Stock Code 5842 Search annual report web site Stock Code ... · Search annual report web site ... Analysis of Financial Status and Operating Results, and Risk Management 91 Specially

Stock Code：5842 Search annual report web site：

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2006

2007

Stock Code：5842 Search annual report web site：

http: //newmops.tse.com.tw/ http: //www.megabills.com.tw/

Spokesman and Deputy Spokesman for the Corporation Spokesman: Ho-Jing Fu Position: Senior Executive Vice President Tel.: (02) 2312-2277 E-Mail：[email protected] Deputy Spokesman: Feng-Sen Lu Position: Senior Vice President and General Manager, Treasury dept. Tel.: (02) 2311-7711 E-Mail：lu2012@ megabills.com.tw

Addresses and Telephone and Fax Numbers of the Head Office and Branches

Head Office Address: 2-5F, 91 Heng-yang Road, Taipei Tel.: (02) 2383-1616 (Representative) Fax: (02) 2382-2878 (General Affairs Department) Kaohsiung Branch Address: 3F, 420 Cheng Kung First Road, Kaohsiung Tel.: (07) 282-5171(5 Lines) Fax: (07) 215-1887 Tainan Branch Address: 4F, 28 Chung Yi Road, Tainan Tel.: (06) 228-3131 (5 Lines) Fax: (06) 229-3654 Chiayi Branch Address: 5F, 381 Wufeng North Road, Chiayi Tel.: (05) 271-2211 (5 Lines) Fax: (05) 277-7884 Taichung Branch Address: 4F-1, 142 Chung Cheng Road, Taichung Tel.: (04) 2220-2176 (5 Lines) Fax: (04) 2222-5424 Hsinchu Branch Address: 3F, 307 Pei Ta Road, Hsinchu Tel.: (03) 526-6022 (5 Lines) Fax: (03) 524-5544 Taoyuan Branch Address: 3F, 32 Cheng Kung Road, Section 1, Taoyuan Tel.: (03) 335-8877 (5 Lines) Fax: (03) 333-6137 Panchiao Branch Address: 3F, 69 Chung Cheng Road, Panchiao Tel.: (02) 2965-2836 (5 Lines) Fax: (02) 2965-2819 Sanchung Branch Address: 4F, 192 Chung Yang Road, Sanchung Tel.: (02) 2981-1931 (5 Lines) Fax: (02) 2980-0374

Name, Address, Telephone and Fax of Organization Handling Stock

Transfer Affairs Organization Handling Stock Transfer Affairs: Mega Securities, Co., Ltd. Address: 95 Chunghsiao East Road, Section 2, Taipei Web Site: http: //www.emega.com.tw/ Tel.: (02) 3393-0898

Name, Address and Telephone of Credit Rating Organization

Name: Taiwan Ratings Co., Ltd. Address: 49F, 7 Shin Yi Road, Section 5, Taipei（101Building） Tel.: (02) 8722-5800

For Copies of the Corporations Most Recent Financial Statements

Name: Zong-yi Lai, C.P.A., Chang-zhou Li, C.P.A. Name of CPA Firm: PricewaterhouseCoopers, Certified Public Accountants Address: 27F, 333 Keelung Road, Section 1, Taipei Web Site: http: //www.pwc.com/tw/ Tel.: (02) 2729-6666

Web Site: http: //www.megabills.com.tw/

Contents

Message to Shareholders 1

Profile of the Corporation 7

Corporate Governance Report 9

Review of the Raised Funds 29

Business Operations 33

Financial Statements 45

Analysis of Financial Status and Operating Results, and Risk Management 91

Specially Recorded Items 103

Mega Bills Finance Corporation--Message to shareholders.

1

Report to shareholders One. Business report, 2007

I. The financial environment in Taiwan and overseas, 2007 In 2007, the pace of economic expansion around the world was dampened by the US

subprime crisis. Economic growth rates across the globe decreased compared with the year before. Global Insight Inc.’s forecast for the world economic growth rate in 2007 was 3.70%, lower than the 3.90% in the year before. International crude oil and commodity prices continued to rise. West Texas Intermediate Crude Oil prices averaged $72 per barrel for the year 2007, which was $6 higher than the year before. Apparently inflation pressure remained high, and how to combat inflation remained a major concern among central banks across the globe. Global Insight Inc. raised its forecast for consumer price inflation to 3.20% in 2007 from 3.1% in the year before.

Concerning Taiwan’s economic growth, the Directorate-General of Budget, Accounting and Statistics announced that the economic growth rate for the year 2007 reached 5.46%, higher than the 4.38% previously forecast. The overall growth momentum was largely attributable to growth in export. For the month of October 2007, in particular, the export value scored a historic high, reaching $22.069 billion. As far as prices are concerned, surging oil prices fueled consumer prices in Taiwan. Besides, a harsh typhoon season also pushed up fruit and vegetable prices. In 2007, Taiwan’s Consumer Price Index (CPI) rose at a 1.80% annual rate, yet another record high over the last two years. Inflation pressure continued to persist.

In response to credit contraction and subsequent instability in financial markets in Europe and America resulting from the subprime crisis, the Fed lowered interest rates three times in 2007 by 1% in total, slashing the Fed Funds Rate to 4.25%, However, Taiwan’s central bank concluded that the nation’s real interest rate remained below the neutral level, which would be detrimental to the reasonable allocation of funds in the long term, and thus did not follow the interest rate cut. Instead, the central bank took steps to raise interest rates gradually. In 2007, Taiwan’s interest rates were raised four times in total. At the end of 2007, the central bank’s rediscount rate, rate on accommodations with collateral, and rate on accommodations without collateral stood at 3.375%, 3.75%, and 5.625%, respectively. In response to the central bank gradually hiking benchmark interest rates in 2007 by 0.625% in total, short-term interest rates gradually trended up.

II.Organizational changes: None.


2

III.Results of implementation of the business plan and management plan.

Units: NT$ million; %

Item Final accounting

figure, 2007 Final accounting

figure, 2006 Increase and

decrease percentage

Underwriting and purchasing bills 1,545,507 1,839,884 -16.00

Guaranteed issues of commercialpaper

1,476,982 1,677,305 -11.94

Dealing in bills 8,613,726 9,580,473 -10.09

Dealing in bonds 11,328,508 12,586,282 -9.99Guaranteed issues of commercialpaper average outstanding amount

126,906 145,112 -12.55

Payments for overdue credits 671 471 42.46Percentage of payments for overduecredits

0.61 0.32 90.63

IV.Budget implementation

Units: NT$ million; %

Item Final accounting

figure, 2007 Budget figure,

2007 Implemented

Underwriting and purchasing bills 1,545,507 1,849,298 83.57Guaranteed issues of commercialpaper

1,476,982 1,710,851 86.33

Dealing in bills 8,613,726 9,772,080 88.14

Dealing in bonds 11,328,508 11,901,086 95.18

RP outstanding in bills and bonds 226,839 247,214 91.76Guaranteed issues of commercialpaper average outstanding amount

126,906 135,200 93.87

Payments for overdue credits 671 635 105.67Percentage of payments for overduecredits

0.61 0.47 129.79

Post-tax net profit 2,120 2,650 80.00


3

V.Financial income and expenditure: analysis of profitability

Units: NT$ million

Item Final accounting figure, 2006

Net income 3,301

Pre-tax net profit 2,565

Post-tax net profit 2,120

Post-tax profit per share（NT$） 1.20

Return on assets（%） 0.76

Return on equity（%） 6.28

VI.Research and development

(I)In relation to operations and management 1.Researching and developing adequate capital of the Company. 2.Researching and developing the revision of business unit performance evaluation

system. (II)In relation to products and business

1.Continuing to participate in the Taiwan Bills Finance Association’s planning and establishment for foreign currency bills infrastructure.

2.Planning foreign currency bonds and foreign currency derivative instruments business.

3.Researching and developing the Company’s bonds RP allocation in response to separate taxation policy.

4.Planning beneficiary securities, asset-back securities and other related fund investment business.

(III)In relation to computer systems 1.Establishing foreign-denominated bills and bonds transaction system. 2.Establishing various risk management application system.

(IV)In relation to the control of risk 1.Setting up risk management objectives, establishing an early warning mechanism,

and strengthening risk management mechanisms. 2.Developing and establishing risk capital requirements and establishment in

response to the Company’s implementation of the New Basel Capital Accord.


4

Two.Summary of 2007 business plan I.Operating principles

(I)Improve operating performance and maintain lead position in the market.

(II)Conduct performance assessment and enhance the efficiency of use of human

resources.

(III)Implement internal controls and strengthen corporate governance.

(IV)Enhance risk management and maintain sound financial and asset quality.

II.Forecast business goals on the basis of:

Units: NT$ million

Item Budget figure, 2008

Underwriting and purchasing bills 1,318,460

Guaranteed issues of commercial paper 1,254,261

Dealing in bills 7,156,654

Dealing in bonds 9,539,660

RP transaction outstanding in bills and bonds 229,478 Guaranteed issues of commercial paper average outstanding amount 111,400

Based on a weighing up of prevailing competitive position and market conditions, and

in accordance with the goals of the parent financial holding company.

III.Major operational policies

(I)Vigorously expand all forms of short-term bills business to increase bills sources.

(II)Establish yielding bond position in a timely manner.

(III)Expand all sources of funds and reduce expenditure of interest.

(IV)Fully utilize the transaction assistance system, and conduct derivative and equity

commodity transactions.

(V)Strictly control risk and maintain a sound credit rating.

(VI)Continuing to review capital adequacy and organizational efficiency and improve

operational performance.

(VII)Integrate group resources and bring the group’s cross-sales performance into play.

IV.Future development strategy

(I)Tapping into customer demand for funds and use of capital quota by banking


5

institutions, and raising the rate of drawing on guaranteeing bills and to buy into

guarantee-exempt bills secured by sound corporation and guarantee bills secured by

sound banking institutions, in order to enhance profit from bills business.

(II)Reinforcing existing customer relationships and vigorously expanding low-cost

funding sources, in order to flexibly adjust bills and bonds position and enlarge

buy-sell spread to increase profit.

(III)Observing macroeconomic environment, analyzing interest rate trends, improving

bills and bonds trading tactics, and enhancing capital control efficiency.

V.Being influenced by the external competitive environment, the regulatory

environment, and the overall operating environment

(I) In line with government policy on financial reform, financial organizations’ overall

acceleration of consolidation and adoption of a “holding company style” operating

posture, not to mention the relentless development of new financial instruments,

the challenges faced by the bills industry increase daily.

(II) Companies have diverse channels for raising funds and motivation for investment

has been on the decline. Besides, local banks have continued to expand corporate

banking business by offering low interest rates to win top customers. Therefore, the

bills issuance market has continued to shrink amidst fierce competition, and it has

become more difficult to expand bills business.

(III) With the bond yield curve flattening out, the profit margin of RP transactions

shrinking, unfavorable position appraisals, and yields becoming excessively low,

risks are increasing and outright purchase and outright sales transaction operations

are not easy.

(IV) The competent authority announced that effective from 15th October 2007,

separate taxation would be imposed on individual interest income from RP

transactions of bonds. To prevent impact on the Company’s client base and

stability of funding sources, the Company adopted a tax burden shift approach to

minimize the adverse effects.

(V)The competent authority announced the “Rules Governing Management of

Foreign-denominated Bonds Brokerage, Dealership and Investment of Bills

Finance Companies” on 23rd October 2007. The Company can expand its scope of

business operations by engaging in foreign bonds investment, brokerage and

dealership, and will actively pursue opportunities in that business area.


6

Three.Most recent credit rating and rating date.

Rating organization Long-term credit

rating

Rating outlook Short-term credit

rating

Announcement

date

Taiwan Ratings

Corporation twAA stable twA-1+ 2007.10.15

Four.Giving thanks for the past and looking to the future

In the past year, bills business has experienced adverse effects of unfavorable environment,

such as Taiwan’s Central Bank gradually hiking interest rates, rising short-term interest rates,

fierce market competition, and narrowing interest rate spread. However, thanks to efforts of the

Company’s employees, although the business volume and earnings did not meet annual budget

goals, the Company’s businesses continued to dominate the market. The post-tax net profit

reached NT$2.120 billion and EPS reached NT$1.20, surpassing industry competitors, which

was not easy to accomplish.

Looking to the future, how to control operating risks and seize the moment for development

will be the great challenge facing this company. Apart from the hope that all colleagues will hold

fast to the management concepts of sincerity, prosperity, service, efficiency, and development,

and continue to achieve sound business results for shareholders, it is also to be hoped that the

Mega Financial Group and all of its members will continue to provide support and

encouragement.

Respectful good wishes, Health and happiness,

General manager Chairman of the Board

Jung-Hsiung Lu Ray-Beam Dawn

Mega Bills Finance Corporation—Profile of the corporation

7

Profile of the corporation One.Brief introduction

I.Founded: 3rd May 1976. II.Company history

(I) 20th May 1976. Started business.

(II)5th January 1981. Head office moved into and began operations in new,

freehold-owned property in Nanking East Road, Section 2, Taipei.

(III)26th June 1990. The company’s shares were formally listed.

(IV)In response to business needs, on 28th February 2000, head office relocated to

the ChungHsing Bills Finance Building at Chunghsiao East Road, Section 2,

Taipei, and, in May of the same year, its capital stock was increased to

NT$28,114,410,840.

(V)In line with the financial world’s entry into an era of consolidation, and following

careful evaluation, a regular meeting of shareholders on 12th June 2002 resolved

that, by means of an exchange of shares, the company should become part of

Chiao Tung Bank Financial Holding Company, and that the exchange of shares

would take place on 22nd August of that year.

(VI)31st December 2002, the parent company, Chiao Tung Bank Financial Holding

Company changed its name to Mega Financial Holding Company.

(VII)Following further careful assessment of business development needs, having

become part of the Mega Financial Group, and in line with parent company Mega

Financial Holding Company’s policy, on 1st September 2004, capital stock was

reduced to NT$251,114,400,840 and the deducted shares were returned to Mega

Financial Holding Company.

(VIII)Still further assessment demonstrated a need to reduce capital one more time,

and on 3rd May 2005, capital stock was reduced to NT$201,144,100,840, with the

deducted shares once again being returned to Mega Financial Holding Company.

(IX)When the competent authority opened up the new equity commodity investment

business, head office established an equity commodity investment business on

December 2005.

(X)In line with the Mega financial group’s strategy of adjustment of its subsidiary

companies’ operating bases, on 2nd May 2006, head office moved into and began

operations at new premises on the fifth, ninth and tenth floors of 91 Heng-yang

Road, Taipei.

(XI)In line with the Mega financial group’s policy of changing names of subsidiary

Mega Bills Finance Corporation—Profile of the corporation

8

companies in unison, on 26th June 2006, the company’s name was formally

changed to Mega Bills Finance Co., Ltd.

(XII)In response to the competent authority’s new provision of fixed income

securities, head office established a fixed income securities business on 18th May

2007.

(XIII)In order to enhance the efficiency of the Company’s capital utilization, and

improve the parent company’s internal capital adjustment and operating

performance, the Company undertook a capital reduction of NT$5 billion on 2nd

July 2007. The amount of the Company’s capital after the reduction was.

NT$15,114,410,840. The reduced share capital was returned to the parent

company, Mega Holdings Co., Ltd.

.

Mega Bills Finance Corporation—Corporate governance report

9

Corporate governance report One.Organizational Structure

Auditing Department(Internal Auditing System)

Chief Auditor

Personnel Evaluation Committee Risk Management CommitteeCredit Assessment Panel

Control and Planning Department(Legal compliance Officer System)

(Risk Management)(Credit Examination)

Administration Department(Personnel Management)

(General Affairs & Administration)

Bills Department(Bills Transactions)(Fund Management)

Bonds Department(Bond Transactions)

(Equity Commodity Transactions)(Derivatived Instrument Transactions)

Treasury Department(Accountimg & Cashier)(Settlement Operation)

Electronic Data Processing Department(Computer & Information Management)

Guarantee Department(Loan Business Development and Promotion)

(Credit Inquiring Institution)

Branches(Business Promotion)

(Kaohsiung、Tainan、Chiayi、Taichung)(Hsinchu、Taoyuan、Panchiao、Sanchung)

Senior Executive Vice President(Legal Compliance Officer ,Head Office)Executive Vice President

President and CEO

Board of DirectorsChairman of the Board

Supervisors

General Shareholders Meeting


10

Two.Key data on Directors, Supervisors, President and CEO, Senior Executive Vice Presidents, Executive Vice Presidents, and heads of departments and branches.

I.Directors and supervisors (I)Data on directors and supervisors 31st December 2007: Units: Thousand shares:%

Remark: Chairman Chuang Kuo-hsiung retired on 15th January 2008 and Dawn Ray-Beam succeeded him as the new chairman. Director Tsai You-tsai resigned on 15th January 2008. Director Jhou Yu-Ling resigned on 21st March 2008 and the vacancy was left unfilled.

Shareholding at time of election

Current shareholding

Current shareholding of

spouse or children under the age of

majority

Shares lawfully held in the name

of another Main educational and professional

background

Other Senior Vice President and General Managers, directors or supervisors within two

degrees of kinship of self or spouse

Title (representative of corporation shareholder)

Name Date elected (appointed)

Term of office

Date first elected （with

explanations for breaks in

service) Number of shares Ratio Number

of shares Ratio Number of shares Ratio Number

of shares Ratio Education Experience

Current posts held at other companies

concurrent to CHBFC post

Title Name Relationship

Chairman (Appointed representative

of Mega Holdings)

Kuo- Hsiung Chuang

(Remark)95.04.06 98.04.05 95.04.06

Master’s, Grad Inst. Of Finance, Nat. Chengchi U

Chairman of the Board, MBF, President and CEO, Chiao Tung

Bank

Chairman of the Board, MBF

Director and President and CEO

(Appointed representative of Mega Holdings)

Jung-Hsiung Lu 95.04.06 98.04.05 95.04.06 －－－－

Graduate, Dept. of Accounting, Soochow U

President and CEO, Senior Executive Vice President, MBF

President and CEO, MBF －－－

Director (Appointed representative

of Mega Holdings)

Cai You Cai

(Remark)95.04.06 98.04.05 95.04.06 －－－－

Master’s, Grad Inst. Of Finance, Nat. Chengchi U

President, Mega Holdings, and Chairman, MICB, and President, International Commercial Bank of

China

President, Mega Holdings, and

Chairman, MICB －－－


of Mega Holdings)

Feng Yi Huang 95.04.06 98.04.05 95.04.06 －－－－

Graduate, Dept. of Business, Nat.

Taiwan U

Chairman, Mega CTB Venture Capital, President, Chiao Tung

Bank

Chairman, Mega CTB Venture Capital －－－


of Mega Holdings)

Ruei-Yun Lin 95.04.06 98.04.05

92.03.29 To serve as supervisor

（95.04.06 Reassigned as

director）

－－－－Master’s, Graduate Inst of Finance, Nat.

Chengchi U

Senior Executive Vice President, Mega Holdings, Executive Vice President, Financial Control Dept,

Mega Holdings.

Senior Executive Vice President, Mega

Holdings －－－


of Mega Holdings)

Yu-Ling Jhou

(Remark)95.04.06 98.04.05 95.04.06 －－－－

Graduate, Dept. of Internat. Trade,

Tamkang U

Chief Secretary to the Boards of Directors, Mega Holdings and

Chiao Tung Bank

Chief Secretary to the Boards of Directors,

Mega Holdings －－－


of Mega Holdings)

Chia-Min

Hong95.09.19 98.04.05 95.09.19 －－－－

Graduate, Dept. of Accounting, Nat. Chung Hsing U

Deputy General Manager, General Manager,

Administrative Dept, Mega Holdings

General Manager, Administrative Dept,



of Mega Holdings)

Jian-Ping Yuan 95.04.06 98.04.05 95.04.06 －－－－

Master’s, Graduate Inst. of Land

Administration, Nat Chengchi U

Chief Auditor and Senior Executive Vice President, Land Bank

Senior Executive Vice President, Land

Bank －－－


of Mega Holdings)

Hong-Ji Jhang 95.04.06 98.04.05 95.04.06 －－－－

Master’s, Graduate Inst of Agricultural

Economics, Nat. Chung Hsing U

Chief Auditor and Chief Secretary to the Board of Directors, Bank of

Taiwan.

Chief Auditor, Bank of Taiwan －－－

Supervisor (Appointed representative

of Mega Holdings)

Ling-Yu Chen 95.04.06 98.04.05 95.04.06 －－－－

Master’s, Graduate Inst. Of Law, Nat

Taiwan U

Lawyer, Baker & Mckenzie, Supervisor, Mega Holdings

Lawyer, Baker & Mckenzie, Supervisor,



of Mega Holdings)

Jhong-Cheng Gao

95.04.06 98.04.05 95.04.06 －－－－Graduate, Shilin High School of

Commerce, Taipei

Chief Auditor, Mega Holdings and Chiao Tung Bank －－－


of Mega Holdings)

Jhong - Nan Fang 95.04.06 98.04.05 95.04.06

2,011,441 100 1,511,441 100

－－－－Graduate, Dept. of Accounting, Nat.

Chengchi U

Senior Vice President and General Manager, Circulation Dept, Bank ofTaiwan, Miinsheng Branch, Senior

Vice President and General Manager Nankang Branch

General Manager, Circulation Dept, Bank

of Taiwan, －－－


11

(II)Major shareholders among corporation shareholders 31st January 2008

Name of corporation shareholder

Major shareholders among corporation shareholders (Percentage of voting shares among the largest ten)

Percentage of voting shares

Mega Financial Holdings Co., Ltd.

Ministry of Finance of The ROC The National Development Fund, Executive Yuan of the ROC Chinatrust Financial Holding Co., Ltd. Chinatrust Commercial Bank Taiwan Post Co., Ltd. Bank of Taiwan Silchester international investors international value securities equity trust Templeton Foreign Fund Pouchen Corporation Cathay Life Insurance Co., Ltd

9.98﹪ 6.11﹪

5.84﹪ 5.00﹪ 2.73﹪ 2.51﹪ 2.11﹪

1.53﹪ 1.42﹪ 1.18﹪

(III)Major shareholders among the major corporation shareholders 31st January 2008

Corporation shareholder’s name

Major shareholders among corporation shareholders (Percentage of voting shares among the largest ten)

Percentage of voting shares

Chinatrust Financial Holding Company

Jeffrey J. S. Koo Standardchartered entrusted with the Oakmark international fund Cathay Life Insurance Co., Ltd Fubon Life Insurance Co., Ltd JPMorgan Chase entrusted with the capital income builder fund HSBC Bank entrusted with Morgan stanley international fund Bureau of Labor Insurance JPMorgan Chase entrusted with the Abe Darbyinvestment bureau fund HSBC Bank entrusted with 0Z Asian Master fund HSBC Bank entrusted with 0Z Master fund

7.29﹪ 2.77﹪

2.45﹪ 2.35﹪ 1.96﹪

1.37﹪

1.24﹪ 1.10﹪

1.09﹪

1.06﹪

Chinatrust Commercial Bank Chinatrust Financial Holding Co., Ltd. 100.00﹪

Taiwan Post Co. Ltd Ministry of Transportation and Communications of The ROC

100.00﹪

Bank of Taiwan Ltd. Ministry of Finance of The ROC 100.00﹪ Pouchen Corporation Co. Bi-si Brother Co., Ltd. Panama 7.21﹪ Ltd (Remark) Standardchartered entrusted with Credit Suisse

Co., Ltd. 5.19﹪

HSBC Bank entrusted with EFG Bank Investment fund

5.08﹪

Hong-cih Development Co., Ltd. B.V.I 4.58﹪ Ci-ruei Tsai 3.69﹪ HSBC Bank entrusted with Morgan stanley

international fund 3.33﹪

Chase Bank entrusted with the Capital World Development and Income fund

3.22﹪

Cyuan-mao Investment Co., Ltd. 3.17﹪ Kai-tai Investment Co., Ltd. 2.39﹪ HSBC Bank entrusted with Societe Generale

Securities entrust Co. 1.66﹪

Cathay Life Insurance Cathay Financial Holding Co., Ltd. 100.00﹪ Remark: List of the principal shareholders of Pouchen Corporation was based on the book closure date from 25th July

2007.


12

(IV)Directors and supervisors 31st December, 2007

N o t e : C r i t e r i a t o b e m e t b y e a c h d i r e c t o r a n d s u p e r v i s o r t w o y e a r s b e f o r e t h e i r s e l e c t i o n a n d a p p o i n t m e n t a n d f o r t h e

d u r a t i o n o f t h e i r t e n u r e o f t h e p o s t .

1 . N o t e m p l o y e d b y t h i s c o m p a n y o r a n y o f i t s r e l a t e d c o m p a n i e s .

2 . N o t a d i r e c t o r o r s u p e r v i s o r o f t h e C o m p a n y o r a n y o f i t s r e l a t e d c o m p a n i e s ( b u t , i n t h e c a s e o f t h i s c o m p a n y o r i t s

p a r e n t c o m p a n y, t h i s d o e s n o t a p p l y t o i n d e p e n d e n t d i r e c t o r s o f s u b s i d i a r y c o m p a n i e s i n w h i c h t h i s c o m p a n y d i r e c t l y

o r i n d i r e c t l y h o l d s v o t i n g p o w e r w i t h a m o r e t h a n 5 0 p e r c e n t s h a r e h o l d i n g )

3 . N e i t h e r o n e s e l f , o n e ’s s p o u s e , n o r a n y n o n - a d u l t m a l e o r f e m a l e c h i l d o f o n e s e l f , e i t h e r i n t h e i r o w n o r a n y b o d y

e l s e ’s n a m e h o l d s m o r e t h a n o n e p e r c e n t o f t h e c o m p a n y ’s s h a r e s , o r s e r v e s a s o n e o f t h e c o m p a n y ’s t e n n a t u r a l

p e r s o n s h a r e h o l d e r s .

