FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

May 29, 2007

Commission File Number 000-28522

ASE Test Limited
(Exact name of Registrant as specified in its charter)

10 West Fifth Street
Nantze Export Processing Zone
Kaoshiung, Taiwan
Republic of China
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F X

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Not applicable

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ASE TEST LIMITED

Dated: May 29, 2007	By:	/s/ Kenneth Hsiang

	Name:	Kenneth Hsiang
	Title:	Chief Financial Officer

ASE TEST LIMITED

(the "Company")

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Eleventh Annual General Meeting of ASE TEST LIMITED will be held at 7 Ang Mo Kio Street 64 #01-01, Singapore 569086 on Friday, 29^th June, 2007 at 10.00 a.m. (Singapore time) to transact the following business:-

ORDINARY BUSINESS

1.	ACCOUNTS AND REPORTS

To receive and consider and, if thought fit, to adopt the Audited Accounts of the Company together with the Reports of the Directors and the Auditors in respect of the financial year ended 31 December, 2006.

2.	RE-APPOINTMENT OF AUDITORS

To re-appoint Messrs Deloitte & Touche as auditors of the Company and to authorise the Directors to fix their remuneration for the next financial year.

SPECIAL BUSINESS

ORDINARY RESOLUTIONS

3.	AUTHORITY TO ISSUE SHARES

To consider and, if thought fit, to pass, with or without modification, the following resolution as an Ordinary Resolution:-

“RESOLVED That, pursuant to the provisions of Section 161 of the Companies Act, Cap. 50 and subject to the provisions of that Act and the Articles of Association of the Company, the Directors be and are hereby authorised to issue shares in the Company to any person or persons and on such terms and conditions and with such rights or restrictions as the Directors may think fit to impose and that such authority shall continue in force until the conclusion of the next Annual General Meeting or the expiration of the period within which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.”

Page 2

4. AUTHORITY TO ISSUE SECURITIES

To consider and, if thought fit, to pass, with or without modification, the following resolution as an Ordinary Resolution:-

“RESOLVED That, subject to the provisions of the Companies Act, Cap. 50 and the Articles of Association of the Company, approval be and is hereby given to the Directors to:-

(i)

(a)

create and issue securities ("Securities") including, without limitation, warrants or options to subscribe for new ordinary shares of the Company ("New Shares") or to purchase from the Company other securities issued or to be issued by the Company, debt securities and securities which are convertible into, exchangeable for, or exercisable for, New Shares or other securities issued or to be issued by the Company to any person or persons and on such terms and conditions as the Directors may think fit to impose;

(b)

create and issue any further Securities ("Further Securities") as may be required or permitted to be issued in accordance with the terms and conditions of the Securities; and

(c)

make, enter into and/or issue offers, agreements, options, undertakings, guarantees and/or indemnities (together referred to as "Agreements") which would or might require the issue of New Shares or other securities by the Company with any person or persons and on such terms and conditions as the Directors may think fit to impose;

(ii)

allot and issue from time to time:-

(a)

such number of New Shares as may be required or permitted to be allotted or issued on the conversion, exchange or exercise of the Securities, or any of them, to the holders of such Securities on the conversion, exchange or exercise thereof, subject to and otherwise in accordance with the terms and conditions of the Securities;

(b)

on the same basis as paragraph (ii)(a) above, such further New Shares as may be required to be allotted and issued on the conversion, exchange or exercise of any of the Further Securities in accordance with the terms and conditions of the Further Securities; and

(c)

such number of New Shares as may be required or permitted to be allotted or issued pursuant to and otherwise in accordance with the terms and conditions of the Agreements; and

(iii)

take such steps, make such amendments to the terms and conditions of the Securities, the Further Securities and the Agreements and any of them, and exercise such discretion as the Directors may from time to time deem fit, advisable or necessary in connection with all or any of the above matters.”

Page 3

5. DIVIDEND POLICY

To consider and if thought fit, to approve the continued adoption of the following as the dividend policy of the Company:-

“That the Company’s earnings be retained to finance the development and expansion of the Company’s business and operations and that no dividends be paid for the foreseeable future.”

Dated this day of 2007

BY ORDER OF THE BOARD

_________________________

TAN SU MAY

Secretary

ASE Test Limited and Subsidiaries

Consolidated Financial Statements for the

Years Ended December 31, 2004, 2005 and 2006 and

Report of Independent Registered

Public Accounting Firm

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF

ASE TEST LIMITED

We have audited the consolidated financial statements of ASE Test Limited as set out on pages 11 to 66 (the “ROC GAAP financial statements”) and the supplementary financial statements of the Company set out on pages 67 to 73 (the “supplementary financial statements”) and, collectively, the “statutory financial statements”.

The ROC GAAP financial statements have been prepared to present the consolidated financial position, results, changes in equity and cash flows of the ASE Test Limited (“the company”) and its subsidiaries (“the Group”) under generally accepted accounting principles applicable in the Republic of China (“ROC GAAP”). The supplementary financial statements have been prepared to present the financial position of the Company and other additional information as required by the Singapore Companies Act, Cap. 50 (the “Act”).

Directors’ Responsibility

The Company’s directors are responsible for the preparation and fair presentation of the statutory financial statements in accordance with generally accepted accounting principles applicable in the Republic of China and the Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

- 1 -

Opinion

In our opinion,

(a)

the consolidated financial statements of the group and the balance sheet of the company are properly drawn up in accordance with the provisions of the Act, as modified by exemption orders granted by the Accounting and Corporate Regulatory Authority of Singapore dated February 10, 2006 and generally accepted accounting principles applicable in the Republic of China so as to give a true and fair view of the state of affairs of the group and of the company as at December 31, 2006 and of the results, changes in equity and cash flows of the group applicable for the year ended on that date; and

(b)	the accounting and other records required by the Act to be kept by the company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

Certain accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). A description of the differences and the adjustments required to present the consolidated financial statements in US GAAP are set out in Note 24 to the consolidated financial statements.

Without qualifying our opinion, we draw attention to:

Note 21 to the financial statements. The Company incurred fire damage to its production line in Chung Li, Taiwan on May 1, 2005 and recognised an estimated loss of $52,014 thousand to its machinery and equipment, less $790 thousand of insurance receivable in 2005. In June 2006, the Company reached final settlement with the insurers. The final settlement amount of $27,289 thousand, less the $790 thousand recorded in 2005, was recorded in the current period. The Company also reversed $5,641 thousand of previously recorded impairment charges on these fire-damaged machinery and equipment due to subsequent value increase.

Note 3 to the financial statements. The Company adopted Republic of China Statement of Financial Accounting Standard No. 5, “Long-term Investments under Equity Method” and No. 25 (Revised 2005), “Business Combinations – Accounting Treatment under Purchase Method”, which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortised. Such a change in accounting principle resulted in an increase in net income of $4,966 thousand and basic earnings per share (after tax) of $0.05 for the year ended December 31, 2006.

Note 3 to the financial statements. The Company adopted Republic of China Statement of Financial Accounting Standards No. 34 “Financial Instruments: Recognition and Measurement” and No. 36 “Financial Instruments: Disclosures and Presentation”. Upon adoption of the SFAS No. 34, carrying amounts of the available-for-sale financial assets were adjusted to fair value, and the Company recognised $83,751 thousand of unrealised gain as a separate component of shareholders’ equity.

There was no effect on net income for the year ended December 31, 2006.

