Please address comments and inquiries to:

CSR Promotion Department, Nikko Cordial Corporation6-5, Nihonbashi Kabuto-cho, Chuo-ku, Tokyo, 103-8225, JapanTel: +81-3-5644-4395Fax: +81-3-5644-4397E-mail: csr@mail.nikko.co.jphttp://www.nikko.jp/csr_e/Issued in August 2005

This CSR Report 2005 was prepared to provide information on Nikko Cordial Group’s efforts in CSR, and is notmeant to induce trading of securities. It is not a disclosure document required under the Securities andExchange Law of Japan.

Cert no. SA-COC-1210

CORDIAL

CSR

Report2005

CSR: Corporate Social Responsibility

CSR Report 2005

The word “Cordial” embraces the principles of “sincerity” and “wholeheartedness.” We, of Nikko Cordial Group, also interpret our corporate

name to include the concepts of “cord (i.e. ties)” and “dialogue” to emphasize our intention of “building ties with our customers through

heart-to-heart dialogue” and “cementing ties with society through fulfilling our responsibilities.”

This report is printed on FSC-certified paper using 100%vegetable-based ink (non-VOC ink) and waterless printing.

Cert no. SA-COC-1210

1

Environment

An environmentally friendly company encourages an environmentally friendly society.

The financial services industry must create opportunities

to invest in environmentally conscious companies, support

their activities and help raise their corporate value, while

concurrently working to encourage more environmental

activities at other companies. Nikko Cordial Group aims

to continue working toward reducing our own direct

environmental impact in office and business activities

in tandem with proactively working to help society as

a whole embrace more environmental practices.

Amid worsening environmental problems worldwide, each industry has anobligation to take every step possible to lessen their own impact.

The financial services industry has implemented environmental measures that only its companies can devise. For example, the industry isencouraging companies to implement environmental measures by creatingopportunities to invest in environmentally conscious companies as well asencouraging them to release information on environmental activities.These two activities, alone, raise the corporate value for environmentallyconscious companies and encourage more widespread adoption of such measures.

As a financial institution involved in banking, securities and other activities, Nikko Cordial Group declared its participation in environmentalpreservation activities by becoming a signatory of the “Statement ByFinancial Institutions on the Environment and Sustainable Development(UNEP FI)”*. Having established our Environmental Policy in 2001 on thebasis of this statement as our environmental principle, we have beenworking on environmentally consciousness issues through our businessactivities and daily operations.

*UNEP FI (United Nations Environment Programme Finance Initiative) represents a partnership betweenUNEP and financial institutions around the world. In 1992 approximately 30 world banks signed thestatement. Later in 1997, the group of signatories was expanded to include investment banks, assetmanagement companies and securities companies, and the original statement was revised accordingly.In 2003, this statement was combined with a similar statement issued by the insurance industry.

3

Economy

There truly are investments that benefit everybody.

The operations of Nikko Cordial Group are important in

terms of public interest, and range widely from asset

management for individual customers to assistance in fund

procurement and M&A for corporate customers.

Consequently, we understand that consumers not only

expect a range of services, but top quality in each of those

services as well. We aim to conduct business prudently and

produce high yields to become an indispensable institution

not only in the eyes of shareholders and investors but also

to customers, employees and society as a whole.

Nikko Cordial Group believes that providing stable profits and shareholderreturns are its most important financial obligation. To give shareholdersand investors a sense of pride and satisfaction, we fulfill those financialresponsibilities while also actively disclosing Group information and usingvarious communications tools to deepen our relationship of trust.

The Group’s mission to customers is to maximally grow their financialcapital so they can hand it down to their children. Every employee of the Group feels a deep responsibility to our customers and is dedicated to supporting every customer’s needs by considering their perspectiveand providing the utmost attention. Both top management and employees consider this attitude to be second nature to any Nikko Cordial Group member.

Based on a best product policy, the Group carefully selects only thebest products and services that anticipate customer needs from aroundthe world.

We observe the management principle of “Think and act from customers’ point of view” to always properly address customer needs in a sincere manner.

5

Society

Being of benefit to society? That’s always on our minds.