4 . N o t a s p o u s e o f a n y o f t h e p e r s o n s l i s t e d i n t h e a b o v e t h r e e c l a u s e s , o r r e l a t e d t o s u c h a p e r s o n w i t h i n t w o o r f i v e ,

e t c . , d e g r e e s o f d i r e c t c o n s a n g u i n i t y

5 . N o t a d i r e c t o r , s u p e r v i s o r o r h i r e e o f c o r p o r a t i o n s h a r e h o l d e r s d i r e c t l y p o s s e s s i n g m o r e t h a n f i v e p e r c e n t o f s o l d

s h a r e s i n t h e b i l l s f i n a n c e c o m p a n y o r r a n k i n g a m o n g t h e f i r s t f i v e d i r e c t o r s , s u p e r v i s o r s o r h i r e e s i n t e r m s o f

s h a r e h o l d i n g .

6 . N o t a d i r e c t o r , s u p e r v i s o r , o r m a n a g e r o f a s p e c i f i c c o m p a n y o r o rg a n i z a t i o n w i t h f i n a n c i a l o r b u s i n e s s d e a l i n g s w i t h

t h i s c o m p a n y, o r s h a r e h o l d e r o f s u c h a s p e c i f i c c o m p a n y o r o rg a n i z a t i o n p o s s e s s i n g m o r e t h a n f i v e p e r c e n t o f

s h a r e s .

7 . N o t a p r o f e s s i o n a l p e r s o n , o r p r o p r i e t o r , p a r t n e r , d i r e c t o r , s u p e r v i s o r o r m a n a g e r o f a s i n g l e - i n v e s t m e n t c o m p a n y o r

p a r t n e r s h i p p r o v i d i n g b u s i n e s s , l e g a l , f i n a n c i a l , a c c o u n t i n g , e t c . , s e r v i c e s o r a d v i c e t o t h i s c o m p a n y o r i t s r e l a t e d

c o m p a n i e s , o r a s p o u s e t h e r e o f .

8 . N o t a s p o u s e o f , o r r e l a t e d w i t h i n t h e s e c o n d d e g r e e o f c o n s a n g u i n i t y t o , a n y o t h e r d i r e c t o r .

9 . N o t p o s s e s s a n y o f t h e c i r c u m s t a n c e s l i s t e d i n a n y c l a u s e o f A r t i c l e 3 0 o f t h e C o m p a n y A c t

1 0 . N o t h a v e b e e n e l e c t e d b y g o v e r n m e n t , a j u r i d i c a l p e r s o n o r r e p r e s e n t a t i v e s t h e r e o f a s s t i p u l a t e d b y A r t i c l e 2 7 o f t h e

C o m p a n y A c t .

Possessing or not possessing five years or more work experience and the following professional qualifications

Qualifiying as independent in character (note) Conditions

Name

Lecturer or more senior post at public or private junior college in fields related to business, law, finance, accounting, or other fields that the company's businesses might require.

Judges, prosecutors, lawyers, accountants or other specialist professional and technical staff possessing pass certificates for national examinations in other fields required by the company’s businesses.

The work experience required for business, law, finance, accounting or corporationbusiness.

1 2 3 4 5 6 7 8 9 10

Numbers of independent directors serving concurrently with other public companies

Kuo- Hsiung Chuang ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0

Jung-Hsiung Lu ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 Cai You Cai ˇ ˇ ˇ ˇ ˇ ˇ 0

Feng Yi Huang ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 Yu-Ling Jhou ˇ ˇ ˇ ˇ ˇ ˇ 0

Jian-Ping Yuan ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 Hong-Ji Jhang ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 Ruei-Yun Lin ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0

Chia-Min Hong ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 Ling-Yu Chen ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0

Jhong-Cheng Gao ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 Jhong –Nan Fang ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0


13

II.Data on President and CEO, Senior Executive Vice Presidents, Executive Vice Presidents, and departmental and branch office Senior Vice President and General Managers.

31st January 2008

Shareholding

Current shareholding of

spouse or children under

the age of majority

Shares lawfully held in the name of

another. Main educational and professional

background

Other Senior Vice President and

General Managers within two degrees of

kinship of self or spouse.

Title Name Date elected (appointed)

No. of shares

Shareholding Ratio

No. of shares

Shareholding Ratio

No. of shares

Shareholding Ratio

Education Experience

Current post held

concurrently at other

companies Title

Na

me Relationship

President and CEO Jung-Hsiung Lu 93.07.01 - －－

－－ Dept. of Accounting, Soochow University

Senior Executive Vice President, MBF

Director, Mega Asset Management

Co. －－－

Senior Executive Vice President Ho-Jing Fu 92.04.01 - －－

－－ Master’s degree, Institute

of Finance, Tamkang University

Executive Vice President, MBF, －－－－

Senior Executive Vice President

Chiwg-Tsan Wai 95.09.08 - －－

－－ Dept. of Accounting, Fu Jen University

Executive Vice President, Mega

Holdings －－－－

Chief Auditor Chung Cheng Kan 91.11.01 - －－

－－ Department of Public

Finance, National Chengchi University.

Executive Vice President, MBF, and branch Senior Vice

President and General Manager, Sanchong

branch

－－－－

Executive Vice President, and Senior Vice President and General Manager,

Control and Planning dept.

Yi-sheng Wang 93.01.16 - －－

－－ Dept. of banking, Tamkang University

Senior Vice President and General Manager,

Administration dept. MBF

Director, Core Pacific City Co.

Ltd. －－－


Guarantee dept.

Jin-Sheng Huang 97.01.16 - －－

－－

Master’s degree, Graduate Institute of

Engineering, National Taiwan University of

Science and Technology.

Senior Vice President and General Manager, Sanchong branch

－－－－

Executive Vice President, and Senior Vice President and

General Manager, Bills dept.

Cing-Wen Wu 92.04.01 - －－

－－ Dept. of business

administration, Feng Chia University


bills dept., MBF －－－－

Executive Vice President, and Senior Vice President and

General Manager, bonds dept.

Ci-Cheng Cai 94.05.03 - －－

－－ Dept. of economics, Chinese Culture University

Senior Vice President and General Manager, Banciao branch, MBF

－－－－


Treasury dept. Feng-Sen Lu 92.08.01 - －－

－－ Dept. of banking and

insurance, Chinese Culture University

Vice President and Deputy General

Manager, Treasury dept., MBF

－－－－

Executive Vice President, and Senior Vice President and General Manager,

Administration dept.

Guei-Yao Jian 94.05.03 - －－

－－ Dept. of banking and insurance, Tamkang

University

Executive Vice President, MBF, and branch Senior Vice

President and General Manager, Sanchong

branch

－－－－


Electronic Data Processing dept.

Si-Bin You 91.01.29 - －－

－－


Engineering, National Taiwan University of

Science and Technology.

Vice President and Deputy General

Manager, Electronic Data Processing dept.,

MBF

Supervisor －－－

Executive Vice President, and Senior Vice President and General Manager, Kaohsiung branch,

Yun-teng

Huang 94.05.03 - －－

－－ National Chengchi University, Dept. of

banking

Executive Vice President, MBF, and Senior Vice President and General Manager, Guarantee

department.

－－－－


Tainan branch Rong-kun Wu 93.08.02 - －－

－－

National Chengchi University, Dept. of

banking

Senior Vice President and General Manager, Chiayi

branch －－－－


Chiayi branch

Jhen-Gan Yang 93.08.02 - －－

－－

Dept. of economics, National Taiwan

University.

Senior Vice President and General Manager, Hsinchu branch.

－－－－


Taichung branch Cong-Jhong Lin 93.08.02 - －－

－－

Dept. of business administration, Chung

Yuan Christian University

Senior Vice President and General Manager, Tainan

branch －－－－


Hsinchu branch.

Ji-Fu Lin 93.08.02 - －－

－－

Department of Public Finance, National Chung

Hsing University

Senior Vice President and General Manager, Taichung branch

－－－－


Taoyuan branch Rong-jie Jheng 93.01.16 - －－

－－

Master’s degree, National Taipei Institute of

Technology, Graduate Institute of Commerce

Automation and Management

Vice President and Deputy General Manager,

Sanchong branch －－－－


Banciao branch

Jun-Chang Li 93.08.02 －－－

－ -


Business, National Taiwan University

Senior Vice President and General Manager, bonds

dept. MBF －－－－


Sanchong branch

Ming-Jeh Cheng 97.01.16 - －－

－－


Management and Technology, Ming Chuan

University.

Senior Vice President, Guarantee dept. －－－－


14

III.Remuneration paid to directors, supervisors, President and CEO, and Senior Executive Vice Presidents in 2006. (I)Remuneration paid to directors

31st December 2007: Units: NT$1,000 Remuneration paid to directors Remuneration drawn by employees holding concurrent posts

Remuneration(A)

A l l o ca t io n o f su rp lu s d i r e c t o r s ’

g r a tu i t i e ( B )

Business administration

costs (C)

To t a l v a l u e o f a b o v e (A),

( B ) a n d (C) Pos t - t a x

p r o f i t r a t i o

(%)

Salaries, bonuses and

special expenses, etc.

(D)

Value of surplus allocated employee bonuses (E)

Numbe r o f

Emp l oyee s h a r e

c e r t i f i c a t e ( F )

To t a l v a l u e o f a b o v e (A),

( B ) , (C), (D) a n d (E) Pos t - t a x p r o f i t r a t i o

(%)

This companyAll companies in

consolidated report

T i t l e

N a m e

This company

All compan

ies in consolid

ated report

This company

All compani

es in consolid

ated report

This company

All compan

ies in consolid

ated report

This company

All compan

ies in consolid

ated report

This company

All compan

ies in consolid

ated report

C a s h

b o n u s

Share

dividend

C a s h

b o n u s Share

dividend

This company

All companies in consolidated

report

This company


report

Whether remuneration is also drawn from

non-subsidiary companies in which the company has

invested

C h a i r m a n o f t h e

b o a r d o f d i r e c t o r s

Kuo- Hsiung Chuang

Director Jung-Hsiung Lu

Director Cai You Cai

Director Huang Feng Yi

Director Yu-Ling Jhou

Director Jian-Ping Yuan

Director Hong-Ji Jhang

Director Ruei-Yun Lin

Director Chia-Min Hong

Total 6,316 6,316 - - 3,321 3,321 0.45 0.45 6,101 6,101 1,280 - 1,280 - - - 0.80 0.80 N/A


15

Remuneration scales Name of director

T o t a l v a lu e o f f i r s t t h r e e i t ems ( A + B + C )

T o t a l v a lu e o f f i r s t f i v e i t ems ( A + B + C + D + E)

Levels of remuneration paid to each of this company’s directors

This company All companies in

consolidated report (G)This company

All companies in consolidated report (H)

Less than NT$2,000,000

Jung-Hsiung Lu, Cai You

Cai, Huang Feng Yi,

Yu-Ling Jhou, Jian-Ping

Yuan, Hong-Ji Jhang,

Ruei-Yun Lin, Chia-Min

Hong

Jung-Hsiung Lu, Cai You

Cai, Huang Feng Yi,

Yu-Ling Jhou, Jian-Ping



Hong

Cai You Cai, Huang Feng

Yi, Yu-Ling Jhou,

Jian-Ping Yuan, Hong-Ji

Jhang, Ruei-Yun Lin,

Chia-Min Hong

Cai You Cai, Huang Feng

Yi, Yu-Ling Jhou, Jian-Ping



Hong

NT$2,000,000 to NT$5,000,000

NT$5,000,000 to NT$10,000,000 Kuo- Hsiung Chuang Kuo- Hsiung Chuang Kuo- Hsiung Chuang,

Jung-Hsiung Lu Kuo- Hsiung Chuang,

Jung-Hsiung Lu NT$10,000,000 to NT$15,000,000 NT$15,000,000 to NT$30,000,000 NT$30,000,000 to NT$50,000,000 NT$50,000,000 to NT$100,000,000 NT$100,000,000 and above Total 9,637 9,637 17,018 17,018

(II)Remuneration paid to supervisors 31st December 2007: Units: NT$1,000

Remuneration paid to directors

Remuneration (A)

A l l o ca t io n o f s u rp lu s

d i r e c t o r s ’ g r a tu i t i e ( B )

Business administration costs

(C)

To t a l v a l u e o f a b o v e (A), ( B a n d (C)

Pos t - t ax p r o f i t

r a t i o ( %)

T i t l e

N a me

This company

All companie

s in consolidated report

This company

All companie


This company

All companie


This company

All companie


Whether remuneration is

drawn from non-subsidiary

companies in which the company has

invested

S u p e r v i s o r Ling -Yu Chen

S u p e r v i s o r Jhong-Cheng Gao

S u p e r v i s o r J h o n g – N a n F a n g

Total - - 593 593 0.03 0.03 N/A

Remuneration scales Name of Supervisor

T o t a l v a lu e o f f i r s t t h r e e i t ems ( A + B + C ) Levels of remuneration paid to each of

this company’s supervisor This company All companies in consolidated report (D)

Less than NT$2,000,000 Ling -Yu Chen, Jhong-Cheng Gao, J h o n g – N a n F a n g Ling -Yu Chen, Jhong-Cheng Gao, J h o n g – N a n F a n g

NT$2,000,000 to NT$5,000,000 NT$5,000,000 to NT$10,000,000 NT$10,000,000 to NT$15,000,000 NT$15,000,000 to NT$30,000,000 NT$30,000,000 to NT$50,000,000 NT$50,000,000 to NT$100,000,000 NT$100,000,000 and above Total 593 593


16

(III)Remuneration paid to President and CEO and Senior Executive Vice Presidents 31st December 2007: Units: NT$1,000

S a l a r y A w a r d s , s p e c i a l

p a y m e n t s A l l o c a t i o n o f s u r p l u s e m p l o y e e b o n u s m o n i e s To t a l v a l u e o f

f i r s t t h re e i t ems

T o t a l v a lu e Pos t - t a x

p r o f i t r a t i o

(%)

Numbe r o f

Emp l oyee

s h a r e

c e r t i f i c a t e

This company All companies in consolidated report

S h a r e d i v i d e n d S h a r e d i v i d e n d

T i t l e N a me

This

company

All companie


This company


report C a s h

b o n u s N o . o f

s h a r e s

M a r k e t

v a l u eV a l u e

C a s h

b o n u s N o . o f

s h a r e s

M a r k e t

v a l u eV a l u e

This company

All companie


This company

All compan

ies in consolid

ated report

This company

All compan

ies in consolid

ated report

Whether remuneration is drawn from non-subsidiary companies in which the company has invested

P r e s i d e n t a n d C E O Jung-Hsiung Lu

S e n i o r E x e c u t i v e V i c e P r e s i d e n t

S e n - S i n H u a n g


H o - J i n g F u


Chiwg-Tsan Wai

C h i e f A u d i t o r Chung Cheng Kan

Total 11,966 11,966 6,332 6,332 4,034 - - - 4,034 - - - 22,332 22,332 1.05 1.05 - - N/A

Remuneration scales N a me o f C E O a n d S en i o r Exe c u t i v e Vi c e P r e s id e n t s Levels of remuneration paid to each of

this company’s President and CEO and Senior Executive Vice Presidents This company All companies in consolidated report (D)

Less than NT$2,000,000

NT$2,000,000 to NT$5,000,000 S e n - S i n H u a n g , H o - J i n g F u , Chiwg-Tsan Wai,

Chung Cheng Kan S e n - S i n H u a n g , H o - J i n g F u , Chiwg-Tsan Wai,

Chung Cheng Kan NT$5,000,000 to NT$10,000,000 Jung-Hsiung Lu Jung-Hsiung Lu

NT$10,000,000 to NT$15,000,000 NT$15,000,000 to NT$30,000,000 NT$30,000,000 to NT$50,000,000 NT$50,000,000 to NT$100,000,000 NT$100,000,000 and above Total 22,332 22,332


17

(IV)Allocation of employee bonuses, and names of the allocating Senior Vice President and General Managers

31st December 2007: Units: NT$1,000

Share dividends Cash

bonus

Title Name No. of

shares

Market

value

Amount AmountTotal

P o s t - t a x p ro f i t

r a t i o ( %)

President and CEO Jung-Hsiung Lu

Senior Executive Vice President Sen-Sin Huang

Senior Executive Vice President He-Jing Fu

Senior Executive Vice President Chiwg-Tsan Wai

Chief Auditor Chung Cheng Kan

Executive Vice President Yi-sheng Wang

Executive Vice President Yao-Guang Cai

Executive Vice President Cing-Wen Wu

Executive Vice President Ci-Cheng Cai

Executive Vice President Guei-Yao Jian

Senior Vice President and General Manager Feng-Sen Lu

Senior Vice President and General Manager Si-Bin You

Senior Vice President and General Manager Yun-Teng Huang

Senior Vice President and General Manager Rong-Kun Wu

Senior Vice President and General Manager Jhen-Gan Yang

Senior Vice President and General Manager Cong-Jhong Lin

Senior Vice President and General Manager Ji-Fu Lin

Senior Vice President and General Manager Rong-Jie Jheng

Senior Vice President and General Manager Jun-Chang Li

Senior Vice President and G

eneral Managers

Senior Vice President and General Manager Jin-Sheng Huang

- - - 13,350 13,350 0.63


18

IV.Analysis of remuneration paid to directors, supervisors, president and CEO, and senior executive vice presidents over the last two years:

(I)Post-tax profit ratio of remuneration paid to directors, supervisors, president and CEO, and senior executive vice presidents:

For years 2006 and 2007, remuneration paid to president and vice presidents accounted for 0.79% and 1.05% of post-tax profit, due to a decline in post-tax profit in 2007 compared to 2006 and staffing change of vice presidents.

(II)Correlation between remuneration policy, standard and portfolio, remuneration procedure and operating performance:

The Company’s directors and supervisors are all appointed by the parent company, Mega Holdings Co., Ltd., and currently there are no independent directors or supervisors. Thus, no remuneration is paid, except for attendance and transportation allowance.

Remuneration paid to the Company’s president and CEO and senior executive vice presidents is set out in accordance with the Company’s Memorandum and Articles of Association, and allocation of bonuses is based on the Company’s operating performance and bonus policy.


19

Three.The exercise of corporate governance I.The exercise information of the board of directors

M e e t i n g s o f t h e b o a r d o f d i r e c t o r s d u r i n g t h e p a s t y e a r 1 2 ( A ) I n s t a n c e s o f s u p e r v i s o r s n o t a t t e n d i n g a r e a s f o l l o w s :

Title Name F r e q u e n c y o f a c t u a l n on - a t t en d an ce

F r e q u e n c y o f a t t en d an c e by p r ox y

R a t e ( % ) o f a c t u a l n on - a t t en d an ce

R e ma r k s

Chairrman Kuo- Hsiung Chuang 12 0 100 Director and

President and CEO Jung-Hsiung Lu 12 0 100

Director Cai You Cai 7 5 58 Director Feng Yi Huang 12 0 100 Director Ruei-Yun Lin 12 0 100

Director Yu-Ling Jhou 12 0 100 Director Chia-Min Hong 11 1 92

Director Jian-Ping Yuan 12 0 100

Director Hong-Ji Jhang 10 2 83

Supervisor Ling-Yu Chen 8 0 67

Supervisor Jhong-Cheng Gao 10 0 83

Supervisor Jhong - Nan Fang 12 0 100 Other matters for record: I. Matters listed in Clause 14-3 of the Securities Exchange Act and other board of directors resolution items subject to the opposition of or

reservation of judgment by independent directors and recorded or proclaimed in writing：None II. State of enforcement by directors of stakeholder resolutions for recusal: None III. Year’s objectives for strengthening board of directors functions (such as establishment of audit committee, raising transparency of

information, etc.,) and assessment of state of implementation: None

II.The exercise State of the audit committee：None

III.The exercise State information of corporate governance：Please refers

the special area "the legal public exposition item" within company’s website (http://www.megabills.com.tw/)

IV.The company’s exercise of corporate governance, areas of non-compliance with Corporate Governance Practice Regulations for Bills Finance Companies, and reasons for such non-compliance


20

Item Operating situation

Areas of non-compliance with corporate governance

practice regulations for bills finance

companies, and reasons for such non-compliance

I. Company equity structure and shareholders rights and benefits

(I) Means of handling problems such as director proposals and disputes.

(II) State of mastery of principal shareholders of actual holding company, and name lists of ultimate controlling shareholders.

(III) Means of establishing risk management mechanisms and firewalls with business associates

I. The company conducts all matters concerning wholly owned subsidiaries of Mega Financial Holding Company in accordance with Mega Financial Holding Company’s regulations.

II. A name list of ultimate controlling shareholders can be obtained by obtained by contacting the parent company.

III. The authority and responsibility to manage this company’s and its associated businesses’ employees, assets and financial affairs are entirely independent and are exercised in accordance with the Mega Financial Group Risk Management Policy and Guidance Criteria, and The Firewall Policy of Mega Financial Holding Company and its Subsidiaries, drawn up by the parent company, Mega Financial Holding company. (I)Data security: the company has established parameters to

transaction authority management and data file access. (II)Confidentiality of client data: Access to and utilization of client

data when client’s register or unregister using basic data, may only be performed by those with specific authorization. The company’s client data confidentiality measures are detailed on the Internet. Marketing is conducted in concert with the deployment of resources only after receipt of a formal agreement signed by the client, and each subsidiary company has drawn up client confidentiality agreements to protect client confidentiality.

(III)Related party transactions: The company has established related party data files, and periodically reports to the parent company, Mega Holdings, in accordance with the latter’s published terms of reference, as well as to the supervisory agency.

In compliance with the stipulations of the Corporate Governance Practice Regulations for Bills Finance Companies.

II. Composition and duties of board of directors

(I) Establish directors’ independence.

(II)Periodically assess the independence of authorized accountants.

I. The directors are all appointed by the parent company, Mega Holdings. There are currently no independent directors.

II. Independence of accountants assessed at time of appointment.

In compliance with thestipulations of the Corporate Governance Practice Regulations for Bills Finance Companies.

III. Supervisors: composition and duties.

(I). Establishment of supervisors’ independence.

(II).Communication between supervisors and staff and between supervisors and shareholders.

I. The company’s supervisors are all appointed by the parent company Mega Holdings. There are currently no independent supervisors.

II. The company’s data are not classified and supervisors are appointed by the parent company, Mega Holdings, and may communicate with staff and shareholders at any time.


IV. Establishment of channels for communication with stakeholders.

The company’s data are not classified and communication may be made with stakeholders at any time.


V. Data transparency (I). State of establishment of

website disclosing information about financial businesses and the company’s corporate governance.

(II) Other means adopted for disclosing information (such as establishing English-language websites, appointing specialists to handle the

I. The company has established a dedicated section on its website for items to be disclosed. In accordance with the law, these include financial reports, important data on financial businesses, interest rate quotations, and data on corporate governance and credit ratings.

II. Other means of disclosing information. (I) The company has a dedicated section on its website for its

English-language annual report. (II) Each section of the company’s website has specialists

appointed to handle data collection and periodic maintenance and updating.

(III) The company has stipulated “Notes of Spokesperson and Acting Spokesperson Tasks and Procedures”. Release of all



21





collection and dissemination of information, implementing spokesperson systems, corporate briefing procedures for establishing bills finance company websites.)

information about the company is handled in accordance with the relevant regulations. Employees are not entitled to speak to external persons or organizations on behalf of the company.

(IV) The company is an unlisted, over-the-counter bills company. Release of all information related to it is to be conducted through the parent company, Mega Holdings Company.

VI. State of function committeeoperations, etc. such asestablishment of audit committee.

The company does not have an audit committee. In compliance with the stipulations of the Corporate Governance Practice Regulations for Bills FinanceCompanies.

VII. The company’s exercise of corporate governance, areas of non-compliance with Corporate Governance Practice Regulations for Bills Finance Companies, and reasons for such non-compliance.


VIII. The social responsibility system adopted by the company, and the company’s discharging of its social responsibility (such as

human rights, employee rights and interests, environmental protection, community involvement, supplier relations,

oversight and stakeholder rights):

(I) Human rights and employee rights and interests: The company takes considerable account of employees’ opinions. Issues

concerning employee rights and interests are handled in accordance with the Labor Standard Law.

(II) Community involvement and environmental protection: Random, on-the-spot monitoring of conservation of the

environment around places of business, actual enforcement of refuse classification and requiring that staff strictly control

the amount of photocopy paper that is used, improvements in efficiency of use of recycled paper, the establishment of

dedicated persons to control the switching on and off of power switches, and strict enforcement of electricity saving.

(III) Supplier relations, oversight and stakeholder rights: Purchases from and payments to suppliers are handled in

accordance with related internal company regulations, and particular attention is paid to whether the supplier enjoys

stakeholder status, in order to avoid any violation of regulations.


22





Ⅸ. Other information facilitating an understanding of the company’s exercise of corporate governance (such as the pursuit of advanced studies by directors and supervisors, attendance on the board of directors by directors and supervisors, implementation of risk management policy and risk assessment standards, implementation of consumer and client protection policy, implementation of directors’ exemptions from stakeholder motions, situation regarding purchase of liability insurance for directors and supervisors of bills finance companies, social responsibility, and so forth):

(I) Pursuit of advanced study by directors and supervisors: Some directors participate in a corporate governance research and study class organized by the Accounting Research and Development Foundation.

(II) Directors’ and supervisors’ attendance on the board of directors. All attend the board of directors periodically, in accordance with the regulations.

