certain percentage of total wafer supply from the wafer fabrication facility of
the venture, United Integrated Circuits Corporation ("UICC"). On January 3,
2000, United Microelectronics Corporation (UMC) acquired UICC. As a result of
this merger, and a 20% stock dividend payable to shareholders of record May 16,
2000, the total shares of our investment in UMC equals approximately 55.8
million shares as of June 30, 2000 which represents about 0.5% of the
outstanding stock of UMC. As of today, a portion of the UMC shares received by
us as a result of the merger may now be sold at our discretion, however, in
order to preserve our wafer capacity guarantee of the UICC facility, there are
certain limitations on our ability to sell the shares.

        In fiscal 2000, our primary foundries were UMC and Samsung
Semiconductor, Inc. We will continue to explore arrangements for additional
capacity commitments, although there is no assurance that any additional
agreements will be executed, or that additional capacity is required.

        We purchase product in wafer form from the foundries and we manage the
contracting with third parties for the chip packaging and testing. In order to
manage the production back-end operations, we have been adding personnel and
equipment to this area. Our goal is to increase the quality assurance of the
products while reducing manufacturing cost. To ensure the integrity of the
suppliers' quality assurance procedures, we have developed and maintained test
tools, detailed test procedures and test specifications for each product, and we
require the foundry and third party contractors to use those procedures and
specifications before shipping finished products. We have experienced few
customer returns based on the quality of its products. However, our future
return experience may vary because our newer, more complex products are more
difficult to manufacture and test. In addition, some of our customers, including
major PC systems manufacturers may subject those products to more rigid testing
standards than in the past.

        Our reliance on third party foundries and assembly and testing houses
involves several risks including the absence of adequate capacity, the
unavailability of or interruptions in access to certain process technologies,
and reduced control over delivery schedules, manufacturing yields, quality
assurance and costs. We conduct business with certain foundries by delivering
written purchase orders specifying the particular product ordered, quantity,
price, delivery date and shipping terms and, therefore, except as set forth in
the above-mentioned contracts or agreements, such foundries are not obligated to
supply products to us for any specific period, in any specific quantity or at
any specified price, except as may be provided in a particular purchase order.

        While we have obtained and continue to seek additional capacity, the
qualification process and the production ramp-up for additional foundries has in
the past taken and could in the future take longer than anticipated. There can
be no assurance that such additional capacity from current foundries and new
foundry sources will be available and will satisfy our requirements on a timely
basis or at acceptable quality or per unit prices. Constraints or delays in the
supply of our products, whether because of capacity constraints, unexpected
disruptions at the foundries or assembly or testing houses, delays in additional
production at existing foundries or in obtaining additional production from
existing or new foundries, shortages of raw materials, or other reasons, could
result in the loss of customers and other material adverse effects on our
operating results, including effects that may result should we be forced to
purchase products from higher cost foundries or pay expediting charges to obtain
additional supply. In addition, to the extent we elect to use multiple sources
for certain products, customers may be required to qualify multiple sources,
which could adversely affect the customers' desire to design-in our products.

RESEARCH AND DEVELOPMENT

        We have conducted substantially all of its product development in-house
and have a staff of 255 research



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and development personnel as of June 30, 2000. We are focusing our development
efforts primarily on the development of more advanced graphics controllers,
including 3D graphics controllers, flat panel controller products for notebook
PCs, multimedia products and digital process television. In addition, we intend
to continue to devote significant resources to the development of a broad range
of high-performance, proprietary software drivers. In anticipation of future
market demand, we are investing in a variety of new technologies through
licensing and purchase arrangements. These technologies may be incorporated in
our future products, providing additional functionality and integration.

COMPETITION

        The markets in which we compete are highly competitive and we expect
that competition will increase. The principal factors of competition in our
markets include, but are not limited to price, performance, the timing of new
product introductions by us and our competitors, product features, the emergence
of new graphics and other PC standards, level of integration of various
functions, quality and customer support. Our principal current competitors in
graphics include 3Dfx Interactive, Inc., ATI Technologies, Inc., NeoMagic, Inc.,
S3 Inc., Silicon Integrated Systems, and Silicon Motion. In the digital
television market are principal competitors are Toshiba, Philips Electronics,
and Siemens AG. Certain of our current competitors and many potential
competitors have significantly greater technical, manufacturing, financial and
marketing resources than us.

        Leading PC systems manufacturers have increased market share in desktop
and portable PC systems in recent years. We believe that performance, features
and quality are particularly important in the North American, Japanese and
European systems manufacturer markets, and that integration of various functions
on a single IC is becoming increasingly important in these markets. While we
have recently gained entry to these geographic markets, there can be no
assurance that we will continue to be able to compete successfully as to price
or any other factor or that we will continue to be successful in our efforts to
expand sales in these markets. Our failure to meet the technological and pricing
challenges of our competition would have an adverse effect on our results of
operations.


INTERNATIONAL OPERATIONS

        Our wholly-owned subsidiary, Trident Far East, maintains offices in Hong
Kong, China and Taipei, Taiwan. Trident Far East is responsible for the
manufacturing of our products and is principally responsible for international
sales activities and for operation of the Hong Kong and Taiwan offices. The Hong
Kong office provides sales and technical support for customers in Hong Kong and
logistical support for customers in Hong Kong and Taiwan. The Taiwan office
provides sales and technical support for customers in their respective regions.
The Taiwan office directly hires its own employees. We have established research
and development facilities in Hsinchu, Taiwan and Shanghai, China. Management
intends to combine the Taiwan office and the Taiwan research and development
facility into one company and to spin-off the resulting subsidiary during fiscal
2001. The Shanghai research and development facility is also expected to be
spun-off during fiscal year 2001.

        During fiscal 2000, 1999 and 1998, sales to OEM, ODM, and adapter card
customers in Asia accounted for approximately 99%, 73% and 84% of our net sales,
respectively, and we anticipate that sales to customers in Asia will continue to
account for a substantial percentage of sales. In addition, the foundries that
manufacture our products are located in Asia. Due to this concentration of
international sales and manufacturing capacity in Asia, we are subject to the
risks of conducting business internationally, including unexpected changes in
regulatory requirements, fluctuations in the U.S. dollar which could increase
the sales price in local currencies of our products in foreign markets, tariffs
and other barriers and restrictions, and the burdens of complying with a wide
variety of foreign laws. In addition, we are subject to general geopolitical
risks, such as political and economic instability and changes in diplomatic and
trade relationships, in connection with our sales, support and third-party
fabrication efforts in Hong Kong, Taiwan and elsewhere. Also, political
instability or significant changes in economic policy could disrupt our
operations in foreign countries or result in the curtailment or termination of
such operations. While we have not experienced any other material adverse
effects on our operations as a result of other regulatory or geopolitical
factors, there can be no assurance that such factors will not adversely impact
our operations in the future or require us to modify our current business
practices.



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INTELLECTUAL PROPERTY

        We attempt to protect our trade secrets and other proprietary
information primarily through agreements with customers and suppliers,
proprietary information agreements with employees and consultants and other
security measures. Although we intend to protect our rights vigorously, there
can be no assurance that these measures will be successful. We have filed one
U.S. patent application relating to our technology. There can be no assurance
that this application will be approved, that any issued patents will protect our
intellectual property or that they will not be challenged by third parties.
Furthermore, there can be no assurance that others will not independently
develop similar or competing technology or design around any patents that may be
issued.

        The semiconductor industry is characterized by frequent litigations
regarding patent and other intellectual property rights. From time to time, we
have received notices claiming that we have infringed third-party patents or
other intellectual property rights. To date, licenses generally have been
available to us where third-party technology was necessary or useful for the
development or production of our products. However, NeoMagic Corporation has
filed suit alleging that our embedded DRAM graphics accelerators infringe their
patents. We have responded and filed a counterclaim, which is described in more
detail under "Item 3. Legal Proceedings." There can be no assurance that this
litigation will be resolved in favor of us or that third parties will not assert
additional claims against us with respect to existing or future products or that
licenses will be available on reasonable terms, or at all, with respect to any
third-party technology. The NeoMagic litigation or similar litigation to
determine the validity of any third-party claims could result in significant
expense to us and divert the efforts of our technical and management personnel,
whether or not such litigation is determined in favor of us. In the event of an
adverse result in any such litigation, we could be required to expend
significant resources to develop non-infringing technology or to obtain licenses
to the technology that is the subject of the litigation. There can be no
assurance that we will be successful in such development or that any such
licenses would be available. Patent disputes in the semiconductor industry have
often been settled through cross licensing arrangements. Because we currently do
not have a portfolio of patents, we may not be able to settle any alleged patent
infringement claim through a cross-licensing arrangement. In the event any third
party made a valid claim against us or our customers and a license was not made
available to us on commercially reasonable terms, we would be adversely
affected. In addition, the laws of certain countries in which our products have
been or may be developed, manufactured or sold, including the People's Republic
of China, Taiwan and Korea, may not protect our products and intellectual
property rights to the same extent as the laws of the United States of America.

        We may in the future initiate claims or litigations against third
parties for infringement of our proprietary rights to determine the scope and
validity of our proprietary rights. Any such claims, with or without merit,
could be time-consuming, result in costly litigation and diversion of technical
and management personnel or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all. In
the event of a successful claim of infringement and our failure or inability to
develop non-infringing technology or license the proprietary rights on a timely
basis, our business, operating results and financial condition could be
materially adversely affected.

        Trident and TrueVideo are registered trademarks, Blade 3D 9880T, Blade
3D 9880, 3DImage975, ProVidia9685, ProVidia9680, ProVidia9682, TVG9470,
TGUI9440, TVGA8900D/DR, TVGA9000I, Cyber9525DVD, Cyber9388, Cyber9397,
Cyber9397DVD, Cyber9320, 4DWAVE-DX, 4DWAVE-NX, CyberBlade e4-128, CyberBlade(TM)
i7, TVXpress, CyberBlade(TM) i1, CyberBlade(TM) Ai1, DPTV(TM)-DX, CyberBlade(TM)
XP, Blade 256XP(TM) are trademarks of the Company. Other trademarks used herein
are the property of their respective owners.

BACKLOG

        Because our business is characterized by short lead-time orders and
quick delivery schedules, we seek to ship products within a few weeks of receipt
of orders. As a result, we operate without significant backlog, and rely on
bookings each quarter to comprise a predominant portion of our sales for that
quarter. Additionally, purchase orders may be cancelable without significant
penalty or subject to price renegotiations, changes in unit quantities or



                                       9
<PAGE>   10

delivery schedules to reflect changes in customers' requirements or
manufacturing availability. Consequently, we do not believe that backlog is a
reliable indicator of future sales.

SEGMENTS

        We operate in the videographics and audio segments as described above.

EMPLOYEES

        As of June 30, 2000, we had 350 full time employees, including 255 in
research and development, 21 in product testing, quality assurance and
operations functions, 53 in marketing and sales and 21 in finance, human
resources, and administration. Competition for qualified personnel in the
semiconductor, software and the PC industry in general is intense in Silicon
Valley where we are located. Our future success will depend in great part on our
ability to continue to attract, retain and motivate highly qualified technical,
marketing, engineering and management personnel. Our employees are not
represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We believe that our employee relations are good.