As both a financial services group conscious of its mission

and responsibilities to society and as a good corporate citi-

zen, Nikko Cordial Group believes that it can grow along-

side society. To contribute to an enriched society and pass

down that prosperity to the next generation, we aim to ful-

fill our obligations by embracing a spirit of gratitude and

building strong relationships.

Nikko Cordial Group feels that it is necessary to construct and develop abalanced, healthy financial system while concurrently expanding peoples’knowledge of society, the economy, finances and investing.

Promoting greater knowledge in securities and finance is the obligationof the finance industry. With the aim of contributing to society, we activelyconduct investment education for individual investors through offering freecourses at universities, educational activities through the Association forthe Promotion of Financial Literacy, a nonprofit organization, and jointindustry-university research.

We are supporting institutions and individuals that conduct environmental preservation activities through the establishment of theWWF-Nikko Green Investors Fund in cooperation with World Wide Fundfor Nature Japan (WWF Japan), which is dedicated to preserving the environment and achieving a sustainable society. Moreover, by activelysupporting activities that contribute to society, we are achieving successin educating and raising awareness among employees about our duty tosociety, and every employee is, in turn, taking the initiative in furtheringsuch activities.

December 25, 2004

Ranked Sixth in the “Top 50 CSR Brands”Weekly Toyo Keizai ranked Nikko Cordial Corporation sixth among “Top 50 CSR Brands” in its December 25, 2004 edition. TheGroup achieved this rank for its aggregate market value, as well as for being included in the Dow Jones Sustainability2 Indexes(DJSI), Morningstar Socially Responsible Investment Index (MS-SRI), FTSE4Good Index Series and Ethibel Sustainability Indexes(ESI), which are benchmark SRI indexes that select investment targets based on social, ethical and environmental factors.2 Sustainability connotes that companies realize sustainable growth together with society.

Dow Jones Sustainability IndexesDJSI is an index jointly developed by Dow JonesIndexes, STOXX Limited and the SAM Group, anindependent research firm specializing in sus-tainability management and research services.Companies included in the index are evaluatedfrom the three perspectives of “economic ration-ality,” “environmental compatibility” and “socialcompatibility.”

Morningstar Socially Responsible Investment IndexThe MS-SRI index was developed byMorningstar Japan K.K., which suppliesvarious types of financial information,including evaluations of mutual funds, andthe Center for Public Resources Development, a nonprofit organiza-tion. The preparers of this index aim to select companies that play acreative role in society, and they apply evaluation criteria thatemphasize companies with dynamic policies.

FTSE4Good Index SeriesThe FTSE4Good Index Series is prepared byFTSE International, which is a joint venturebetween Financial Times Ltd., publisher of theprincipal U.K. financial newspaper, and theLondon Stock Exchange. Companies included inthis index have been selected with a focus onthree aspects of their activities, namely, “environ-ment,” “relationships with society and stakeholders,” and “human rights.”

Ethibel Sustainability IndexesESI is an index operated by Ethibel, which wasfounded in 1992 in Belgium. The index evaluatesand selects companies with the highest marketvalue among companies with the best growthprospects, striking a balance among industriesand regions.

76

Fiscal 2004 CSR Highlights

July 26, 2004

Most Respected SecuritiesCompany in the IndustryNikko Cordial Group was ranked first in the securitiesindustry by Nikkei Business. in a July 26, 2004 featureentitled “Respected Companies.” We have been highlyregarded for establishing such corporate governance policies as disclosure of board members’ compensationas well as for being the first in Japan to create and beginselling socially responsible investment (SRI1) productsthrough our Nikko Eco Fund. 1 SRI: Refer to pages 42-43.

August 6, 2004

Selected for Pension FundNikko Cordial Corporation was selected as one of 43 com-panies that emphasize information disclosure and share-holder value to be included in targeted investment of thePension Fund Association’s corporate governance fund.The Company was ranked as being excellent in the fivecategories of shareholder value-oriented management,information disclosure and accountability, board of direc-tors’ functionality, board members’ compensation sys-tems, as well as compliance and risk management.