(III) Implementation of directors’ exemptions from stakeholder motions: The company’s directors exempt themselves from motions concerning losses affecting both their own interests as stakeholders and the company’s profits.

(IV) Liability insurance contracts entered into by the company on behalf of independent directors and independent supervisors. The company has no independent directors or independent supervisors.

(V) Risk management policy and its implementation. In compliance with the standards of the supervisory agency and the parent company, Mega Holdings, in evaluating the company’s operating risk, risk quotas that each business is capable of sustaining are drawn up, and the managing departments are urged to adopt every necessary measure to guarantee the company’s operating security and performance. In order to guarantee the effective implementation of each risk management policy, meetings of the loans evaluation committee and the risk management committee, and so forth, are called periodically, in order to provide the best possible assurance of risk control outcomes, gains and losses, as well as to adapt each risk control measure appropriately to developments.

(VI) Implementation of consumer protection: In accordance with the standards of the supervisory agency and Taiwan Bills Finance Association, agreed regulations that the company must follow are clearly stated within written agreements. Consumers may assert their rights on the basis of these, and a contact person is designated on the customer complaints section of the company’s website specifically for consumer communications.

(VII) Social responsibility. 1. Cooperation in establishing education, providing work experience to current students and coordinating such

arrangements with the educational institutions concerned. 2. In line with the financial holding group’s requirements, and at the relevant times, attend external fairs and

exhibitions.


23

Mega Bills Finance Corporation Internal Control Declaration

Taking to care to reflect pronouncements by Mega Bills, the company from 1st January

2007 to 31st December 2007 truly abided by the Regulations Governing the Implementation

of Internal Control and Audit Systems by Bills Houses, establishing an internal control

system, implementing risk management, and undertaking inspection by an impartial and

independent audit department, periodic reporting to the board of directors and supervisors, all

while conducting bills business, and, in accordance with the determinants of effectiveness of

internal control systems stipulated in the Regulations Governing the Establishment of

Internal Control Systems by Service Enterprises in Securities and Futures Markets, drafted

and decreed by the Securities and Futures Bureau under the Financial Supervisory

Commission (Executive Yuan), determined whether the design and implementation of the

internal control system were effective. Careful evaluation has shown that each department’s

internal control and legal and regulatory compliance, apart from the items listed in the

accompanying chart, can all be confirmed to have been effective enforced; this declaration

will become the main content of this bills finance company’s annual report and prospectus,

and will be open to external scrutiny. The illegal inclusion of falsehoods or the illegal

concealment of information in the above public data, will incur legal liability in relation to

articles 20, 32, 171 and 174 of the Securities Exchange Law. Respectful to Financial Supervisory Commission, Executive Yuan

Declared by：Mega Bills Finance Corporation. Chairman of the Board：Ray-Beam Dawn President and CEO：Jung-Hsiung Lu Chief Auditor: Chung Cheng Kan Legal Compliance officer, Head office: Ho-Jing Fu

27th March 2008

V.The implementation of the internal control system：

(I)Internal control declaration


24

Form showing items to be enhanced or improved by Mega Bills Finance Corporation in

respect of internal control system. (Date of commencement: 31st December 2007)

Item to be enhanced Improvement measures Time expected to

complete improvement.

None

(II)Accountant entrusted to inspect the internal control system, and accountant’s inspection report to be disclosed：None.

VI.The implementation of the internal control system： (I)Persons in charge or members of staff prosecuted for business offences：

The period during which the ex-chairman in charge of this company held office with Mega International Commercial Bank (formerly Chiao Tung Bank): Because of the prosecution in connection with the loans case in the last two years, information relating to that case is being revealed by Mega International Commercial Bank and Mega Holdings (the last two years means two years from the quarter in which the case came to light).

(II)Persons fined by Financial Supervisory Commission, Executive Yuan for legal violations：None.

(III)Deficiencies solemnly rectified by the board of directors：None. (IV)Matters which, in accordance with Article 51 of the Act Governing Bills

Finance Business are punishable under clause one, article 61 of the Banking Act of the Republic of China：None.

(V)The nature of ― and the value of the losses incurred by ― the following security incidents are to be disclosed for the year in which they occur: incidents caused by employee malfeasance, or some other major legal matter (including such major matters as deception, theft, misappropriation or embezzlement of funds, false transactions, acquisition of negotiable securities using forged documentation, receipt of kickbacks, losses incurred as a result of natural disaster, losses due to external factors, attack by computer hackers, theft and leaking of business secrets and client data, and so on) or regulations that are unfeasible in the light of the essentials of security maintenance on the part of financial institutions, and which individually or together incur actual losses exceeding NT$50 million：None.

(VI)Other items designated by the board of directors as matters in which must be disclosed: None.

Mega Bills Finance Corporation-- Corporate governance report

25

VII.Important resolutions of the shareholders and board of directors in the past year and up to the date of publication of this annual report.

(I) Held on 20th March 2007, the 13th meeting of the eleventh board of directors, acting on behalf of the shareholders meeting and with the latter’s authority, approved the following resolution:

To amend the Company’s Articles of Association to better the allocation of

employee bonuses. (II)The 13th meeting of the eleventh board of directors on 20th March 2007,

acting on behalf of the shareholders meeting and with the latter’s authority, approved by resolution:

Recognition of such reports as the final accounting report and so forth for the

year 2006, and the apportionment of the surplus for the year 2006, and to distribute

NT$2,212,585,192(NT$1.100per share) in shareholder dividends and bonuses, all

paid in cash, and NT$84,804,500 as employee bonuses, also paid in cash.

Accordingly, the date of 24th April 2007, approved by the board of directors,

acting on behalf of the shareholders meeting and with the latter’s authority,

approved by resolution of the board of directors, as the commencement date of 8th

May 2007 for distribution of the company’s shareholder dividend and bonus for

the year 2006 (III)Held on 29th May 2007, the 15th meeting of the eleventh board of directors,

acting on behalf of the shareholders meeting and with the latter’s authority, approved the following resolution:

In order to enhance the efficiency of the Company’s capital utilization, and

improve the parent company’s internal capital adjustment and operating

performance, the Company undertook a capital reduction of NT$5 billion in line

with the needs of future business development and pertinent government

regulations. The amount of the Company’s capital after the capital reduction was

NT$15,114,410,840. Held on 26th June 2006, the 16th meeting of the eleventh

board of directors, acting on behalf of the shareholders meeting and with the

latter’s authority, approved to take 2nd July 2007 as the base day of the capital

reduction. (IV) On 26th June 2007, the 16th meeting of the eleventh board of directors,

acting on behalf of the shareholders meeting, and with the latter’s authority, removed the anti-competitive constraints on the company’s directors.

(V)Held on 24th July 2007, the 17th meeting of the eleventh board of directors approved the following resolution:

In line with the parent company’s overall planning, the Company appointed


26

Lai Zong-yi and Li Chang-zhou, certified public accountants from

PricewaterhouseCoopers, as the Company’s independent auditors effective from

the first half of 2007. (VI)Held on 27th November 2007, the 21st meeting of the eleventh board of

directors approved by resolution to amend some articles in the “Rules of Procedure for Meetings of Board of Directors of Mega Bills Finance Corporation”, and the amendment was submitted to the 22nd meeting of eleventh board of directors acting on behalf of shareholders meeting held on 25th December 2007.

VIII.Differing opinions or recorded or written declarations on the part

of directors or supervisors concerning important resolutions of the board of directors in the past year and up to the time of publication of the annual report: None.

IX.Effective from 15th January 2008, Mr. Dawn Ray-Beam was appointed by the parent company, Mega Holdings, to succeed Mr. Chuang Kuo-hsiung as the Company’s director. Held on 15th January 2008, the 1st extraordinary meeting of the 11th board of directors approved by resolution:

(I)To elect director Mr. Dawn Ray-Beam to serve as the Company’s chairman. (II)To approve retirement of chairman Chuang Kuo-hsiung.


27

Four.Data on accountants expenses: Non-audit expenses

Accountant inspection period Whether this includes a complete accounting year.

Name of place of business Name of accountant

Audit expenses

System design

Industrial and comme

rcial registra

tion.

Human resource

s Other Sub-total Yes No Inspection

period 、 Remarks Diwan, Ernst and Young

Lai Zong-yi

Yang Wen-an 100 - - - 107 107 ˇ ˇ 96/1-96/6

“Other,” is such items as consultancy fees for offering bad debt for sale.

PricewaterhouseCoopers

Lai Zong-yi

Li Chang-zhou 900 - - - - - ˇ 96/7-96/12

Five.Data on changes in accountants:

I.The Company’s authorized certified public accountant, Lai Zong-yi, from Ernst & Young left the accounting firm since 30th June 2007 and joined PricewaterhouseCoopers starting from 1st July 2007. As a result, the Company appointed Lai Zong-yi and Li Chang-zhou from PricewaterhouseCoopers as the new independent auditors effective from the first half of 2007.

II.Effective from 1st January 2006, the Company’s financial instruments have been measured in compliance with “Accounting for Financial Instruments” provisions in the Statement of Financial Accounting Standards (SFAS) No. 34 and “Financial Instruments: Disclosure and Presentation” provisions in SFAS No. 36. Lai Zong-yi and Yang Wen-an, the Company’s authorized accountants, issued an unqualified opinion auditor’s report in 2006.

III.The Company and its former accountants had no different opinion regarding accounting principles or practices, disclosure of financial statements, and scope of audit or procedure.

Six.Disclosure of names, job titles and terms of chairman, general managers or managers responsible for financial or accounting affairs who have worked in a certified public accounting firm or its affiliated company over the past year: none.


28

Seven.Modifications to the transfer and hypothecation situation among directors, supervisors, Senior Vice President and General Managers and those required by law to declare their shareholding.

I.Equity transfers and hypothecation.

2007 To 31st March, 2008

Title Name Number of shares added (deducted) from shares held.

Number of shares added (deducted)

from hypothecated shares held.

Number of shares added (deducted) from shares held.

Number of shares added (deducted)

from hypothecated shares held.

Main shareholder

Mega Financial Holdings

0 0 0 0

II.Other transacting legal party to equity transfer or equity

hypothecation： None.

Eight.Disclosure of transactions between the top 10 principal shareholders and their related parties, including the spouse or members of second immediate families, as specified in the Statement of Financial Accounting Standards (SFAS) No. 6: none. Nine.Shareholding and total share ratio of companies, company supervisors, President and CEO, Senior Executive Vice Presidents, Executive Vice Presidents, all departments and branch office Senior Vice President and General Managers directly or indirectly conducting business relating to said transfer of investment.

31st December 2007,Units: shares: %

Investments by this

company

Investments controlled directly or

indirectly by directors, supervisors,

President and CEO, Senior

Executive Vice Presidents,

Executive Vice Presidents,

individual departments, Senior Vice

President and General Managers of

branch offices, or bills finance

companies.

Total investment

Investment transfer business

Number of

shares Ratio Number of shares Ratio

Number of

shares Ratio

Core Pacific City Corporation 60,000,000 5.00 －－ 60,000,000 5.00

Taiwan Futures Exchange Co., Ltd. 1,127,500 0.51 - － 1,127,500 0.51

Taiwan Securities Central Depository Co.,Ltd. 1,826,976 0.63 - － 1,826,976 0.63

Agora Garden Co., Ltd. 21,090 0.03 －－ 21,090 0.03

Taiwan Financial Asset Services Co., Ltd. 5,000,000 2.94 - － 5,000,000 2.94

Taiwan Asset Management Co., Ltd. 10,000,000 0.57 - － 10,000,000 0.57

Mega Bills Finance Corporation-- Review of the Raised Funds. 29

Review of the Raised Funds One.Shares and dividends

I.Sources of capital stock Units: NT$; shares

A u t h o r i ze d cap i t a l s t o c k A c t u a l re c e iv e d c a p i t a l s to c k R e ma r ks

Y e a r a n d mo n t h

S a l e p r i c e N u mb e r o f

s h a re s V a l u e

N u mb e r o f s h a re s

V a l u e Sources o

capital

stock

O t h e r

2 007 .12 1 0 1 , 511 ,441 ,084 1 5 ,11 4 ,41 0 ,840 1 , 511 ,441 ,084 1 5 ,11 4 ,41 0 ,840 P u b l i c

o f f e r i ng

Units: shares Authorized capital stock

Category ofShares Shares circulating

abroad Unsold shares

Total Remarks

Ordinary shares 1 , 511 ,441 ,084 0 1 , 511 ,441 ,084

Public circulation Not listed, Over the Counter.

II.Shareholder structure

31st December 2007 Shareholder

structure

Number

Government organizations

Financial organizations

Other legal persons

IndividualsOverseas

organizations and foreigners

Total

Number of shares 0 1 0 0 0 1Number of shares held 0 1 , 511 ,441 ,084 0 0 0 1 , 511 ,441 ,084

Shareholding ratio 0 100% 0 0 0 100%

III.Distribution of equity

Face value per share, NT$10.00 31st December 2007

Breakdown of shareholdings Number of

shareholders Number of shares held Shareholding ratio

1 to 1,000,000 －－－ 1,000,001 and above 1 1 , 511 , 441 ,084 s h a re s 100%

Total 1 1 , 511 ,441 ,084 s h a re s 100%

IV.List of main shareholders.

Shares

Name of principal shareholder Number of shares held Shareholding ratio

Mega Financial Holdings Co., Ltd. 1 , 511 ,441 ,084 s h a re s 100%

V.Market value, net value, profit, and dividend per share, and other

related data for the past two years.


Year Item

2006 2007 Until 31st March,

2008

Maximum - - -Minimum - - -Market price per share

Average - - -Before allocation 19.00 19.40 20.26

Net value per share After allocation 17.85 - -

Weighted average no. ofshares

2,011,441,084 1,760,756,152 1,511,441,084Profit per share

Profit per share 1.60 1.20 0.24

Cash dividends 1.10 0.95 -

- - - -Shares issued free of charge

- - - -Per share dividends

Accumulated unpaid dividends

- - -

Price-earnings ratio - - -Dividend yield - - -

Analysis of invested remuneration

Cash dividend yield. - - -

VI.Dividend policy and circumstances in which it is implemented (I)Dividend policy as stipulated by company rules

The company operates in a mature business environment, but there remains scope for development within the business, and, taking into account changing investor and capital suitability, the fifty-fifty ratio principle adopted by the company in the granting of share dividends and bonuses will only be modified in the light of changing business, investment or stock market conditions or factors related thereto.

(II)Circumstances for distribution proposed by the recent meeting of shareholders.

Mega Holdings, as the only shareholder in the company, and, in the name of the rights and interests of shareholders, increased the ability of financial holding companies to manage funds, and planned to distribute all dividends in the form of cash, in response to actual needs.

VII.Impact on operating results and profit per share of shareholders’ meeting’s proposal to distribute shares for free：None.

VIII.Employee bonuses, and director and supervisor gratuities

(I)Amounts and limitations stated in company rules in relation to employee bonuses and directors’ and supervisors’ gratuities.

1.Employee bonuses

Taxes and levies must be paid in full and the previous year’s losses offset in full, in

accordance with the law, by the year’s final accounting surplus but if any surplus

still remains when those obligations have been discharged, 30 percent must first be

allocated as a statutory surplus reserve fund (though statutory surplus reserve funds

that already meet the total value of capital are not affected by this limitation), at the


requisite time, and must be used as a special surplus reserve. After between three

percent and five percent of the remainder (including reversible special reserves in

accordance with the law) has been allocated as employee bonuses, the surplus may

be combined with any unallocated surplus from the previous year, and distributed as

shareholder dividends by resolution of the shareholders meeting.

The total amount distributed as employee bonus in accordance with the

previous paragraph is paid out only after the shareholders meeting has approved it.

Before the statutory surplus reserve fund has reached the total value of capital, the

highest cash surplus allocation may not exceed 15 percent of the total value of

capital. 2.Directors’ and supervisors’ gratuities

The company’s directors and supervisors, as appointed by sole

shareholder Mega Holdings Ltd, are not entitled to directors’ or supervisors’

gratuities. (II)Proposals approved by board of directors for distribution of employee

bonuses, etc. 1.Distribution sums for employee cash bonuses, share dividends and

directors’ and supervisors’ gratuities

In accordance with company rules and the resolution of the 24th meeting

of the eleventh session of the board of directors on 26th February 2008, it is

planned to appropriate NT$59,370,746 as employee bonuses from the

distributable surplus generated in 2007. Share dividends and directors’ and

supervisors’ gratuities that the company has not distributed. 2.Quantity of proposed employee share dividends and its proportion of

surplus converted to additional capital：None. 3.Contemplated profit per share following calculation of proposed employee

bonuses and directors’ and supervisors’ gratuities NT$1.17 per share. (III)Distribution of employee bonuses and directors’ and supervisors’ gratuities

from last year’s surplus 1.Distribution of employee bonuses

In accordance with company rules and the resolution of the 14th meeting

of the eleventh session of the board of directors on 24th April 2007, it is

planned to appropriate NT$84,804,500 as employee bonuses from the

distributable surplus generated in 2006.Actual distribution will correspond

precisely with the original proposal of the board of directors. 2.Distribution of directors’ and supervisors’ gratuities：None.

IX.Buy-back of the company’s shares：None.


Two.Handling of company bonds

Types of company bond

Official document no 0920124233 from the Ministry of Finance Securities and Futures Commission, dated 3rd

June 2003,states that reporting of the effect of initial sale does not guarantee ordinary company debt.

Sale (handling) date 17th June, 2003 Face value NT$10,000 per type Place of transaction Republic of China Sale price Strictly as per face value

Total value NT$5 billion precisely. Ten types of bill issued under categories A to J in accordance with the conditions of sale, the sale value of each ticket being NT$ 50 million.

Interest rate 1.48% per bill.

Period of validity Five years. Expiry date Dependent upon the different sales dates applicable to each category of bill. Final expiry date for category J bills is 30th June 2008

Guaranteeing organization None Trustee Trust Department, Bank Sino Pac Account sales organization None Authorized attorney Jhang Guo-Cling Law Firm Authorized Accountant Ernst & Young, Lai Zong-yi, Dai Sing-Jheng

Method of redemption Upon the expiry of five years from the date of sale, a single repayment of principal

Unredeemed principal NT$5 billion Redemption or advance discharge clause － Limitation clause － Name of credit rating agency. Rating date. Results of company bond rating.

Taiwan Ratings. 8th May 2003. twA+

V a l u e o f o rd in a r y sh a r e s con v e r t ed ( ex c ha n ge d o r su b s c r ib ed ) o v e r s e a s d ep o s i t a r y r e c e ip t s o r o th e r n e go t i ab l e s e cu r i t i e s o f v a lu e a t t i me o f p ub l i c a t ion o f t h i s an nu a l r ep o r t .

－ State other rights. Method of sales or conversion (exchange or subscription). － Methods of sales, conversion, exchange or subscription, and sales conditions may dilute equity or affect existing shareholders’ rights.

－

Name of exchange standard trust guarantor company. －

Three.Special shares：None.

Four.Employee share certificate：None.

Five.Merger with or takeover by other financial organization：None.

Six.Execution of Funding utilization Plan I.The previous plan to issue corporate bonds:

The Corporation in 2003 issued for the first time locally NT$5 billion in

unsecured ordinary corporate bonds, at an interest rate of 1.48%, with the full amount

to be repaid at the end of the 5-year term. The process of publicly raising the funds was

completed in June of that year. II.The projected benefits from the funding utilization plan for the last three years

that have not been realized

The benefits accruing to the plan were as expected and realized.

Mega Bills Finance Corporation—Business Operations 33

BUSINESS OPERATIONS One.Business Scope

I.Main businesses

(I)Primary business activities of the main businesses

1.The Bills Business

(1) Acting as a guarantor or endorser of commercial promissory notes.

(2) Acting as a certifier, underwriter and broker, and trading on own account in

respect of short-term transaction instruments.

2.The Bond Business

(1) Acting as a certifier, vendor, manager and trader on own account in respect of

bank debentures.

(2) Trading in government bonds on the corporation’s own account.

(3) Trading in corporate bonds on the corporation’s own account.

3.Other financial business.

(1) Derivative instrument transaction business.

(2) Equity commodity investment business.

(3) Asset securitization investment business.

(II)Each business’s assets and (or) income as a proportion of total assets and (or)

income, and development and changes therein.

1.Assets

Units: NT$1,000 Year 2006 2007

Item Value As a proportion of total assets (%) Value As a proportion of

total assets (%)Short-term transaction instruments 126,304,029 40.95 86,679,372 35.21

All bonds 170,751,550 55.36 149,040,500 60.54

Other financial assets 8,047,143 2.61 7,177,452 2.92

Total assets 308,462,143 100.00 246,181,595 100.00

2.Income

Units: NT$1,000 Year 2006 2007

Item Value Proportion of total income (%) Value Proportion of total

income (%) Bills income

2,544,623 31.34 2,858,215 39.32

Bonds income 4,368,415 53.81 4,007,541 55.12

Other income 1,205,512 14.85 404,415 5.56

Total income 8,118,550 100.00 7,270,171 100.00


II.Operating plans for this year

(I)Bills Business

1.To raise the rate of drawing on guarantee facilities and to buy into

guarantee-exempt bills secured by sound corporation and guarantee bills secured

by sound banking institutions, in order to expand the commercial paper business

and maintain the Company’s leading position in the market.

2.To reinforce existing customer relationships and tap into customer demand for

funds and to adopt flexible pricing strategies and pricing negotiations with

customers, in order to enhance profit from bills business.

3.Vigorously expanding funding sources, reducing expenditure on interest in order to

expand yielding profits.

4.To closely observe international macroeconomic environment, to analyze the

Central Bank’s monetary policies and interest rate trends, to flexibly adjust bills

position, in order to give consideration to both interest rate risk and liquidity risk.

5.Continuing to implement plans to conduct US Dollar bills business, to add a

diversity of businesses and operating space.

(II)Bonds Business

1.Analyzing domestic government bond interest rate fluctuation situation, awaiting

the opportune moment to carry out wave band operations of financial assets at fair

value bonds.

2.Await the opportune moment to add yielding bond positions, strictly controlling the

duration of available for sale financial assets bonds, to reduce bond position

interest risks.

3.To secure fixed income securities brokerage and dealership business in order to

enhance profit.

4.Strengthening the expansion of bond RP clients, reducing funding costs, increasing

yielding profit margins, and paying attention to the dispersal of dates of maturity

to reduce liquidity risks.

5.Continuing to implement plans to conduct US Dollar bills business, to add diverse

businesses and operating space.

(III)Other financial businesses

1.Awaiting the opportune moment to increase IRS received fixed rate position, in

order to increase yielding profits.

2.Performing bull-market and bear-market operations by aligning equity

commodities, interest options and futures with spot bond positions.

3.Vigorous searching for suitable credit buyers of CBAS, to raise profit margins.


4.To vigorously plan for foreign currency-denominated derivative instruments

business to diversify business operations.

III. Market analysis

(I)Regions of business operation, supply and demand market in future, and the market’s

potential for growth.

1.Regions of business operations

The company’s operating strongholds, apart from the Taipei head office, are also in

the combined administrative areas represented by the eight branch offices it has

established in Taiwan’s main cities, in which it conducts all lines of business,

including loans, bills and bonds.

2.Future supply and demand in the market, and the market’s potential for growth.

(1) Market developments

1) The Department of Finance announced that effective from 15th October 2007,


trading of bonds.

2) The competent authority announced the “Rules Governing Management of

Foreign Currency-denominated Bonds Brokerage, Dealership and

Investment of Bills Finance Companies” on 23rd October 2007, opened up

bills business to engage in foreign bonds investment, brokerage and

dealership

(2) Market Conditions

1) Bills market

There were originally 12 domestic specialist bills finance companies.

Therein five specialist bills finance companies were subordinate to the subs

of financial holding companies. In addition, there remain 47 banks and eight

securities houses concurrently conducting bills business, in a fiercely

competitive market.

In year 2007, Taiwan’s Central Bank hiked benchmark interest rates at

each of the Bank’s quarterly board meetings (by 12.5 basis points at the Q1,

Q3 and Q4 meetings, respectively, and by 25 basis points at the Q2 meeting),

in order to curb inflation and foster reasonable fund allocation. At the same

time, the Central Bank also raised its rates for new Certificates of Deposit

(CDs) issuance, leading call loan rates and bill buy-sell rates in the


secondary market to accelerate gradually. However, the primary issue rates

were less responsive to the upward trends of interest rates due to weakening

demand for funds from private enterprises, shrinking guaranteed commercial

paper underwriting business, and fierce competitions from state-controlled

banks lowering loan rates to increase their market share in corporate

banking. As a result, the adverse effects had taken a toll on the profitability

of bills business.

For 2008 year in prospect, the US Fed lowered its federal funds rates

by 1% in total from September to December 2007, and had a further cut by

1.25% in January 2008. The US-Taiwan interest rate spread was further

narrowed, which would help alleviate the pressure of funds flowing out of

Taiwan. Consumer prices were temporary suppressed by a government

policy of freezing hikes in domestic oil prices. However, once the freezing

policy is cancelled, domestic consumer price hikes can be expected to reflect

increasing international commodity and raw material prices. It is likely that

Taiwan’s Central Bank will raise interest rates again and the range of the

rate hikes will be subject to changes in domestic and international financial

markets and funding.