Deloitte & Touche

Certified Public Accountants

Singapore

April 30, 2007

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 AND 2006

(In Thousands of U.S. Dollars, Except Par Value)

	2005		2006
ASSETS

CURRENT ASSETS
Cash (Notes 2 and 4)	$	138,211	$	89,715
Financial assets at fair value through profit or
loss (Notes 2, 3, 5 and 17)		176		-
Available-for-sale financial assets - current
(Notes 2, 6 and 17)		-		89,341
Notes and accounts receivable, net (Notes 2 and 7)		77,334		57,875
Receivables from related parties (Note 18)		20,277		14,618
Inventories, net (Notes 2 and 8)		21,239		16,935
Deferred income tax assets, net (Notes 2 and 16)		8,933		23,561
Pledged time deposit (Note 19)		1,902		-
Prepayments and other (Note 3)		17,415		13,509

Total current assets		285,487		305,554

LONG-TERM INVESTMENTS
Available-for-sale financial assets (Notes 2, 3, 6
and 17)		81,251		204,851
Equity method investments (Notes 2, 3 and 9)		57,974		75,979
Financial assets carried at cost (Notes 2 and 3)		1,000		1,000

		140,225		281,830

PROPERTY, PLANT AND EQUIPMENT, NET (Notes 2, 10, 15,
18, 19, 20, 21, 22 and 23)		430,079		389,435

GOODWILL (Notes 2, 3 and 11)		20,646		20,646

OTHER ASSETS
Deferred income tax assets, net (Notes 2 and 16)		30,964		13,123
Deferred charges, net (Note 2)		10,492		5,733
Other (Notes 17 and 19)		22,446		28,107

Total other assets		63,902		46,963


TOTAL	$	940,339	$	1,044,428

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	2005			2006
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Financial liabilities at fair value through profit
or loss (Notes 2, 3, 5 and 17)	$	172		$	262
Notes and accounts payable		12,758			12,251
Payable to related parties (Note 18)		10,347			5,137
Payable for property, plant and equipment		10,737			8,769
Income tax payable (Note 2)		635			8,316
Current portion of long-term debts (Notes 12, 17,
19 and 20)		49,743			34,418
Accrued expenses(Note 14)		37,986			21,725
Other (Note 3)		5,841			11,838

Total current liabilities		128,219			102,716

LONG-TERM DEBTS (Notes 12, 17, 19 and 20)		245,303			85,706

ACCRUED PENSION COST (Notes 2 and 14)		6,412			6,648

DEFERRED INCOME TAX LIABILITIES (Notes 2 and 16)		-			608

OTHER LIABILITIES		2,200			5,622

Total liabilities		382,134			201,300

SHAREHOLDERS' EQUITY (Notes 1, 2 and 13)
Capital stock - $0.25 par value
Authorized - 600,000 thousand shares
Issued and outstanding - 100,059 thousand shares
in 2005 and 100,138 thousand shares in 2006		25,015			25,035
Additional paid-in capital		455,059			455,717
Retained earnings		125,954			276,723
Unrealized gain on financial instruments		-			123,962
Cumulative translation adjustments		(47,823	)		(38,309	)

Total shareholders’ equity		558,205			843,128

TOTAL	$	940,339		$	1,044,428

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

(With Deloitte & Touche audit report dated April 30, 2007)

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars, Except Per Share Data)

	2004			2005			2006

NET REVENUES (Notes 2, 18 and 22)	$	427,763		$	420,929		$	517,706

COST OF REVENUES (Notes 15, 18 and 20)		340,663			330,786			322,654

GROSS PROFIT		87,100			90,143			195,052

OPERATING EXPENSES (Notes 15, 18 and 20)
Selling (Note 2)		11,393			11,235			8,149
General and administrative		42,474			39,891			33,931
Research and development (Note 2)		23,223			24,993			20,714

Total operating expenses		77,090			76,119			62,794

INCOME FROM OPERATIONS		10,010			14,024			132,258

NON-OPERATING INCOME (EXPENSES)
Interest income		578			1,598			3,369
Interest expense (Notes 2 and 10)		(6,765	)		(12,744	)		(13,165	)
Equity in earnings of equity method investees (Notes 2 and 9)		9,844			6,637			18,005
Impairment loss on assets (Notes 2, 3 and 11)		(26,500	)		-			-
Gain (Loss) on valuation of financial assets, net (Notes 2, 3 and 5)		314			685			(961	)
Loss on valuation of financial liabilities, net (Notes 2, 3 and 5)		-			-			(770	)
Foreign exchange gain (loss), net (Notes 2 and 3)		(139	)		703			294
Gain on insurance settlement and impairment recovery (Note 21)		-			-			32,145
Loss on fire damage (Note 21)		-			(51,224	)		-
Other		(380	)		(3,465	)		(7,839	)

Net non-operating income (expenses)		(23,048	)		(57,810	)		31,078

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX		(13,038	)		(43,786	)		163,336

INCOME TAX EXPENSE (BENEFIT) (Notes 2 and 16)		(21,209	)		2,537			12,567

INCOME (LOSS) FROM CONTINUING OPERATIONS		8,171			(46,323	)		150,769

(Continued)

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars, Except Per Share Data)

	2004		2005			2006

DISCONTINUED OPERATIONS (Note 23)
Income from discontinued operations, net of income tax expense of $21 in 2004 and $66 in 2005	$	16,968	$	3,929		$	-
Gain on disposal of discontinued operations, net of income tax expense of $59 in 2005		-		6,910			-

		16,968		10,839			-

NET INCOME (LOSS)	$	25,139	$	(35,484	)	$	150,769



EARNINGS (LOSS) PER SHARE
Basic
Earnings (loss) from continuing operations	$	0.08	$	(0.46	)	$	1.51
Earnings from discontinued operations		0.17		0.11			-
	$	0.25	$	(0.35	)	$	1.51

Diluted	$	0.25	$	(0.35	)	$	1.50

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		100,037,524		100,059,031			100,081,418
Diluted		100,111,113		100,059,031			100,338,261

(Concluded)

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

(With Deloitte & Touche audit report dated April 30, 2007)

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars, Except Share Data)

	Capital Stock
	Shares		Amount		Additional Paid-in Capital		Retained Earnings			Unrealized Gain (Loss) on Financial Instruments			Net Loss not Recognized in Periodic Pension Cost			Cumulative Translation Adjustments			Total Shareholders' Equity

BALANCE, JANUARY 1, 2004		99,546,216	$	24,887	$	450,635	$	136,299		$	(400	)	$	(578	)	$	(64,856	)	$	545,987

Issuance of shares under stock option plans		512,815		128		4,424		-			-			-			-			4,552

Net income in 2004		-		-		-		25,139			-			-			-			25,139

Reversal of unrealized loss on financial instruments		-		-		-		-			340			-			-			340

Reversal of net loss not recognized in periodic pension cost		-		-		-		-			-			578			-			578

Translation adjustments		-		-		-		-			-			-			22,995			22,995

BALANCE, DECEMBER 31, 2004		100,059,031		25,015		455,059		161,438			(60	)		-			(41,861	)		599,591

Net loss in 2005		-		-		-		(35,484	)		-			-			-			(35,484	)

Reversal of unrealized loss on financial instruments		-		-		-		-			60			-			-			60

Translation adjustments		-		-		-		-			-			-			(5,962	)		(5,962	)

BALANCE, DECEMBER 31, 2005		100,059,031		25,015		455,059		125,954			-			-			(47,823	)		558,205

Effect of initial adoption of ROC SFAS No. 34		-		-		-		-			83,751			-			-			83,751

Issuance of shares under stock option plans		79,201		20		658		-			-			-			-			678