October 22, 2004

Nikko ezTrade Ranked First AmongOnline Comprehensive SecuritiesNikko Cordial Securities Inc.’s online trading service, Nikko ezTrade, was ranked first in the “OnlineComprehensive Securities Ranking” of Gomez Co., Ltd.As in the previous year, Nikko ezTrade was viewed favor-ably in the categories of usability of the Nikko ezTradeonline trading site, its full service menu as well as itsinvestment information disclosure.

December 1, 2004

Ranked Third in JCGR’s Fiscal 2004“Corporate Governance Survey”According to Progress in Benchmarking CorporateGovernance among Individual Companies published bythe Japan Corporate Governance Research Institute, Inc.(JCGR), Nikko Cordial Corporation scored 80 out of 100points in their JCGIndex Survey Report3, ranking thirdamong the companies listed on the first section of theTokyo Stock Exchange. 3 The JCGIndex survey gathers and compiles information for four categories

concerning corporate governance and calculates this data on a 100-point scale.

January 16, 2005

Ranked First in Finance and 16thOverall in the “CSR Survey Rankingof Companies”Nikko Cordial Group ranked first among finance institu-tions and 16th overall among 847 major companies in the“CSR Survey Ranking of Companies” published by NihonKeizai Shimbun, Inc. Companies are evaluated on theextent to which they ensure communications with share-holders, consumers, employees, business partners andother stakeholders, their drive to raise shareholder value,their observance of transparency in management, theirenvironmental stewardship and their handling of employment and other employee-related activities.

February 21, 2005

Awarded “Best Fund Group” for 2005 Lipper Fund AwardsNikko Asset Management Co., Ltd. was selected byReuters Japan to be awarded the “Best Fund Group” forthe 2005 Lipper Fund Awards. This award is based onquantitative performance analysis in three asset class categories: Equity funds, Fixed Income funds and MixedAsset funds. Nikko Asset Management’s funds werefavorably evaluated for their superior performance.

February 28, 2005

Ranked First in Finance and 23rdOverall in the “Nikkei PRISM Ranking”Among the best companies ranked by PRISM (PrivateSector Multi Evaluation System), which is published byNihon Keizai Shimbun, Nikko Cordial Group ranked first infinance and 23rd overall among the 2,171 listed and non-listed companies studied.

PRISM uses survey data and financial indicators toproduce scores and ranks of companies based on a corporate assessment model comprising the four elements of “flexibility and social responsibility,” “earningsand growth potential,” “research and development” and “youthfulness.”

March 28, 2005

Awarded the Securities Industry’s“Excellent Sustainable Management Award”Nikko Cordial Group was awarded the “ExcellentSustainable Management Award” at the Third JapanEnvironmental Sustainable Award (JEMA Committee, Mie Prefecture), of which the aim is to further popularizeand develop environmental management and encouragecompanies to shift to a more sustainable corporate model.This is the first such award for the securities industry.

The Group was highly evaluated for becoming a signa-tory of UNEP FI, selling Japan’s first SRI fund (Nikko EcoFund), being the first in the securities industry to acquireISO 14001 certification and pursuing environmentalpreservation in cooperation with WWF Japan.

8

Editorial Policy for ReportThis report aims to provide information on Nikko Cordial Group in an easy-to-understand format, and gather feedback from readers for use in operational activities for continued growth.

The report strives to ensure the utmost in honesty and accountability by following drafting guidelines without being excessively restricted by them.

This is the sixth report since 2000. From this year, the report name has beenchanged to CSR1 Report to more clearly indicate that the report provides an updateon the Group’s progress regarding CSR.

The Group has endeavored to incorporate results from a third party investigationfrom the previous year, reader questionnaires and feedback via the Group websiteto educate readers from all areas of society on the state of Nikko Cordial Group inan easy-to-understand format.

Our Business Report is for shareholders, our Annual Report is for investors andanalysts, and our CSR Report is for general readers. We have tried to draft thereport without adhering to previous report formats and in a manner that can bemore easily understood.

Our CSR activities began with environmental activities when we launched theNikko Eco Fund2. Moreover, our CSR activities continue to expand as we work torealize a better society. While the practices outlined in this report are second natureto Group employees, we are grateful for the opportunity to underscore them in this report. 1 CSR: Corporate Social Responsibility

2 The Nikko Eco Fund is a mutual fund managed and marketed by Nikko Cordial Group. It was the first mutual fund in Japan tointegrate socially responsible investment (SRI). See pages 42-43 for details.