2) Bond Market

With Taiwan’s Central Bank gradually hiking interest rates, bond

yields exhibited a rising trend in 2007. The yield on benchmark 10-year

government bonds rose sharply to 2.66% in late July from about 2.0% in

early 2007. It fell back to 2.35% in August due to the subprime crisis in the

US. When the crisis subdued and the Central Bank raised interest rates by

12.5 basis points in the third quarter, the yield on benchmark 10-year

government bonds rose again to 2.80%. Later, banking institutions in the US

reported huge amounts of loss due to the subprime crisis. With disappointing

economic figures, US stock markets turned sour and American bond yields

plunged. Affected by these factors and to ease Taiwan’s inflationary

pressure, the Central Bank hiked interest rates by another 12.5 basis points

in late 2007. The yield on benchmark 10-year government bonds fluctuated

between 2.50% and 2.60%. Regarding bond RP trading business, bond RP


rates rose to 1.90% from about 1.60% in early 2007, causing the yield

spread to narrow further.

For 2008 year in prospect, the US subprime mortgage crisis is yet to be

resolved. The FED cut interest rates several times in the second half of 2007

and in January 2008, and it is likely to have further cuts. However, it is

predicted that international commodity and raw material prices will continue

to rise owing to increasing demand from developing countries. It is likely

that Taiwan’s Central Bank will continue gradually hiking interest rates or

staying at relatively high levels, in order to curb inflation. Thus, domestic

bond yields will continue their upward trend. In addition, the impact of

separate taxation on individual interest income from RP trading of bonds

will undermine the profitability of bills business.

3) Equity commodity investment business

In early 2007, the months of January through March saw a stagnant

condition in Taiwan’s stock market due to sell-off pressure after gains in late

2006 as well as the precipitous drop of China’s stock market. However, with

funds pouring into Taiwan’s market in the second quarter of 2007, many

stock prices of small and medium enterprises broke record highs, and the

market continued to heat up. TAIEX began to climb up from around 8,000

points since May, and reached a seven-year high at 9807.91 points on July

26, with volume as high as NT$322 billion. The market was becoming

overheated and corrections were triggered by mixed fundamental factors.

Taiwanese stocks bounced back in September and October after hard falls in

the previous month. However, the months of November and December saw

the accelerating US subprime crisis and inflationary pressure due to soaring

oil prices. In addition, the FED marked down the US economic growth rate

and the dollar continued to weaken with declining market confidence,

triggering deep slumps in global stock markets. Taiwan’s stock market also

saw panic selling sprees and TAIEX took a deep plunge to finish at 7,661.62

points. Then the stock market saw a strong rebound from individual stock

deep slumps, a steep decrease of stock trading on margin and positive

performances prior to the book closing date by securities investment trust


companies. For the year 2007, TAIEX posted an annual gain of 8.7%

(682.56 points) and finished at 8,506.28 points at the end of the year.

Looking into 2008, it will be a presidential election year for both

Taiwan and the US, which will help create a bullish environment for stock

markets. On the other hand, the impact of the subprime crisis on the US

economy and the crisis of an imminent collapse of China’s economic bubble

and its timing will be a major systematic risk for Taiwan’s stock market.

Stock prices are relatively high, and the Company should be more cautious

in selecting stock ownership investment targets and establishing investment

positions.

(II)Advantages and disadvantages of the company’s competitive base and

developmental vision, and how these are being handled.

1.Advantages.

(1) To avoid interest rate risk, price cutting behavior in the primary market has

been improved, which helps maintain bills buy-sell spread.

(2) The competent authority passed a regulation to allow foreign

currency-denominated bonds business and in principle to allow US

dollar-denominated bills business. With the new business, the Company can

increase sources of profit and diversify asset risk.

2.Disadvantages.

(1) Amid a diversity of business funding channels, as well as the weakening of

demand for funds affected by unsatisfactory economic prosperity, the volume

of wholesale bills business is shrinking.

(2) Inflationary pressure intensified due to soaring international oil and

commodity prices. Taiwan’s Central Bank continued interest rate hikes, leading

bond yields to rise continually, which was adverse to position valuation.

Besides, risk also increased due to dramatic market fluctuations and bond

outright purchase/sell trading operations were not easy, which could result in

loss.

(3) Separate taxation was imposed on individual interest income from RP trading

of bonds, and RP trading interest rate continued to hike, leading to increase in

trading cost of bonds business, which was adverse to yield bond operations.

(4) With the implementation of the Statement of Financial Accounting Standards


(SFAS) No. 34, bill companies operating mainly in securities faced great

pressure in investment position valuation. The impact on performance stability

felt by bill companies was greater than other banking institutions.

3.Strategies for handling the above.

(1) Tapping into customer demand for funds and use of capital quota by banking

institutions, and raising the rate of drawing on guaranteeing bills and to buy

into guarantee-exempt bills secured by sound corporation and guarantee bills

secured by sound banking institutions, in order to enhance profit from bills

business.

(2) Reinforcing existing customer relationships and vigorously expanding

low-cost funding sources, in order to flexibly adjust bills and bonds position

and enlarge buy-sell spread to increase profit.

(3) Observing macroeconomic environment, analyzing interest rate trends,

improving bills and bonds trading tactics, and enhancing capital control

efficiency.

IV.Financial product research and business development.

(I)Financial products and scale and loss and profit of newly added businesses in the last

two years and up to the date of publication of this annual report：None

(II)Research and development: expenditure and achievements in the last two years.

1.Expenditure on research and development Units: NT$1,000

Expenditure on research and development Item

2006 2007 Costs of staff participation in research training 628 674

2.Achievements in research and development.

(1) 2005

1) Deliberation and discussion of mid- and long-term development objectives

and strategy.

2) Analysis of the most suitable outstanding scale of guaranteed issues of

commercial paper.

3) Participation in the special task force of the Taiwan Bills Finance

Association in line with BASEL , and vigorous cooperation in handling Ⅱ

Mega Holding’s establishment of the Internal Ratings Based (IRB)


Approach to credit risk.

4) Research into the trial balance of risks associated with government bonds,

stocks and interest swap commodities, as well as, during the sampling

period, the relationship between changes in confidence levels and VaR.

5) Research into US Dollar bills operation frameworks and processes.

6) Evaluation of the development of the business of credit buyers of CBAS.

7) Planning for the handling of foreign bond business.

8) Research into the impact of the system of transaction taxes on the

company’s asset deployment.

(2) 2006

1) Researching and developing adequate capital of the Company.

2) Researching and developing the revision of business unit performance

evaluation system.

3) Continuing to participate in the Taiwan Bills Finance Association’s planning

and establishment for foreign currency bills infrastructure.

4) Planning foreign currency bonds and foreign currency derivative

instruments business.

5) Researching and developing the Company’s bonds RP allocation in response

to separate taxation policy.

6) Planning beneficiary securities, asset-back securities and other related fund

investment business.

7) Establishing foreign-denominated bills and bonds transaction system.

8) Establishing various risk management application systems

9) Setting up risk management objectives, establishing an early warning

mechanism, and strengthening risk management mechanisms.

10) Developing and establishing risk capital requirements and establishment

in response to the Company’s implementation of the New Basel Capital

Accord.

(III)Future Research and Development Plan

1.Continuing to participate in the Taiwan Bills Finance Association’s planning and

establishment for foreign currency bills infrastructure.

2.Planning foreign currency bonds and foreign currency derivative instruments

business.


V.Long and short-term business development plans.

(I)Short term

1.Strengthening guaranteed bills quality management and avoiding the occurrence of

cases of defaults.

2.Vigorously expand all forms of short-term bills business to increase bills sources.

3.Reinforcing bill pricing strategies and enhancing issuing interest spread to increase

profit.

4.Establish yielding bond position in a timely manner.

5.Vigorously buying into the fixed income component of CB asset swap trading

secured by sound banking institutions.

6.Expand all sources of funds and reduce expenditure of interest.

7.Fully utilize the transaction assistance system, and conduct derivative and equity

commodity transactions.

8.Strictly control risk and maintain a sound credit rating.

(II)Long term

1.Continuing to strengthen internal credit risk management system in order to lower

loan risk and maintain appropriate scope of business and profit.

2.Testing actual evaluations of asset quality, and appropriateness of allocation

reserves, to strengthen financial well-being.

3.Exerting our strengths of channels and superior credit rating to maintain lead

position in bills primary and secondary markets.

4.Handling in a timely manner new businesses opened up by the supervisory agency,

with a view to dispersing sources of profit and stabilizing operating performance.

5.Organizing staff education and training to improve our capability in the field and

our ability to expand the business, in order to deal with the onslaught of

competition in the industry and the rapidly changing business environment.

6.Continuing to review capital adequacy and organizational efficiency and improve

operational performance.

7.Integrating Mega Holding’s resources to bring into play cross-sales performance.


Two.Employee data for the last two years and up to publication of this annual report.

28th February 2007

Year 2006 2007 To 28th

February, 2008

Members of staff 189 185 184

Probationers 44 43 43

Number of employees Total 233 228 227

Average age 37.44 38.78 39.46

Average years of service 10.15 11.32 11.94

PhD 0 0 1

Master’s 54 59 58

Bachelor’s 170 160 159

Senior high school 8 8 8

Educational background ratios

Below senior high school 1 1 1

Notes industry practitioner 179 179 172

Portfolio investment analyst 7 7 7

Senior practitioner, bills industry 125 125 121

Bills industry practitioner 33 33 33

Securities investment trust and

consulting practitioner 85 85 83

Trust business practitioner 104 104 103

Futures trade practitioner 79 79 78

Personal insurance practitioner 133 133 129

Property insurance practitioner 126 126 123

Internal banking controllers 96 96 98

Financial planning practitioners 73 73 73

Initial-level foreign exchange

practitioners 4 4 5

Initial level loan practitioner 30 30 30

Professional licenses and

numbers of employees

possessing them

Advanced-level loan practitioner 6 6 6

Three.Corporate responsibility and ethics measures

I.Cooperation in establishing education, providing work experience to current

students and coordinating such arrangements with the educational institutions

concerned.

II.In line with the financial holding group’s requirements, and at the relevant times,

attend external fairs and exhibitions.


Four.Computer equipment I.Computer system hardware and maintenance of software configurations.

System Business Platform Development Maintenance

MIS Bills, bonds, credit analysis, extension of guarantee, financial accounting, personnel, fixed assets.

RS/6000 In-house In-house

Internet transactions

bond RP transactions WINDOWS External In-house

Correspondents Inter-bank payments NCR External In-house Notes E-mail, bulletin

boards. Notes/Windows In-house In-house

II.Emergency contingency and security protection measures

The Company completed the establishment of Lin Ko information facility

remote replication center in 2007, in order to reduce information operating risk and

protect customer trading safety and move towards sustainable management.

III.Future expansion or purchase plans

(I)Developing foreign current bills and bonds transaction systems.

(II)Developing all risk management application systems.

Five.Industrial relations

I.Employee welfare measures, Retirement system and the circumstances in which it

applies, Labor and capital agreements, and the state of workers’ rights protection

measures.

(I)Employee welfare measures: welfare committee, employee bonuses, health

examinations, and so on.

(II)Retirement system and the circumstances in which it applies.

Handled in accordance with the company’s retirement regulations, whose three

optional stipulations are either more favorable than those of the Labor Standard Law,

in line with those of the Labor Standard Law, or in line with those of the Labor

Retirement Pension Act.

(III)Labor and capital agreements: Handled in accordance with the Labor Standard

Law and the stipulations of the company’s work regulations.


(IV)The state of workers’ rights protection measures: Handled in accordance with the

Labor Standard Law and the stipulations of the company’s work regulations.

II.Losses incurred as a result of labor disputes in the most recent two years and up

to the time of publication of this annual report： None

Six.Major contracts：None

Mega Bills Finance Corporation-- Financial Statements

45

Financial Statements One.Condensed balance sheets and statements income for the last three years

I.Condensed balance sheets Units: NT$1,000

Financial information for the last three years

Year

Item 2005 2006 2007

Cash and bank deposits 679,442 586,316 386,602

Financial assets at fair value through profit or loss, net 153,938,155 133,635,701 90,953,726

Receivables 4,636,640 4,771,270 4,767,886

Available-for-sale financial assets, net 122,647,100 163,792,748 144,689,065

Held-to-maturity financial assets, net 400,000 400,000 200,000

Other financial assets 1,331,249 1,916,687 1,900,045

Long-term equity investment accounted for under equity method

- - -

Property and equipment 3,059,516 3,049,498 3,024,870

Other asset 1,020,413 309,923 259,401

Total asset 287,712,515 308,462,143 246,181,595

Banks overdraft and call loans 7,496,700 15,900,000 5,390,000

Financial liabilities at fair value through profit or loss 13,186 76,714 162,165

Bills and bonds sold under repurchase agreements 238,966,913 246,101,509 203,409,282

Payables 450,963 386,458 654,725

Corporate bonds Payable 5,000,000 5,000,000 5,000,000

Accrued pension Liability 123,691 162,114 167,321

Other liabilities 2,871,376 2,626,505 2,072,928

Pre-allocation 254,922,829 270,253,300 216,856,421Total liabilities

Post-allocation 257,938,062 272,550,690 -

Capital stock 20,114,411 20,114,411 15,114,411

Capital surplus 312,823 312,823 312,823

Pre-allocation 12,375,667 12,585,664 12,408,658Retained earnings

Post-allocation 9,360,434 10,288,274 -

Unrealized gains on available-for-sale financial assets -- 5,230,474 1,509,039

Other equity adjustments -13,215 -34,529 -19,757

Pre-allocation 32,789,686 38,208,843 29,325,174Stockholders’ equity

Post-allocation 29,774,453 35,911,453 -


46

II.Condensed statements income Units: NT$1,000

Financial information for the last three years

Year Item

2005 2006 2007

Interest income, net 3,808,306 2,995,349 2,524,662Revenues other than interest income, net 2,265,507 1,448,768 776,002Provisions 757,338 118,731 74,252Operating Expenses 689,538 670,328 661,380Income before Income Tax from Continuing Operations 4,626,937 3,655,058 2,565,032Income after Income Tax from Continuing Operations 4,382,237 3,204,433 2,120,384Income (Loss) from Discontinued Operations - - -Extraordinary Income (Loss) - - -Cumulative Effect of Changes in Accounting Principles (Net of tax expense) - 20,797 -

Net Income 4,382,237 3,225,230 2,120,384Earnings Per Share 2.01 1.60 1.20

III.Independent Auditors’ Name and Opinion

Year CPA Opinion

2003 Lai Zong-yi, Dai Sing-Jheng Unqualified Opinion

2004 Lai Zong-yi, Dai Sing-Jheng Modified Unqualified Opinion

2005 Lai Zong-yi, Dai Sing-Jheng Unqualified Opinion

2006 Lai Zong-yi, Yang Wen-an Modified Unqualified Opinion

2007 Lai Zong-yi, Li Chang-zhou Modified Unqualified Opinion

Two.Financial analysis

Financial analysis for the last five years Year

Analysis item 2003 2004 2005 2006 2007

Average number of days of bill and bond holding

0.67 0.62 1.89 4.50 4.62

Overdue loans ratio 1.01 1.35 0.53 0.32 0.61

Total assets turnover rate 0.18 0.04 0.03 0.03 0.03

Average yield per employee 38,970 41,807 38,107 34,844 31,887

Managerial ability

Average profit per employee 18,258 24,025 18,889 13,842 9,300

Return on assets (%) 8.82 3.69 1.64 1.08 0.76

Return on equity (%) 11.18 14.57 12.52 9.09 6.28

Net profit margin (%) 46.85 57.46 49.57 39.73 29.17Profitability

Profit per share（NT Dollar） 1.46 2.01 2.01 1.60 1.20

Debt to total assets ratio 13.45 83.51 87.67 86.81 87.31Financial structure Fixed assets to net value

ratio 8.42 8.24 9.33

7.98 10.31

Growth rate Asset growth rate 12.54 398.66 16.99 7.21 -20.19


47

Profit growth rate 6.67 18.85 -8.41 -21.00 -29.82

Cash flow ratio (%) - 3.40 0.45 - 8.21

Cash flow Net Cash Flows adequacy ratio (%)

212.03 227.15 195.2697.41 184.77

Credits extended to related parties 7,752,100 10,870,200 3,480,000 2,015,000 507,000

Percentage of credits extended to related parties

4.81 6.74 2.05 1.39 0.35

Asset market share 25.65 25.37 24.35 26.47 26.20

Return on equity market share

27.76 26.75 23.8129.72 26.54

Market share for guaranteed and endorsed bills

32.90 33.68 30.18 32.99 29.25

Market share for each type of bill and bond issue and first time purchase

24.96 24.51 30.12 30.90 26.77

Scale of operations

Market share for each type of bill and bond transaction

16.27 19.91 18.98 18.97 21.25

Capital adequacy ratio 14.33 13.75 14.21 12.33 11.72

Net value of own capital 36,847,134 36,317,399 33,908,718 30,972,257 24,624,172

Total value of risk assets 257,073,566 264,039,359 238,589,790 251,108,188 210,069,410

First category of capital as a proportion of risk weighted risk asset ratio

14.65 14.10 13.74 13.10 12.73

First category of capital and second category of capital as a proportion of risk weighted risk asset ratio

15.54 14.82 14.71 14.70 13.94

Own capital as a

proportion of risk

assets ratio.

Gearing ratio 80.86 25.22 12.29 11.04 9.65

Explanation of analysis of changes for the last two years (Variations exceeded 20%). 1. With the impact in 2007 of fierce competition in the bills market as well as both long and short-term interest rates

on bonds leveling out, yielding profit margins contracted, and surpluses were smaller than those of 2006,such that

the rates for average profit per employee, profitability and profit growth were all lower than those of 2006.

2. In 2007, because of the obvious trend for short-term interest rates to rise, the Company operated outright sales of

bill during relaxed money market periods in order to lower bill position, such that asset growth rate was decline.

4. In the year 2007, because the cash flows from operating activities were positive, the cash flow adequacy ratio was

better than that for 2006.

Three.Financial statements with the near year

Mega Bills Finance Corporation-- Financial Statements 48

MEGA BILLS FINANCE CORPORATION （FORMERLY CHUNG HSING BILLS

FINANCE CORPORATION） FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

--------------------------------------------------------------------------------------------------------------------------------------

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.


PWCR 07001823 Report of Independent Accountants

To the Board of Directors and Stockholders

Mega Bills Finance Corporation

We have audited the accompanying balance sheet of Mega Bills Finance Corporation (the “Company”, formerly Chung Hsing Bills Finance Corporation) as of December 31, 2007, and the related statements of operations, of changes in stockholders’ equity and of cash flows for the year then ended. 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 audit. The financial statements of the Company as of and for the year ended December 31, 2006 were audited by other independent accountants whose report dated January 26, 2007, expressed a modified unqualified opinion.

We conducted our audit in accordance with the "Rules Governing the Examination of Financial Statements of Financial Institutions by Certified Public Accountants" and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mega Bills Finance Corporation as of December 31, 2007, and the results of its operations and its cash flows for the year then ended, in conformity with the “Guidelines for Preparation of Financial Reports by Publicly Listed Bills Finance Companies”, “Business Entity Accounting Law”, “Regulation on Business Entity Accounting Handling” and generally accepted accounting principles in the Republic of China.

As discussed in Note 3 to the financial statements, effective January 1, 2006, Mega Bills Finance Corporation had adopted the R.O.C. Statements of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement” and SFAS No. 36, “Financial Instruments : Disclosure and Presentation”.

February 19, 2008 --------------------------------------------------------------------------------------------------------------------- The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.


MEGA BILLS FINANCE CORPORATION (FORMERLY CHUNG HSING BILLS FINANCE CORPORATION)

BALANCE SHEETS December 31, 2007 and 2006

(Expressed in Thousands of New Taiwan Dollars)

ASSETS 2007 2006 LIABILITIES AND STOCKHOLDERS' EQUITY 2007 2006 Assets Liabilities Cash and cash equivalents (Notes 4(1) and 5) $ 386,602 $ 586,316 Bank overdrafts and call loans from banks (Notes 4(10) and 5) $ 5,390,000 $ 15,900,000 Financial assets at fair value through profit or

loss (Notes 4(2), 5 and 6) 90,953,726 133,635,701 Financial liabilities at fair value through profit or loss (Note

4(11)) 162,165 76,714

Available-for-sale financial assets – net (Notes 4(4), 5 and 6)

144,689,065 163,792,748 Bills and bonds payable under repurchase agreements (Notes 4(3) and 5)

203,409,282 246,101,509

Receivables - net (Notes 4(5), (14) and 5) 4,767,886 4,771,270 Payables (Note 4(12)) 654,725 386,458 Held-to-maturity financial assets - net (Note 4(6)) 200,000 400,000 Corporate bonds payable (Note 4(13)) 5,000,000 5,000,000 Property and equipment - net (Note 4(7)) 3,024,870 3,049,498 Accrued pension liability (Note 4(15)) 167,321 162,114 Other financial assets - net (Notes 4(8), 5 and 6) 1,900,045 1,916,687 Other Liabilities Other assets - net (Note 4(9)) 259,401 309,923 Reserves for guarantee liabilities 1,724,073 2,268,902 Reserves for securities trading losses 200,000 200,000 Other liabilities - others 148,855 157,603 Total Liabilities 216,856,421 270,253,300 Capital stock (Note 4(16)) Common stocks 15,114,411 20,114,411 Capital surplus (Note 4(17)) 312,823 312,823 Retained earnings (Notes 4(18) and (19)) Legal reserve 10,264,619 9,297,050 Special reserve 3,090 3,090 Unappropriated retained earnings 2,140,949 3,285,524 Other stockholders’ equity Unrealized gain or loss on financial instruments (Note 4(4)) 1,509,039 5,230,474 Net loss not recognized as pension cost ( 19,757) ( 34,529) Total Stockholders' Equity 29,325,174 38,208,843 Commitments And Contingencies (Note 7) TOTAL ASSETS $ 246,181,595 $ 308,462,143 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 246,181,595 $ 308,462,143

The accompanying notes are an integral part of these financial statements. See report of independent accountants dated February 19, 2008.



STATEMENTS OF INCOME For the Years Ended December 31, 2007 and 2006

(Expressed in Thousands of New Taiwan Dollars, Except For Earnings Per Share)

2007 2006 Interest income (Note 5) $ 6,452,223 $ 6,490,702 Less：Interest expense (Note 5) ( 3,927,561) ( 3,495,353) Interest income, net 2,524,662 2,995,349 Non-interest income, net Service fee and commission income, net 559,113 575,246 Gain or loss from financial assets and liabilities at

fair value through profit or loss ( 61,967) ( 81,208)

Realized gain or loss on available-for-sale financial assets

22,621 67,039

Loss on asset impairment (Note 4(8)) ( 22,274) ( 133,355) Others non-interest income or loss, net Recovery of bad debts and overdue accounts

(Note 5) 150,863 956,799

Others (Note 5) 127,646 64,247 Net Revenues 3,300,664 4,444,117 Provisions ( 74,252) ( 118,731)Operating Expenses (Note 4(20)) Personnel expenses ( 383,862) ( 415,448) Depreciation and amortization ( 50,085) ( 45,575) Other business and administrative expenses ( 227,433) ( 209,305) Total operating expenses ( 661,380) ( 670,328)Income before Income Tax from Continuing

Operations 2,565,032 3,655,058

Income Tax Expense (Note 4(14)) ( 444,648) ( 450,625)Income after Income Tax from Continuing

Operations 2,120,384 3,204,433

Cumulative Effect of Changes in Accounting Principles (Note 3)

-

20,797

Net Income $ 2,120,384 $ 3,225,230 Before Tax After tax Before Tax After taxEarnings Per Share (in dollars) (Note 4(21)) Net income before cumulative effect of changes in

accounting principle $ 1.46 $ 1.20 $ 1.82 $ 1.59

Cumulative Effect of Changes in Accounting Principles

-

-

0.01

0.01

Net Income $ 1.46 $ 1.20 $ 1.83 $ 1.60




STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2007 and 2006 (Expressed in Thousands of New Taiwan Dollars)

Retained Earnings Common

Stock Capital

Surplus Legal

Reserve Special

Reserve Unappropriated

Retained Earnings

Unrealized Gain or Loss on Financial Assets

Net Loss Not Recognized as

Pension Cost

Total Stockholders'

Equity Balance as of January 1, 2006 $ 20,114,411 $ 312,823 $ 7,982,379 $ 3,090 $ 4,390,198 $ - ($ 13,215) $ 32,789,686 Effect of first-time adoption of SFAS No. 34 - - - - - 7,005,819 - 7,005,819 Appropriation of 2005 earnings

Legal reserve - - 1,314,671 - ( 1,314,671) - - - Cash dividends - - - - ( 2,878,372) - - ( 2,878,372) Bonuses to employees - - - - ( 136,861) - - ( 136,861)

Net income for 2006 - - - - 3,225,230 - - 3,225,230 Unrealized gain or loss on available-for-sale financial assets

- - - - - ( 1,775,345) - ( 1,775,345)

Net loss not recognized as pension cost - - - - - - ( 21,314) ( 21,314) Balance as of December 31, 2006 $ 20,114,411 $ 312,823 $ 9,297,050 $ 3,090 $ 3,285,524 $ 5,230,474 ($ 34,529) $ 38,208,843 Balance as of January 1, 2007 $ 20,114,411 $ 312,823 $ 9,297,050 $ 3,090 $ 3,285,524 $ 5,230,474 ($ 34,529) $ 38,208,843 Appropriation of 2006 earnings

Legal reserve - - 967,569 - ( 967,569) - - - Cash dividends - - - - ( 2,212,585) - - ( 2,212,585 ) Bonuses to employees - - - - ( 84,805) - - ( 84,805 )

Capital reduction ( 5,000,000) - - - - - - ( 5,000,000 ) Net income for 2007 - - - - 2,120,384 - - 2,120,384 Unrealized gain or loss on available-for-sale financial assets

- - - - - ( 3,721,435) - ( 3,721,435 )

Net loss not recognized as pension cost - - - - - - 14,772 14,772 Balance as of December 31, 2007 $ 15,114,411 $ 312,823 $ 10,264,619 $ 3,090 $ 2,140,949 $ 1,509,039 ($ 19,757) $ 29,325,174




STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2007 and 2006 (Expressed in Thousands of New Taiwan Dollars)

2007 2006 Cash Flows from Operating Activities Net income $ 2,120,384 $ 3,225,230 Adjustments to reconcile net income to net cash provided by (used

in) operating activities:

Depreciation and amortization 50,085 45,575 Provisions for bad debts and various reserves 74,252 118,731 Loss on asset impairment 22,274 133,355 (Gains) loss on disposal of fixed assets ( 35) 45 Changes in assets Financial assets at fair value through profit or loss 42,681,975 20,302,454 Available-for-sale financial assets 15,382,248 ( 35,915,174) Receivables ( 12,621) ( 129,374) Held-to-maturity financial assets – net 200,000 - Other financial assets ( 608,708) ( 312,912) Other assets ( 5,749) 5,419 Net change in deferred income tax assets 42,791 ( 6,191) Changes in liabilities Financial liabilities at fair value through profit or loss 85,451 63,528 Bills and bonds payable under repurchase agreement ( 42,692,227) 7,134,596 Payables 268,267 ( 64,505) Other liabilities – others ( 8,748) ( 41,192) Accrued pension liability 22,798 17,109 Net cash provided by (used in) operating activities 17,622,437 ( 5,423,306)Cash Flows from Investing Activities Acquisition of property and equipment ( 9,197) ( 24,722) Proceeds from sale of property and equipment 38 2 Increase in other assets ( 5,602) ( 33,167) Net cash used in investing activities ( 14,761) ( 57,887)Cash Flows from Financing Activities (Decrease) increase in bank overdrafts and call loans from banks ( 10,510,000) 8,403,300 Proceeds from capital reduction ( 5,000,000) - Distribution of cash dividends ( 2,212,585) ( 2,878,372) Distribution of bonuses paid to employees ( 84,805) ( 136,861) Net cash (used in) provided by financing activities ( 17,807,390) 5,388,067Net decrease in cash and cash equivalents ( 199,714) ( 93,126)Cash and cash equivalents, beginning of year 586,316 679,442Cash and cash equivalents, end of year $ 386,602 $ 586,316Supplemental Information: Interest paid $ 3,872,188 $ 3,514,055 Income taxes paid $ 673,693 $ 728,509




NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007 AND 2006

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS EXCEPT AS INDICATED)

1. ORGANIZATION AND OPERATION

(1) Mega Bills Finance Corporation (the “Company”) formerly known as Chung Hsing Bills Finance Corporation, was established on May 3, 1976. In accordance with the Explanatory Letter Jing-Shou-Shang-Zi Ruling 09501114390 of Economic Affairs, R.O.C., dated June 14, 2006, the Company was renamed as Mega Bills Finance Corporation. The Company is mainly engaged in (1) proprietary trading and brokerage service of short-term negotiable instruments; (2) approval and underwriting service of short-term negotiable instruments; (3) proprietary trading and brokerage service of bank debentures; (4) approval and underwriting service of bank debentures; (5) acting as guarantor and endorser of short-term negotiable instruments; (6) arranging inter-bank call loans; (7) corporate financial consulting service; (8) proprietary trading service of government bonds; (9) proprietary trading service of corporate bonds, (10) transactions of derivative financial instrument approved by the authorities and (11) other business approved by the authorities.