Net income in 2006		-		-		-		150,769			-			-			-			150,769

Unrealized gain on financial instruments		-		-		-		-			40,211			-			-			40,211

Translation adjustments		-		-		-		-			-			-			9,514			9,514

BALANCE, DECEMBER 31, 2006		100,138,232	$	25,035	$	455,717	$	276,723		$	123,962		$	-		$	(38,309	)	$	843,128

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

(With Deloitte & Touche audit report dated April 30, 2007)

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars)

	2004			2005			2006

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	25,139		$	(35,484	)	$	150,769
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		164,908			154,302			120,638
Impairment loss on assets		26,500			-			-
Loss on fire damage (gain on insurance settlement and impairment recovery)		-			42,086			(32,145	)
Provision (reversal) for doubtful accounts and sales allowances		2,491			1,422			(2,081	)
Allowance for inventory obsolescence		914			959			4,845
Equity in earnings of equity method investees		(9,844	)		(6,637	)		(18,005	)
Gain on disposal of discontinued operations		-			(6,910	)		-
Loss (gain) on disposal of assets		34			3,542			(960	)
Deferred income taxes		(20,597	)		3,947			3,821
Other		(219	)		2,450			7,389
Changes in operating assets and liabilities
Financial instruments at fair value through profit or loss		(104	)		166			266
Notes and accounts receivable		(9,123	)		10,446			21,540
Receivable from related parties		1,565			(11,758	)		2,185
Inventories		(23,161	)		16,009			(541	)
Prepayments and other		(6,723	)		(1,695	)		(6,853	)
Notes and accounts payable		(4,123	)		(5,733	)		(507	)
Payable to related parties		3,841			(268	)		(3,627	)
Income tax payable		(971	)		(2,571	)		7,681
Accrued pension cost		1,868			1,293			236
Accrued expenses and other		1,317			4,498			(1,876	)

Net cash provided by operating activities		153,712			170,064			252,775

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of available-for-sale financial assets-current		(24,524	)		(3,117	)		(154,865	)
Proceeds from sale of available-for-sale financial assets-current		10,524			23,562			65,924
Acquisition of property, plant and equipment		(228,610	)		(66,116	)		(76,005	)
Proceeds from sale of property, plant and equipment		28,671			48,174			22,135
Acquisition of long-term investments in shares of stock		(19,613	)		-			-
Increase in pledged time deposits		(288	)		(332	)		(1,368	)
Proceeds from disposal of discontinued operations		-			17,316			1,800
Increase in other assets		(19,781	)		(6,077	)		(6,137	)

(Continued)

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars)

	2004			2005			2006

Proceeds from insurance claims	$	-		$	369		$	26,920

Net cash provided by (used in) investing activities		(253,621	)		13,779			(121,596	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares		5,488			-			678
Increase (decrease) in short-term borrowings		18,693			(35,789	)		-
Increase (decrease) in commercial paper		9,935			(28,474	)		-
Proceeds from long-term debts		121,511			138,113			-
Repayments of long-term debts		(86,252	)		(162,694	)		(188,104	)
Collection of accounts receivable sold		-			4,397			516
Increase in other liabilities		-			-			2,523

Net cash provided by (used in) financing activities		69,375			(84,447	)		(184,387	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(926	)		(674	)		4,712

NET INCREASE (DECREASE) IN CASH		(31,460	)		98,722			(48,496	)

CASH , BEGINNING OF YEAR		70,949			39,489			138,211

CASH , END OF YEAR	$	39,489		$	138,211		$	89,715

SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized interest)	$	6,795		$	12,267		$	14,403
Income tax paid	$	243		$	219		$	1,708
Cash paid for acquisition of property, plant and equipment
Acquisition of property, plant and equipment	$	210,656		$	47,875		$	87,408
Decrease in payable		25,338			21,410			990
Increase in capital lease obligation		(7,384	)		(3,169	)		(12,393	)
	$	228,610		$	66,116		$	76,005
Cash received from sales of property, plant and equipment
Sales price	$	31,530		$	50,795		$	20,002
Decrease (increase) in receivable		(2,859	)		3,018			2,133
Proceeds from disposal of discontinued operations		-			(5,639	)		-
	$	28,671		$	48,174		$	22,135

(Continued)

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ASE TEST LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars)

	2004		2005			2006
Cash received from disposal of discontinued operations
Sales price	$	-	$	19,116		$	-
Decrease (increase) in receivable		-		(1,800	)		1,800
	$	-	$	17,316		$	1,800

Cash received from issuance of ordinary shares
Issuance of ordinary shares, net of issuance cost	$	4,552	$	-		$	678
Decrease in receivable for issuance of ordinary shares		936		-			-
	$	5,488	$	-		$	678

(Concluded)

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

(With Deloitte & Touche audit report dated April 30, 2007)

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ASE TEST LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In Thousands of U.S. Dollars, Except Share Data and Unless Stated Otherwise)

1. ORGANIZATION AND OPERATION

Overview

ASE Test Limited (“ASE Test” or the “Company”) is a Singapore holding company which, through an exchange of its shares with its parent company, Advanced Semiconductor Engineering, Inc. (“ASE Inc.”), and other individuals, acquired substantially all of the shares of ASE Test, Inc. in May 1996. The exchange was accounted for as a reorganization of companies under common control. Since June 1996, the Company’s shares have been traded on the NASDAQ National Market in the United States under the symbol “ASTSF”.

J & R Holding Limited, a shareholder of the Company, offered 6,000,000 and 5,000,000 shares of the Company’s common stock in December 1997 and February 1999, respectively, in the form of Taiwan Depositary Receipts (“TDRs”). The TDRs are traded on the Taiwan Stock Exchange under the symbol “9101” and each TDR represents 0.0125 share of the Company’s stock.

Set forth below is a brief overview of the Company’s organization structure.

The Company has four direct subsidiaries:

a. ASE Test, Inc. (incorporated in the Republic of China (“ROC”) in December 1987), which is engaged in the testing of semiconductors.

b. ASE Holdings (Singapore) Pte Ltd. (incorporated in Singapore in December 1994), which holds shares in ASE Test group companies;

c. ASE Test Holdings, Limited (“ASE Test Holdings”) (incorporated in Cayman Islands in April 1999), which holds shares in ASE Test group companies; and

d. ASE Test Finance Limited (“ASE Test Finance”) (incorporated in Mauritius in June 1999), which is engaged in financing activities.

ASE Holdings (Singapore) Pte Ltd. has a wholly-owned subsidiary, ASE Electronics (M) Sdn. Bhd. (“ASE Test Malaysia”) (incorporated in Malaysia in February 1991), which is engaged in the packaging and testing of semiconductors. ASE Test Malaysia disposed of its camera module operations on October 3, 2005 (See Note 23).

ASE Test Holdings has a wholly-owned subsidiary, ISE Labs, Inc. (“ISE Labs”) (incorporated in California, United States in November 1983). ISE Labs and its wholly-owned subsidiaries, ISE Labs Hong Kong Limited, which was dissolved in 2005, ASE Singapore Pte Ltd., ISE Technology, Inc. and Digital Testing Services Inc., are engaged in the front-end engineering testing and final testing of semiconductors.

As of December 31, 2005 and 2006, the Company had approximately 5,600 and 5,300 employees, respectively.