                                       10
<PAGE>   11

ITEM 2. PROPERTIES

        We lease a building of approximately 63,000 square feet on 2450 Walsh
Avenue in Santa Clara, California, pursuant to a lease which expires in June
2001. This building is used as our headquarters and includes development,
marketing and sales, and administrative offices. We lease office space for a
sales office in Houston, Texas. This sales office totals approximately 500
square feet. Our other leases include a 10,000 square foot office in Kowloon,
Hong Kong, China, for the Hong Kong branch office of the Cayman Islands
subsidiary, an 8,000 square foot sales office in Taipei, Taiwan, a 32,000 square
foot research and development facility in Hsinchu, Taiwan, and an 11,000 square
foot research and development facility in Shanghai, China.

ITEM 3. LEGAL PROCEEDINGS

        On December 14, 1998, NeoMagic Corporation (NASDAQ: NMGC), filed suit in
the United States District Court for the District of Delaware against the
Company. The suit alleges that the Company's embedded DRAM graphics accelerators
infringe certain patents held by NeoMagic Corporation. The Company intends to
defend vigorously the litigation which was filed against it, and the Company
will take every step possible to protect the interests of its customers and
shareholders. On January 25, 1999, the Company filed a counter claim in the
United States District Court for the District of Delaware against NeoMagic
Corporation. The counter claim alleges an attempted monopolization in violation
of the antitrust laws, arising from Neomagic's patent infringement filing
against the Company. On March 25, 1999, NeoMagic Corporation filed a motion for
summary judgement requesting that the Company's counter claim be dismissed, but
the counterclaim was severed and will be tried only if and after Trident
prevails on NeoMagic's infringement claims. The case is currently set for trial
on December 13, 2000 in Delaware. Trident and NeoMagic each have motions for
summary judgment pending which have been fully briefed and argued but not yet
decided by the Court.

        On April 19, 2000, VIA Technologies, Inc. and Trident Microsystems, Inc.
announced that they have agreed to resolve all pending lawsuits. Both parties
agreed to enter a settlement agreement in order to better focus on respective
businesses and avoid the costs, time and distractions of the lengthy legal
process. Under the terms of the agreement, Trident will receive USD $10.17
million payable in two installments from VIA for a desktop software driver
license fee, contingent on the dismissal of all pending lawsuits in US and
Taiwan, which is not in complete control of Trident and VIA. The first
installment of $6.17 million will be paid seven days after the dismissal of the
Lawsuit and the Taiwan Action. The second installment of $4.0 million shall be
paid ninety days after the first installment. The agreement also continues the
right of each party to distribute a jointly developed product with Trident
retaining the exclusive right to distribute products in the notebook market and
VIA having the exclusive right to distribute products in the desktop market.

        In July of 1999 the Company filed a Declaratory Judgement action in the
Federal District Court of Delaware against Real 3D Corporation seeking a ruling
by the court which would declare invalid and/or not infringed certain Real 3D
patents being asserted against our major notebook PC customers. Real 3D moved to
dismiss Trident's complaint, which motion has been pending for nearly a year.
This filing of a Declaratory Judgement action follows a complaint filed by Real
3D against a number of other graphics companies for alleged infringement of
three Real 3D patents which relate to graphics acceleration technology. Real 3D
has also asserted these patents against major OEM PC manufacturers. Currently
the Company is not a party to that litigation.

        Statements regarding the possible outcome of litigation and our actions
are forward looking statements and actual outcomes could vary based upon future
developments on the litigation.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.

None.



                                       11
<PAGE>   12

EXECUTIVE OFFICERS OF THE REGISTRANT

        As of June 30, 2000, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, were as
follows:

<TABLE>
<CAPTION>
Name                           Age        Position                            Employed Since
----                           ---        --------                            --------------
<S>                            <C>        <C>                                 <C>
Frank C. Lin                    55        President, Chief Executive                 1987
                                          Officer and Chairman of the Board

Jung-Herng Chang, Ph.D.         44        Senior Vice President, Engineering         1992


Peter Jen                       54        Senior Vice President, Asia                1988
                                          Operations and  Chief Accounting
                                          Officer
</TABLE>


        Mr. Lin founded Trident in July 1987 and has served in his present
position since that time. His career spans 25 years in the computer and
communications industries. Prior to Trident, he was Vice President of
Engineering and co-founder of Genoa Systems, Inc., a graphics and storage
product company. Before Genoa, Mr. Lin worked for GTE, ROLM, and was a senior
manager at Olivetti Advanced Technical Center in Cupertino, CA. He holds a
M.S.E.E. from the University of Iowa and an B.S.E.E. from National Chiao Tung
University, Taiwan.

        Dr. Chang joined the Company in July 1992. He was appointed to his
present position in January 1998. He was appointed Vice President, Engineering
in July 1994, and served as Chief Technical Officer from July 1992 through June
1994. From October 1988 through July 1992, he was a hardware design manager at
Sun Microsystems, Inc., a workstation company. From September 1985 through
September 1988, he was a research member at IBM's Thomas J. Watson Research
Center. Dr. Chang holds a Ph.D. in Computer Science and a M.S. in Electrical
Engineering and Computer Science from the University of California, Berkeley,
and a B.S. in Electrical Engineering from the National Taiwan University.

        Mr. Jen joined the Company in August 1988. He was appointed to the
position of Chief Accounting Officer in September 1998 and Senior Vice
President, Asia Operations in January 1998. He was appointed to the position of
Vice President, Asia Operations in April 1995, and served as General Manager of
Asia Operations from April 1994 to April 1995. He served as Vice President,
Operations from September 1992 to March 1994, and served as Vice President,
Finance from October 1990 through August 1992. From September 1985 to July 1988,
he was Controller at Genoa Systems, Inc., a graphics chipset design company.
Prior to that time, Mr. Jen served in finance and operations positions for
various corporations, including Bristol-Myers (Taiwan), Pacific Glass
Corporation, a subsidiary of Corning Glass Works, and Philips Telecommunicatie
Industrie, B.V. Mr. Jen holds an M.B.A. in Marketing from Central Missouri State
University and a B.S. in Accounting from National Taiwan University.



                                       12
<PAGE>   13

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        The Company's stock has been traded on the NASDAQ National Market since
the Company's initial public offering on December 16, 1992 under the NASDAQ
symbol TRID. The following table sets forth, for the periods indicated, the high
and low closing sales prices for the Company's common stock as reported by
NASDAQ:


<TABLE>
<CAPTION>
            Year Ended June        High           Low
            ---------------       -------       -------
<S>                               <C>           <C>
            1999
            ----
            First Quarter         $ 5.313      $  2.625
            Second Quarter          5.313         3.031
            Third Quarter           7.688         4.188
            Fourth Quarter          9.563         5.375

            2000
            First Quarter         $ 9.688      $  7.188
            Second Quarter         12.000         6.875
            Third Quarter          16.438         9.750
            Fourth Quarter         11.750         7.125
</TABLE>


        As of June 30, 2000, there were approximately 152 registered holders of
record of the Company's common stock.

        The Company has never paid cash dividends on its common stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.



                                       13
<PAGE>   14

ITEM 6. SELECTED AND SUPPLEMENTARY FINANCIAL DATA

                           TRIDENT MICROSYSTEMS, INC.
                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                          Year ended June 30,
 (in thousands, except per share data)             2000            1999            1998            1997           1996
                                                ---------       ---------       ---------       ---------      ---------
<S>                                             <C>             <C>             <C>             <C>            <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Sales                                       $ 122,682       $  89,255       $ 113,002       $ 177,934      $ 168,089
Income (loss) from operations                      (4,206)        (14,251)         (9,520)         20,553         22,742
Net Income (loss)                                  68,107         (12,195)         (5,106)         15,340         16,860
Basic earnings (loss) per share                      5.07           (0.94)          (0.39)           1.20           1.38
Diluted earnings (loss) per share                    4.43           (0.94)          (0.39)           1.09           1.26

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents,
   and short-term investments                   $ 149,706       $  32,469       $  36,886       $  59,945      $  41,228
Working capital                                   115,211          37,498          47,881          64,952         58,618
Total assets                                      222,376         110,910         118,427         139,516        127,510
Long-term debt, less current portion                   46              82             350             707           --
Total stockholders' equity                        155,961          93,381         104,891         109,557         90,184
</TABLE>

               SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                        FISCAL 2000  QUARTER ENDED
(in thousands, except per share data)       JUNE 30      MARCH 31       DECEMBER 31   SEPTEMBER 30
<S>                                        <C>           <C>            <C>           <C>
Net sales                                  $ 31,648      $ 32,144       $ 34,811      $ 24,079
Gross profit                                 12,460         9,277         10,887         7,624
Income (loss) from operations                   225        (2,056)            73        (2,448)
Net income (loss)                             1,946        67,486            693        (2,018)
Basic earnings (loss) per share                0.14          4.94           0.05         (0.15)
Diluted earnings (loss) per share              0.13          4.28           0.05         (0.15)
</TABLE>

<TABLE>
<CAPTION>
                                                         FISCAL 1999  QUARTER ENDED
(in thousands, except per share data)       JUNE 30       MARCH 31       DECEMBER 31    SEPTEMBER 30
<S>                                        <C>            <C>            <C>            <C>
Net sales                                  $ 21,473       $ 23,253       $ 20,652       $ 23,876
Gross margin                                  6,528          7,127          8,056          6,958
Income from operations                       (4,447)        (4,259)        (2,322)        (3,195)
Net income                                   (4,022)        (3,787)        (1,757)        (2,709)
Basic earnings per share                      (0.30)         (0.29)         (0.14)         (0.21)
Diluted earnings per share                    (0.30)         (0.29)         (0.14)         (0.21)
</TABLE>



                                       14
<PAGE>   15

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

        When used in this discussion, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements concerning the timing of
availability and functionality of products under development, product mix,
trends in average selling prices, the percentage of export sales and sales to
strategic customers and the availability and cost of products from the Company's
suppliers, are subject to risks and uncertainties, including those set forth
below under "Factors That May Affect Our Results," that could cause actual
results to differ materially from those projected. These forward-looking
statements speak only as of the date hereof. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the our
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.

ANNUAL RESULTS OF OPERATIONS

        The following table sets forth the percentages that consolidated
statement of operations items are to net sales for the years ended June 30,
2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                    Year ended June 30,
                                                       --------------------------------------------
                                                       2000                1999                1998
                                                       ----                ----                ----
<S>                                                    <C>                 <C>                 <C>
Revenue                                                100%                100%                100%
Cost of sales                                           67                  68                  67
                                                       ----                ----                ----
Gross margin                                            33                  32                  33
Research and development                                22                  29                  25
Selling, general and administrative                     14                  19                  17
                                                       ----                ----                ----
Income (loss) from operations                           (3)                (16)                 (9)
Other income                                            94                   -                   -
Interest income, net                                     1                   2                   2
                                                       ----                ----                ----
Income (loss) before provision for income taxes         92                 (14)                 (7)
Provision (benefit) for income taxes                    36                   -                  (2)
                                                       ----                ----                ----
Net income (loss)                                       56                 (14)                 (5)
                                                       ====                ====                ====
</TABLE>

Net Sales

        Total revenue in fiscal 2000 increased to $122.7 million, or 37%, from
$89.3 million reported in fiscal 1999. The increase in net sales was primarily
due to increases in unit volume shipments of notebook products having higher
average selling prices (ASPs), as well as a $5.0 million payment from VIA
relating to royalty and license revenue. Sales of portable products of $91.9
million were approximately 75% of our net sales in fiscal 2000 as compared to
$51.4 million or 58% of net sales in fiscal 1999. Sales of GUI accelerator
desktop products were approximately $21.9 million or 18% of our net sales in
fiscal 2000 as compared to approximately $33.8 million or 38% in fiscal 1999.