(2) The common stock of the Company was originally traded on the Taiwan Stock Exchange.

Pursuant to a resolution in the 2002 annual stockholders’ meeting, the Company was merged into Mega Financial Holding Co., Ltd. (herein after referred to as “Mega”) by way of a share swap. The ratio of the share swap was 1.39 shares of the Company’s common stock for one common share of Mega. As a result, the Company was de-listed from the Taiwan Stock Exchange on August 22, 2002.

(3) Mega is the parent company of the Company. The Company had 228 and 233 employees

as of December 31, 2007 and 2006, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements are prepared in conformity with the “Guidelines for Preparation of Financial Reports by Publicly Listed Bills Finance Companies”, “Business Entity Accounting Law”, “Regulation on Business Entity Accounting Handling” and generally accepted accounting principles in the Republic of China. The significant accounting policies of the Company are summarized below. (1) Financial assets and financial liabilities

A. The Company classified financial assets into categories such as, “financial assets at fair value through profit or loss”, “held-to-maturity financial assets”, “available-for-sale financial assets” and “financial assets carried at cost”. On initial recognition, financial assets are measured at fair value. Equity investments with no active market should be measured at cost since no quoted market prices are available and the fair values can not be reliably measured. For financial assets at fair value through profit or loss which are not measured at fair value, transaction costs that are directly attributable to the acquisition or issuance. Financial liabilities are classified as financial liabilities at fair value through profit or loss. Details on financial instruments are as follows:


(a) Financial assets at fair value through profit or loss

Financial instruments under this category can be further classified into financial assets held for trading and financial assets designated as at fair value through profit or loss. Bills and bonds held for operations by the Company with available public market prices are recorded as financial instruments held for trading. On subsequent measurement, financial assets at fair value through profit or loss are recorded at fair value with changes in fair values recognized in the statement of income.

(b) Held-to-maturity financial assets

Investment in bonds with fixed or determinable payments and fixed maturity are classified as held-to-maturity financial assets when the Company has the intention and ability to hold to maturity. Such investments are subsequently measured at amortized cost. Gains and losses are recognized in the income statement when the investments are derecognized, impaired, or amortized. The amortized cost is calculated as the cost (amount initially recognized) minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the cost and the maturity amount, and less any loss on impairment or unrecoverable amount. While determining cash flows associated with the financial instruments for calculating the effective interest rate, the Company takes into consideration the contract terms of financial instruments including transaction fees paid or received, premiums or discounts and transaction cost, etc.

(c) Available-for-sale financial assets

Available-for-sale financial assets include assets that are available-for-sale, including government bonds, financial bonds and corporate bonds held mainly for either long-term or short-term interest rate profit and all other non-derivative financial assets that do not fit into any of the two categories of financial assets mentioned above. Available-for-sale financial assets are subsequently measured at fair value. All changes in fair value, except impairment losses and foreign exchange rate losses for monetary financial assets, are recognized directly in equity until the asset is derecognized. When the financial asset is derecognized, the cumulative gain or loss that was previously recognized in equity is recognized in profit or loss in the income statement.

(d) Financial assets carried at cost

Financial assets are measured at initial costs when the Company holds less than 20% of the voting shares in investees which are either emerging or non-listed companies since no quoted market prices are available and the fair values can not be reliably measured.

B. The fair values of the above-mentioned financial instruments are determined according

to the following:

(a) Bills: the market price estimated by the mid price of the buy and sell interest rates for various periods.


(b) Bonds: fair values of government bonds are determined by the market price posted on the GreTai Securities on the balance sheet date. Fair value of bank debentures and corporate bonds are determined by the market price estimated by the dividend yield on bonds with various periods or the quoted closing prices posted on the clearing house or the dividend yield system.

(c) Fair values of stocks (excluding emerging stocks) listed on the Taiwan Stock

Exchange or GreTai Securities Market are determined by the closing price on the balance sheet date.

(d) Fair values of open-ended funds are determined by the net asset value on the

balance sheet date.

C. For financial assets acquired or sold by the Company during regular transactions, settlement date accounting is adopted with the only exception of derivative which adopts trade date accounting. Regular transaction is defined as an acquisition or sale of a financial asset with a time to the exchange of assets within the period generally accepted in the market or standardized by regulations.

D. Financial instruments recorded as financial assets on initial recognition are subsequently

measured at fair value. When fair values become negative, financial liabilities are recognized.

(2) Derivative financial instrument

A. The Company is involved in trading of derivative financial instruments, such as interest rate swaps, futures and options. The initial recognition and subsequent measurement of such derivative financial instruments are both fair value basis. When the fair value is positive, the financial instrument is recognized as an asset. When the fair value is negative, the financial instrument is recognized as a liability. Changes in fair value of derivatives are recognized in profit or loss.

B. When the financial assets held by the Company are part of hybrid instruments, the

accounting methods applied depends on the situation whether close relationships exist between the economic characteristics and the risks of the embedded derivatives and that of the host contracts are separately disclosed as follows:

(a) When no close relationship exist and the fair value of the embedded derivative can

not be reliably measured upon acquisition or subsequently revalued on the balance sheet date, the hybrid instruments shall be recognized as one financial asset at fair value through profit or loss on initial recognition as a whole.

(b) When close relationship exist, the embedded derivative financial instruments and

the host contract are not required to be recognized separately. However, such hybrid instruments shall be recognized in accordance to the accounting for the financial instruments of the host contract.


(3) Impairment of financial assets

The Company is required to assess at each balance sheet date whether there is any objective evidence of impairment. Impairment calculation and recognition for financial assets with different accounting methods are as follows:

A. Financial assets carried at amortized cost

(a) If there is objective evidence that an impairment loss on financial assets carried at

amortized cost has incurred, the amount of loss is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The amount of impairment is recognized in profit or loss.

(b) If there is a decrease in the impaired amount after initial recognition on subsequent

measurement and it is apparent that such a decrease is caused by an event occurring after the impairment loss is recognized in income, then the impairment on the financial assets previously recognized shall be reversed through an allowance account. However, the reversal can only be recorded to the extend that the carrying amount of the financial assets not exceed the amortized costs before recognition of impairment. The amount of impairment is recognized in profit or loss.

B. Financial assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument or a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has incurred, the amount of loss is recorded as the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the current market’s rate of return for a similar financial asset. Such impairment loss cannot be reversed.

C. Available-for-sale financial assets

If an available-for-sale financial asset is impaired, an amount equal to the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit but rather as adjustments in equity. Reversals of impairment losses on debt instruments are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.

(4) Derecognition of financial assets

When the collaterals are obtained for amount owed, debt receivables or part of the debt receivables shall be derecognized. Collaterals are recorded at the accepted price and remeasured at the lower of cost or net realizable value on the balance sheet date with the difference recognized as impairment loss.


(5) Bills and bonds sold or purchased under repurchase or resell agreements

Bonds and bills purchased under resell agreements refer to the actual payment made to the counterparty in transactions involving the purchase of securities, subject to an agreement by the purchaser to resell the securities. Bonds and bills sold under repurchase agreements refers to the actual receipts from the counterparty in transactions involving the sale of bonds and bills by one party, subject to an agreement by the seller to repurchase the securities. All related interest income or expenses are recognized on an accrual basis.

(6) Accounts receivable and overdue receivables

Accounts receivables include those resulting from transactions or acquired from others, such as accounts receivables, notes receivables and other receivables. Accounts receivables are accounted as follows:

A. Accounts receivables resulting from the Company’s issuance of commercial papers by

the Company that had not been repaid or settled within three months after the maturity date. Once the amount is overdue over three months or when the receivables have been brought to recourse action, the receivables amount shall be posted to overdue receivables account. The guaranteed commercial papers issued by the Company which matures without being presented immediately within three months from the maturity or over three months but not exceeding six months from the maturity, shall be accounted for as accounts receivables. Receivables overdue for longer than six months shall be accounted for as overdue receivables.

B. During the period which guaranteed commercial papers are issued for, the collateral is subject to provisional attachment yet the borrower still pays the interest regularly. In order to extend a grace period for the borrower to apply for removal of such attachment, if such commercial paper matures without being presented immediately, the balance of the commercial paper shall be accounted for as notes receivables.

(7) Allowance for doubtful accounts and reserves for losses on guarantees

The allowance for bad debts and various reserves for losses on notes receivables, accounts receivables, overdue receivables and guarantees for commercial papers are provided by analyzing the probability for potential losses based on the balance of each account at the fiscal year-end.

(8) Property and equipment

A. Property and equipment are stated at cost less accumulated depreciation. Major renovations and improvements are capitalized and recorded as property and equipment; whereas, repairs and maintenance are expensed as incurred.

B. Depreciation of property and equipment is computed using the straight-line method over

the useful lives listed below: Buildings - 60 years; transportation equipment - 5 years; and miscellaneous equipment – 3-5 years. If property and equipment are still in use after being fully depreciated using the foregoing useful lives, they will be depreciated over their revised estimated useful lives.


C. When property and equipment are retired or disposed of, the stated costs and related accumulated depreciation are written off, and any resulting gain or loss is credited or charged to non-operating income.

(9) Impairment of non-financial assets

Pursuant to the SFAS No.35, the Company assesses indicators for impairment for all its non-financial assets within the scope of SFAS No.35 on each balance sheet date. If impairment indicators exist, the Company shall then compare the carrying amount with the recoverable amount of the assets or the cash-generating unit (“CGU”) and write down the carrying amount to the recoverable amount where applicable. Recoverable amount is defined as the higher of fair values less costs to sell and the values in use. For previously recognized losses, the Company shall assess, on each balance sheet date, whether there is any indication that the impairment loss may no longer exist or may have decreased. If there is any such indication, the Company is required to recalculate the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company shall reverse the impairment loss to the extent that the carrying amount after the reversal would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the assets in prior years.

(10) Deferred expenses

Deferred expenses are mainly the expenditures incurred on interior renovation and repairs and are amortized on a straight-line basis over 5 years

(11) Reserve for trading losses

The Company provides a reserve for trading losses, as required under the “Rules Governing Securities Firms”, at an amount equal to 10% of the net gain on trading of securities. The reserve is provided to the extent that the cumulative amount of the reserve equals $200 million. The reserve can only be used to offset actual losses incurred on trading of securities.

(12) Pensions

A. According to the Company’s employee retirement plan, an amount equal to 8% of their

total monthly payroll is contributed by the Company to the pension fund deposited with Bank of Taiwan in an exclusive account for the employees who meet the requirements specified in the Labor Standards Law. For the managers who do not meet the requirements specified in the Labor Standards Law, an amount equal to 8% of their total monthly payroll is contributed by the Company to the pension fund deposited with Mega International Commercial Bank instead of International Bank of Taipei in an exclusive account, effective July 2006.

B. Pensions are accounted for in accordance with the Statement of Financial Accounting

Standards (SFAS) No.18, “Accounting for Pensions”. In a defined benefit plan, accrued pension liability and net pension cost are recognized based on actuarial calculations. Unrecognized net transition obligation or net benefit obligations are amortized on a straight-line basis over 23 years. Prior service costs and gain (loss) on plan assets are amortized on a straight-line basis over the average remaining service years of the employees. In a defined contribution plan, the amounts that the Company makes


contribution to the pension fund are accrued as pension expenses in the current period. C. The ROC Labor Pension Act (the “Act”), which adopts a defined contribution scheme,

takes effect from July 1, 2005. In accordance with the Act, employees of the Company may elect to be subject to either the Act, and maintain their seniority before the enforcement of the Act, or the pension mechanism of the Labor Standards Law. For employees subject to the Act, the Company shall make monthly contributions to the employees’ individual pension accounts on a basis of 6% of the employees’ monthly wages.

(13) Income taxes

A. The income taxes paid by the Company include the separation tax on gains on the trading of short-term bills and the taxes levied on other income. Estimation of income taxes is based on the taxable income for the current year. The difference between the estimated taxes and the actual taxes paid is recorded as an adjustment to the current year’s income tax expense. The additional 10% tax levied on unappropriated retained earnings is recorded as income tax expense in the year when the stockholders resolve to distribute the earnings.

B. Inter-period and intra-period income taxes are allocated in accordance with the SFAS

No.22, “Accounting for Income Taxes”. Income tax effects arising from taxable temporary differences are recognized as deferred income tax liabilities. Income tax effects arising from deductible temporary differences, loss carryforwards and income tax credits are recognized as deferred income tax assets, and a valuation allowance is provided based on the expected realizability of the deferred income tax assets.

C. Although the Company’s income tax returns are filed jointly with Mega, the Company’s

parent company, and its other subsidiaries starting 2003, income taxes are accounted for by the same principles stated above. The estimated amount of receivables (payables) arising from the joint filing of income tax returns is recorded under “other receivables (payables) – affiliated companies”. Adjustments are made on a systematic and consistent basis to the current deferred income tax assets (liabilities) or income tax payable (income tax refundable) based on the above estimated amount of receivables (payables).

D. In accordance with the “Income Basic Tax Act” effective from January 1, 2006, the

current income tax recognized is the higher of the basic tax calculated according to such Act and the income tax assessed by standards of the National Tax Administration. If the amounts assessed by the National Tax Administration are lower than amounts calculated based on “Income Basic Tax Act”, provision shall be made and recorded as an adjustment to the current year’s income tax expense.

(14) Revenue recognition

Recognition of revenues is accounted for in accordance with the SFAS No.32, “Accounting for Revenue Recognition”.


(15) Basic earnings per share

Basic earnings per share are calculated based on the net income (loss) attributed to common stockholders and the weighted-average number of common shares outstanding during the year. Any capital increase (reduction) resulting from cash injection (withdrawal), treasury stock transactions or other factors that would cause a change in the number of shares outstanding are incorporated in the calculation on a weighted-average basis according to the circulation period. Adjustments are made retroactively to the weighted-average number of shares outstanding if there is any increase (decrease) in the number of shares outstanding (such as distribution of stock dividends, share splits and reduction in capital due to making up for accumulated deficits), which does not result in changes in the stockholders’ percentage of equity interest in the Company.

3. CHANGES IN ACCOUNTING PRINCIPLES

Effective from January 1, 2006, the Company’s financial instruments has been measured in compliance with the Statement of Financial Accounting Standard (SFAS) No. 34, " Financial Instruments: Recognition and Measurement " and SFAS No. 36, " Financial Instruments : Disclosure and Presentation ". The effects of changes in accounting principles on the Company’s financial statements as of January 1, 2006 are as follows:

Recognized as Cumulative Effect of

Changes in Accounting Principles

(after tax)

Recognized as Adjustments in

Equity (after tax) Financial assets at fair value

through profit or loss $ 25,889 $ -Available-for-sale financial assets - 7,005,819 Financial liabilities at fair value

through profit or loss ( 5,092) -Total $ 20,797 $ 7,005,819

The abovementioned changes in accounting principle resulted in $20,797 thousand and $0.01 increase in the net income and after-tax basic earnings per share for the year 2006, respectively.

4. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

December 31, 2007 2006

Time deposits $ - $ 135,000 Checking deposits 330,123 384,815 Demand deposits 55,664 65,686 Petty cash 815 815 Total $ 386,602 $ 586,316

Interest rates on the time deposits as of December 31, 2006 ranged from 1.715%~2.04%.


(2) Financial assets at fair value through profit or loss

Financial assets held for trading are listed as follows：

December 31 2007 2006 Financial assets held for trading, net

Commercial paper $ 81,354,464 $ 93,843,706 Treasury bills - 4,955,745 Bankers’ acceptance 181,068 95,045 Negotiable certificates of time deposit 5,128,785 27,324,933 Government bonds - 2,639,304 Bank debentures 1,086,917 2,879,624 Corporate bonds (including convertible corporate bond) 3,079,676 1,153,811

Stocks 6,308 112,460 Open-ended funds 24,588 530,000 Derivative financial instruments 90,430 29,219 Valuation adjustments – non-derivatives 1,490 71,854

Net $ 90,953,726 $ 133,635,701

A. As of December 31, 2007 and 2006, the amount of bills and bonds held for trading purpose that were provided for repurchase agreements were $75,598,250 thousand and $85,919,619 thousand, respectively.

B. The negotiable certificates of time deposit provided as collaterals for bank overdrafts

and loans amounted to $3,624,763 thousand and $13,273,250 thousand, respectively, as of December 31, 2007 and 2006. Please refer to Notes 5 & 6 for details.

C. Information of derivative instrument contracts was as follows:

December 31, 2007

Uncovered positionContract amount

(Notional principal) Fair value

Interest rate swap contracts - $ 9,000,000 $ 46,851Convertible corporate bond

asset swap contracts - 2,819,900

43,579

$ 11,819,900 $ 90,430

December 31, 2006


(Notional principal) Fair value Interest rate swap contracts - $ 8,200,000 $ 29,219

(3) Bills and bonds payable under repurchase agreements

December 31 2007 2006Bills and bonds payable under repurchase

agreements $ 203,409,282

$ 246,101,509

As of December 31, 2007 and 2006, the interest rate of bills and bonds payable under repurchase agreements were $1.1%~2.5% and 1.0~1.9%, respectively.


(4) Available-for-sale financial assets - net

December 31 2007 2006

Government bonds $ 114,800,406 $ 131,235,304Bank debentures 8,524,741 9,874,320Corporate bonds 19,854,879 17,372,007Stocks - 80,643Subtotal 143,180,026 158,562,274Valuation adjustments 1,509,039 5,230,474Net $ 144,689,065 $ 163,792,748

A. As of December 31, 2007 and 2006, the available-for-sale financial bonds provided for

repurchase agreements amounted to $117,626,440 thousand and $145,582,893 thousand, respectively.

B. Please refer to Notes 5 & 6 for the above listed government bonds provided as collaterals for related party transactions, bank overdrafts and loans.

C. As of December 31, 2007 and 2006, in accordance with the relevant regulations, the Company deposited refundable deposits in Central Bank and other institutions. Bonds are collateralized as refundable deposits amounting to $1,880,795 thousand and $1,973,139 thousand, respectively.

(5) Receivables - net

December 31 2007 2006 Accounts receivable $ 397,700 $ -Interest receivable 2,748,330 3,096,958Other receivables – affiliated companies 1,588,637 1,495,573Other receivables – others 49,224 178,739Subtotal 4,783,891 4,771,270Less: Allowance for doubtful accounts ( 16,005 ) -Receivables, net $ 4,767,886 $ 4,771,270

A. Please refer to Notes 4(14) and 5 for details on other receivables – affiliated companies. B. The abovementioned accounts receivable are for performance guarantees.

(6) Financial assets held to maturity - net

December 31 2007 2006

Bank debentures $ 200,000 $ 400,000Less: Accumulated impairment - -Net $ 200,000 $ 400,000

(7) Property and equipment, net

December 31, 2007

Cost Accumulated

Depreciation Net Book Value Land $ 2,432,241 $ - $ 2,432,241Buildings 679,713 ( 137,382 ) 542,331Transportation equipment 17,928 ( 16,346 ) 1,582Miscellaneous equipment 163,388 ( 114,672 ) 48,716Total $ 3,293,270 ($ 268,400 $ 3,024,870


December 31, 2006

Cost

Accumulated Depreciation Net Book Value

Land $ 2,432,241 $ - $ 2,432,241Buildings 679,713 ( 123,709 ) 556,004Transportation equipment 20,179 ( 17,259 ) 2,920Miscellaneous equipment 146,328 ( 96,014 ) 50,314Prepayments for equipment 8,019 - 8,019Total $ 3,286,480 ($ 236,982 ) $ 3,049,498

All property and equipment were neither provided as collateral nor revalued.

(8) Other financial assets - net

December 31

2007 2006 Financial assets carried at cost - net $ 612,371 $ 634,645Restricted assets - certificates of time deposit 600,000 600,000Overdue receivables, net 551,645 405,850Margin deposits for futures trading 17,935 181,636Designated account for allowance to pay back

short-term bills 118,094

94,556

Net $ 1,900,045 $ 1,916,687

Please refer to Note 6 for details of the above restricted assets-certificates of time deposit provided as collaterals for bank overdrafts and loans. A. Financial assets carried at cost are listed as follows:

December 31, 2007 December 31, 2006

Unlisted stock investments Amount % of

Shareholding Amount % of

ShareholdingCore Pacific City Corporation $600,000 5.000 $600,000 5.000 Taiwan Asset Management Co., Ltd. 100,000 0.568 100,000 0.568 Taiwan Financial Asset Services Co., Ltd. 50,000 2.940 50,000 2.940 Taiwan Futures Exchange Co., Ltd. 10,250 0.513 10,250 0.513 Taiwan Depository & Clearing Corporation 6,850 0.628 6,850 0.628 Agora Garden Co., Ltd. 900 0.030 900 0.030

Subtotal 768,000 768,000 Less: Accumulated impairment (155,629) (133,355) Net $612,371 $634,645

As of December 31, 2007 and 2006, the Company had recognized impairment loss for the above listed investees as follows:

December 31, 2007 December 31, 2006 Core Pacific City Corporation

$ 154,729 $ 132,455

Agora Garden Co., Ltd. 900 900 $ 155,629 $ 133,355


B. Overdue receivables, net are disclosed as follows:

December 31

2007 2006 Overdue receivables $ 663,538 $ 470,920Less: Allowance for doubtful accounts ( 111,893 ) ( 65,070)Total $ 551,645 $ 405,850

(9) Other assets

December 31 2007 2006 Deferred income tax assets 147,082 189,873 Other deferred assets 48,799 59,460 Deferred pension cost 26,082 28,901 Others 37,438 31,689 Total $ 259,401 $ 309,923

Please refer to Note 4(14) for deferred income tax assets.

(10) Bank overdrafts and call loans from banks

December 31, 2007 Period Interest Rate (%)

Call loans $ 5,390,000 Dec. 31, 2007~Jan. 10, 2008 1.99~2.04

A. Please refer to Note 5 for details of bank overdrafts and call loans granted by the

related parties. B. Please refer to Note 6 for details for collaterals provided for bank overdrafts and loans

as of December 31, 2007 and 2006.