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2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in conformity with the Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the Republic of China (“ROC GAAP”). Under these law, guidelines and principles, the Company should reasonably estimate the amounts of allowances for doubtful accounts, allowance for sales discounts, inventory obsolescence, depreciation of property, plant, and equipment, loss on impairment of assets, pension costs, gain (loss) on valuation of financial instruments and valuation allowance for deferred income tax assets. Actual results may differ from these estimates. Significant accounting policies are summarized as follows:

Basis of Presentation

The Company prepares its consolidated financial statements using the aforementioned law, guidelines and principles with a reconciliation to accounting principles generally accepted in the United States of America (“U.S. GAAP”) (See Note 24) to be consistent with the basis of presentation of the consolidated financial statements of ASE Inc. The accompanying consolidated balance sheets are presented as of December 31, 2005 and 2006 and the accompanying consolidated statements of income, changes in shareholders’ equity and cash flows are presented for the three years ended December 31, 2004, 2005 and 2006.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and all of the aforementioned subsidiaries.

All significant intercompany accounts and transactions have been eliminated.

Current and Noncurrent Assets and Liabilities

Current assets include cash, financial assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

Financial Assets / Liabilities at Fair Value Through Profit or Loss

Financial instruments at fair value through profit or loss consist of financial assets or financial liabilities held or incurred for trading purposes. These financial instruments are initially recognized at fair value, with associated transaction costs expensed as incurred. The financial instruments are subsequently remeasured at fair value, and changes in fair value are recognized in current income (loss). A regular way purchase or sale of financial assets is recognized and derecognized using settlement date accounting.

Derivatives which do not qualify for hedge accounting are recorded as financial assets or liabilities at fair value through profit or loss. Fair values of derivatives with no active market are estimated using valuation techniques.

Available-for-Sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value of financial assets are reported in a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

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Fair values of beneficiary certificates of open-end mutual funds and publicly traded stocks are determined using the net asset value and closing-price at the balance sheet date, respectively.

If certain objective evidence indicates that such available-for-sale financial asset is impaired, a loss is recognized currently. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity.

Revenue Recognition, Accounts Receivable and Allowances for Doubtful Accounts and Sales Allowances

Revenues from semiconductor packaging services are recognized upon shipment. Revenues from semiconductor testing services are recognized upon completion of the services or shipment. The Company does not take ownership of: (i) bare semiconductor wafers received from customers that the Company packages into finished semiconductors, and (ii) packaged semiconductors received from customers that the Company tests as to whether they meet certain performance specifications. The title and risk of loss remain with the customer for those bare semiconductors and/or packaged semiconductors. Accordingly, costs of customer-supplied semiconductor materials are not included in the accompanying consolidated financial statements. Other criteria the Company uses to determine when to recognize revenue are: (i) existence of persuasive evidence of an arrangement, (ii) the selling price is fixed or determinable and (iii) collectibility is reasonably assured.

Revenues are determined using the fair value taking into account related sales discounts agreed to by the Company and customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received.

Allowance for doubtful accounts is provided based on an evaluation of the collectibility of receivables. The Company determines the amount of allowance for doubtful accounts by examining the aging analysis of the outstanding accounts receivable and current trends in the credit quality of its customers. An appropriate sales allowance, based on historical experience, is also recognized in the same period the sale is recognized.

Accounts Receivable Securitization

Accounts receivable securitization is the transfer of a designated pool of accounts receivable to a bank, which in turn issues beneficial securities or asset-backed securities based on the accounts receivable. Under ROC Statement of Financial Accounting Standards (“ROC SFAS”) No. 33, “Accounting for Transfers of Financial Assets and Extinguishments of Liabilities”, such transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. The difference between the book value of accounts receivable and total proceeds received is recorded as a gain or loss on disposal of financial assets.

Inventories

Inventories including raw materials (materials received from customers for processing, mainly semiconductor wafers are excluded from inventories as title and risk of loss remain with the customers), supplies and spare parts, finished goods and work in process are stated at the lower of cost or market value. Market value represents net realizable value for finished goods and work in process, and replacement cost for raw materials, supplies and spare parts.

Raw materials, supplies and spare parts are recorded at moving average cost or weighted average cost; others are recorded at standard cost and adjusted to the approximate weighted average cost at the balance sheet date. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses.

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Equity Method Investments

Investments in companies of which the Company owns at least 20% of the outstanding voting shares or where the Company exercises significant influence over the investee company’s operating and financial policy decisions are accounted for using the equity method. Prior to January 1, 2006, the difference, if any, between the cost of investment and the Company’s proportionate equity in the fair value of the net assets of the investees at the time of investments or at the time the equity method of accounting is first applied to a particular investment, was amortized on the straight-line method over 10 years. Effective January 1, 2006, pursuant to the revised ROC SFAS No. 5, “Long-term Investments under Equity Method” (“ROC SFAS No. 5”), the cost of an investment shall be analyzed and the difference between the cost of investment and the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. The accounting treatment for the investment premiums acquired before January 1, 2006 is the same as that for goodwill which is no longer being amortized. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

Financial Assets Carried at Cost

Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at their original cost, such as non-publicly traded stocks. The costs of financial assets sold are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Property, Plant and Equipment

Property, plant and equipment, except for machinery and equipment under operating leases, are stated at cost less accumulated depreciation and accumulated impairment. Machinery and equipment held under capital leases are recorded as an asset and an obligation at an amount equal to the lower of: (i) present value at the beginning of the lease term of the minimum lease payments during the lease term (including the payment called for under any bargain purchase option); or (ii) fair value of the leased machinery and equipment at the inception of the lease. Machinery in transit, construction in progress and prepayments under construction are stated at cost. These include the cost of machinery, construction, down payments and other direct costs plus interest charges attributable to the borrowings used to finance the acquisitions of these assets. Major overhauls and improvements are capitalized, while maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over estimated service lives, which range as follows: buildings and improvements, 2 to 40 years; machinery and equipment, 2 to 6 years; furniture and fixtures, 2 to 8 years; and leased assets, 2 to 6 years. Leasehold improvements and improvements on building and business flats are amortized on a straight-line basis over the shorter of the useful life of the improvements or the lease term of the building. In the event that an asset depreciated to its residual value is still in service, its residual value is depreciated over its re-estimated service life.

When property, plant and equipment are retired or disposed of, their costs and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income.

Asset Impairment

The Company evaluates whether or not there are indications that assets (primarily property, plant and equipment, deferred charges and goodwill) may be impaired on the balance sheet date. If there are indications, the Company estimates the recoverable amount for the asset. If an asset’s recoverable amount is lower than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount by recording a charge to the accumulated impairment account of the asset and such a reduction is recognized as impairment loss in current period income. When the recoverable amount subsequently increases, then the impairment loss previously recognized would be reversed and recorded as a gain. However, the carrying

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amount of an asset (other than goodwill) after the reversal of impairment loss should not exceed the carrying amount of the asset that would have been determined net of depreciation as if no impairment loss had been recognized.

Deferred Charges

Deferred charges consist of certain intangibles and other assets, including tools, utility, telecommunications and computer network systems. The amounts are amortized over the following periods: tools, 2 years; utility, telecommunications and computer network systems, 2 - 5 years; and others, 2 - 5 years.

Goodwill

Goodwill represents the excess of the consideration paid for an acquisition over the fair value of identifiable net assets acquired. Prior to January 1, 2006, goodwill was amortized using the straight-line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25, “Business Combinations-Accounting Treatment under Purchase Method” (“ROC SFAS No. 25”), goodwill is no longer amortized and instead is tested for impairment annually.

Employee Stock Options

All stock-based compensation for awards granted or modified after January 1, 2004 is accounted for by an interpretation issued by the Accounting Research and Development Foundation （“ARDF”） of the ROC. The compensation cost is measured based on the intrinsic value method, for which the compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. Total compensation cost is recognized over the requisite service or vesting period.

Pension Costs

For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations. Pension costs include service cost, interest, amortization of unrecognized net obligation and expected return on plan assets.