        Net sales in fiscal 1999 decreased to $89.3 million, or 21%, from $113.0
million reported in fiscal 1998. The decrease in net sales was primarily due to
decreases in unit volume shipments of approximately 30% of graphical user
interface (GUI) accelerators and graphics controllers and a decline in average
selling prices (ASPs) in the desktop area in fiscal 1999 as compared to fiscal
1998. Sales of portable products of $51.4 million were approximately 58% of our
net sales in fiscal 1999 as compared to $44.9 million or 40% of net sales in
fiscal 1998. Sales of GUI accelerator desktop products were approximately $33.8
million or 38% of our net sales in fiscal 1999 as compared to approximately
$64.0 million or 57% in fiscal 1998.



                                       15
<PAGE>   16

        We design products with the goal of filling the needs of leading PC
systems manufacturers as well as the needs of adapter card manufacturers. Sales
to leading PC systems manufacturers represented approximately 46% of net sales
for fiscal 2000, an increase from 26% in fiscal 1999, and an increase from 25%
in fiscal 1998. Sales to Asian customers, primarily in Hong Kong, Taiwan, Korea,
Japan and Singapore, accounted for 99%, 73% and 84% of net sales in fiscal 2000,
1999, and 1998, respectively. Sales to three customers Compaq, Fujitsu, and
Toshiba accounted for approximately 18%, 11%, and 10% of net sales for fiscal
2000, respectively. Sales to two customers, Fujitsu and Innoquest, accounted for
approximately 13% and 12% of net sales for fiscal 1999, respectively, and sales
to two customers, Union Computer and Fujitsu, accounted for approximately 15%
and 11% of net sales for fiscal 1998, respectively. Substantially all of the
sales transactions were denominated in U.S. dollars during all periods. We
derive a portion of our revenues from sales to distributors. Sales to
distributors represented 6%, 12% and 17% of net sales during the twelve months
ended June 30, 2000, 1999 and 1998, respectively. During the first half of
fiscal year 1998 the Company experienced higher than usual returns resulting
from certain distributors adjusting their inventory mix and levels.

        We plan to develop new and higher-performance graphics controllers and
multimedia products to sell to existing customers as well as new customers in
Asia, North America and Europe. Our future success depends upon our successful
introduction of these and other new products on a regular and timely basis and
upon those products meeting customer requirements. There can be no assurance
that we will be able to complete the development of new products or to commence
shipments of new products in a timely manner, or that product specifications
will not change during the development period. In addition, even if such new
products are successfully developed and shipped, there can be no assurance that
they will be successfully developed and shipped, and there can be no assurance
that they will be successful in the marketplace.

Gross Margin

        Gross margin increased to 33% in fiscal 2000 from 32% in fiscal 1999.
Our gross margin was higher in fiscal 2000 primarily due to the booking of $5.0
million royalty and license revenue in the fourth quarter of fiscal 2000.
Without the royalty and license revenue, our gross margin would have decreased
by 2% in fiscal 2000. The 2% decrease was primarily due to an increase in the
cost of embedded DRAM. Our gross margin decreased to 32% in fiscal 1999 from 33%
in fiscal 1998. Gross margins were generally lower in fiscal 1999 because of
decreasing prices in desktop computers, and an increase in the cost of embedded
DRAM for portable computers.

        We believe that the prices of high-technology products decline over
time, as competition increases and new, advanced products are introduced. We
expect ASPs of existing products to continue to decline, although the ASPs of
our entire product line may remain constant or increase as a result of
introductions of new higher-performance products often with additional
functionality which are planned to be sold at higher prices. Our strategy is to
maintain and improve gross margins by (1) developing new products that have
higher margins and migration to new process technology, and (2) reducing
manufacturing costs by improving production yield and utilizing newer process
technology. There is no assurance that we will be able to develop and introduce
new products on a timely basis or that we can reduce manufacturing costs.

Research and Development

        Research and development expenditures increased to $27.6 million in
fiscal 2000 from $26.3 million in fiscal 1999, and decreased from $28.2 million
in fiscal 1998. Research and development expenditures as a percentage of net
sales were 22%, 29% and 25% in fiscal 2000, 1999 and 1998, respectively. The
increase in expenditures in fiscal 2000 compared to fiscal 1999 was primarily
the result of an increase in non-recurring engineering charges and an increase
in headcount in our overseas research and development facility. The decrease in
expenditures in fiscal 1999 compared to fiscal 1998 was primarily due to our
cost reduction efforts in fiscal 1999.

        We continue to develop a DPTV(TM)-DX product for the digital television
market in China, Japan, and Korea. We plan to continue developing the next
generation DPTV(TM) product as well as other advanced products for digital TV
and digital STB. However, there can be no assurance that these products will be
quickly or widely



                                       16
<PAGE>   17

accepted by consumers in the market place, nor that the new products will be
developed and shipped in a timely manner.


Selling, General and Administrative

        Selling, general and administrative expenditures increased to $16.9
million in fiscal 2000 from $16.6 million in fiscal 1999 and were $19.0 million
in fiscal 1998. Selling, general and administrative expenditures as a percentage
of net sales were 14%, 19% and 17% in fiscal 2000, 1999 and 1998, respectively.
Selling expenditures were $9.7 million in fiscal 2000 as compared to $10.9
million and $13.5 million in fiscal 1999 and 1998, respectively. General and
administrative expenditures were $7.2 million in fiscal 2000 as compared to $5.7
million and $5.5 million in fiscal 1999 and 1998, respectively. Selling cost
have declined in fiscal 2000 due to a decline in headcount and sales
representative commissions. Selling costs have declined in fiscal years 1999 and
1998 due to the slow-down in personal computer sales and reductions in marketing
personnel. General and administrative expenditures have increased in fiscal
year's 2000, compared to fiscal 1999, and fiscal 1998, primarily due to an
increase in legal services.

Interest Income, Net

        The amount of interest income earned by us varies directly with the
amount of its cash, cash equivalents, short-term investments and the prevailing
interest rates. Net interest income remained flat at $2.0 million in both fiscal
2000 and in fiscal 1999. Net interest income decreased to $2.0 million in fiscal
1999 from $2.4 million in fiscal 1998 due to lower cash balances in higher
yielding short-term investments.

Provision for Income Taxes

               Provision for income taxes increased to $44.7 million for the
fiscal year ended June 30, 2000, due to the recording of tax provision for the
UMC non-recurring gain in the long-term investment in UMC.

Other income

        In August 1995 we made an investment of $49.3 million in United
Integrated Circuits Corporation (UICC). On January 3, 2000, United
Microelectronics Corporation (UMC) acquired UICC. As a result of this merger,
and a 20% stock dividend payable to shareholders of record May 16, 2000, we now
own approximately 55.8 million shares of UMC. Accordingly, we reported a pretax
gain of $117 million as "other income" in our Statement of Operations for the
quarter end June 30, 2000. The gain represents the difference between the cost
of our previous investment in UICC, and the quoted market price of the UMC
shares on the Taiwan Stock Exchange as of the date that UMC acquired UICC.
During March 2000, an investment in Rise Technology in the amount of $2 million
was deemed unrecoverable by our management and written off. Therefore, net gain
on investments for the twelve months ended June 30, 2000, equals $115 million.

        Under SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") any
unrealized gains or losses on our short-term investments are to be reported as a
separate adjustment to equity. "Accumulated other comprehensive income" on the
short term portion of our UMC investment for the fiscal year ended June 30,
2000, was an unrealized loss of $(4.6) million. "Other comprehensive income" on
the short term portion of our UMC investment will be recomputed quarterly, and
will fluctuate with market and industry conditions, and therefore could result
in material losses or gains in any quarter.



                                       17
<PAGE>   18

Factors That May Affect Our Results

OPERATING LOSS IN FISCAL YEAR 2000

        We have experienced operating losses for the fiscal year's ending June
30, 2000. Future performance will substantially depend upon numerous factors,
such as:

        -   timely introduction of new products and product enhancements to the
            marketplace;

        -   whether customers successfully incorporate our technologies into end
            products with high levels of customer acceptance;

        -   fluctuating price levels for our products.

        Trident's management is trying to expedite new product launching and to
control operating expenses. However, there is no guarantee that management's
efforts will be successful. Sales and marketing, product development and general
and administrative expenses may increase as a result of shifts in the market
place and the company's need to respond to these shifts, which could result in
the need to generate significantly higher revenue to achieve and sustain
profitability.



FLUCTUATIONS IN QUARTERLY RESULTS

        We plan to control our operating expenses related to any expansion of
our sales and marketing activities, broadening of our customer support
capabilities, developing new distribution channels, and any increase in our
research and development capabilities. However, our quarterly revenue and
operating results have varied in the past and may fluctuate in the future due to
a number of factors including:

        -   fluctuations in demand for our products, including seasonality;

        -   unexpected product returns or the cancellation or rescheduling of
            significant orders;

        -   our ability to develop, introduce, ship and support new products and
            product enhancements and to manage product transitions;

        -   new product introductions by our competitors;

        -   our ability to achieve required cost reductions;

        -   our ability to attain and maintain production volumes and quality
            levels for our products;

        -   delayed new product introductions;

        -   unfavorable responses to new products;

        -   adverse economic conditions, particularly in Asia;

        -   the mix of products sold and the mix of distribution channels
            through which they are sold; and

        -   availability of foundry and assembly capacities;

        -   Delay of joint development efforts due to unexpected market
            conditions.


RELIANCE ON FEW KEY ACCOUNTS

        To date, a limited number of distributors and customers have accounted
for a significant portion of our revenue. If any of our large distributors or
customers stops or delays purchases, our revenue and profitability would be
adversely affected. Although our largest customers may vary from
period-to-period, we anticipate that our operating results for any given period
will continue to depend to a significant extent on large orders from a small
number of customers, particularly in light of the high sales price per unit of
our portable products and the length of our sales cycles.

        Our Original Equipment Manufacturer (OEM) customers seldom release
quarterly purchase orders and six-month rolling forecasts. In addition our
financial performance depends on large orders from a few key distributors and
other significant customers, we do not have binding long term commitments from
any of them. For example:



                                       18
<PAGE>   19

    -   our OEM customers can stop purchasing and our distributors can stop
        marketing our products with thirty days notice;

    -   our distributor agreements generally are not exclusive and the
        distributors have no obligation to renew agreements; and

    -   our distributor agreements generally do not require minimum purchases.

        We have established a reserve program, which, under specified
conditions, enables distributors to return products to us. The amount of
potential product returns is estimated and provided for in the period of the
sale. Actual returns could differ from our estimates.