(11) Financial liabilities at fair value through profit or loss December 31

2007 2006 Fixed rate commercial paper $ 76,689 $ 1,819Derivative financial instruments – interest rate swap 85,476 74,895Total $ 162,165 $ 76,714

Information of derivative instrument contracts was as follows:

December 31, 2007



December 31, 2006



December 31, 2006 Period Interest Rate (%) Call loans $ 15,900,000 Dec. 22, 2006~Jan. 15, 2007 1.665~1.73


(12) Payables December 31

2007 2006 Interest payable $ 204,694 $ 149,321 Collections payable for customers (Note) 243,519 - Bonus payable 79,900 103,459 Purchase of bills payable for customer 92,855 95,594 Others 33,757 38,084 Total $ 654,725 $ 386,458

Note: This represents withholding taxes on interest income from bonds pertaining to former

purchasers. (13) Corporate bonds payable

Type of Bonds

Issued Period Interest RatePrincipal Amount

Balance as of Dec. 31, 2007

Balance as of Dec. 31, 2006

Method of Interest Payment

Method of Principal Repayment

$ 5,000,000 $ 5,000,000 First unsecured corporate bonds

June 17, 2003 – June 30, 2008

1.48% $5,000,000 Simple interest payable semi-annually

To be repaid in lump sum at maturity

(14) Income taxes

A. The Company’s income tax expense consisted of the following:

For the years ended December 31 2007 2006 Income tax payable for the current period $ 197,082 $ 347,718 10% tax on unappropriated retained earnings - 5,233 Income tax on separately taxed income 226,952 189,335 Over provisions of prior years’ income tax

expenses ( 7,157 ) ( 26,519 ) Net change in valuation allowance for deferred

income tax assets 27,771 ( 65,142 ) Income tax expenses $ 444,648 $ 450,625

B. Temporary differences resulting in deferred income tax assets as of December 31, 2007

and 2006: December 31, 2007 December 31, 2006

Amount Income tax

effect Amount

Income tax effect

Temporary difference Allowance for

doubtful accounts in excess of tax law limits $ 750,259 $ 187,565 $ 868,025 $ 217,006

Others 334,559 83,640 276,874 69,219 $ 1,084,818 271,205 $ 1,144,899 286,225 Valuation allowance ( 124,123) ( 96,352) Deferred income tax assets $ 147,082 $ 189,873


C. Imputation tax credit

December 31 2007 2006 Account balance of imputation tax credit $ 75,007 $ 64,011

December 31 2007 2006 Estimated (actual) tax credit rate for individual

stockholders 3.51% 3.42%

D. Unappropriated retained earnings

December 31 2007 2006 1997 and before $ 1,358 $ 1,3581998 and onwards 2,139,591 3,284,166Total $ 2,140,949 $ 3,285,524

E. As of December 31, 2007, the Company’s income tax returns through 2002 had been

assessed by the NTA. Based on the NTA’s reassessment, 60% of the withholding taxes that have been paid by the Company would be refunded. As a result, the receivable amount estimated by the Company for withholding taxes on interest income from bonds pertaining to former purchasers based on the years unassessed from 2003 to 2006 and the year ended December 31, 2007 income tax returns amounted to $2,426,065 thousand.

F. The Company’s income tax returns are filed jointly with Mega, the Company’s parent

company, and its other subsidiaries starting 2003. The estimated amount receivable from Mega on the joint filing of income tax returns (after deducting non-refundable withholding taxes) amounted to $1,588,637 thousand, recorded under “other receivables – affiliated companies”.

(15) Retirement plan

A. A retirement plan is in place for all the Company’s permanent employees. In

accordance with the plan, an amount equal to 8% of the total monthly payroll was contributed by the Company to the pension fund. Benefits under this plan are calculated based on the number of years of service, salaries, meal allowances, overtime wages and other regular payments made in accordance with the Labor Standards Law. The maximum number of basic points used for the purpose of benefit calculation is limited to 61 points for employees who worked before April 30, 2005. But for employees who worked after May 1, 2005, is limited to 45 points only. As of December 31, 2007 and 2006, the balances of pension fund deposited in the Bank of Taiwan and MICB were $257,550 thousand and $268,080 thousand, respectively. The Company recognized pension expenses of $35,386 thousand and $35,542 thousand for the years ended December 31, 2007 and 2006, respectively.


(a) Actuarial assumptions used to measure the funded status of the plan: December 31 2007 2006

Discount rate 3.00% 2.50% Rate of increase in compensation levels 2.50% 2.25% Expected return on plan assets 3.00% 2.50%

(b) Reconciliation of the funded status of the plan to the carrying amount of accrued

pension liability is as follows: December 31 2007 2006

Benefit obligations Vested benefit obligation ($ 279,551 ) ($ 264,583 ) Non-vested benefit obligation ( 151,573 ) ( 170,606 ) Accumulated benefit obligation ( 431,124 ) ( 435,189 ) Effects of future salary increments ( 104,566 ) ( 101,487 ) Projected benefit obligation ( 535,690 ) ( 536,676 )

Fair value of plan assets 263,803 273,075 Funded status ( 271,887 ) ( 263,601 ) Unrecognized net transitional obligation 2,388 2,606 Unrecognized prior service costs 23,694 26,295 Unrecognized loss on plan assets 124,323 136,016 Additional accrued pension liability ( 45,839 ) ( 63,430 ) Accrued pension liability ($ 167,321 ) ($ 162,114 )

(c) Pension costs consist of the following:

For the years ended December 31 2007 2006

Service cost $ 21,352 $ 20,865 Interest cost 12,792 12,166 Expected return on plan assets ( 6,839 ) ( 6,467 ) Amortization on unrecognized pension loss 8,081 6,398 Net pension costs $ 35,386 $ 32,962

B. Effective July 1, 2005, the Company established a funded defined contribution pension

plan (the “New Plan”) under the Labor Pension Act (the “Act”). Employees have the option to be covered under the New Plan. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The payment of pension benefits is based on the labors’ individual pension fund accounts and the cumulative profit in such accounts, and the employees can choose to receive such pension benefits monthly or in lump sum. The pension costs under the defined contribution pension plan for the years ended December 31, 2007 and 2006 were $2,777 thousand and $2,307 thousand, respectively.

(16) Capital stock

As of December 31, 2006, the Company’s total issued shares were $20,114,411 thousand consisting of 2,011,441 thousand shares with par value of $10 New Taiwan dollars per share.


In accordance with the parent company - Mega’s effort for improving the operating efficiency of the group as a whole by adjusting subsidiaries’ capital structure, the Company resolved to retire treasury stocks totaling $5,000,000 thousand on May 29, 2007, which was approved by the governing authority on June 20, 2007 and completed the registration of changes on capital on July 27, 2007. Based on the financial data of effective date dated July 2, 2007, net value was $16.82 dollars per share prior capital reduction and $19.08 dollars per share after capital reduction. As of December 31, 2007 and 2006, the Company’s paid-in capital was $15,114,411 thousand, consisting of 1,511,441 thousand shares with a par value of $10 per share.

(17) Capital surplus

Pursuant to the Company Law, capital surplus can only be used to cover the Company’s accumulated deficits. However, additional paid-in capital resulting from the issuance of shares (including issuance of common shares in excess of par value and transactions in treasury stocks) can be capitalized and the new shares are allocated to the stockholders based on their proportionate equity interest in the Company. Capitalization of capital surplus is limited to one transaction per year and is subject to a prescribed limit.

(18) Legal reserve

Pursuant to the Company Law, legal reserve should be appropriated to the extent that the balance of the legal reserve equals the amount of total capital stock. Legal reserve not only can be used to offset the Company’s deficits, but can also be capitalized up to 50% of the balance when the appropriated legal reserve reaches 50% of the outstanding capital stock.

(19) Appropriation of earnings and dividend policies

A. In accordance with the Company’s Articles of Incorporation, the after-tax net income

should be first used to offset deficits, and 30% of the remaining amount shall then be set aside as legal reserve. However, no appropriation is required if the balance of the legal reserve has reached the total capital amount. The remainder shall be appropriated as special reserve, if required. Distribution of the remaining income, if any, and the retained earnings accumulated for prior years (including the aforementioned special reserve that can be reversed) shall be proposed by the Board of Directors and resolved by the stockholders. The amount of bonus paid to the employees should be in the range of 3% to 5% of the total distributed amount.

B. Although the industry in which the Company operates has reached the mature stage,

expansion of operations is possible. In view of the Company’s investing activities and the capital adequacy requirement, dividends shall be distributed in the form of both cash and stocks with a percentage of 50% for each. However, the dividend policy may be amended to accommodate the Company’s operating and investing activities as well as the stock market condition and other related factors.

C. Appropriation of 2006 and 2005 earnings as resolved by the Board of Directors on

behalf of the stockholders on April 24, 2007 and March 28, 2006, respectively, were as follows:


Amount Dividend per Share

(in dollars) 2006 2005 2006 2005 Provision for legal reserve $ 967,569 $ 1,314,671 Cash bonus to employees 84,805 136,861 Cash dividends and cash

bonus to stockholders 2,212,585 2,878,372 $ 1.100 $ 1.431

D. The status of the resolved earnings distribution of 2006 and the bonus to employees by

the Board of Directors exercised on behalf of the Stockholders’ Meeting is available at the website of the Market Observation Post System provided by Taiwan Stock Exchange Corporation (TSEC).

(20) Personnel expenses, depreciation and amortization

As of December 31, 2007 and 2006, personnel expenses, depreciation and amortization were as follows: For the years ended December 31 2007 2006 Personnel expenses

Salaries and wages $ 309,871 $ 335,382 Labor and health insurance 15,539 20,556 Pension 38,163 37,849 Others 20,289 21,661

Subtotal $ 383,862 $ 415,448 Depreciation $ 33,822 $ 34,693 Amortization $ 16,263 $ 10,882

(21) Basic earnings per share

For the years ended December 31 2007 2006

(In thousands of shares) Weighted-average number of shares outstanding 1,760,756 2,011,441

For the years ended December 31

2007 2006 Before tax After tax Before tax After tax (In thousands of dollars) Net income from continuing

operations $ 2,565,032 $ 2,120,384 $ 3,655,058 $ 3,204,433Cumulative effect of changes in

accounting principles - - 20,797 20,797Net income $ 2,565,032 $ 2,120,384 $ 3,675,855 $ 3,225,230(In dollars) Basic earnings per share Net income from continuing

operations $ 1.46 $ 1.20 $ 1.82 $ 1.59Cumulative effect of changes in

accounting principles - - 0.01 0.01Net income $ 1.46 $ 1.20 $ 1.83 $ 1.60


V. RELATED PARTY TRANSACTIONS

1. Names of the related parties and their relationship with the Company

Related Party Relationship with the Company

Mega Financial Holding Co., Ltd. (Mega) The Company’s parent company Taiwan Post Co., Ltd. (Taiwan Post) Director of Mega Bank of Taiwan (BOT) Director of Mega Mega International Commercial Bank

(MICB) (Note 1) Subsidiary of Mega

Mega International Securities Co., Ltd. (MIS)

Subsidiary of Mega

Mega Futures Co., Ltd. (MF) Subsidiary of MIS Mega Insurance Co., Ltd. (MIC) Subsidiary of Mega Mega International Investment Trust Co.,

Ltd. (MITC) (Note 2) Subsidiary of Mega

Mega Asset Management Co., Ltd. (MAM) Subsidiary of Mega Chinatrust Financial Holding Co., Ltd.

(CFHC) Director of Mega

Chinatrust Commercial Bank Co., Ltd. (CCBC)

Subsidiary of Mega’s director

Chinatrust Securities Co., Ltd. (CSC) Subsidiary of Mega’s director Chinatrust Asset Management Company (CAMC)


Chinatrust Bills Finance Corporation (CBFC)


Grand Bills Finance Corporation (Grand Bills)


Others The Company’s directors, supervisors, managers, and their spouses and relatives within second kinship

Note 1: International Commercial Bank of China and Chao Tung Bank merged on August

21, 2006 and was renamed as Mega International Commercial Bank. Note 2: International Investment Trust Co., Ltd. and Mega International Investment Trust

Co., Ltd. merged on September 17, 2007. After the merger, Mega International Investment Trust Co., Ltd. became the dissolving company and International Investment Trust Co., Ltd. became the surviving company which was renamed as Mega International Investment Trust Co., Ltd.


2. Significant transactions and balances with related parties

(1) Bank deposits For the years ended December 31, 2007

Demand deposits

Checking deposits Time deposits Total

BOT $ 22,973 $ 89,866 $ 200,000 $ 312,839 MICB 65,171 61,003 - 126,174 CCBC - 1,673 - 1,673

Total $ 88,144 $ 152,542 $ 200,000 $ 440,686 For the years ended December 31, 2006

Demand deposits

Checking deposits Time deposits Total

BOT $ 39,864 $ 91,450 $ 200,000 $ 331,314 MICB 81,027 73,362 - 154,389 CCBC - 2,465 - 2,465

Total $ 120,891 $ 167,277 $ 200,000 $ 488,168

The abovementioned bank deposits include the designated accounts for allowance to pay back short-term bills and restricted assets – certificates of time deposits.

(2) Bank overdrafts and call loans

For the years ended December 31, 2007 Highest Balance Ending Balance Interest Rate (%) Interest ExpenseBank overdrafts BOT $ 2,232,000 $ - 2.875-3.250 $ 18,553Call loans MICB 2,000,000 - 1.720-2.600 3,057 Taiwan Post 4,930,000 - 1.675-3.500 12,235 BOT 3,500,000 - 1.690-3.500 10,725Total $ - $ 44,570 For the years ended December 31, 2006 Highest Balance Ending Balance Interest Rate (%) Interest ExpenseBank overdrafts MICB $ 2,000,000 $ - 1.400-2.625 $ 531 BOT 2,085,500 - 2.500-3.000 21,382Call loans BOT 1,500,000 700,000 1.480-1.730 1,180 MICB 500,000 - 1.700 23 Taiwan Post 6,000,000 4,900,000 1.445-1.700 10,570Total $ 5,600,000 $ 33,686

Interest rates for call loans applied to the related parties are the same as those offered to other financial institutions.


(3)Sales of bills and bonds

For the years ended December 31 2007 2006 Taiwan Post $ 271,448,573 $ 355,851,719 CCBC 79,879,318 175,273,256 MICB 78,372,166 49,273,624 CBFC 61,072,484 109,412,931 CSC 40,604,350 68,426,729 Mega 36,464,082 64,986,090 BOT 31,507,466 74,650,339 MIS 21,894,605 13,666,994 CFHC 9,287,361 59,470,139 MIC 6,799,262 13,002,248 Grand Bills 5,914,788 19,083,207 MITC 170,000 - MAM - 164,801 CAMC - 52,982,467 Others 3,517,861 3,877,063 Total $ 646,932,316 $ 1,060,121,607 The terms of the above transactions including both sales and trading on repurchase agreements are the same as those with non-related parties.

(4)Available-for-sale financial assets

For the years ended December 31, 2007

Book Value Period

Annual Interest Rate

(%)

Interest

Receivable

Interest Income

Mega The first domestic unsecured

corporate bonds (Bond D-E)

$ -Dec.20, 2002-Dec. 20, 2007 0.045~0.08

$ -

$ 428


Book Value Period

Annual Interest Rate

(%)

Interest

Receivable

Interest Income

Mega The first domestic unsecured

corporate bonds (Bond D-E)

$ 294,395Dec.20, 2002-Dec. 20, 2007 0~0.7831

$ 8

$ 632

(5)Other financial assets-Margin deposits for futures trading

December 31 2007 2006

MF $ 2,000 $ 40,234


(6)Other receivables

December 31 2007 2006

Mega $ 1,588,637 $ 1,495,573

The above amount is the estimated amount receivable and payables from Mega under the joint income tax return scheme.

(7)Collaterals provided to related parties for bank overdrafts and loans:

December 31

Pledged Asset 2007 2006 BOT Restricted assets-Certificates of time deposit $ 200,000 $ 200,000

Financial assets at fair value through profit or

loss - negotiable certificates of time deposit 1,514,762 3,407,335

Available-for-sale financial assets –

government bonds 2,897,800 731,678MICB

Available-for-sale financial assets -

government bonds 2,568,400

-

Financial assets at fair value through profit or

loss - negotiable certificates of time deposit -

2,507,042

Total $ 7,180,962 $ 6,846,055

(8) In March 2006, the Company entered into an agreement to sell its non-performing loans to MAM for a total of $655,800 thousand, which had been received.

(9) Assets provided as operating deposits for securities firm:

December 31 2007 2006

BOT Available-for-sale financial assets - government bonds

$ 110,427

$ 117,591

(10) Other income

A Rental income For the years ended December 31

Lessee Leased Property Period 2007 2006 MAM Office and

parking lots Dec. 1, 2003 – Nov. 30, 2008 $ - $ 2,109

Mega Office and parking lots

Aug. 16, 2002 – Aug. 15, 2007 - 3,346

MICB Office and parking lots

May. 1, 2006 – Dec. 31, 2010 105,574 52,595

Total $ 105,574 $ 58,050

Parts of the Company’s office building were leased to MAM and Mega at the comparable rental expense in the surrounding area, and security deposits of $1,493 thousand and $2,264 thousand were collected by the Company. In accordance with the reorganization of subsidiaries’ business locations as proposed by the parent Company, Mega; the Company moved out from Mega office building, rented the


office to MICB for the period from May 1, 2006 to December 31, 2010 and received $26,297 thousand as security deposits. As one of the terms for the lease agreement, no rents are to be collected for the two months of renovation periods. In addition, since MAM and Mega terminated the lease agreement in May 2006, refundable deposits of $1,493 thousand was remitted by the Company.

B Others

To create synergies within the group and provide one-stop financial services, CTB, a subsidiary of Mega, established a financial consulting center on April 2, 2003 to facilitate cross-selling of the products of the subsidiaries under Mega. Details of the Company’s income derived from the cross-selling were as follows:

For the years ended December 31 2007 2006 Amount % Amount %

MITC $ 272 0.24 $ 353 0.46 MICB - - 195 0.25 MIC 28 0.02 24 0.03 Total $ 300 0.26 $572 0.74

(11) Rental expenses

Location of

Rental For the years ended December 31Lessor Property Period 2007 2006 MICB Office Jan. 1, 2005 -Dec. 31, 2009 $ 756 $ 756 MICB Office May 1, 2006-Dec. 31, 2010 43,189 21,508

$ 43,945 $ 22,264 In accordance with the reorganization of subsidiaries’ business locations as proposed by the parent Company, Mega; the Company moved out from Mega office building, rented the office located in Hengyang Road Building from MICB at the comparable rental expense in the surrounding area for the period from May 1, 2006 to December 31, 2010 and paid $7,169 thousand as security deposits.

VI. PLEDGED ASSETS

The Company has pledged the following assets as collaterals for bank overdrafts and call loans.

December 31 2007 2006

Restricted asset-Certificates of time deposit $ 600,000 $ 600,000Financial asset at fair value through profit or loss – negotiable

certificates of time deposit 3,624,763 13,273,250Available-for-sale financial asset – government bonds 10,313,553 1,769,780Total $ 14,538,316 $ 15,643,030 Please refer to Note 5 for assets pledged to the related parties.


VII. COMMITMENTS AND CONTINGENT LIABILITIES

1. As of December 31, 2007 and 2006, the commitments and contingencies arising from the Company’s normal course of business were as follows:

December 31 2007 2006

Bills and bonds payable under repurchase agreements $ 203,409,282 $ 246,101,509 Guarantees on commercial papers 109,110,000 146,123,800

2. As of December 31, 2007, the expected future rent expense to be incurred for the

long-term lease signed by the Company for renting office space is presented as follows:

Year Amount 2008 $ 44,2602009 44,0312010 43,274Total $ 131,565

VIII. SIGNIFICANT DISASTER LOSS

None.

IX. SIGNIFICANT SUBSEQUENT EVENTS

None.

X. OTHERS

1. Financial instruments

(1) Fair values of financial instruments December 31, 2007 December 31, 2006

Non-derivative Financial Instruments Carrying Value Fair Value Carrying Value Fair Value Assets Financial assets at fair value through profit

or loss $ 90,863,296 $ 90,863,296 $ 133,606,482 $ 133,606,482Available-for-sale financial assets 144,689,065 144,689,065 163,792,748 163,792,748Receivables 4,767,886 4,767,886 4,771,270 4,771,270Held-to-maturity financial asset 200,000 200,000 400,000 400,000Other financial assets 1,287,674 1,287,674 1,282,042 1,282,042

Liabilities Financial liabilities at fair value through

profit or loss 76,689 76,689 1,819 1,819Bills and bonds payable under repurchase

agreements 203,409,282 203,409,282 246,101,509 246,101,509Payables 654,725 654,725 386,458 386,458Corporate bonds payable 5,000,000 5,000,000 5,000,000 5,000,000Other liabilities 148,855 148,855 157,603 157,603


December 31, 2007 December 31, 2006

Derivative Financial Instruments Carrying Value Fair Value Carrying Value Fair Value Assets

Financial assets at fair value through profit or loss

- Interest rate swap $ 46,851 $ 46,851 $ 29,219 $ 29,219 - Asset swap 43,579 43,579 - -

Liabilities Financial liability at fair value through

profit or loss - Interest rate swap 85,476 85,476 74,895 74,895

(2)The assumptions and methods adopted by the Company in estimating the fair values of the above financial instruments are summarized below:

A. The fair value of short-term financial instruments (including investment in bills and

bonds under resale agreements, other financial assets (excluding financial assets carried at costs), bills and bonds payable under repurchase agreements, payables and other liabilities) are estimated at carrying amounts at the balance sheets, as maturity date is near the balance sheet date or the future receivable or payable amount is close to the carrying amounts.

B. For financial assets or liabilities at fair value through profit or loss, available-for-sale

financial assets and held-to-maturity financial assets, the quoted market price, if available, is used as the fair value. If quoted market price is not available for reference, the fair value is determined based on estimates. The estimation and assumptions considered for determining the fair value is equivalent to that considered by market participants in pricing the financial instruments. The discounted interest rate used by the Company is the same as the return on investments for financial instruments with equivalent terms and similar characteristics. Such terms and characteristics includes the debtor’s credibility, remaining period of fixed interest income as specified in the contract, time to principal repayment and currencies for repayment.

C. The fair value for accounts receivable and overdue receivables (recorded as other

financial assets) is determined as the expected recoverable amount (mainly net of the allowance for bad debts).

D. The fair value measurement is not applicable to financial assets carried at costs. In

addition, there is no quoted market price in an active market for the unlisted stocks under the financial asset carried at cost, and their variability in the range of reasonable fair value estimates is not insignificant and their probability of the various estimates within the range can not be reasonably assessed, so the fair value of the unlisted stocks is not reliably measurable. As a result, information of the book value and the fair value with respect to these financial assets is not disclosed.

E. For corporate bonds payable, the market price, if available, is used as the fair value.

If market price is not available, the carrying amount on the balance sheet or the estimation based on other financial information is used to determine the fair value.

F. The fair values of derivative financial instruments are estimated based on the

amounts expected to receive or pay under the given situation that the derivative contracts are terminated pursuant to contract terms at the balance sheet date. In


general, such an amount includes unrealized gains or losses on outstanding derivative contracts.

2. The fair value of the Company’s financial assets and financial liabilities determined based

on the quoted market price or based on estimations are as follows:

Quoted Market Price

Fair Value based on Estimates

Dec. 31, 2007

Dec. 31, 2006

Dec. 31, 2007

Dec. 31, 2006

Non-Derivative Financial Instruments Assets

Financial assets at fair value through profit or loss $ 281,699 $ 3,549,177 $90,581,597 $130,057,305

Available-for-sale financial assets – net 116,489,554 136,599,502 28,199,511 27,193,246

Receivables - net - - 4,767,886 4,771,270Other financial assets - - 1,287,674 1,282,042

Liabilities Financial liabilities at fair value

through profit or loss - - 76,689 1,819Bills and bonds payable under

repurchase agreements - - 203,409,282 246,101,509Payables - - 654,725 386,458Corporate bonds payable - - 5,000,000 5,000,000Other liabilities - - 148,855 157,603

Derivative Financial Instruments Assets

Financial assets at fair value through profit or loss - - 90,430 29,219

Liabilities Financial liabilities at fair value

through profit or loss - - 85,476 74,895

The interest revenue of $4,250,375 thousand and $4,564,171 thousand and interest expense of $2,709,446 thousand and $2,404,218 thousand were recognized for the years ended December 31, 2007 and 2006, respectively, for financial assets or financial liabilities not at fair value through profit or loss. For the available-for-sale financial assets, the adjustments recognized in equity for the years ended December 31, 2007 and 2006 is $3,721,435 thousand and $1,775,345 thousand of which $22,618 thousand and $69,173 thousand, respectively, was deducted from equity and transferred to profit and loss.

For the years ended December 31, 2007 and 2006, the Company’s net commission income of $559,113 thousand and $575,246 thousand, respectively, results from the difference of commission revenues amounting to $578,785 thousand and $594,762 thousand, respectively, and commission expenses amounting to $19,672 thousand and $19,516 thousand, respectively.


3. Procedure of financial risk control and hedge

Other than complying with the laws and regulations, the purpose of risk management for MBF is to ensure operating risks are under controls and to maintain a proper capital adequacy ratio pursuant to sustainable development. In order to achieve this goal, MBF’s risk management mechanism is setting up via system and culture and abiding by the Board of Directors, management and all staff, to safeguard of MBF’s assets and ensure assets and financial quality. The effective mechanism is to identify, measure, monitor, report and respond to the level of risk, setting up a defined controlling and managing manner of risk management and allocation of responsibility. MBF’s Board of Directors has the ultimate approval right in risk management. Major management risk items that include the company-wide risk management policy, risk tolerance limit, and authority must be approved by the Board of Directors. Under the Board of Directors, there is a risk management committee, which is responsible to supervise market risk, credit risk and operating risk. In addition, the Audit Committee supervises and controls the implementation status of operating risk management policy. In order to effectively manage overall risks and integrate associated information of risk, to define risk evaluation techniques and sum up risk positions, business segment is responsible for implementing the risk management strategy of MBF.