For employees under defined contribution pension plans, pension costs are recorded based on the actual contribution made to employees’ personal pension accounts.

Shipping and Handling Costs

Shipping and handling costs are recorded as selling expenses and the amounts in 2004, 2005 and 2006 were $1,705 thousand, $1,382 thousand and $1,498 thousand, respectively.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Income Taxes

The Company uses an inter-period tax allocation method for income tax. Tax effects of deductible temporary differences, unused tax credits and operating loss carryforward are recognized as deferred income tax assets, while taxable temporary differences are recognized as deferred income tax liabilities. A valuation allowance is provided to the extent that it is more likely than not that deferred income tax assets will not be realized.

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Tax credits of ASE Test, Inc. from investments in machinery and equipment, research and development and employees’ training costs are recognized in the year acquired and expensed. Capital allowances of ASE Test Malaysia from investment in industrial buildings, machinery and equipment are recognized in the year in which they are acquired.

Adjustments of prior years’ income taxes are added to or deducted from the current year’s tax provision.

Income taxes on undistributed earnings (10%) of ASE Test, Inc., the Company’s Taiwan based subsidiary, are recorded as an expense in the year of shareholders’ approval.

Foreign Currency Transactions and Translation of Foreign-currency Financial Statements

The functional and reporting currency of ASE Test is U.S. dollar, while the functional currencies of its major subsidiaries, ASE Test, Inc., ASE Test Malaysia and ISE Labs, Inc. are their local currencies, namely, New Taiwan dollar, Malaysia Ringgit and U.S. dollar, respectively. Foreign currency transactions, except for derivative transactions, are recorded in the local currencies at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when foreign-currency assets and liabilities denominated in foreign-currencies are settled are credited or charged to income in the year of settlement. At the end of year, monetary assets and liabilities denominated in foreign-currencies are revalued at the prevailing exchange rates and the resulting gains or losses are recognized in current period income.

The financial statements of the Company’s subsidiaries are translated into U.S. dollars at the end of year using the following rates: Assets and liabilities, current rates at the balance sheet date; shareholders’ equity, historical rates; and income and expenses, average rates during the year. The net resulting translation adjustment is reported as a separate component of shareholders’ equity.

Recent Accounting Pronouncements

In July 2006, the ROC ARDF issued ROC SFAS No. 37, “Intangible Assets”, which is required to be applied by the Company on January 1, 2007. The standard provides guidance on initial recognition and measurement, amortization, presentation and disclosure of intangible assets. An intangible asset should be measured initially at cost. For an intangible asset of a finite useful life; the carrying amount shall be amortized over its useful life. On the other hand, for an intangible asset with an indefinite useful life, the carrying amount shall not be amortized. Intangible assets shall be evaluated for impairment at least annually as required by ROC SFAS No. 35, “Accounting for Impairment of Assets” (“ROC SFAS No. 35”). The Company does not expect the adoption of the standard on January 1, 2007 to have a significant impact on its results of operations and financial position.

In November 2006, the ROC ARDF issued ROC SFAS No. 38, “Non-current Assets Held for Sale and Discontinued Operations” (“ROC SFAS No. 38”), which is also required to be applied by the Company on January 1, 2007. Under ROC SFAS No. 38, assets classified as held-for-sale shall be measured at the lower of carrying amounts or fair values and ceased to be depreciated or amortized. Any impairment loss shall be recognized in current earnings. Assets classified as held-for-sale shall be presented separately on the balance sheet. ROC SFAS No. 38 also requires the Company to disclose information of discontinued operations separately on the statements of income and cash flows or in a footnote. The Company does not expect the adoption of the standard on January 1, 2007 to have a significant impact on its results of operations and financial position.

In March 2007, the ROC ARDF issued an interpretation which requires ROC companies to recognize compensation expenses for bonuses paid to employees, directors and supervisors beginning January 1, 2008. Such bonuses are currently recorded as appropriations of earnings under ROC GAAP. On March 30, 2007, the ROC Financial Supervisory Commission also issued an interpretation which requires that bonuses granted to employees, directors and supervisors in the form of shares be valued at fair market value for purposes of compensation expenses.

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Reclassifications

Certain accounts in the consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 have been reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2006.

3. ACCOUNTING CHANGES

On January 1, 2006, the Company adopted the newly released ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” (“ROC SFAS No. 34”) and No. 36, “Financial Instruments: Disclosure and Presentation” (“ROC SFAS No. 36”) and other revisions of previously released SFASs.

a. Effect of adopting the newly released SFASs and other revisions of previously released SFASs

The Company had categorized its financial assets and liabilities upon initial adoption of the newly released SFASs. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles; on the other hand, the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity.

Upon adoption of ROC SFAS No. 34 and No. 36 in January, carrying amounts of the available-for-sale financial assets were adjusted to fair value, and the Company recognized $83,751 thousand of unrealized gains as a separate component of shareholders’ equity as at January 1, 2006. Besides, there was no effect on net income for the year ended December 31, 2006.

Effective January 1, 2006, the Company adopted the newly revised ROC SFAS No. 5 and No. 25, which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortized. Such a change in accounting principle resulted in an increase in net income of $4,966 thousand and basic earnings per share (after income tax) of $0.05 for the year ended December 31, 2006.

b. Reclassifications

Upon the adoption of ROC SFAS No. 34, certain accounts in the consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 were reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2006. The previously issued consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 were not required to be restated.

Certain accounting policies prior to the adoption of the newly released SFASs are summarized as follows:

Short-term investments

Short-term investments were recorded at historical cost and were carried at the lower of cost or market value as of the balance sheet date. An allowance or decline in value was provided and is charged to current income when the aggregate carrying amount of the investments exceeded the aggregate market value. A reversal of the allowance was recorded for a subsequent recovery in the aggregate market value.

Long-term Investments

Investments in companies wherein the Company did not exercise significant influence were carried at the lower of cost or market value. Allowances for decline in market value and unrealized loss on long-term investments in shares of stock (a deduction account in shareholders’ equity) were

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made when the market value of an investment was lower than its carrying amount. If a decline in value of the stock investment was determined to be other than temporary, such decline in value was charged against current income.

Derivative financial instruments

(a)

Forward exchange contracts

Premiums or discounts on foreign currency forward exchange contracts which had been acquired to manage the risk associated with assets and liabilities denominated in foreign currencies arising from the difference between the forward rate and the spot rate at the date of each contract were deferred and amortized using the straight-line method over the contract periods. At year end, balances of the forward exchange receivables or payables were restated based on prevailing exchange rates and the resulting gain or loss was credited or charged to income. Any exchange gain or loss when the contract was settled was also credited or charged to income. In addition, the receivables and payables related to the forward contracts are netted with the resulting amount presented as either an other current asset or other current liability.

(b)

Option contracts

Written option contracts to purchase or sell foreign currencies entered into for hedging purposes are not recorded as assets or liabilities on the contract dates. Gains or losses upon settlement were credited or charged to income. Amounts received or paid were amortized over each contract period. At year end, the outstanding written option contracts were marked to market with charges to current income.

When the Company had a legally enforceable right to set off the recognized amount and intends either to settle on a net basis, or to realize the asset and the liability simultaneously, the difference between receivables and payables was accounted for as either a current asset or current liability; otherwise, the receivables and payables should be accounted for as an other current asset and other current liability, respectively.