RELIANCE ON INTERNATIONAL SALES

        Although our revenues have historically been generated primarily from
Asian customers, primarily Taiwan and Japan, we will continue to exert efforts
to expand our revenue base among the leading North American OEMs and ODMs. Our
ability to grow will depend in part on this expansion in North America but will
continue to be heavily based on international sales and operations, particularly
Taiwan, Japan, and China which are expected to constitute a significant portion
of our sales in the future. In addition, there are a number of risks arising
from our international business, including:

    -   potentially longer accounts receivable collection cycles;

    -   import or export licensing requirements;

    -   potential adverse tax consequences; and

    -   unexpected changes in regulatory requirements.

Our international sales currently are U.S. dollar-denominated. As a result, an
increase in the value of the U.S. dollar relative to foreign currencies could
make our products less competitive in international markets.



INTENSE COMPETITION IN THE MARKET FOR GRAPHICS CONTROLLERS

        The graphics controller industry in the sub-$1,000 PC segment has
experienced reduced margins due to a number of factors including: competitive
pricing pressures, increasing wafer cost and rapid technological change. We
anticipated that the discrete graphics controller demand from sub-$1,000 PC's
will continuously decrease in the future, while the demand for integrated
graphics controllers will increase. Therefore, to maintain our revenue and gross
margin, we must develop and introduce on a timely basis new products and product
enhancements and continually reduce our product cost. Our failure to do so would
cause our revenue and gross margins to decline, which could have a materially
adverse affect on our operating results.

        The market for graphics controllers is intensely competitive. Many of
our current competitors in graphics have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and market share than we do. To remain competitive, we believe we
must, among other things, invest significant resources in developing new
products, including products for new markets, increasing the ability of our
products to integrate various functions and enhancing quality product
performance. If we fail to do so, our products may not compete favorably with
those of our competitors, which could have a materially adverse affect on our
revenue and future profitability. We have developed a DPTV(TM)-DX product for
the digital television market in China, Japan, and Korea. However, we believe
the market for digital television will be intensely competitive, and we will
require substantial research development, sales and other expenditures to stay
competitive in this market.


                                       19
<PAGE>   20

VULNERABLE TO UNDETECTED PRODUCT PROBLEMS

        Although we establish and implement test specifications, impose quality
standards upon our suppliers and perform separate application-based
compatibility and system testing, our products may contain undetected defects,
which may or may not be material, and which may or may not have a feasible
solution. We have experienced such errors in the past, and we can't ensure that
such errors will be found from time to time in new or enhanced products after
commencement of commercial shipments. These problems may materially adversely
affect our business by causing us to incur significant warranty and repair
costs, diverting the attention of our engineering personnel from our product
development efforts and causing significant customer relations problems.

        In part due to pricing and other pressures in the PC graphics market and
in the desktop market in particular, we are developing products for introduction
in non-PC markets. However, there can be no assurance that we will be successful
in eliminating undetected defects in these new products which may or may not be
material.


DEPENDANCE ON INDEPENDENT FOUNDRIES

        If the demand for our products grows, we will need to increase our
material purchases, contract manufacturing capacity and internal test and
quality functions. Any disruptions in product flow could limit our revenue,
adversely affect our competitive position and reputation and result in
additional costs or cancellation of orders under agreements with our customers.

        We currently rely on a limited number of third-party foundries to
manufacture our products either in finished form or wafer form. Generally, these
foundries are not obligated to manufacture our products on a long term fixed
price base, however, due to the company's investment in one foundry, a certain
level of guaranteed wafer capacity does exist. If we encounter shortages and
delays in obtaining components, our ability to meet customer orders could be
materially adversely affected.

        We have experienced a delay in product shipments from a contract
manufacturer in the past, which in turn delayed product shipments to our
customers. Such delays often result in purchasing at a higher per unit product
cost from other foundries or the payment of expediting charges so that we can
obtain the required supply in a timely manner. We may in the future experience
delays in shipments from foundries or other problems, such as inferior quality
and insufficient quantity of product, any of which could materially adversely
affect our business and operating results. There can be no assurance that these
manufacturers will meet our future requirements for timely delivery of products
of sufficient quality and quantity. The inability of our contract manufacturers
to provide us with adequate supplies of high-quality products would cause a
delay in our ability to fulfill orders while we obtain a replacement
manufacturer and would have a material adverse effect on our business, operating
results and financial condition.


UNSTABLE STOCK PRICE

        The market price of our common stock has been, and may continue to be
volatile. Factors such as new product announcements by Trident or our
competitors, quarterly fluctuations in our operating results and unfavorable
conditions in the graphics controller market may have a significant impact on
the market price of our common stock. These conditions, as well as factors that
generally affect the market for stocks in general and stock in high-technology
companies in particular, could cause the price of Trident's stock to fluctuate
from time to time.


POTENTIAL DILUTION OF SHAREHOLDERS' INTEREST

        As part of our business strategy, we review acquisition and strategic
investment prospects that would complement our current product offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. We are very aggressively seeking
investments opportunities in new


                                       20
<PAGE>   21

businesses, and we expect to make investments in and may acquire businesses,
products or technologies in the future. In the event of any future acquisitions,
we could issue equity securities which would dilute current stockholders'
percentage ownership.

        These actions by us could materially adversely affect our operating
results and/or the price of our common stock. Acquisitions and investment
activities also entail numerous risks, including: difficulties in the
assimilation of acquired operations, technologies or products; unanticipated
costs associated with the acquisition or investment transaction; adverse effects
on existing business relationships with suppliers and customers; risk associated
with entering markets in which we have no or limited prior experience; and
potential loss of key employees of acquired organizations.

        We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could materially adversely affect our business,
operation results and financial condition.

        We are exposed to fluctuations in the market values of our investments.
We have invested in numerous privately held companies, many of which can still
be considered in the startup or development stages. These investments are
inherently risky as the market for the technologies or products they have under
development are typically in the early stages and may never materialize. We
could lose our entire initial investment in these companies. Our exposure to
fluctuating market conditions could materially adversely affect our business,
operating results and financial condition.


UNCERTAINTY OF BUSINESS RESTRUCTURING

        Continuing the strategic expansion into the internet appliance and
digital TV marketplace, Trident is now structured into two business units: the
videographics/communications business unit and the digital media business unit.
The videographics/communications business unit continues the Company's entire 3D
videographics business with worldwide PC OEMs, and intends to explore and expand
into System-On-Chip (SOC) solutions for internet appliances and visual video
communication. It is under the management of Frank Lin as business unit
president. On the other hand, the Company's digital media business unit focuses
on the System-On-Chip (SOC) opportunities for the TV-centric digital appliance
market including internet-ready digital TVs and digital set-top boxes. Its
immediate revenue ramp will come from the Company's single-chip digital
television video processor DPTV entering production during fiscal year 2001. The
digital media business unit is under the management of Dr. Jung-Herng Chang as
its president. We believe that such a restructuring will permit us to rapidly
grow our digital television product offerings, and continue to expand our
graphics chip markets by efficiently allocating resources between the two
divisions. However, there is no assurance that this strategy will be successful.

        On January 18, 2000, our Board of Directors approved a spin-off of our
Trident Technology Incorporated subsidiary and our Trident Multimedia
Technologies (Shanghai) Co. Ltd. subsidiary. It is our belief that these
subsidiaries would operate more efficiently if their operations were managed as
independent entities. As of June 30, 2000, we currently own a majority interest
in both Trident Technology Incorporated and Trident Multimedia Technologies
(Shanghai) Co. Ltd. Trident Technology Incorporated and Trident Multimedia
Technologies (Shanghai) Co. Ltd. have total assets equal to $4.8 million and
$3.9 million respectively. It is our intention to spin-off these subsidiaries
after June 30, 2000. However, there are organizational, operational and
marketing factors that may delay the spin-off of these subsidiaries, and no
assurance can be given that these subsidiaries will be profitable in the future.


LIQUIDITY AND CAPITAL RESOURCES

        As of June 30, 2000, our principal sources of liquidity included cash
and cash equivalents of $39 million. In fiscal year 2000, $17.1 million of cash
was provided by operations, compared to fiscal 1999, in which $1.7 million of
cash was used by operations. Cash provided by operating activities was primarily
due to profitable operations, and decreases in accounts receivable, inventories
and prepaid expenses and other assets, offset by increases in accounts



                                       21
<PAGE>   22

payable, accrued expenses and other liabilities, and deferred taxes. Capital
expenditures in fiscal 2000, 1999, and 1998 were $1.2 million, $2.6 million, and
$3.8 million respectively.

        In August 1995 we made an investment of $49.3 million in United
Integrated Circuits Corporation (UICC). On January 3, 2000, United
Microelectronics Corporation (UMC) acquired UICC. As a result of this merger,
and a 20% stock dividend payable to shareholders of record May 16, 2000, we now
own approximately 55.8 million shares of UMC. Accordingly, we reported a pretax
gain of $117 million as other income in our Statement of Operations for the
fiscal year 2000. The gain represents the difference between the cost of our
previous investment in UICC, and the quoted market price of the UMC shares on
the Taiwan Stock Exchange as of the date that UMC acquired UICC. At such time as
we choose to sell any UMC shares our gain or loss on such portion of the
investment will be revalued. As of today, a portion of the UMC shares received
by us as a result of the merger may now be sold at our discretion, however, in
order to preserve the 12.5% wafer capacity guarantee of the UICC facility, there
are certain limitations on our ability to sell the shares. During the March
2000, an investment in Rise Technology in the amount of $2 million was deemed
unrecoverable by our management and written off. Therefore, net gain on
investments for fiscal 2000, equals approximately $115 million.

        We believe our current resources are sufficient to meet our needs for at
least the next twelve months. We regularly consider transactions to finance our
activities, including debt and equity offerings and new credit facilities or
other financing transactions. We believe our current reserves are adequate.

        On April 13, 2000, our Board of Directors approved an extension of the
$20 million stock repurchase program, originally approved in April 1998, for
another twelve months starting from April 30, 2000 to April 30, 2001. During
fiscal year 2000, 680,000 shares of common stock were repurchased for $6.2
million under this Plan. During fiscal years 1999 and 1998, 161,000 and 274,500
shares of common stock were repurchased for $0.9 million and $2.1 million under
this Plan, respectively.

        In October 1999, our Board of Directors authorized a one year budget of
$20.0 million allowing our President and executive officers to make investments,
with no more than $3.0 million in any one company or technology. Investments can
be made on terms and agreements as the officers consider appropriate, within
this authorization without further approval by the Board. The President of the
Company is to report at each Board meeting on such activities. At the end of
fiscal year 2000 the cumulative purchases of investments totaled $8.1 million.
On April 13, 2000, subject to the closing of the investment in Trident described
in the paragraph immediately below, our Board of Directors approved an increase
in the annual budget of investments to $50.0 million.

        On February 10, 2000, we entered into an agreement with UMC affiliates,
Unipac Optoelectronics Corp. and Hsun Chieh Investment Co., Ltd., to sell
1,057,828 shares of the Company's common stock to Unipac and 3,173,484 shares of
the Company's common stock to Hsun Chieh representing approximately 23.5% of the
common stock that will be outstanding after the new issuance. On April 13, 2000,
the Trident board of directors approved an amendment to the existing agreement
upon the request of these corporate investors. Under the terms of the amended
agreement, the Company agreed to adjust the stock purchase price due to the
recent stock market volatility, aiming to continue the long term strategic
relationship and further strengthen the Company's cash position for future
strategic expansion. We expect that the proceeds of the stock purchase from the
sale of the Company's stock to Unipac and Hsun Chieh will be approximately USD
$42 million, with a per share price equal to the five-day average closing price
of Trident stock preceding April 17, 2000, plus a ten-percent premium on such
average. However, we believe that the total aggregate consideration and the
number of shares of our common stock sold pursuant to this transaction may be
reduced to conform with applicable regulatory requirements. Closing of this
transaction is contingent upon governmental and NASD regulatory approval, and
other customary closing conditions.