MBF’s risk management procedures are divided into establishment of risk policy and process of implementation status, setting up proper internal control system and management procedures against potential risks, building up limits of authority toward the entry of electronic files and evaluate potential negative impacts arising from associated risks.

Financial instruments held by MBF have high level of risk-factor (interest rate, foreign exchange rate and price changes). MBF reduces or avoids liquidity risk or risk of changes in fair value by using individual or combination hedging tools. MBF also reviews and adjusts limits of trading risks according to the changes of economic and financial situations and operating perspectives, to ensure data measured from associated risks and procedures conform to established policies, internal control and operating process.

4. Financial risk information

(1) Credit risk

A. One of the Company’s principal activities is acting as a guarantor for commercial papers issued. The contracts normally expire within one year. The issuing periods for commercial papers usually range from 10 to 180 days, and the expiry dates are not concentrated in any one specific period.

B. Guarantees provided by the Company for commercial papers with off-balance-sheet

credit risk as of December 31, 2007 and 2006 amounted to $261,659 million and $291,318 million, of which $109,110 million and $146,124 million were utilized, respectively.

C. Since the Company is only subject to payment in case where the guaranteed

commercial papers are not redeemed by the issuers at maturity, the contracted guarantee amount does not represent the amount of future cash outflows. That is, the amount of future cash requirements is less than the contracted amount. In the case


where the guarantee limits are fully utilized or the collaterals are deemed to have no value, the maximum amount of the Company’s potential exposure or credit risk is equal to the total amount of the guarantees provided.

D. Before providing guarantees for commercial papers, strict credit evaluations are

conducted on the issuers, and where necessary, the issuers are required to provide adequate collaterals. Approximately 64% and 57% of the guarantees provided by the Company for commercial papers were secured by collaterals as of December 31, 2007 and 2006, respectively. The collaterals include real estate properties, marketable securities and other properties. The Company has the right to take actions against such collaterals when its counterparties default.

E. Additional information disclosed in accordance to the “Guidelines for Preparation of

Financial Reports by Public Listed Bills Finance Companies” were as follow: (a) Assets Quality

Items December 31, 2007 December 31, 2006

Guarantees in arrear and guaranteed credits overdue for longer than three months $ 390,000 $ -

Overdue credits 671,238 470,920Loans under surveillance 1,237,100 192,700Overdue receivables 663,538 470,920Ratio of overdue credits (%)

(Note) 0.61 0.32Ratio of overdue credits plus

ratio of loans under surveillance (%) 1.73 0.45

Provision for bad debts and guarantees as required by regulation 1,711,200 2,311,409

Provision for bad debts and guarantees actually reserved 1,851,971 2,333,972

Note：Ratio of overdue credits = overdue credits (including overdue receivables,

accounts receivable and notes receivable) ÷（guaranteed and endorsed notes receivable＋overdue credits）.


(b) Primary Business Activities

Items December 31, 2007 December 31, 2006

Total amount of guarantees and endorsements for bills $ 109,110,000 $ 146,123,800

Ratio of guarantees and endorsements for bills to the Company’s net worth as at the balance sheet date of prior year (Note) 3.62 5.04

Total short-term bills and bonds sold under repurchase agreements 203,409,282 246,101,509

Multiple of the net value after accounted for prior year accounts were assigned (Note) 6.75 8.49

Note: Bills finance companies were previously required to maintain the ratio of the total

amount of guarantees and endorsements provided for bills to their net worth at or below 800%. Under the current rules, the total amount of major liabilities of a bills finance company cannot exceed 1,400% of its net worth. The ratios shown in the above table are all within the above prescribed limits.

(c) Concentration of credit risk

Items December 31, 2007 December 31, 2006 Credits extended to related parties $ 90,000 $ 507,000Percentage of credits extended to related parties (Note 1) 0.08 0.35Percentage of credits extended by equity secured (Note 2) 18.86 17.13

Industry Ratio Industry ratio Financial

insurance 32.91 Financial insurance 31.73

Manufacturing 26.68 Manufacturing 30.96

Industry concentration（Top 3 industries with highest industry credit ratio) (Note 3)

Real estate and leasing 19.36

Real estate and leasing 16.15

Note 1: Percentage of credits extended to related parties = Credits extended to related parties ÷ Total amount of credits extended

Note 2: Percentage of credits secured by equity securities = Credits secured by

equity securities ÷ Total amount of credits extended

Note 3: The total amount of credits extended include guaranteed and endorsed notes receivable ＋ overdue credits (including overdue receivables, accounts receivable and notes receivable).


(d) Policy on provision of reserve for losses and allowance for doubtful accounts and changes in their balances during 2007 and 2006：

The reserve for losses on bills and bonds held for operations, notes and accounts receivable, overdue receivables and guarantees for commercial papers, and the allowance for doubtful accounts are provided by analyzing the probability of losses based on the balance of each account at year-end. Changes in the balances of the allowance for doubtful accounts of notes and accounts receivable and overdue receivables, and the reserve for losses on guarantees during 2007 and 2006 are set forth below: Foe the years ended December 31 2007 2006 Beginning balance $ 2,333,972 $2,557,063 Amount provided during the year 74,252 118,731 Amount written off during the year ( 556,253 ) ( 341,822)Ending balance $ 1,851,971 $ 2,333,972

(e) Information on concentration of risks associated with assets, liabilities and off

balance sheet items.

Concentration of credit risk shown by industry with respect to the guarantees provided by the Company for commercial papers is as follows: (Amounts are expressed in millions of dollars.)

December 31, 2007 December 31, 2006 Amount % Amount %

Financial insurance industry $ 36,252 32.91 $ 46,518 31.73 Manufacturing industry 29,397 26.68 45,381 30.96 Real estate and rental

industry 21,333 19.36 23,679 16.15

Service industry 4,889 4.44 8,353 5.70 Wholesale and retail industry 7,420 6.73 11,128 7.59 Others - industries accounting

for less than 5% of the total guarantee amount 10,880

9.88

11,536

7.87 Total $ 110,171 100.00 $ 146,595 100.00

(2) Market risk

A. Market risk arises from the fluctuations in interest rates. The amount of the

financial instruments undertaken by the Company is properly monitored. Therefore, the market risk and losses are controlled within a tolerable limit.

B. Additional information disclosed in accordance to the “Guidelines for Preparation

of Financial Reports by Public Listed Bills Finance Companies” were as follow:


(a) Average amounts and average interest rates of interest-earning assets and

interest-bearing liabilities


Average Amount Average Interest

Rate (%) Assets

Cash and cash equivalents $ 1,023,177 1.19 Call loans to banks 90,055 1.78 Financial assets at fair value through profit or

loss 113,582,129 1.94 Investments in bills and bonds purchased

under resell agreements (RS) 16,480,632 1.81 Available-for-sale financial assets 147,621,357 2.81 Held-to-maturity financial assets 315,616 2.97

Liabilities Bank overdrafts and call loans from banks 7,001,118 2.10 Bills and bonds payable under repurchase

agreements (RP) 243,285,644 1.64 Corporate bonds payable 5,000,000 1.48


Average Amount Average Interest

Rate (%) Assets

Cash and cash equivalents $ 1,140,545 1.06 Call loans to banks 419,589 1.49 Financial assets at fair value through profit or

loss 123,869,109 1.56

Investments in bills and bonds under resell agreements (RS)

16,738,145 1.51

Available-for-sale financial assets 153,212,618 2.93 Held-to-maturity financial assets 398,904 2.91

Liabilities Bank overdrafts and call loans from banks 4,339,721 1.92 Bills and bonds payable under repurchase

agreements (RP) 260,424,991 1.38

Corporate bonds payable 5,000,000 1.48

The RS and RP transactions include those conducted by the Company’s head office and its branch offices.


(2) Interest rate sensitivity analysis on assets and liabilities

December 31, 2007 UNIT：In Millions of NT Dollars, %

Items 1-90 days 91-180 days 181 to 1 years Over 1 year Total Interest rate sensitive assets 86,804 10,236 12,799 126,524 236,363

Interest rate sensitive liabilities 204,298 8,058 1,443 29,325 243,124

Interest rate sensitive gap (117,494) 2,178 11,356 97,199 (6,761)

Net worth 29,325

Ratio of interest rate sensitive assets to interest rate sensitive liabilities 97.22

Ratio of interest rate sensitivity gap to net worth (23.06)

December 31, 2006 UNIT：In Millions of NT Dollars, %

Items 1-90 days 91-180 days 181 to 1 years Over 1 year Total Interest rate sensitive assets 105,635 21,505 19,364 151,227 297,731

Interest rate sensitive liabilities 253,908 7,558 535 43,209 305,210

Interest rate sensitive gap (148,273) 13,947 18,829 108,018 (7,479)

Net worth 38,209

Ratio of interest rate sensitive assets to interest rate sensitive liabilities 97.55

Ratio of interest rate sensitivity gap to net worth (19.57)

Note 1: Interest rate sensitive assets and liabilities refer to the interest-earning assets

and interest-bearing liabilities of which the income or costs are affected by the fluctuations in interest rates.

Note 2: Ratio of interest rate sensitive assets to interest rate sensitive liabilities = Interest rate sensitive assets ÷ Interest rate sensitive liabilities .

Note 3: Interest rate sensitivity gap = Interest rate sensitive assets – Interest rate sensitive liabilities

(3) Liquidity risk

A. Since the Company’s operating capital is adequate in meeting the demand for cash

outflows, there is no liquidity risk associated with the Company’s inability to raise funds for meeting contractual obligations.

B. The Company’s investments in financial assets at fair value through profit or loss

and available-for-sale financial assets are traded in active markets and expected to be quickly sold in the market at a price comparable to the fair value, thus no significant cash flow risk are anticipated.


C. Additional information disclosed in accordance to the “Guidelines for Preparation

of Financial Reports by Public Listed Bills Finance Companies” were as follow:

Sources and Utilization of Capital as at December 31, 2007

(Expressed in Millions of Dollars)

1 – 30 Days 31 – 90 Days 91 – 180 Days181 Days –

1 Year Over 1 YearUtilization of capital

Bills 48,777 26,878 7,273 3,751 -Bonds 10,249 500 2,963 8,848 126,524Time deposits 400 - - 200 -Loans extended - - - - -Investments in bills and

bonds under resell agreements - - - - -

Total 59,426 27,378 10,236 12,799 126,524Sources of capital

Loans borrowed 5,390 - 4,500 500 -Bills and bonds payable

under repurchase agreements 175,392 23,516 3,558 943 -

Own capital - - - - 29,325Total 180,782 23,516 8,058 1,443 29,325

Net capital (121,356) 3,862 2,178 11,356 97,199Accumulated net capital (121,356) (117,494) (115,316) (103,960) (6,761)

Sources and Utilization of Capital

as at December 31, 2006 (Expressed in Millions of Dollars)

1 – 30 Days 31 – 90 Days 91 – 180 Days181 Days –

1 Year Over 1 YearUtilization of capital

Bills 51,496 47,290 18,396 9,062 -Bonds 5,049 1,365 3,009 10,102 151,227Time deposits - 435 100 200 -Loans extended - - - - -Investments in bills and

bonds under resell agreements - - - - -

Total 56,545 49,090 21,505 19,364 151,227Sources of capital

Loans borrowed 15,900 - - - 5,000Bills and bonds payable

under repurchase agreements 199,105 38,903 7,558 535 -

Own capital - - - - 38,209Total 215,005 38,903 7,558 535 43,209

Net capital (158,460) 10,187 13,947 18,829 108,018Accumulated net capital (158,460) (148,273) (134,326) (115,497) (7,479)


(4) Cash flow risk and fair value risks associated with movements in interest rates

Floating rate assets and liabilities held by the Company may expose the Company to cash flow interest rate risk due to variable market interest rate. A. As of December 31, 2007 and 2006, the carrying amounts of financial assets and financial liabilities classified according to their

time-to-maturity were as follow:

December 31, 2007 Less than

1 month 1 to 3 months 3 months to

1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total Assets Financial assets at fair value through

profit or loss Investment in bills $ 49,704,881 $ 25,975,332 $10,998,885 $ - $ - $ - $ - $ - $ 86,679,098 Bond Investments - government bonds - - - - - - - - - Bond Investments - bank debentures - - 1,082,598 - - - - - 1,082,598 Bond Investments - convertible bonds - - - 439,479 337,196 894,258 1,397,900 - 3,068,833 Derivative instruments-interest rate

swaps - - 1,698 5,212 25,992 13,949 - - 46,851 Available-for sale financial assets

Bond Investments - government bonds 10,080,377 - 2,981,945 10,966,761 15,097,695 11,494,685 22,047,828 43,820,263 116,489,554 Bond Investments - bank debentures 168,339 500,000 1,453,274 2,987,803 3,399,262 - - - 8,508,678 Bond Investments - corporate bonds - - 6,291,732 4,146,300 4,211,024 1,492,151 2,024,947 1,524,679 19,690,833

Held-to-maturity financial assets - - - - 200,000 - - - 200,000 Total assets $ 59,953,597 $ 26,475,332 $22,810,132 $ 18,545,555 $ 23,271,169 $13,895,043 $ 25,470,675 $ 45,344,942 $ 235,766,445

Liabilities Bills and bonds payable under

repurchase agreements ($ 175,392,052) ($ 23,515,555) ($4,501,675) $ - $ - $ - $ - $ - ($203,409,282) Corporate bonds payable - - ( 5,000,000) - - - - - ( 5,000,000) Total liabilities ($ 175,392,052) ($ 23,515,555) ($9,501,675) - $ - $ - $ - $ - ($ 208,409,282)

Net liquidity gap ($115,438,455) $ 2,959,777 $13,308,457 $ 18,545,555 $23,271,169 $13,895,043 $25,470,675 $45,344,942 $ 27,357,163


December 31, 2006 Less than

1 month 1 to 3 months 3 months to

1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total Assets Financial assets at fair value through

profit or loss Investment in bills $ 54,219,359 $ 44,893,931 $ 27,131,456 $ - $ - $ - $ - $ - $ 126,244,746 Bond Investments - government bonds 49,996 - - - - - - 2,591,155 2,641,151 Bond Investments - bank debentures - - 1,668,105 1,185,183 - - - - 2,853,288 Bond Investments - corporate bonds

(including convertible bonds) - - - - 241,822 78,495 820,000 - 1,140,317 Derivative financial

instruments-interest rate swaps - - 264 - 623 20,213 8,119 - 29,219 Available-for sale financial assets

Bond Investments - government bonds 5,760,371 604,015 9,545,569 12,054,756 11,352,810 15,699,044 11,948,418 69,548,578 136,513,561 Bond Investments - bank debentures - - 1,205,032 2,765,463 2,506,675 3,418,748 - - 9,895,918 Bond Investments - corporate bonds - - 491,600 5,139,701 4,325,915 4,204,043 1,502,674 1,633,394 17,297,327

Held-to-maturity financial assets - - 200,000 - - 200,000 - - 400,000 Total assets $ 60,029,726 $ 45,497,946 $ 40,242,026 $ 21,145,103 $ 18,427,845 $23,620,543 $ 14,279,211 $ 73,773,127 $ 297,015,527

Liabilities Bills and bonds payable under

repurchase agreements ($ 199,105,065) ($ 38,902,807) ($ 8,093,637) - $ - $ - $ - $ - ($ 246,101,509) Corporate bonds payable - - - ( 5,000,000) - - - - ( 5,000,000) Total liabilities ($ 199,105,065) ($ 38,902,807) ($ 8,093,637) ($ 5,000,000) $ - $ - $ - $ - ($ 251,101,509)

Net liquidity gap ($ 139,075,339) $ 6,595,139 $32,148,389 $ 16,145,103 $18,427,845 $23,620,543 $14,279,211 $73,773,127 $ 45,914,018


B. Market interest rate (Excluding financial assets held for trading)

Items of financial assets December 31, 2007 December 31, 2006Available-for-sale financial assets

Bond Investments - government bonds 1.8521%-2.9726%

1.6942%-2.4500%

Bond Investments - bank debentures 2.0000%-3.0500% 2.0000%-3.0500% Bond Investments - corporate bonds 1.8500%-3.3500% 1.8500%-2.6300%

Held-to-maturity financial assets Bond Investments - bank debentures 3.2500%-3.6500% 2.0579%-3.3300%

(5) Operating risk and legal risk

Information on Breach of Applicable Laws or Regulations

For the year ended December 31, 2007 Reason and Amount Incurred Indictment of the Company’s chairman or employees

for breach of applicable laws or regulations None

Penalties imposed by the regulatory authority for breach of the Bills Financing Act None

Rectification requested by the Ministry of Finance for business misconduct None

Frauds committed by the Company’s employees, major contingencies, or incidents caused by non-compliance with the Safety Rules Governing the Financial Institutions, which have incurred a total loss exceeding $50 million on one single incident or all the incidents

None

Others None

5. To provide one-stop-shopping services, MEGA sets up a financial consulting center on April 2, 2003, which is engaged in the cross-selling of the Company and its subsidiaries. Information on the apportionment of the revenues, costs, expenses, gains and losses arising from the transactions between the Company and its subsidiaries, joint promotion of businesses, and sharing of information, operating facilities or premises: Please refer to Note 5 for details.


6. Capital adequacy ratio Dec. 31, 2007 Dec. 31, 2006 Eligible capital, net $ 24,624,172 $ 30,972,257Risk-weighted assets, total 210,069,410 251,108,188Capital adequacy ratio (%) 11.72% 12.33%Ratio of Tier I capital to risk-weighted assets (%) 12.73% 13.10%

Ratio of Tier II capital to risk-weighted assets (%) 1.21% 1.59%

Ratio of Tier III capital to risk-weighted assets (%) - -

Ratio of common shares to total assets (%) 11.91% 12.39%

(1) Capital adequacy ratio = Eligible capital ÷ Risk-weighted assets (2) The total amount of assets equals the total assets presented in the balance sheet. (3) The ratio is calculated for the end of June and December which were also disclosed

in the first and third quarter financial statement.

7. The Company’s independent accountants for the audit of the financial statements as of and for the six months ended June 30, 2007 have been changed from Ernst & Young to PricewaterhouseCoopers.

8. Certain accounts in the financial statements as of and for the year ended 2006 were

reclassified to conform with the presentation of the financial statements as of and for the year ended 2007.

XI. Additional Disclosures

1. Significant transaction information:

(1) Marketable securities acquired or disposed of, at costs or prices of at least NT$100 million or 20% of the issued capital: None.

(2) Acquisition of individual real estate, at costs or prices of at least NT$100 million or

20% of the issued capital: None. (3) Disposal of individual real estate, at costs or prices of at least NT$100 million or 20% of

the issued capital: None. (4) Allowance for service fees to related parties amounting to at least NT$5 million: None. (5) Receivables from related parties amounting to at least NT$100 million or 20% of the

issued capital: Please refer to Note 5 (2) 6 for details. (6) Sales of non-performing loans amounting to at least NT$3 billion: None. (7) Securitization products and its related information that applied by subsidiaries in

compliance with the “Financial Asset Securitization Act” or “Real Estate Securitization Act” : None.


(8) Other significant transactions which may affect the decisions of users of financial reports: None.

2. Supplementary disclosure regarding investee companies

(1) Information of which the Company has significant influence or control over the invested

companies directly or indirectly: None.

(2) Information of which the Company has control over the invested companies directly or indirectly: None.

3. Information on investments in Mainland China: None.

XII. Disclosure of financial information by segments: Not applicable.

Mega Bills Finance Corporation--Analysis of Financial Status and Operating Results, and Risk Management

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Analysis of Financial Status and Operating Results, and Risk Management One.Financial Status

Units: NT$1,000 Difference Year

Item 2007 2006 Value % Cash and bank deposits 386,602 586,316 (199,714) (34.06)

Financial assets at fair value through profit or loss, net

90,953726 133,635,701 (42,681,975) (31.94)

Receviables - net 4,767,886 4,771,270 (3,384) (0.07)

Available-for-sale financial assets, net 144,689,065 163,792,748 (19,103,683) (11.66)

Held-to-maturity financial assets, net 200,000 400,000 (200,000) (50.00)

Other financial assets-net 1,900,045 1,916,687 (16,642) (0.87)

Fixed assets - net 3,024,870 3,049,498 (24,628) (0.81)

Other assets 259,401 309,923 (50,522) (16.30)

Total assets 246,181,595 308,462,143 (62,280,548) (20.19)

Banks overdraft and call loans 5,390,000 15,900,000 (10,510,000) (66.10)

Financial liabilities at fair value through profit or loss

162,165 76,714 85,451 111.39

Bills and bonds sold under repurchase agreements

203,409,282 246,101,509 (42,692,227) (17.35)

Payables 654,725 386,458 268,267 69.42

Corporate bonds Payable 5,000,000 5,000,000 - -

Accrued pension Liability 167,321 162,114 5,207 3.21

Other liabilities 2,072,928 2,626,505 (553,577) (21.08)

Total liabilities 216,856,421 270,253,300 (53,396,879) (19.76)

Capital stock 15,114,411 20,114,411 (5,000,000) (24.86)

Capital surplus 312,823 312,823 - -

Retained earnings 12,408,658 12,585,664 (177,006) (1.41)

Equity adjustments 1,489,282 5,195,945 (3,706,663) (71.34)

Total shareholders’ equity 29,325,174 38,208,843 (8,883,669) (23.25)


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Explanation of changes in ratios（Variations in the earlier and later stages exceeded 20%, reaching NT$10 million.）

1.For the year 2007, due to an obvious ascending tendency in short-term interest rates, the Company operated

outright sales of bills during relaxed money market periods in order to lower bills position, consequently

resulting in a decrease in net gains on financial assets at fair value through profit or loss.

2.Decrease in net gains on held-to-maturity financial assets was due to the redemption of bonds at maturity.

3.At the end of 2007, it was foreseeable that Taiwan’s central bank would raise interest rates. Therefore, the

Company’s bill operations were mainly in outright sales, consequently resulting in a decrease in interbank

overdrafts and call loans.

4.Increase in payables was a result of recording withholding taxes on interest income from bonds paid by the

Company.

5.Decrease in other liabilities was due to a decrease in outstanding guaranteed balance, consequently resulting

in a decrease in the reserve for guarantees.

6.In the year 2007, the Company undertook a capital reduction of 5 billion NT dollars.

7.Decrease in shareholders’ equity adjustments was due to a decrease in unrealized gains on available-for-sale

financial assets resulting from rising interest rates in 2007.

Two.Operating Results

Units: NT$1,000

Item 2007 2006 Annual Increase Percentage

Interest income, net 2,524,662 2,995,349 (470,687) (15.71)

Revenues other than interest income, net 776,002 1,448,768 (672,766) (46.44)

Net Revenues 3,300,664 4,444,117 (1,143,453) (25.73) Provisions 74,252 118,731 (44,479) (37.46) Operating Expenses 661,380 670,328 (8,948) (1.33) Income before Income Tax 3,565,032 3,655,058 (1,090,026) (29.82) Income Tax Expense (444,648) (450,625) 5,977 1.33 Cumulative Effect of Changes in Accounting Principles

0 20,797 (20,797) （100.00）

Net Income 2,120,384 3,225,230 (1,104,846) (34.26)

Explanation of analysis of changes (Variations exceeded 20%).

1.Net yields on revenues other than interest decreased mainly because collection of bad debts has decreased.

2.Provisions have decreased, mainly because of the vigorous selling of bad debt in recent years, to the extent

that asset quality has risen, and the requisite reserves for guarantee liabilities funds are already sufficient for

their purposes.


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Three.Cash Flows I.Liquidity analysis for the last two years.

Year Item 2007 2006 Increase (decrease) (%)

Cash flow ratio (%) 8.21 - -

Cash flow adequacy ratio (%) 184.77 97.41 89.68

(Variations exceeded 20%). The cash flow ratio and cash flow adequacy ratio were both higher than those of 2006, because the company’s position of bills and bonds decreased, and net cash flow from operating activity was higher than that for the same period in the previous year.

II.Analysis of Cash Liquidity Over the Coming Year

Method to remedy the expected cash shortfall Cash balance at

beginning for the year

Expected net cash flows from

operating activities for the year

Expected cash outflows for the year

Expected cash surplus(shortfall) Volumes +

－ Investment plans Financial management plans

386,602 7,174,466 16,283,508 (8,722,440) - 9,000,000

1. Analysis of variations in cash flows in 2007 (1) Operating activity: The main expectation is that growth in operating income will be shifted into

operating activity cash inflow. (2) Investing activity: No substantial increases in investment expected. (3) Financing activity: The main expectation is to grant cash dividends and employee bonuses.

2. Analysis of Liquidity and Method to Remedy the Expected Shortfall：Support by bank overdrafts and call loans is expected.

Four.Major Capital Expenditure in the Past Year：None.

Five.The reinvestments policy in recent years and the main reasons for its

profits and losses, plans for improvement, and reinvestment plans for the coming year.

I.Reinvestment policy and plans for the coming year.

The company, since 22nd August 2002, when it became a part of Mega Financial Group, in accordance with the stipulation in Article 36 of the Financial Holding Company Law, was forbidden to undertake new reinvestment work and could only conduct management of its original investment portfolio.

II.Main reasons for profits or loss in reinvestments, and plans for

improvement. The main reinvestments profit in 2007 was the cash dividends. The value of the

profits that distributed was NT$11,879,000.