Certain accounts in the consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 have been reclassified to conform to the classifications prescribed by the newly released SFASs. The reclassifications of the account balances of certain accounts are summarized as follows:

	Before Reclassification		After Reclassification
Balance sheet as of December 31, 2005
Prepayments and other current assets	$	17,591	$	17,415
Long-term investments		140,225		-
Other current liabilities		6,013		5,841
Financial assets at fair value through profit or loss		-		176
Available-for-sale financial assets – noncurrent		-		81,251
Equity method investments		-		57,974
Financial assets carried at cost-noncurrent		-		1,000
Financial liabilities at fair value through profit or loss		-		172

Statement of income for 2005
Foreign exchange gain, net		1,388		703
Gain on valuation of financial assets, net		-		685

(Continued)

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	Before Reclassification		After Reclassification
Statement of income for 2004
Foreign exchange gain (loss), net	$	175	$	(139	)
Gain on valuation of financial assets, net		-		314

(Concluded)

4. CASH

	December 31
	2005		2006

Cash on hand	$	22	$	21
Checking and saving accounts		77,382		62,162
Time deposits		60,807		27,532

	$	138,211	$	89,715

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	December 31
	2005		2006

Financial assets held for trading
Forward exchange contracts	$	176	$	-

Financial liabilities incurred for trading
Forward exchange contracts	$	172	$	262

The Company entered into derivative contracts during the years ended December 31, 2005 and 2006 to manage exposures to foreign exchange rate risk. The derivative contracts entered into by the Company did not qualify for hedge accounting prescribed by ROC SFAS No. 34 and therefore were classified as financial instruments at fair value through profit or loss.

Outstanding put forward contracts as of December 31, 2005 and 2006:

Currency	Maturity Date	Contract Amount (in Thousands)

December 31, 2005
USD/JPY	2006/03/02	USD 172 / JPY 20,000

December 31, 2006
USD/NTD	2007/01/22~2007/03/01	USD 42,000/NTD 1,352,500

For the years ended December 31, 2005 and 2006, financial instruments held or incurred for trading purposes resulted in net gains of $685 thousand and net losses of $1,731 thousand, respectively.

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6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

	December 31
	2005		2006
Current
Open-end mutual funds	$	-	$	89,341

Noncurrent
Publicly-traded stocks	$	81,251	$	204,851

As of December 31, 2005 and 2006, the Company held 180,132,187 shares of common stock of ASE Inc. With respect to the trust arrangement, in order to comply with applicable Singapore laws, which provide that the Company may not acquire, directly or indirectly, shares in its parent company, ASE Inc., a trust was established jointly by ASE Inc. and the Company to hold and dispose of the ASE Inc. shares acquired by the Company in connection with the merger (Note 9). Pursuant to the trust agreement, the Company’s rights with respect to the ASE Inc. shares held in trust are limited to the right to receive the proceeds from the sale of the shares and any cash dividends declared while the shares remain in trust. The trustee is authorized to sell the shares, subject to market conditions, when such shares become available for resale under ROC law and in accordance with volume limitations under ROC law, at its sole discretion; provided such shares are sold (i) in compliance with ROC laws and regulations, (ii) in an orderly manner in order to minimize the impact on the trading price of the shares, and (iii) in a manner consistent with its fiduciary duties owed to the Company.

7. NOTES AND ACCOUNTS RECEIVABLE, NET

	December 31
	2005			2006

Notes receivable	$	68		$	180
Accounts receivable		82,744			60,017
Allowance for doubtful accounts (Note 2)		(5,023	)		(2,175	)
Allowance for sales allowances (Note 2)		(455	)		(147	)

	$	77,334		$	57,875

The changes in allowances for sales allowances and doubtful accounts are as follows:

	Doubtful			Sales
	Accounts			Allowances

Balance at January 1, 2004	$	2,386		$	880
Additions		2,391			100
Write-offs		(233	)		(111	)
Balance at December 31, 2004		4,544			869
Additions		1,109			313
Write-offs		(630	)		(727	)
Balance at December 31, 2005		5,023			455
Additions		56			-
Reversal		(1,932	)		(205	)
Write-offs		(972	)		(103	)

Balance at December 31, 2006	$	2,175		$	147

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In November 2005, ASE Test, Inc. and its parent company, ASE Inc., entered into a $100 million, three-year revolving accounts receivable securitization agreement with a bank and the credit line was increased to $200 million in June, 2006.

Under the agreement, ASE Test, Inc. and ASE Inc. transferred a pool of accounts receivable to the bank, who issued securities backed by these accounts receivable. Proceeds received from the bank were the net carrying value of the pool of accounts receivable, less a deferred purchase price receivable at 20% of accounts receivable sold, guarantee deposit, program fee and other related expenses. The Company lost control of these accounts receivable at the time of transfer to the bank, and therefore the transaction was accounted for as a sale of accounts receivable, for which the book value of the accounts receivable was derecognized and the difference between the book value and the proceeds received was recorded as a non-operating loss. The loss on sale of accounts receivable was $74 thousand and $1,028 thousand for the years ended December 31, 2005 and 2006, respectively.

After the transfer of the accounts receivable, the Company continues to service, administer, and collect these accounts receivable on behalf of the bank. The Company collects on the initial receivables and transfers certain new accounts receivable having similar value to replace the collected receivables. Collected receivables not yet replaced by new accounts receivable due to timing difference are recorded as other current liability on the balance sheet, which amounted to $4,397 thousand and $4,913 thousand as of December 31, 2005 and 2006, respectively. Total accounts receivable sold was $9,525 thousand and $12,463 thousand as of December 31, 2005 and 2006, respectively.

8. INVENTORIES

	December 31
	2005			2006

Raw materials	$	9,334		$	10,304
Work in process		4,272			2,333
Finished goods		2,393			1,831
Supplies and spare parts		6,460			5,810
Supplies in transit		434			694
		22,893			20,972
Allowance for obsolescence		(1,654	)		(4,037	)

	$	21,239		$	16,935

The changes in allowance for obsolescence are as follows:

Balance at January 1, 2004	$	876
Additions		914
Write-offs		(1,150	)
Balance at December 31, 2004		640
Additions		2,204
Write-offs		(1,190	)
Balance at December 31, 2005		1,654
Additions		4,845
Write-offs		(2,462	)

Balance at December 31, 2006	$	4,037

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9. EQUITY METHOD INVESTMENTS

The investment in ASE Investment (Labuan) Inc. (incorporated in Malaysia in June 1999) was made in connection with the acquisition of the operation of the Motorola Semiconductor Products Sector Businesses in Paju, Korea. As of December 31, 2005 and 2006, the Company held a 30% ownership interest in ASE Investment (Labuan) Inc. at a carrying amount of $57,974 thousand and $75,979 thousand, respectively.

Investment income under the equity method was as follows:

	2004		2005		2006

ASE Investment (Labuan) Inc.	$	3,569	$	6,637	$	18,005
ASE Material Inc.		1,068		-		-
ASE (Chung Li) Inc.		5,207		-		-

	$	9,844	$	6,637	$	18,005

ASE Material Inc. and ASE (Chung Li) Inc. were merged into ASE Inc. and the Company received ASE Inc.’s shares in exchange for its ownership interest in the two companies.

10. PROPERTY, PLANT AND EQUIPMENT, NET

	December 31
	2005		2006
Cost
Buildings and improvements	$	113,688	$	114,296
Machinery and equipment		1,001,430		927,249
Furniture and fixtures		19,091		18,964
Leased assets - machinery and equipment		10,464		23,259
Machinery in transit and prepayments		15,137		8,515
Construction in progress		372		12
		1,160,182		1,092,295
Accumulated depreciation
Buildings and improvements		46,713		52,700
Machinery and equipment		634,835		630,496
Furniture and fixtures		13,310		14,581
Leased assets - machinery and equipment		2,074		5,083
		696,932		702,860
Accumulated impairment
Buildings and improvements		402		-
Machinery and equipment		28,549		-
Furniture and fixtures		271		-
Machinery in transit and prepayments		3,834		-
Construction in progress		115		-
		33,171		-

	$	430,079	$	389,435

As discussed in Note 21, the Company reversed $5,641 thousand of impairment loss previously recorded to accumulated impairment. The remaining $27,530 thousand of impairment was concluded not recoverable, and was subsequently written off to reduce the cost basis of the corresponding assets in 2006.