        On April 19, 2000, VIA Technologies, Inc. and Trident Microsystems, Inc.
announced that they have agreed to resolve all pending lawsuits. Both parties
agreed to enter a settlement agreement in order to better focus on respective
businesses and avoid the costs, time and distractions of a lengthy legal
process. Under the terms of the agreement, Trident will receive USD $10.17
million payable in two installments from VIA for a desktop software driver
license fee, contingent on the dismissal of all pending lawsuits in US and
Taiwan, which is not in complete



                                       22
<PAGE>   23

control of Trident and VIA. The first installment of $6.17 million will be paid
seven days after the dismissal of the Lawsuit and the Taiwan Action. The second
installment of $4.0 million will be paid ninety days after the first
installment. On June 30, 2000, we also reached an agreement with VIA and
released the Blade 3D source code which generated royalty and license revenue of
$5 million in our fiscal 2000 statement of operations, and we have also agreed
to a new joint chip development with VIA.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Financial Statements and supplemental data of the Company required
by this item are set forth at the pages indicated at Item 14(a).

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

        None.



                                       23
<PAGE>   24

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information regarding Directors required by this Item is
incorporated by reference from the definitive proxy statement for the Company's
2000 annual meeting of stockholders to be filed with the Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form (the "Proxy Statement"). Information relating to the executive
officers of the Company is set forth in Part I of this report under the caption
"Executive Officers of the Registrant."

        Information required by this item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference from the Proxy Statement under the caption "EXECUTIVE COMPENSATION AND
OTHER MATTERS--Section 16(a) Beneficial Ownership Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION

        The information required by this Item is incorporated by reference from
the Proxy Statement under the caption "EXECUTIVE COMPENSATION AND OTHER
MATTERS."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this Item is incorporated by reference from
the Proxy Statement under the captions "INFORMATION ABOUT TRIDENT
MICROSYSTEMS--Stock Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this Item is incorporated by reference from
the Proxy Statement under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."



                                       24
<PAGE>   25

PART IV

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

        (a) The following documents are filed as a part of this Form:

               1.     Financial Statements:

<TABLE>
<CAPTION>
                                                                                   Page Number
                                                                                   -----------
<S>                                                                                <C>
                      Report of Independent Accountants                                 26

                      Consolidated Balance Sheet -                                      27
                      As of June 30, 2000 and 1999

                      Consolidated Statement of Operations -                            28
                      For the Three Years Ended June 30, 2000

                      Consolidated Statement of Changes in Stockholders' Equity         29
                      For the Three Years Ended June 30, 2000

                      Consolidated Statement of Cash Flows                              30
                      For the Three Years Ended June 30, 2000

                      Notes to Consolidated Financial Statements                        31
</TABLE>

               2.     Financial Statement Schedules:

                      All financial statement schedules are omitted because they
                      are not applicable or the required information is shown in
                      the consolidated financial statements or notes thereto.

               3.     Exhibits: See Index to Exhibits on page 44. The Exhibits
                      listed in the accompanying Index to Exhibits are filed or
                      incorporated by reference as part of this report.

        (b) Reports on Form 8-K:

                      Report under item 5 filed on August 21, 1998 regarding the
                      adoption of the Rights Agreement dated July 24, 1998.

                      Report under item 5 filed on November 19, 1999 relating to
                      an amendment of the Company bylaws regarding "special
                      meeting of stockholders."



                                       25
<PAGE>   26

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
Trident Microsystems, Inc.


In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Trident
Microsystems, Inc. and its subsidiaries at June 30, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
San Jose, California
July 19, 2000




                                       26
<PAGE>   27

TRIDENT MICROSYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                            JUNE 30,
(in thousands, except per share data)                                 2000            1999
                                                                    ---------       ---------
<S>                                                                 <C>             <C>
ASSETS
Current assets:
    Cash and cash equivalents                                       $  39,041       $  32,469
    Short-term investments                                            110,665            --
    Accounts receivable                                                 6,092          11,029
    Inventories                                                         3,376           4,681
    Prepaid expenses and other current assets                           2,222           4,416
                                                                    ---------       ---------
        Total current assets                                          161,396          52,595
Property and equipment, net                                             3,901           6,113
Investments                                                            48,049          49,289
Other assets                                                            9,030           2,913
                                                                    ---------       ---------
        Total assets                                                $ 222,376       $ 110,910
                                                                    =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                $   7,324       $   6,267
    Accrued expenses                                                   12,531           7,537
    Deferred income taxes                                              24,734            --
    Income taxes payable                                                1,596           1,293
                                                                    ---------       ---------
        Total current liabilities                                      46,185          15,097
Deferred income taxes non-current                                      18,928           2,350
Other long-term liabilities                                                46              82
Minority interest in subsidiary                                         1,256            --
                                                                    ---------       ---------
        Total liabilities                                              66,415          17,529
                                                                    ---------       ---------
Commitments and contingencies (Notes 9 and 10)
Stockholders' equity:

    Common stock, $ 0.001 par value; 30,000 shares authorized;
    14,479 and 13,566 shares issued and outstanding                        14              14
    Additional paid-in capital                                         52,240          46,963
    Retained earnings                                                 118,636          50,529
    Accumulated other comprehensive loss                               (4,648)           --
    Treasury stock, at cost, 1,216 and 536 shares                     (10,281)         (4,125)
                                                                    ---------       ---------
        Total stockholders' equity                                    155,961          93,381
                                                                    ---------       ---------
        Total liabilities and stockholders' equity                  $ 222,376       $ 110,910
                                                                    =========       =========
</TABLE>


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



                                       27
<PAGE>   28

TRIDENT MICROSYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
(in thousands, except per share data)                     2000            1999            1998
                                                        ---------       ---------       ---------
<S>                                                     <C>             <C>             <C>
Net sales:
     Sales                                              $ 117,682       $  89,255       $ 113,002
     Royalty and license revenue                            5,000            --              --
                                                        ---------       ---------       ---------
                                                          122,682          89,255         113,002
Cost of sales                                              82,434          60,585          75,402
                                                        ---------       ---------       ---------
Gross profit                                               40,248          28,670          37,600
Research and development expenses                          27,555          26,345          28,156
Selling, general and administrative expenses               16,899          16,576          18,964
                                                        ---------       ---------       ---------
Income (loss) from operations                              (4,206)        (14,251)         (9,520)
Gain on investments, net                                  114,984            --              --
Interest income, net                                        2,046           1,976           2,428
                                                        ---------       ---------       ---------
Income (loss) before provision for income taxes           112,824         (12,275)         (7,092)
Provision (benefit) for income taxes                       44,717             (80)         (1,986)
                                                        ---------       ---------       ---------
Net income (loss)                                       $  68,107       $ (12,195)      $  (5,106)
                                                        =========       =========       =========
Basic earnings (loss) per share                         $    5.07       $   (0.94)      $   (0.39)
                                                        =========       =========       =========

Shares used in computing basic per share amounts           13,423          12,978          13,007
                                                        =========       =========       =========

Diluted earnings (loss) per share                       $    4.43       $   (0.94)      $   (0.39)
                                                        =========       =========       =========

Shares used in computing diluted per share amounts         15,360          12,978          13,007
                                                        =========       =========       =========
</TABLE>


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



                                       28
<PAGE>   29

TRIDENT MICROSYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                            ACCUMULATED
                                              COMMON    ADDITIONAL                             OTHER
                                              STOCK      PAID-IN    TREASURY     RETAINED   COMPREHENSIVE   TOTAL      COMPREHENSIVE
(in thousands)                   SHARES       AMOUNT     CAPITAL     STOCK       EARNINGS       LOSS        EQUITY     INCOME (LOSS)
                                ---------   ---------   ----------  ---------    ---------  -------------  ---------   -------------
<S>                             <C>         <C>         <C>         <C>          <C>        <C>            <C>         <C>
Balance at June 30, 1997           12,970   $      13   $  42,799   $  (1,085)   $  67,830    $    --      $ 109,557
Issuance of common stock              319        --         2,540        --           --           --          2,540
Purchase of treasury shares          --          --          --        (2,100)        --           --         (2,100)
Net loss                             --          --          --          --         (5,106)        --         (5,106)   $  (5,106)
                                -------------------------------------------------------------------------------------------------

Balance at June 30, 1998           13,289          13      45,339      (3,185)      62,724         --        104,891
Issuance of common stock              277           1       1,034        --           --           --          1,035
Income tax benefit on
     disqualifying disposition
     of common stock options         --          --           590        --           --           --            590
Purchase of treasury shares          --          --          --          (940)        --           --           (940)
Net loss                             --          --          --          --        (12,195)        --        (12,195)   $ (12,195)
                                -------------------------------------------------------------------------------------------------

Balance at June 30, 1999           13,566          14      46,963      (4,125)      50,529         --         93,381
Issuance of common stock              913        --         5,277        --           --           --          5,277
Purchase of treasury shares          --          --          --        (6,156)        --           --         (6,156)
Accumulated other
     comprehensive loss              --          --          --          --           --         (4,648)      (4,648)   $  (4,648)
Net income                           --          --          --          --         68,107         --         68,107       68,107
                                                                                                                        ---------
                                     --          --          --          --           --           --           --      $  63,459
                                -------------------------------------------------------------------------------------------------

Balance at June 30, 2000           14,479   $      14   $  52,240   $ (10,281)   $ 118,636    $  (4,648)   $ 155,961
                                ====================================================================================
</TABLE>


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



                                       29
<PAGE>   30

TRIDENT MICROSYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
(in thousands)                                                     2000            1999            1998
                                                                 ---------       ---------       ---------
<S>                                                              <C>             <C>             <C>
Cash flows from operating activities:
     Net income (loss)                                           $  68,107       $ (12,195)      $  (5,106)
     Adjustments to reconcile net income to cash
     provided by operating activities:
          Depreciation and amortization                              3,418           4,241           3,532
          Provision for doubtful accounts and sales returns            430             488              49
          Non-cash gain on investments                            (114,984)           --              --
          Income tax benefit on disqualifying disposition
            of common stock options                                   --               590            --
          Changes in assets and liabilities:
              Accounts receivable                                    4,507          (3,334)         12,411
              Inventories                                            1,305           5,465          (2,850)
              Prepaid expenses and other current assets              2,194          (3,180)            (65)
              Other assets                                             (21)           (258)           (214)
              Deferred income taxes, net                            41,312           2,266             787
              Accounts payable                                       1,057           2,908         (10,916)
              Accrued expenses                                       5,355           1,348          (4,898)
              Income taxes payable                                   3,401               1            (474)
              Minority interest in subsidiary                        1,069            --              --
                                                                 ---------       ---------       ---------
     Net cash provided by (used in) operating activities            17,150          (1,660)         (7,744)
                                                                 ---------       ---------       ---------
Cash flows from investing activities:
     Sales (purchases) of short-term investments, net                 --            13,970          16,230
     Purchases of property and equipment                            (1,206)         (2,588)         (3,834)
     Investment in joint venture                                      --              --            (9,658)
     Long-term investments                                          (8,096)           --            (2,000)
                                                                 ---------       ---------       ---------
     Net cash provided by (used in) investing activities            (9,302)         11,382             738
                                                                 ---------       ---------       ---------
Cash flows from financing activities:
     Issuance of common stock                                        5,277           1,035           2,540
     Repayment of capital leases                                      (397)           (264)           (263)
     Purchase of treasury stock                                     (6,156)           (940)         (2,100)
                                                                 ---------       ---------       ---------
     Net cash provided by (used in) financing activities            (1,276)           (169)            177
                                                                 ---------       ---------       ---------
Net increase (decrease) in cash and cash equivalents                 6,572           9,553          (6,829)
Cash and cash equivalents at beginning of year                      32,469          22,916          29,745
                                                                 ---------       ---------       ---------
Cash and cash equivalents at end of year                         $  39,041       $  32,469       $  22,916
                                                                 =========       =========       =========
Supplemental disclosure of cash flow information:
     Cash paid during the year for income taxes                  $    --         $    --         $     544
</TABLE>


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



                                       30
<PAGE>   31

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    THE COMPANY

    Trident Microsystems, Inc. (the "Company") designs, develops and markets
    integrated circuits for videographics, multimedia and digital process
    television products for the desktop and portable PC market and consumer
    television market.