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Six.Risk management items I.Risk management organizational structure and policy.

(I)Risk management organizational structure The Board of Directors is the Company’s highest policy-making body in the

field of risk management and shoulders the greater part of responsibility for establishing the Company’s risk management system and ensuring its effective operation. Under the authority of the General Manager, a risk management committee has been established, which is responsible for evaluating the risk management reports of each business, assigning business risk quotas or risk and asset allocation, overseeing risk management objectives of each business and their implementation, and other risk management matters.

A risk control section is established under the control and planning department, which is responsible for planning (revising) the Company’s risk management policies, monitoring the Company’s capital adequacy, monitoring collating areas of exposure to risk, assisting each business supervisory units to establish risk control mechanisms, and to cooperate with competent authorities and the parent company in planning, monitoring or implementing risk management matters.

(II)Risk Management Policy

In accordance with the “Regulations Governing the Implementation of Internal Control and Audit Systems by Bill Houses”, “Mega Financial Holding Co., Ltd. Risk Management Policies and Guidelines”, and the Company’s “Internal Control System Implementation Rules”, the Company has established the “Risk Management Policies and Operating Procedures Rules” to serve as standards and norms to be followed in business risk management, in order to establish the Company’s risk management system, ensure operating risks to be controlled within a tolerable limit, and maintain a sound capital adequacy ratio.

II.Methods for weighing up and controlling each risk, and data on quantification of risk

(I)Ordinary Qualitative Disclosure 1.Strategy and procedure.

(1) Credit Risk To establish credit risk management mechanisms and ensure credit risks

to be controlled within management objectives or a tolerable limit, the Company has established the “Credit Risk Management Criteria”, which are mainly responsible for controlling default risks of borrowers and counterparties due to their poor credit quality or other factors. Control measures are as follows: 1 In accordance with the “Loan Business Risk Management Criteria”, to

stipulate industry-specific upper-limit ratios on loans as well as upper-limit ratios for secured conditional loans, and to manage the shouldering of quotas of loan risk.


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2 In accordance with the “Company-Specific Total Risk Management Measures”, to establish external credit ratings database in order to manage the total underwriting amount of the specific company of each business based on credit rating levels and monitor loan concentration risk.

(2) Market risk In order to manage the Company’s exposure to market risk on financial

instruments, the Company has established the “Market Risk Management Criteria” to control potential on-balance-sheet and off-balance-sheet losses due to unfavorable price fluctuations on the market. In the light of changes in the domestic and international economic environment, the Company analyses economic indicators and interest rate forecasts to develop operating strategies accordingly. Control measures are as follows: monitoring the position quota, loss quota, sensitivity quota, and relevant risk management objectives of bills, bonds, equity, and derivative instruments on a daily basis; analyzing interest rate sensitivity of bills and bonds on a daily basis; and verifying derivative financial instruments and equity products transaction valuation on a monthly basis.

(3) Operating risk In order to establish a sound operating risk management framework and

reduce loss from operating risk, the Company has established the “Operating Risk Management Criteria”, which include: to set up internal control measures for operating risk, and to objectively review the effective implementation of operating risk management mechanisms according to independent internal audit procedures; to stipulate management procedures for identifying, assessing, measuring, communicating and monitoring operating risk, and adopting corresponding strategies; to establish a risk management information framework, including loss incident reporting, tracking and confirmation, in order to build systematic handling of individual loss incident frequency, seriousness and related information; and to develop contingency and business continuity plans, in order to ensure fast resumption of normal operations in case of emergency or disaster.

(4) Liquidity risk In order to effectively measure the Company’s liquidity risk position and

maintain adequate liquidity to meet disbursement requirement, the Company has established the “Liquidity Risk Management Criteria.” Control measures are as follows: to monitor cash flow shortfalls by maturity on a daily basis to adequately avoid liquidity risk; and to establish contingency fund management mechanisms. The contingency mechanisms can be activated immediately in case of disturbing financial developments, such as serious liquidity problems, sustained contractions in funding or sharp increase in interest rates, and the Company’s risk management committee will be convened to direct contingency measures.

2.Organization and structure of related risk management systems


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(1) Credit Risk The company’s rules vetting committee, loans consideration committee,

and risk management committee are responsible for separately supervising the loans business and each item of financial commodity credit risk, considering each management rule, credit reviews, as well as loans business risk management objectives, and the loans department, bonds department, bills department, and each branch company are the main units responsible for implementation of credit risk management.

(2) Market risk Market risk in respect of each of the company’s businesses, mainly

involves controlling the risk of price fluctuations in respect of bills, bonds, and equity and derivative instruments. The risk management committee considers each transaction commodity’s risk management objectives, and the bond department, bills department, and each branch company, are the main units responsible for implementation of market risk management.

(3) Operating risk The Company’s control of operating risk involves the following matters:

Operating brochures of each business are clearly written and are revised timely to reflect any change in pertinent laws and regulations, in order to the company’s persons following. Each unit should periodically conduct self-assessment and review according to the Company’s internal control system and in compliance with pertinent laws and regulations, in order to further the Company’s sound operations. Risk management units should report periodically to the Company’s risk management committee on their respective operating risk matters, in order to strengthen internal control management and ensure that management at various levels obtain a clear overview of the Company’s risk situations. According to internal audit procedures, the Company’s risk management committee should report periodically to the board of directors to review impartially and independently the effective implementation of risk management mechanisms.

(4) Liquidity risk Concerning the control of liquidity risk, the Company’s risk management

committee serves as supervisory unit and the bills department is in charge of day-to-day operations and management of liquidity shortfalls, while the financial department is in charge of reporting and monitoring liquidity risk.

3.Limitations and characteristics of the risk reporting and assessment system. The Company has established the risk management committee to oversee and

monitor the management of operating risks across the Company. Each business supervisory units of the head office report every quarter to the risk management committee on their respective risk matters. Risk management units then periodically report to the board of directors on their respective matters. Risk reporting and risk assessment system are as follows:

(1) Capital adequacy


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To monitor the Company’s capital adequacy ratio and analyze changes in eligible capital and risk assets, in order to serve as reference information for decision making.

(2) Credit Risk To report on the operation of loan business risk position, risk assessment

and reporting include: NPL ratio, industry-specific upper limits on loans, upper limits on collateral for loans, upper limits on loans for the same companies, same affiliate companies and same interested parties.

(3) Market risk To report on economic outlook and interest rate forecast, on the operation

of bills, bonds, equity and derivative instruments risk position, on the cost and allocation of funds, and on hedging strategies and implementation, risk assessment and reporting include: bills, bonds, equity and derivative instruments position, loss and profit, risk duration and interest rate sensitivity analysis.

(4) Operating risk To report on major operating risk loss incidents and improvement of

operating procedures, and to analyze data of operating risk loss incidents, in order to handle the frequency, seriousness and other related information concerning individual loss incidents, thus gradually establishing a operating risk information management framework.

(5) Liquidity risk To report on the monitoring of liquidity risk position, risk assessment and

reporting include: control of the total amount of major liabilities and management of the quota of cash flow shortfalls by maturity.

4.Strategies and procedures as regards hedging policy and the monitoring of the sustained validity of hedging. (1) Credit Risk

The Company’s loans all meet regulatory requirements and credit inquiring and vetting procedures and are subject to collateral and guarantor requirements based on clients’ financial and credit situations. The Company has also issued the “Notes for Conducting credit review procedures” to reinforce post-loan management. The Company’s financial instruments are managed by classification in accordance with credit rating levels of counterparties, and are periodically reviewed, tracked and assessed to minimize exposure to credit risk.

(2) Market risk The company’s transaction hedging strategy primarily aims to evade the

risk of price fluctuations, using derivative financial instruments and operating tools, and periodically assessing profit and loss.

(3) Operating risk To assess the probability of risk loss incidents and size of potential loss,

and to develop corresponding strategies, such as evasion, control, transfer or counterbalancing. The Company has also established daily reports for


98

monitoring each business unit, in which the amount of each business unit is checked daily against risk management objectives and externally stipulated quotas, in order to determine if there is excessive exposure to risk. An early warning is issued when reaching warning limits to avoid exceeding legally or internally stipulated quotas.

(4) Liquidity risk The Company is primarily in the trading business with liquid assets

mainly comprising government bonds, treasury bills, central bank term deposits, and short-term commercial papers. The Company’s financial instruments are of liquidity, safety and diversity. Based on the scale of operations, the Company will assess funding requirements, maintain adequate liquidity, and ensure disbursement capacity.

(II)Credit risk items to be disclosed.

1.On Balance Sheet Items 31st December 2007. Units: NT$1,000

Item Applicable

risk weighting.

Amount of risk assets.

Petty cash, guarantee deposits and margins paid, hypothecated assets, long-term bond investments (cash as well as creditor’s rights guaranteed by cash, Taiwan government or Taiwan central bank bonds, or bonds of the central government or central bank of any OECD member nation).

0% 0

Creditor's rights in favor of or guaranteed by each level of government in Taiwan except central government.

10% 0

Bank deposits, guarantee deposits and margins paid, hypothecated assets, long-term bond investments, to open up the industry (to domestic banks and creditors rights under their guarantee).

20% 237,157

Bank debentures, accounts receivable, advance payments, and other current assets, fixed assets, receivables on demand, long-term accounts receivable, other assets, guarantee deposits and margins paid, other financial assets (holding items of capital and other assets except the common stock of other financial organizations.)

100% 9,480,100

Subtracted items (in relation to bad debt from losses that can be incurred by loans asset valuations, 1.0% guarantee balance)

100% （669,485）

Total 9,047,772


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2.RP and RS off balance sheet transactions and derivative finance commodities.

31st December 2007. Units: NT$1,000 Item Amount of Risk assets.

Debt incurred on bills and bonds reverse repurchase agreements (RP)

1,799,375

Investment in bills and bonds reverse repurchase agreements (RS)

0

Ordinary off balance sheet transactions 104,051,381

Derivative financial instruments 92,343

Total 105,943,099

3.The company’s dealings in Asset Securitization (be a initiator)：None

(III)Market risk capital accrued, and amount of risk assets (standard method).

31st December 2007. Units: NT$1,000

Risk category Capital to be accrued Amount of risk assets. (Note)

Interest rate risk 7,594,792 94,934,900

Equity securities risk 11,492 143,650

Options handled by the sensitivity analysis method. 0 0

Total 7,606,284 95,078,550

Note: 12.5 times remaining accrued capital.

(IV)Liquidity risks. 1.Assets and debt maturation analysis. 31st December 2007. Units: NT$1,000

Value of pre-expiry date period Total 0 to 30 days 31 to 90 days 91 to 180

days 181 days to

one year One year or

more

Assets 236,363 59,426 27,378 10,236 12,799 126,524

Debt 243,124 180,782 23,516 8,058 1,443 29,325

Shortfall -6,761 -121,356 3,862 2,178 11,356 97,199

Accumulated shortfall -121,356 -117,494 -115,316 -103,960 -6,761

2.Asset liquidity and funding shortfall liquidity management methods. In order to judge cash flow shortfalls effectively, evade liquidity risks

appropriately, improve the effectiveness of funding management, and strengthen the management of each time-limited cash flow shortfall, the company has agreed Liquidity Risk Management Regulations, controlling time-limited cash flow shortfalls on a daily basis, in order to judge the company’s liquidity risk effectively, maintain appropriate liquidity and guarantee expenditure capacity.


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III.Impact on the company’s financial businesses of changes in major

domestic and overseas policy, and measures for dealing with such. (I)The competent authority announced that effective from 15th October 2007,


transactions of bonds. To prevent impact on the Company’s clientele base and

stability of funding sources, the Company adopted a tax burden shift approach to

minimize the adverse effects.

(II)The competent authority announced the “Rules Governing Management of

Foreign-denominated Bonds Brokerage, Dealership and Investment of Bills

Finance Companies” on 23rd October 2007. The Company can expand its scope

of business operations by engaging in foreign bonds investment, brokerage and

dealership, and will actively pursue opportunities in that business area.

IV.The impact of technological change and asset variation on the company’s financial businesses, and measures taken to deal with them.

(I)The impact of technological change and asset variation on the company’s businesses. 1.The financial architecture and systems for risk control in relation to each

transaction and risk matures by the day, assisting bills finance companies with their business operations.

2.Non-hypostatization of bills and bonds, centralized custodianship and DVP to assist the upgrading of the security of bills finance company transaction completion and efficiency.

3.With changes in policy on the part of government funds, financial organizations’ overall acceleration and “holding company style” operating posture, not to mention the relentless development of new financial instruments, the challenges faced by the bills industry increase daily.

(II)Measures taken by this company to deal with the above. 1.Purchase of the Reuters’ Kondor+ system to assist with control of each

transaction and risk. 2.The upgrading of efficiency of transaction completion ensures security of

clients’ transactions. 3.Meticulously controlled risk, and handled each business opened up by the

supervisory agency in good time, in order to increase profits.


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V.Impact on the company of its change of image, and measures taken to deal with this：None.

VI.Foreseeable benefits and possible risks of merger：None.

VII.Foreseeable benefits and possible risks of expanding the business base and measures taken to deal with them.：None.

VIII.Risks presented by centralization of the business and measures

taken to deal with them. Because of the special features of its business, its relatively large holding of

interest rate sensitive assets, and the relatively high interest rate fluctuation risk that it shoulders, the company’s dealings in bills and bonds related business are founded upon the demands of the overall economic situation and business development, agreed fund deployment and risk management objectives, and controls for enhancing risk position and risk duration, in order to control market risk effectively. In addition, in the loans guarantee business, facing a rising risk of guarantee centralization, the company, as regards the group’s unsecured loans business, apart from strengthening each loans-vetting management mechanism, has also reinforced its credit review procedures in order to improve the quality of its loans.

IX.The impact of changes in managerial authority on the bills finance

company, the risks associated therewith and measures taken to deal with them.：None.

X.Litigious or non-litigious matters：None.

XI.Other major risks and measures taken to deal with them. The company, in accordance with such factors as the decrees and policy of the

supervisory agency, fluctuations in overall economic prosperity, and competition in the financial industry, drafts risk management objectives annually for each business, and convenes risk management committee meetings each season to ensure that each business can meet the agreed risk management objectives in order to reduce operating risk.

Seven.Crisis management handling mechanisms.

In order to avoid major, sudden, accidental incidents having a major impact on financial or business affairs, or jeopardizing the company’s normal operations and financial position, in line with the group’s risk management system, the company has established an emergency handling and notification system to monitor emergency situations and initiate relevant emergency handling mechanisms and external


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notification systems. In relation to credit risk, in order to master the client’s situation and to reduce

the impact on the company of extraordinary operational events, the company has drawn up an internal notification system, to respond rapidly and reduce the possible impact on the company’s creditor's rights of operating anomalies in respect of clients’ finances or businesses.

In relation to liquidity risks, strict control of funding shortfalls is practiced for each period to maintain appropriate liquidity and ensure disbursement capacity. In case interest rates continue to rise because of sustained contractions in funding, or there is a sudden financial incident having a serious impact on the financial situation, emergency handling measures have been drafted, using all business channels and the resources of the parent and subsidiary companies to balance funds expeditiously.

In relation to information security, the company has established a mainframe system, data base, back-end system, application system and recovery for computer and installations-related assignments, in order to meet the objective of restoring normal operations in short order.

In relation to emergency and disaster protection, disaster prevention measures and emergency countermeasures have been drafted, establishing a disaster prevention and rescue system, ensuring that negative impacts on the security of business operations, operating equipment, documents, files and employees are kept to a minimum.

Eight.Other important matters：None.

Mega Bills Finance Corporation--Specially Recorded Items 103

Specially Recorded Items One.Data concerning related companies.

I.Consolidated business report on related company operations. (I)Organization chart of related companies.

Data correct as of 29st February , 2007

Mega International Commercial Bank(percentage of holding share：100%)

Mega Bills Finance Corp.(percentage of holding share：100%)

Mega Securities Co., Ltd.(percentage of holding share：100%)

Chung Kuo Insurance Co., Ltd.(percentage of holding share：100%)

Mega Asset Management Co., Ltd.(percentage of holding share：100%)

Mega Life Insurance Agency Co., Ltd.(percentage of holding share：100%)

Mega Investment Trust Co.,Ltd.(percentage of holding share：96.31%)

Mega CTB Venture Capital Co., Ltd.(percentage of holding share：100%)

Mega Financial Holding Co., Ltd.

(II)Basic data concerning related companies. 29st February 2008. Units: NT$1,000

Company name Date of establishment

Address Paid-in capital

Primary business or products

Mega International Commercial Bank(Formerly The International Commercial Bank of China Co., Ltd.)

1971.12.17 123 Chung Hsiao East Rd., Section 2, Taipei City

64,109,878 Commercial banking & industrial banking business

Mega Securities Co., Ltd.(Formerly Barits International Securities Co., Ltd.)

1989.10.19 3F, 95 Chung Hsiao East Rd., Section 2, Taipei City

13,200,000 Brokerage, dealing and underwriting of securities

Chung Kuo Insurance Co., Ltd. 1931.11.01 58, Wu Chang Street

Section 1, Taipei City 3,000,000Property insurance. Representing overseas and domestic insurers in the provision of property insurance.

Mega Asset Management Co., Ltd. 2003.12.05 6F, 91 Heng Yang

Rd., Taipei City. 2,000,000 NPL asset management Mega Life Insurance Agency Co., Ltd. 1996.11.05 5F, 100, Jilin Rd.,

Taipei City 20,000 Life insurance agency business.

Mega CTB Venture Capital Co., Ltd.

2005.12.13 7F, 91 Heng Yang Rd., Taipei City. 1,000,000 Venture capital investment

Mega international Investment Trust Co., Ltd. (Formerly Barits International Securities Co., Ltd.)

1983.09.09 7~8F, 91 Heng Yang Rd., Taipei City.

591,000 Asset Management


(III)Extrapolated as equivalent shareholder information of the controlling or subordinate related person.

Units: NT$1,000. Shares; % Shares held

Reason for extrapolation

Name of organization

or person Number of

shares

Ratio of

shares held

Date of establishment Address Paid-in

capital

Primary business activities

Equivalent to corporate shareholder


1,511,441,084 100% 91.2.4 14,16-20F, 123 Chung Hsiao East

Rd., Section 2, Taipei

City

110,594,262 Investment and management of invested businesses.

(IV)Data concerning directors, supervisors and Presidents of each related company.

29st February 2008 Units: Shares; %

Shares held

Company name Title Name or

representative’s name Number of shares

Ratio of

shares held

Representative legal person

Chairman 呂桔誠

Managing director and President

徐光曦

Managing director 劉燈城

Managing director 葉明峯

Managing director 陳昭義

Director 李源鐘

Director 蔡長海

Director 葉榮造

Director 廖碧英

Director 廖耀宗

Director 李來希

Director 李成家

Director 簡鴻文

Director 丘家邦

Supervisor 陳思寬

M eg a In te r na t i ona l C om me rc i a l Ba nk

Supervisor 呂衛青

6 , 410 ,987 ,838 1

1 00 % Mega F inanc ia l Ho ld ings

Chairman 簡鴻文

Director and President

張明杰

Director 黃勝昭

Director 周鈺玲

Director 賴素月

Director 王水圳

Director 蔡瑞瑛

Director 黃森義

Supervisor 許宗治

Mega Securities Co., Ltd.

Supervisor 江瑞珠

1,320,000,000 100% Mega Financial Holdings

Chairman 沈臨龍


丁志平

Director 周杉源

Director 蔡吉源

Chung Kuo Insurance Co., Ltd.

Director 戴台馨

300,000,000 100% Mega Financial Holdings


Shares held

Company name Title Name or

representative’s name Number of shares

Ratio of

shares held

Representative legal person

Director 蘇一仲

Director 林麗華

Director 柯王中

Director 林瑞雲

Director 蘇晶

Supervisor 鄭裕博

Supervisor 蔡瑞瑛

Chairman 許瑞源


潘榮春

Director 張文雄

Director 姜禮釷

Director 呂榮雄

Mega Asset Management Co., Ltd.

Supervisor 曾垂紀


Chairman 孫蘭英

Director 曾垂紀

Director 傅虹

Supervisor 安蘭仲

Mega Life Insurance Agency Co., Ltd.

President


Chairman and President

林瑞雲

Director 趙錫瑞

Director 江瑞珠


Supervisor 王水圳

100,000,000 100%

Mega Financial Holdings Mega International Commercial Bank

Chairman 蔡友才

Di rec to r 徐光曦

Superv i so r 張文雄

37,564,193 63.52% Mega Financial Holdings Mega

Di rec to r 魏美玉

Director 周美青

Director 梁美琪

Di rec to r 陳天祿

Superv i so r 張瑛鶯

19,393,702 32.79% Mega International Commercial Bank

Director 陳欽偉 666,732 1.13％

Tailung Industy

Company

M eg a I n ve s tm en t Tru s t C o . , L td .

President 陳忠憲 5,004 0.01％ -

(V)Operations of each related company, 2007 Units: NT$1,000

Net Income

Earnings per share

Company name Paid-in capital

Total assets

Total liabilities

Stockholders’Equity

Total Operating

Revenue (Net Operating Income)

Operating Income (Income Before Income

Tax)

（After tax）

(NT$)(After tax)

Mega International Commercial Bank

64,109,878 1,947,461,333 1,795,003,791 152,457,542 37,364,081 16,305,240 14,030,952 2.19

Mega Securities Co., Ltd. 13,200,000 66,488,049 49,728,936 16,759,113 9,789,365 1,654,286 1,408,709 1.07

Chung Kuo Insurance Co., Ltd.

3,000,000 11,087,200 6,004,738 5,082,462 12,700,426 (41,805) 34,973 0.12

Mega Asset Management Co., Ltd.

2,000,000 9,419,922 7,031,481 2,388,441 724,414 494,777 309,444 1.55

Mega Life Insurance Agency Co., Ltd.

20,000 93,079 40,913 52,166 420,083 35,291 27,142 13.57



1,000,000 1,029,371 10,843 1,018,528 98,892 24,441 33,481 0.33

Mega Investment Trust Corp.

591,415 1,092,367 292,704 799,663 347,335 102,740 25,256 0.43

Two.Consolidated financial statement for related companies: Not

applicable. Three.Relationship report.

I.Declaration by Mega Bills Finance Corporation

Declaration

The company’s relationship report for the year 2007 (from 1st January 2007 to

31st December 2007) has been compiled in accordance with the Criteria for Related Company Consolidated Business Reports and Related Company Consolidated Financial Statements and Relationship Reports, and the information it contains is broadly similar to that contained in the notes to the financial report for the above period.

Company name： Mega Bills Finance Corporation Responsible person： Dawn Ray-Beam

27th March 2008


II.Declaration of opinion by accountant Mega Bills Finance Corporation

The Accountant Audit Report of the Relationship Report Respectful to Mega Bills Finance Corporation The recipient company’s relationship report for the year 2006 has already been completed by the recipient company on 27th March, 2008 and a declaration has been issued stating that the said report has been compiled in accordance with the Criteria for Related Company Consolidated Business Reports and Related Company Consolidated Financial Statements and Relationship Reports and that the information it contains is broadly similar to that contained in the notes to the financial report for the above period.

The accountant has already compared the relationship report compiled by the recipient company with the notes to the financial report for the year 2006 in accordance with the Criteria for Related Company Consolidated Business Reports and Related Company Consolidated Financial Statements and Relationship Reports, not yet found the above declaration substantially inappropriateness.

PricewaterhouseCoopers CPA Firm Accountant: Lai Zong-yi

27th March, 2008

III.Relationship between the controlling company and the subsidiary

company. Units: Shares; %

Controlling company’s shareholding and pledged shares

Controlling company’s appointment of directors, supervisors and

managers. Name of controlling company

Reasons for control

Number of shares held

Ratio of shares

held

Number of Pledged shares

Title

Name

Chairman(Remark) Kuo- Hsiung Chuang

Managing director and President

Jung-Hsiung Lu

Director(Remark) Cai You Cai

Director Feng Yi Huang

Director Ruei-Yun Lin

Director(Remark) Yu-Ling Jhou

Director Chia-Min Hong

Director Jian-Ping Yuan

Director Hong-Ji Jhang

Supervisor Ling-Yu Chen

Supervisor Jhong- Cheng Gao


Controlling shareholding 1,511,441,084 100% 0

Supervisor Jhong - Nan Fang

Remark: Chairman Chuang Kuo-hsiung retired on 15th January 2008 and Dawn Ray-Beam succeeded him as the new chairman. Director

Tsai You-tsai resigned on 15th January 2008. Director Jhou Yu-Ling resigned on 21st March 2008 and the vacancy was left unfilled.


IV.Transaction activity (I)Transactions involving the purchase (or sale) of stock：None (II)Property transactions：None (III)Liquidity of funds：None (IV)Property leasing: None (V)Other important transaction activity

1.Sales of bills and bonds. Units: NT$1,000

Transactions with controlling companyItem Value

Terms of transactions with controlling company Remarks

Sales of bills and bonds. 36,464,082 Comparable to those for transactions with non-related persons

2.The company opts to report consolidated income for tax purposes with Mega

Holdings, and has already filed the company’s proportion of the consolidated net accounts receivable to 31st December, 2007 as NT$1,588,637,000. Other accounts receivable are as follows:

V.Endorsements and guarantees： None.

Four.Private solicitation of trade in negotiable securities in the past year

up to the date of publication of this annual report：None.

Five.Holding of or exercise of disciplinary action against the company’s

shares by subsidiary companies in the past year up to the date of

publication of this annual report：None.

Six.Other items requiring additional remarks：None.

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