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Capitalized interest consists of the following:

	2004			2005			2006

Total interest expense including capitalized interest	$	9,609		$	13,622		$	13,568
Less: capitalized interest		2,844			878			403

Interest expense	$	6,765		$	12,744		$	13,165

Capitalization rate		2.46-3.93	%		2.32-3.94	%		1.75-5.67	%

11. GOODWILL

The Company adopted ROC SFAS No. 35 on December 31, 2004, and recognized an impairment loss on goodwill of $26,500 thousand, which was determined based on the amount by which the carrying amount of the cash-generating unit exceeded its recoverable amount. The Company identified the goodwill related to the cash generating unit of ISE Labs. The recoverable amount was the “value-in-use” of ISE Labs, which was determined based on six-years of projected cash flows, discounted at a rate of 9.58%. The Company attributed the impairment of goodwill associated with the acquisition of ISE Labs primarily to a downward revision in the forecasted revenue of ISE Labs. The reduction in forecasted revenues was made in response to company estimates and industry trend data that suggested the outlook for semiconductor industry, and ISE Labs in particular, was less favorable than in prior years, including the year in which the Company acquired its interest in ISE Labs. The Company performed its annual goodwill impairment test on December 31, 2005 and 2006, and found no impairment. As described in Note 2, the goodwill was no longer amortized under ROC SFAS No. 25 after January 1, 2006. Amortization of the goodwill is reflected in general and administrative expenses in the consolidated statements of income and was $10,105 thousand and $4,966 thousand for each of the years ended December 31, 2004 and 2005.

12. LONG-TERM DEBTS

	December 31
	2005			2006

Bank loans	$	288,094		$	105,039
Capital lease obligation (Note 20)		6,952			15,085
		295,046			120,124
Less: Current portion		(49,743	)		(34,418	)

	$	245,303		$	85,706

Bank loans

	December 31
	2005		2006
ASE Test, Inc.
Repayment at maturity in August 2007, interest at 1.98% and 2.25% as of December 31, 2005 and 2006, respectively	$	15,216	$	15,339
Repayable by December 2009 in quarterly installments, interest at 2.50% and 2.69% as of December 31, 2005 and 2006, respectively		7,273		5,640
Repayable by May 2008 in semi-annual installments, interest at 3.10% as of December 31, 2005 and 2006, respectively		7,303		3,682
Others, repaid in 2006, interest from 2.50% to 3.70% as of December 31, 2005		48,107		-
		77,899		24,661

(Continued)

- 22 -

	December 31
	2005		2006
ISE Labs
Repayable by March 2009 in quarterly installments, interest at 4.70% and 6.10% as of December 31, 2005 and 2006, respectively	$	1,745	$	1,235
Repayable by July 2009 in quarterly installments, interest at 4.20% and 6.10% as of December 31, 2005 and 2006, respectively		1,523		1,143
Repaid in September 2006, interest at 5.25% as of December 31, 2005		607		-
		3,875		2,378
ASE Test Malaysia
Repaid in March 2006, interest from 5.00% to 5.29% as of December 31, 2005		13,320		-

ASE Test Finance
Repayable in semi-annual installments from August 2008 to August 2010, interest at 5.45% and 6.23% as of December 31, 2005 and 2006, respectively		78,000		78,000
Repaid in December 2006, interest at 5.73% as of December 31, 2005		115,000		-
		193,000		78,000

	$	288,094	$	105,039

(Concluded)

Bank loans obtained by ASE Test Finance were restricted for the use in the redemption of ASE Test Finance’s and the Company’s loans. The Company and ASE Inc. provided guarantees for ASE Test Finance’s payment obligations under the $78,000 thousand loan. Under the guaranty, the Company is required to maintain certain financial ratios and the tangible net worth of the Company shall not be less than $450 million at any time.

Several loan agreements specify the following non-financial covenants:

Without the prior written consent from the majority of the banks, the Company should not:

Pledge its assets, assume liabilities or dispose of assets in excess of 20% of total assets, unless the transaction involves a transfer of assets between affiliates. Assets in exchange for other comparable or superior as to type are excluded from this covenant; or

Merge with any other entity or make investments in excess of $100 million or acquire material assets from another entity.

The abovementioned bank loan contracts have variable interest rates and are subject to adjustments by banks or changes in prime rate. In addition, several of the loan agreements have default provisions, whereby a default under one loan agreement may also trigger cross-defaults under other loan agreements.

As of December 31, 2005 and 2006, the Company was in compliance with its financial and non-financial covenants.

Long-term debt by currencies other than U.S. dollars as of December 31, 2005 and 2006 is as follows:

	December 31
	2005	2006
	(In thousands)	(In thousands)

New Taiwan dollars	NT$ 2,559,760	NT$ 803,845

- 23 -

Such amounts have been translated into U.S. dollars at the spot rates quoted by the Bank of Taiwan of NT$32.86 to US$1 and NT$32.596 to US$1 as of December 31, 2005 and 2006, respectively.

As of December 31, 2006, the maturities of long-term debts are as follows:

2007	$	34,418
2008		20,564
2009		33,940
2010		31,202

	$	120,124

13. SHAREHOLDERS’ EQUITY

As stipulated by the Company Law of the ROC, the Company's subsidiary in the ROC is required to make an appropriation for legal capital reserve at 10% of net income as determined in accordance with ROC GAAP. Use of the legal capital reserve is restricted to certain purposes, including the offset of a deficit, and the transfer of up to 50% of the legal capital reserve to capital stock when the legal capital reserve has reached 50% of total capital stock. As of December 31, 2006, the legal capital reserve approximated US$26,770 thousand and was not available for distribution.

As of December 31, 2006, the Company had three stock option plans, the 1999, 2000 and 2004 Option Plans. Stock options granted under these plans are exercisable for ordinary shares of the Company and vest ratably over a period of three or five years. The options expire five or ten years from the date of grant.

Information regarding stock options granted or modified after January 1, 2004 is presented below:

ASE Test

	2004						2005						2006
			Weighted						Weighted							Weighted
			Average		Weighted				Average		Weighted					Average		Weighted
			Exercise		Average				Exercise		Average					Exercise		Average
	Number of		Price		Grant Date		Number of		Price		Grant Date		Number of			Price		Grant Date
	Shares		Per Share		Fair Value		Shares		Per Share		Fair Value		Shares			Per Share		Fair Value

Beginning outstanding balance		-	$	-				260,000	$	6.18				292,500		$	6.21
Options granted		260,000		6.18	$	6.18		32,500		6.50	$	6.50		130,000			9.60	$	9.60
Options exercised		-		-				-		-				(9,000	)		6.10
Options forfeited		-		-				-		-				-			-
Options expired		-		-				-		-				-			-

Ending outstanding balance		260,000		6.18				292,500		6.21				413,500			7.28

Options outstanding on December 31, 2006, the related weighted average exercise price and remaining contractual life information are as follows:

	Outstanding Shares		Exercisable Shares		Weighted Average Remaining Life (Years)

Options with exercise price of:
$5.50		60,000		24,000		7.6
$6.10		51,000		15,000		7.8
$6.50		172,500		76,500		7.6
$9.79		115,000		11,500		9.3
$8.10		15,000		7,500		9.6

		413,500		134,500

- 24 -

The Company has computed, for pro forma disclosure purposes, the fair value of options granted using the Black-Scholes option pricing model with the following assumptions:

	2004	2005	2006

Risk-free interest rate	3.50%-3.88%	3.88%	4.88%
Expected life	5 years	5 years	3-5 years
Expected volatility	78.28%	59.06%	59.95-62.03%
Expected dividend	0%	0%	0%

ASE Inc.