    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Basis of Presentation. The consolidated financial statements include the
    accounts of the Company and its subsidiaries after elimination of all
    significant intercompany accounts and transactions. The preparation of
    financial statements in accordance with generally accepted accounting
    principles requires management to make estimates and assumptions that affect
    the reported amounts; actual results could differ from those estimates.

    Cash Equivalents and Short-Term Investments. Cash equivalents consist of
    highly liquid investments in money market accounts and certificates of
    deposits purchased with an original maturity of ninety days or less from the
    date of purchase. The Company classifies its short-term investments as
    available for sale. Such investments are recorded at fair value based on
    quoted market prices, with unrealized gains and losses, which are considered
    to be temporary, recorded as other comprehensive income or loss until
    realized.

    Inventories. Inventories are stated principally at standard cost adjusted to
    approximate the lower of cost (first-in, first-out method) or market (net
    realizable value).

    Property and Equipment. Property and equipment are stated at cost.
    Depreciation is computed using the straight-line method over the estimated
    useful lives which range from three to seven years. Amortization of
    leasehold improvements is computed using the straight-line method over the
    shorter of the estimated life of the assets or the extended lease term.

    Investments. Equity investments of less than 20% wherein the Company does
    not have the ability to exert significant influence are accounted for using
    the cost method.

    Revenue Recognition. Revenue from product sales is recognized upon shipment.
    Provision is made for expected sales returns and allowances when revenue is
    recognized. The Company has limited control over the extent to which
    products sold to distributors are sold through to end users. Accordingly, a
    portion of the Company's sales may from time to time result in increased
    inventory at its distributors. The Company provides reserves for returns and
    allowances for distributor inventories. These reserves are based on the
    Company's estimates of inventory held by its distributors and the expected
    sell through of its products by its distributors. Actual results could
    differ from these estimates. The Company has no obligation to provide any
    modification or customization upgrades, enhancements or other post-sale
    customer support.

    Software Development Costs. To date, the period between achieving
    technological feasibility and the general availability of such software has
    been short and software development costs qualifying for capitalization have
    been insignificant. Accordingly, the Company has not capitalized any
    software development costs.

    Income Taxes. The Company accounts for income taxes using the asset and
    liability method, under which the expected future tax consequences of
    temporary differences between the book and tax bases of assets and



                                       31
<PAGE>   32

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


    liabilities are recognized as deferred tax assets and liabilities. The
    Company does not record a deferred tax provision on unremitted earnings of
    foreign subsidiaries to the extent that such earnings are considered
    permanently invested.

    Net Income (loss) per Share. Basic net income (loss) per share is computed
    by dividing net income (loss) available to common shareholders by the
    weighted average number of common shares outstanding during the period.
    Diluted net income per share is calculated using the weighted average number
    of outstanding shares of common stock plus dilutive potential common stock
    shares. Potential common stock shares consist of common stock options,
    computed using the treasury stock method based on the average stock price
    for the period.

    Foreign Currency Transactions. The functional currency of the Company's
    operations in all countries is the U.S. dollar. Sales and purchase
    transactions are generally denominated in U.S. dollars. Foreign transaction
    gains and losses were not material for each period presented.

    Stock-based Compensation. The Company accounts for stock-based employee
    compensation arrangements in accordance with provisions of Accounting
    Principles Board Opinions ("APB") No. 25, "Accounting for Stock Issued to
    Employees" and complies with the disclosure provisions of Statements of
    Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
    Compensation. " Under APB No. 25, compensation cost is generally recognized
    based on the difference, if any, between the quoted market price of the
    Company's stock on the date of grant and the amount an employee must pay to
    acquire the stock.

    Comprehensive income. Effective July 1, 1998, the Company adopted the
    provision of SFAS No. 130, "Reporting Comprehensive Income." This statement
    requires companies to classify items of other comprehensive income by their
    components in the financial statements and display the accumulated balance
    of other comprehensive income separately from retained earnings in the
    equity section of a statement of financial position. Foreign currency
    translation and unrealized gains and losses on short-term investments are
    comprehensive income items applicable to the Company, and are to be reported
    as a separate adjustment to equity as "Accumulated other comprehensive
    income."

    New Accounting Pronouncements. In June 1998, the Financial Accounting
    Standards Board ("FASB") issued Statement of Financial Accounting Standards
    No. 133 (SFAS No. 133"). Accounting for Derivatives Instruments and Hedging
    Activities." This statement establishes accounting and reporting standards
    for derivative instruments and requires recognition of all derivatives as
    assets or liabilities in the balance sheet and measurement of those
    instruments at fair value. The statement is effective for fiscal years
    beginning after June 15, 2000. The Company will adopt the standard no later
    than the first quarter of fiscal year 2001 and management foes not expect a
    material impact on the Company's statements.

    In December 1999, The Securities and Exchange Commission issued Staff
    Accounting Bulletin No. 101 ("SAB 101"),"Revenue Recognition in Financial
    Statements." SAB 101 provides interpretive guidance on the recognition,
    presentation and disclosure of revenue in financial statements under certain
    circumstances. The Company adopted the provisions of SAB 101 in these
    financial statements for all periods presented.

    In March 2000, the FASB issued FASB Interpretation No. 44 or FIN 44
    "Accounting for Certain Transactions Involving Stock Compensation," and
    interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
    Opinion 25 for (a) the definition of employee for purposes of applying
    Opinion 25, (b) the criteria for determining whether a plan qualifies as a
    noncompensatory plan, (c) the accounting consequence for various



                                       32
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


    modifications to the terms of a previously fixed stock option or award and
    (d) the accounting for an exchange of stock compensation awards in a
    business combination. FIN 44 is effective July 1, 2000, but certain
    conclusions cover specific events that occur after either December 15, 1998,
    or January 12, 2000. The adoption of FIN 44 did not and is not expected to
    have a material impact on the Company's financial position or results of
    operations.

2.  BALANCE SHEET COMPONENTS


<TABLE>
<CAPTION>
                                                                 JUNE 30,
(in thousands)                                             2000           1999
                                                         --------       --------
<S>                                                      <C>            <C>
Accounts receivable:
    Trade accounts receivable                            $  7,191       $ 12,147
    Less: allowance for doubtful accounts                  (1,099)        (1,118)
                                                         --------       --------
                                                         $  6,092       $ 11,029
                                                         ========       ========
Inventories:
    Work in process                                      $    346       $    850
    Finished goods                                          3,030          3,831
                                                         --------       --------
                                                         $  3,376       $  4,681
                                                         ========       ========
Property and Equipment:
    Machinery and equipment                              $ 15,788       $ 17,905
    Furniture and fixtures                                  1,695          2,042
    Leasehold improvements                                    651          1,296
                                                         --------       --------
                                                           18,134         21,243
    Less: accumulated depreciation and amortization       (14,233)       (15,130)
                                                         --------       --------
                                                         $  3,901       $  6,113
                                                         ========       ========
Accrued expenses:
    Compensation accruals                                $  2,497       $  2,826
    Sales allowances                                        1,657            602
    Nonrecurring engineering charges                        2,382            714
    Other                                                   5,995          3,395
                                                         --------       --------
                                                         $ 12,531       $  7,537
                                                         ========       ========
</TABLE>



                                       33
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


3.      NET INCOME (LOSS) PER SHARE

        Reconciliations of the numerators and denominators of the basic and
        diluted net income (loss) per share calculations are as follows:


<TABLE>
<CAPTION>
                                                   YEAR ENDED JUNE 30,
(in thousands, except per share data)        2000          1999           1998
                                           --------      --------       --------
<S>                                        <C>           <C>            <C>
BASIC NET INCOME (LOSS) PER SHARE
Net income (loss)                          $ 68,107      $(12,195)      $ (5,106)
                                           ========      ========       ========
Weighted average common shares               13,423        12,978         13,007
                                           ========      ========       ========
Basic net income (loss) per share          $   5.07      $  (0.94)      $  (0.39)
                                           ========      ========       ========
DILUTED NET INCOME (LOSS) PER SHARE

Net income (loss)                          $ 68,107      $(12,195)      $ (5,106)
                                           ========      ========       ========
Weighted average common shares               13,423        12,978         13,007
Dilutive common stock equivalents             1,937          --             --
                                           --------      --------       --------
Weighted average common shares
  and equivalents                            15,360        12,978         13,007
                                           ========      ========       ========
Diluted net income (loss) per share        $   4.43      $  (0.94)      $  (0.39)
                                           ========      ========       ========
</TABLE>

4.      GAIN ON INVESTMENTS

        Investment in Joint Venture. In August 1995 the Company made an
        investment of $49.3 million in United Integrated Circuits Corporation
        (UICC). On January 3, 2000, United Microelectronics Corporation (UMC)
        acquired UICC. and, as a result of this merger, the Company owned
        approximately 46.5 million shares of UMC in January 2000. Accordingly, a
        non-operating pretax gain of $117 million was reported in the statement
        of operations for the quarter end March 31, 2000. The gain represented
        the difference between the cost of the previous investment in UICC, and
        the quoted market price of the UMC shares on the Taiwan Stock Exchange
        as of the date that UMC acquired UICC. On April 7, 2000, UMC announced a
        20% stock dividend payable to shareholders of record May 16, 2000. The
        total shares of the Company's investments in UMC equaled approximately
        55.8 million shares as of June 30, 2000 which represented about 0.5% of
        the outstanding stock of UMC. The Company has not determined whether or
        when it will sell such shares and the shares may be subject to trading
        or other restrictions. The Company continues to have a guaranteed wafer
        supply from UMC approximately the same in quantity as it had with UICC.
        During the quarter ended March 31, 2000, an investment in Rise
        Technology in the amount of $2 million was deemed unrecoverable by the
        management of the Company and written off. Therefore, net gain on
        investments for the twelve months ended June 30, 2000, equals
        approximately $115 million.



                                       34
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


        Under SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") any
        unrealized gains or losses on the short-term investments which are
        classified as available-for-sale equity securities are to be reported as
        a separate adjustment to equity. Between January 3, 2000 and June 30,
        2000, the market value of the Company's short-term investments in UMC
        declined by $4.6 million, and that unrealized loss is included in equity
        as accumulated other comprehensive loss.



                                       35
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


5.  INCOME TAXES

    The components of income (loss) before taxes are as follows:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED JUNE 30,
    (in thousands)                                               2000            1999            1998
                                                               ---------       ---------       ---------
<S>                                                            <C>             <C>             <C>
    Income (loss) subject to domestic income taxes only        $ 116,435       $  (1,523)      $     148
    Income (loss) subject to foreign income taxes, and in
            certain cases, domestic income taxes                  (3,611)        (10,752)         (7,240)
                                                               ---------       ---------       ---------
                                                               $ 112,824       $ (12,275)      $  (7,092)
                                                               =========       =========       =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                  YEAR ENDED JUNE 30,
    (in thousands)                         2000           1999           1998
                                         --------       --------       --------
<S>                                      <C>            <C>            <C>
    Current:
       Federal                           $  2,645       $ (2,374)      $ (2,411)
       State                                  454           --             (362)
       Foreign                                306             28           --
                                         --------       --------       --------
                                            3,405         (2,346)        (2,773)
                                         --------       --------       --------
    Deferred:
       Federal                             35,266          2,266            391
       State                                6,046           --              396
                                         --------       --------       --------
                                           41,312          2,266            787
                                         --------       --------       --------
                                         $ 44,717       $    (80)      $ (1,986)
                                         ========       ========       ========
</TABLE>

    The deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
                                                              JUNE 30,
    (in thousands)                                      2000           1999
                                                      --------       --------
<S>                                                   <C>            <C>
    Deferred tax assets:
       Vacation, bonus and other accruals             $  1,214       $  1,066
       Allowances, reserves and other                    1,233            433
       Research and development credits                  4,053          2,567
       Net operating losses                                  6            550
       Other                                             1,052            800
                                                      --------       --------
                                                         7,558          5,416
       Valuation allowance                                --           (5,416)
    Deferred tax liabilities:
       Capital gains not recognized for tax            (43,770)          --
       Unremitted earnings of foreign subsidiary        (7,450)        (2,350)
                                                      --------       --------
                                                      $(43,662)      $ (2,350)
                                                      ========       ========
</TABLE>



                                       36
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


        As of June 30, 2000, the Company determined that a valuation allowance
        on its deferred tax assets was no longer necessary. The realization of
        deferred tax assets is more likely than not to occur as a result of
        gains on investments.

        The reconciliation of the income tax provisions computed at the United
        States federal statutory rate to the effective tax rate for the recorded
        provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED JUNE 30,
    (in thousands)                                    2000          1999          1998
                                                     ------        ------        ------
<S>                                                  <C>          <C>           <C>
    Federal statutory rate                             35.0%        (35.0)%       (35.0)%
    State taxes, net of federal tax benefit             5.0          --            (3.2)
    Research and development credit                    (1.3)         --           (17.8)
    Foreign earnings subject to lower tax rates         5.8          --            13.7
    Valuation allowance                                (4.8)         29.5          16.4
    Other                                               0.2           4.8          (2.1)
                                                     ------        ------        ------
    Effective income tax rate                          39.9%         (0.7)%       (28.0)%
                                                     ------        ------        ------
</TABLE>

        The Company has fully provided for U.S. federal income and foreign
        withholding taxes on a non-U.S. subsidiary's undistributed earnings as
        of June 30, 2000.

6.  STOCK-BASED COMPENSATION

        Stock Purchase Plans. In October 1998, the Board of Directors of the
        Company (the "Board") adopted the 1998 Employee Stock Purchase Plan
        under which 500,000 shares of the Company's common stock may be issued.
        This plan replaced the 1992 Employee Stock Purchase Plan which was
        terminated on October 30, 1998. Shares are to be purchased from payroll
        deductions; employees of the Company who are based outside the United
        States may participate by making direct contributions to the Company for
        the purchase of stock. Such payroll deductions or direct contributions
        may not exceed 10% of an employee's compensation. The purchase price per
        share at which the shares of the Company's common stock are sold in an
        offering generally will be equal to 85% of the lesser of the fair market
        value of the common stock on the first or the last day of the offering.
        During fiscal years 2000 and 1999, 178,000 and 108,000 shares were
        issued under the 1998 Employee Stock Purchase Plan, respectively. During
        fiscal years 1999 and 1998, 144,000 and 137,000 shares were issued under
        the 1992 Employee Stock Purchase Plan, respectively.

        Stock Options. The Company grants nonstatutory and incentive stock
        options to key employees, directors and consultants. At June 30, 2000,
        shares of common stock reserved for issuance upon exercise of the stock
        options aggregated 7,055,000. Stock options are granted at prices
        determined by the Board. Nonstatutory and incentive stock options may be
        granted at prices not less than 85% of the fair market value and at not
        less than fair market value, respectively, at the date of grant. Options
        generally become exercisable one year after date of grant and vest over
        a maximum period of five years following the date of grant.



                                       37
<PAGE>   38

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


        The following table summarizes the option activities for the years ended
        June 30, 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                             WEIGHTED
                                                OPTIONS        OPTIONS       AVERAGE        OUTSTANDING
                                             AVAILABLE FOR    NUMBER OF      EXERCISE        PRICE PER
    (in thousands, except per share data)       GRANT         OPTIONS         PRICE            OPTION
                                             -------------    --------       --------      -------------
<S>                                          <C>              <C>            <C>           <C>
    Balance, June 30, 1997                        1,066          3,850                     $ 1.05-$34.38
    Options granted                              (3,478)         3,478       $   9.39      $ 5.00-$18.00
    Options exercised                              --             (192)      $   7.37      $ 1.55-$10.25
    Options canceled                              2,834         (2,834)      $  11.72      $ 1.55-$21.50
                                               --------       --------                     -------------

    Balance, June 30, 1998                          422          4,302                     $ 1.05-$34.38

    Additional shares reserved                      625           --
    Options granted                              (5,127)         5,127       $   3.58      $ 2.63-$ 6.38
    Options exercised                              --              (26)      $   3.50      $ 3.50-$ 3.50
    Plan shares expired                             (85)          --
    Options canceled                              4,534         (4,534)      $   7.83      $ 1.55-$34.38
                                               --------       --------                     -------------

    Balance, June 30, 1999                          369          4,869                     $ 1.05-$34.38
    Additional shares reserved                     --             --
    Options granted                                (256)           256       $   8.07      $ 7.50-$14.25
    Options exercised                              --             (734)      $   3.54      $ 2.63-$ 8.63
    Plan shares expired                            --             --
    Options canceled                                675           (675)      $   3.96      $ 1.55-$13.31
                                               --------       --------                     -------------

    Balance, June 30, 2000                          788          3,716                     $ 1.05-$34.38
                                               ========       ========                     =============
</TABLE>


        At June 30, 2000, 1999 and 1998, options for 1,789,000, 1,637,000, and
        1,293,000 shares of common stock were vested but not exercised,
        respectively. In October 1998, the Company canceled 3,643,000
        outstanding options with exercise prices greater than $3.50 and reissued
        the options with an exercise price of $3.50. In January 1998, the
        Company canceled 1,702,000 outstanding options granted after July 28,
        1997 with exercise prices greater than $8.63 and reissued the options
        with an exercise price of $8.63.



                                       38
<PAGE>   39

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


        The following table summarizes information about stock options
        outstanding at June 30, 2000:


<TABLE>
<CAPTION>
                                Options Outstanding                                     Options Exercisable
                         (in thousands except per share data)                      (in thds except per share data)
    ---------------------------------------------------------------------------    -------------------------------
                              Number         Weighted Average       Weighted          Number          Weighted
        Range of            Outstanding          Remaining          Average         Exercisable       Average
    Exercise Prices          6/30/00         Contractual Life    Exercise Price     at 6/30/00     Exercise Price
    ---------------------------------------------------------------------------    -------------------------------
<S>                         <C>              <C>                 <C>                <C>            <C>
    $ 1.05 - $  3.38            421                 7.1              $ 2.88              179          $ 2.62
    $ 3.50 - $  3.50          2,225                 8.3              $ 3.50            1,377          $ 3.50
    $ 3.88 - $  7.75            990                 8.6              $ 5.51              167          $ 4.96
    $ 7.94 - $ 34.38             80                 6.8              $17.62               66          $19.27
    ----------------          -----                 ---              ------            -----          ------
    $ 1.05 - $ 34.38          3,716                 8.2              $ 4.27            1,789          $ 4.13
    ----------------          -----                 ---              ------            -----          ------
</TABLE>


FAIR VALUE PRESENTATION.

        Had compensation cost for the Company's stock-based compensation awards
        been determined based on the fair value method consistent with the
        method prescribed SFAS No. 123, the Company's net income (loss) and
        earnings (loss) per share would have been further adjusted to the pro
        forma amounts as follows:

<TABLE>
<CAPTION>
                                                      Year Ended June 30,
    (in thousands except per share data)        2000          1999           1998
                                              --------      --------       --------
<S>                                           <C>           <C>            <C>
    Net income (loss):
       As reported                            $ 68,107      $(12,195)      $ (5,106)
                                              --------      --------       --------
       Pro forma                              $ 62,740      $(20,283)      $(11,377)
                                              --------      --------       --------
    Net income (loss) per share:
       As reported:
          Basic                               $   5.07      $  (0.94)      $  (0.39)
                                              --------      --------       --------
          Diluted                             $   4.43      $  (0.94)      $  (0.39)
                                              --------      --------       --------
       Pro forma:
          Basic                               $   4.67      $  (1.56)      $  (0.87)
                                              --------      --------       --------
          Diluted                             $   4.08      $  (1.56)      $  (0.87)
                                              --------      --------       --------
</TABLE>



                                       39
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


        Under SFAS 123, the fair value of each option grant is estimated on the
        date of grant using the Black-Scholes option-pricing model with the
        following weighted-average assumptions used for grants in fiscal 2000,
        1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                                2000               1999               1998
                                            -------------      -------------      -------------
<S>                                         <C>                <C>                <C>
    Stock Options Plans
       Expected dividend yield                   --                 --                 --
       Expected stock price volatility           65%                79%                69%
       Risk-free interest rate              6.02% - 6.51%      4.18% - 5.52%      5.61% - 5.99%
       Expected life (years)                      5                  5                  5
    Stock Purchase Plan
       Expected dividend yield                   --                 --                 --
       Expected stock price volatility        58% - 67%          71% - 82%          62% - 72%
       Risk-free interest rate              6.37% - 7.06%      3.95% - 5.09%      5.30% - 5.52%
       Expected life (years)                    0.5                0.5                0.5
</TABLE>

        Weighted average fair value of options granted were $4.85, $2.40 and
        $5.78 for fiscal years 2000, 1999 and 1998, respectively.