ASE Inc., the parent company, has two option plans, which were adopted in 2002 and 2004. Under the terms of the plans, stock options are granted to employees including those of the Company. The option rights expire ten years from the date of grant. On the second anniversary of the grant date, 40% of the options become vested and the remaining options vest ratably over a period of three years thereafter.

Information regarding the ASE Inc.’s stock option plans for the Company and its subsidiaries is as follows:

	2004							2005							2006
				Weighted							Weighted							Weighted
				Average		Weighted					Average		Weighted					Average		Weighted
				Exercise		Average					Exercise		Average					Exercise		Average
	Number of			Price		Grant Date		Number of			Price		Grant Date		Number of			Price		Grant Date
	Shares			Per Share		Fair Value		Shares			Per Share		Fair Value		Shares			Per Share		Fair Value

Beginning outstanding balance		38,852,400		$	0.58				61,752,100		$	0.60				52,926,580		$	0.60
Options granted		25,499,500			0.79	$	0.79		3,000,000			0.57	$	0.57		-			-	$	-
Options forfeited		(2,261,800	)		0.58				(5,126,800	)		0.58				(2,489,000	)		0.62
Options expired		-			-				-			-				-			-
Options exercised		(338,000	)		0.56				(6,698,720	)		0.49				(9,908,710	)		0.58

Ending outstanding balance		61,752,100			0.67				52,926,580			0.60				40,528,870			0.61

Options outstanding on December 31, 2006, the related weighted average exercise price and remaining contractual life information are as follows:

	Outstanding Shares		Exercisable Shares		Weighted Average Remaining Life (Years)
Options with exercise price
$0.49		15,222,300		9,936,500		6.0
$0.64		4,327,170		2,302,690		6.6
$0.70		18,564,400		7,372,700		7.5
$0.57		2,415,000		-		8.4

		40,528,870		19,611,890

The fair value of the common stock options issued was determined using a Black-Scholes option pricing model with the following assumptions:

	2004	2005

Risk-free interest rate	2.50%	1.80%
Expected life	5 years	5 years
Expected volatility	59%	47%
Expected dividend	3%	3%

- 25 -

For purposes of pro forma disclosure, the estimated fair values of the options are amortized to expense ratably over the option vesting periods. Had the Company recorded compensation costs based on the estimated grant date fair value, the Company’s net income (loss) and earnings (loss) per share (in U.S. dollars) would have been as follows:

	2004			2005			2006

Net income (loss)	$	25,139		$	(35,484	)	$	150,769
Stock-based compensation expense (net of related tax effect)
From the Company		(97	)		(209	)		(317	)
From ASE Inc.		(2,407	)		(9,084	)		(8,486	)

Pro forma net income (loss)	$	22,635		$	(44,777	)	$	141,966

Basic EPS As reported	$	0.25		$	(0.35	)	$	1.51
Pro forma	$	0.23		$	(0.45	)	$	1.42

Diluted EPS As reported	$	0.25		$	(0.35	)	$	1.50
Pro forma	$	0.23		$	(0.45	)	$	1.41

14. PENSION PLAN

The Labor Pension Act (the “Act”), which took effect in the ROC on July 1, 2005, provides for a pension mechanism that is deemed a defined contribution pension plan. The employees who were subject to the Labor Standards Law of the ROC before the enforcement of this Act may choose to be subject to the pension mechanism under this Act or may continue to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law before July 1, 2005, work for the same company after July 1, 2005 and choose to be subject to the pension mechanism under the Act, their service years as of July 1, 2005 will be retained. Under the Act, the rate of an employer’s monthly contribution to the employees’ personal pension accounts should not be less than 6% of each employee’s monthly salary or wage. Thus, since July 1, 2005, ASE Test, Inc. has made monthly contributions based on each employee’s salary or wage to personal pension accounts, and recognized pension costs of $885 thousand and $1,984 thousand for each year ended December 31, 2005 and 2006.

ASE Test, Inc. has a defined benefit pension plan for its regular employees. Retirement benefits are based on the length of service and average salaries or wages of the last six months before retirement. ASE Test, Inc. makes monthly contributions, at 2% of salaries and wages, to plan assets which are in the name of, and are administered by, the employee pension plan committee and are deposited in the Central Trust of China (the “CTC”), an ROC government agency. Besides, ASE Test, Inc. also accrued pension cost of executive managers. Pension cost for executive managers was $11 thousand and $288 thousand in 2005 and 2006, respectively. As of December 31, 2005 and 2006, accrued pension cost of aforementioned plan was $11 thousand and $299 thousand, respectively.

ISE Labs, Inc. has a defined contribution plan (“401k plan”) for eligible employees. This plan permits employees to make contributions up to the maximum limits allowable under the U.S. Internal Revenue Code Section 401k. ASE Test Malaysia and ASE Singapore Pte Ltd. also have a defined contribution plan. The Company has no other post-retirement or post-employment benefit plans.

As of December 31, 2006, allocations by investment type of the plan assets deposited in the CTC are as follows:

- 26 -

Type of Investment	Allocation (%)

Cash		46
Notes		18
Equity		17
Bond		10
Other		9

		100

Information about the defined benefit plans for ASE Test Inc. is summarized as follows:

Components of net periodic pension cost for the year:

	2004			2005			2006

Service cost	$	1,906		$	1,705		$	301
Interest		349			373			308
Projected return on plan assets		(78	)		(117	)		(109	)
Amortization		172			69			11

Net periodic pension cost	$	2,349		$	2,030		$	511

Reconciliation of funded status of the plan and accrued pension cost at December 31, 2004, 2005 and 2006:

	December 31
	2004			2005			2006

Vested benefit obligation	$	38		$	16		$	98
Non-vested benefit obligation		6,978			6,424			7,255
Accumulated benefit obligation		7,016			6,440			7,353
Additional benefits based on future salaries		5,644			4,638			5,140
Projected benefit obligation		12,660			11,078			12,493
Fair value of plan assets		(3,154	)		(3,668	)		(4,318	)
Funded status		9,506			7,410			8,175
Unrecognized net transition obligation		(163	)		(148	)		(138	)
Unrecognized actuarial loss		(4,172	)		(814	)		(1,646	)
Accrued expense		(52	)		(47	)		(42	)

Accrued pension cost	$	5,119		$	6,401		$	6,349

Vested obligation		$	42			$	17			$	98

c. Actuarial assumption

Discount rate	3.25%	2.75%	2.25%
Increase in future salary level	3.00%	2.5-3.0%	2.5-3.0%
Expected rate of return on plan assets	3.25%	2.75%	2.50%

ASE Test, Inc. expects to make contributions of $554 thousand to its defined pension plan in 2007.

- 27 -

Expected benefit payments:

Year of Payments

2007	$	105
2008		8
2009		58
2010		42
2011		52
2012 and thereafter		1,483

Plan assets and obligations reflected herein were measured as of December 31, 2006.

15. EMPLOYEES BENEFITS, DEPRECIATION AND AMORTIZATION

2004

ASE TEST LTD 6-K