        Stock Repurchases. On April 13, 2000, the Board of Directors approved an
        extension of the $20 million stock repurchase program, originally
        approved in April 1998, for another twelve months starting from April
        30, 2000 to April 30, 2001. During fiscal years 2000, 1999 and 1998,
        680,000, 161,000 and 274,500 shares of common stock were repurchased for
        $6.2 million, $0.9 million and $2.1 million under this Plan,
        respectively. During fiscal year 1997, 100,000 shares of common stock
        were repurchased for $1.1 million.

7.  PREFERRED RIGHTS AGREEMENT

        On July 24, 1998, the Board adopted a Preferred Shares Rights Agreement
        ("Agreement") and pursuant to the Agreement authorized and declared a
        dividend of one preferred share purchase right ("Right") for each common
        share outstanding of the Company on August 14, 1998. The Rights are
        designed to protect and maximize the value of the outstanding equity
        interests in the Company in the event of an unsolicited attempt by an
        acquirer to take over the Company, in a manner or terms not approved by
        the Board. Each Right becomes exercisable to purchase one-hundredth of a
        share of Series A Preferred Stock of the Company at an exercise price of
        $50.00 and expire on July 23, 2008. The Company may redeem the Rights at
        a price of $0.001 per Right.



                                       40
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


8.  GEOGRAPHIC SEGMENT INFORMATION

        Effective July 1, 1998, the Company adopted SFAS No. 131, "Disclosures
        about Segments of an Enterprise and Related Information." This statement
        requires enterprises to report information about operating segments in
        annual financial statements and selected information about reportable
        segments in interim financial reports. It also establishes standards for
        related disclosures about products, geographic areas and major
        customers. The Company has one reportable segment. The following is a
        summary of the Company's geographic operations:

<TABLE>
<CAPTION>
                                    UNITED
        (in thousands)              STATES        TAIWAN        JAPAN        HONG KONG      CHINA         OTHERS     CONSOLIDATED
                                   --------      --------      --------      ---------     --------      --------    ------------
<S>                                <C>           <C>           <C>           <C>           <C>           <C>         <C>
        Fiscal Year 2000:
            Product sales          $  1,217      $ 51,484      $ 33,008      $  9,578      $      2      $ 22,393      $117,682
            Long-lived assets         2,172           494          --              10         1,225          --           3,901

        Fiscal Year 1999:
            Product sales          $ 23,832      $ 23,892      $ 22,057      $ 14,719      $   --        $  4,755      $ 89,255
            Long-lived assets         4,388           842          --              77           806          --           6,113

        Fiscal Year 1998:
            Product sales          $ 17,166      $ 36,455      $ 24,265      $ 27,658      $   --        $  7,458      $113,002
            Long-lived assets         6,116           906          --             167           577          --           7,766
</TABLE>

        Product sales are attributed to countries based on delivery locations.
        Long-lived assets comprise property and equipment.

        The Company sells principally to multinational original equipment
        manufacturers, many of whom have manufacturing facilities in Asia, and
        to adapter card manufacturers primarily located in Asia. Sales to
        customers in Asia totaled 99%, 73% and 84% for fiscal years June 30,
        2000, 1999 and 1998, respectively. Export sales to third party customers
        outside of the United States totaled $1,238,000, $193,000, and $240,000,
        respectively.

9.  COMMITMENTS AND CONCENTRATION OF SALES AND CREDIT RISK

        Capital Leases. At June 30, 2000, leased capital assets and related
        accumulated depreciation included in property, plant and equipment were
        $1,285,000 and $1,218,000 respectively, and total capital lease
        obligations were $69,000. Total future minimum lease payments under the
        capital lease at June 30, 2000 are $ 41,000, and $30,000 in fiscal years
        2001 and 2002, respectively.

        Building Leases. The Company leases facilities under noncancelable
        operating lease agreements, which expire at various dates through 2003.
        Rental expense for the years ended June 30, 2000, 1999 and 1998 was
        $2,784,000, $2,406,000 and $2,127,000, respectively. Total future
        minimum lease payments under operating leases at June 30, 2000 were
        $1,831,000, $1,481,000 and $13,000 in fiscal years 2001, 2002 and 2003,
        respectively.



                                       41
<PAGE>   42

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


        Concentration of Sales and Credit Risks. In the twelve months ended June
        30, 2000, sales to three customers Compaq, Fujitsu , and Toshiba
        accounted for 18%, 11%, and 10% of net sales, respectively. Two
        customers, Fujitsu and Innoquest, comprised 13% and 12% of the Company's
        net sales for the year ended June 30, 1999. Two customers, Union
        Computer and Fujitsu, comprised 15% and 11% of the Company's net sales
        for the year ended June 30, 1998.

        Financial instruments that potentially subject the Company to
        significant concentrations of credit risk consist principally of cash
        and cash equivalents, and trade accounts receivable. The Company places
        its cash and cash equivalents primarily in market rate accounts. The
        Company offers credit terms on the sale of its products to certain
        customers. The Company performs ongoing credit evaluations of its
        customers' financial condition and, generally, requires no collateral
        from its customers. The Company maintains an allowance for uncollectible
        accounts receivable based upon the expected collectibility of all
        accounts receivable.

10.  CONTINGENCIES

        On December 14, 1998, NeoMagic Corporation ("NeoMagic") filed a patent
        infringement lawsuit against the Company. The management believes that
        the Company has meritorious defenses against NeoMagic's action and
        intends to defend itself vigorously. However, given the nature of
        litigation and inherent uncertainties associated with litigation,
        management cannot predict with certainty the ultimate outcome of this
        litigation.

        On July 22, 1999, the Company filed a lawsuit against VIA Technologies
        Inc. ("VIA") for breach of contract, fraud, misappropriation of trade
        secrets, breach of fiduciary duty, specific performance, breach of
        confidence, inducement of breach of contract, intentional interference
        with economic relations, recission and unfair competition, patent
        infringement and copyright infringement. In response to the lawsuit, VIA
        filed a counter lawsuit against the Company. On April 19, 2000, VIA
        Technologies, Inc. and the Company announced that they have agreed to
        resolve all pending lawsuits. Under the terms of the agreement, the
        Company will receive USD $10.17 million payable in two installments from
        VIA for a desktop software driver license fee, contingent on the
        dismissal of all pending lawsuits in the US and Taiwan, which is not in
        complete control of Trident and VIA. The first installment of $6.17
        million will be paid seven days after the dismissal of the Lawsuit and
        the Taiwan Action. The second installment of $4.0 million will be paid
        ninety days after the first installment. The agreement also continues
        the right of each party to distribute a jointly developed product with
        the Company retaining the exclusive right to distribute products in the
        notebook market and VIA having the exclusive right to distribute
        products in the desktop market. On June 30, 2000, the Company also
        reached an agreement with VIA and released the Blade 3D source code
        which generated royalty and license revenue of $5 million for the year
        ended June 30, 2000.



                                       42
<PAGE>   43

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Peter Jen as his attorney-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission.


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on September 28, 2000 by the following persons on behalf
of the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
                Signature                                              Title
------------------------------------------            ---------------------------------------
<S>                                                   <C>
/s/ Frank C. Lin                                      President, Chief Executive Officer and
------------------------------------------            Chairman of the Board (Principal
(Frank C. Lin)                                        Executive Officer)


/s/ Peter Jen                                         Senior Vice President, Asia Operations
------------------------------------------            and Chief Accounting Officer (Principal
(Peter Jen)                                           Financial and Accounting Officer)


/s/ Glen M. Antle                                     Director
------------------------------------------
(Glen M. Antle)

/s/ Yasushi Chikagami                                 Director
------------------------------------------
(Yasushi Chikagami)

/s/ John Luke                                         Director
------------------------------------------
(John Luke)


/s/ Millard Phelps                                    Director
------------------------------------------
(Millard Phelps)
</TABLE>



                                       43
<PAGE>   44

            INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT

<TABLE>
<CAPTION>
                                                                                       Page
      Exhibit       Description                                                       Number
      -------       -----------                                                       ------
<S>                 <C>                                                               <C>
      3.1           Restated Certificate of Incorporation.(1)
      3.2           Bylaws of Trident Delaware Corporation, a Delaware
                    corporation.(2)
      4.1           Reference is made to Exhibits 3.1 and 3.2.
      4.2           Specimen Common Stock Certificate.(2)
      4.3           Form of Rights Agreement between the Company and ChaseMellon
                    Shareholder Services, LLC, as Rights Agent (including as
                    Exhibit A the form of Certificates of Designation,
                    Preferences and Rights of the Terms of the Series A
                    Preferred Stock, as Exhibit B the form of Right Certificate,
                    and as Exhibit C the Summary of Terms of Rights Agreement).
                    (3)
      10.5(*)       1990 Stock Option Plan, together with forms of Incentive
                    Stock Option Agreement and Non-statutory Stock Option
                    Agreement.(2)
      10.6(*)       Form of the Company's Employee Stock Purchase Plan.(2)
      10.7(*)       Summary description of the Company's Fiscal 1992 Bonus
                    Plan.(2)
      10.8(*)       Form of the Company's Fiscal 1993 Bonus Plan.(2)
      10.9(*)       Summary description of the Company's 401(k) plan.(2)
      10.10(*)      Form of Indemnity Agreement for officers, directors and
                    agents.(2)
      10.12(*)      Form of Non-statutory Stock Option Agreement between the
                    Company and Frank C. Lin.(4)
      10.13(*)      Form of 1992 Stock Option Plan amending and restating the
                    1990 Stock Option Plan included as Exhibit 10.5.(2)
      10.14         Sublease Agreement dated November 23, 1998 between the
                    Company and Applied Materials, Inc. for the Company's
                    principal offices located at 2450 Walsh Avenue, Santa Clara,
                    California.(4)
      10.16         Foundry Venture Agreement dated August 18, 1995 by and
                    between the Company and United Microelectronics
                    Corporation.(5)(8)
      10.17(*)      Form of 1998 Stock Option Plan which replaces the 1992 Stock
                    Option Plan. (6)
      21.1          List of Subsidiaries.(7)                                            45
      23.1          Consent of Independent Accountants.(7)                              46
      24.1          Power of Attorney (See page 45).(7)
      27.1          Financial Data Schedule (EDGAR version only)(7)                     47
</TABLE>


        (1)    Incorporated by reference from exhibit of the same number to the
               Company's Annual Report on Form 10-K for the year ended June 30,
               1993.

        (2)    Incorporated by reference from exhibit of the same number to the
               Company's Registration Statement on Form S-1 (File No. 33-53768),
               except that Exhibit 3.2 is incorporated from Exhibit 3.4.

        (3)    Incorporated by reference from exhibit 99.1 to the Company's
               Report on Form 8-K filed August 21, 1998.

        (4)    Incorporated by reference from exhibit of the same number to the
               Company's Quarterly Report on Form 10-Q for the quarter ended
               March 31, 1999.

        (5)    Incorporated by reference from exhibit of the same number to the
               Company's Annual Report on Form 10-K for the year ended June 30,
               1995.

        (6)    Incorporated by reference to the Company's 1998 Employee Stock
               Purchase Plan Individual Stock Option Agreements and 1996
               Nonstatutory Stock Option Plan on Form S-8 filed April 23, 1999
               (File No. 333-76895).

        (7)    Filed herewith.

        (8)    Confidential treatment has been requested for a portion of this
               document.

        (*)    Management contracts or compensatory plans or arrangements
               covering executive officer directors of the Company.



                                       44