•Scope of ReportingThis report covers the operations of 47 Group companies within the scope of consolida-tion that operate on a regular basis.

References to “Nikko Cordial Corporation” or “the Company” describe the activities of theholding company.

•Period Covered by ReportApril 1, 2004 to March 31, 2005This report also contains some information outside this period.

•Previous Publishing of ReportJuly 2004

•Drafting GuidelinesEnvironmental Reporting Guidelines (FY2003 version) (Japan’s Ministry of theEnvironment)Global Reporting Initiative Sustainability Reporting Guidelines 2002Note: The contents of this report were drafted using the above guidelines, and as such, there are no elements inapplicable to

the range of businesses or irrelevant to Group operations.

•Purpose and Principle Behind Third Party AssuranceTo improve the credibility of content, the Group commissioned Ernst & Young ShinNihonas an independent third party to review this report and submit an Independent AssuranceReport, which provides a limited assurance opinion by an independent auditor. Also, toimprove the quality of the CSR Report, we commissioned Shinnihon Integrity AssuranceInc. as an independent third party to assess the report and submit a findings report.

•Methods of Acquiring Additional InformationInformation regarding CSR activities of Nikko Cordial Group can be found on the Groupwebsite at http://www.nikko.jp/csr_e/.

•Directory of Affiliated InstitutionsNikko Cordial Group participates in the following economic and industry institutes:Nippon KeidanrenJapan Securities Dealers AssociationThe Investment Trusts AssociationJapan Securities Investment Advisers AssociationJapan Association of Corporate Directors

9

T a b l e o f C o n t e n t s

10 CSR Dialogue with Top ManagementPursuing Groupwide CSR based on the

“Cordial” name to become the industry leader

in name and substance

14 Management Principle: Basic PolicyAiming to become an irreplaceable pillar of society

17 Business Content and StrategyPursuing sound, accelerated Group management to

improve corporate value

21 Approach to CSRGuided by a recognition

that CSR is the essence of management

22 Corporate GovernanceA financial services group required to have a keen

sense of its public mission and strong ethics

24 Risk ManagementAppropriately managing risk and maintaining

management soundness

26 ComplianceBecoming a sincere and fair Company that Group

employees can point to with pride

32 Approach to CustomersThinking and acting from customers’ point of view

36 Approach to Group EmployeesBuilding a worker-friendly climate and respecting

individuals

40 Best PartnershipAlways providing customers with the best products

and services

42 Approach to SRIJapan’s pioneer in socially responsible investment

(SRI)

44 Approach to SocietyAiming to grow alongside society as a corporate

citizen that is a member of society

49 Approach to the EnvironmentAggressively promoting environmental measures for

the whole of society

54 CSR AccountingQuantitative disclosure of value distribution

55 Stakeholder DialogueConsideration of CSR based on dialogue with young

leaders of tomorrow

56 Content Index

59 Independent Review Report

60 Summary of Findings

61 Questionnaire

28 Relationship with StakeholdersAiming to be indispensable for our stakeholders

30 Approach to Shareholders and InvestorsFostering a sense of pride and satisfaction for

shareholders and investors

10

“A name signifies its substance.”

Tanaka: I have been looking forward to meeting you both and

discussing issues related to CSR, an area I have considerable

interest in. To begin with, your Group name includes the word

“Cordial,” meaning “sincerity.” “Cordial” certainly seems to be

the perfect word for CSR.

Kaneko: As the saying goes, “A name signifies its substance,”

and our Group name was chosen with that sentiment in mind.

Our belief is that we must be forthright in communications with

all of our stakeholders, be they

shareholders, customers or employ-

ees. We changed our name when

we converted to a holding company

structure in 2001, and while we had

penned a new management princi-

ple at the time, we had experienced

two failures in the 1990s that greatly

influenced our new structure. The

Big Four securities companies at the

time had all made the same mis-

takes, and we paid dearly for it. After much reflection on what

went wrong, we used these events as a springboard to formu-

late a new management principle that would make us the

number-one securities company in Japan and make our brand

indispensable to consumers. We consider implementation of

our management principle to be a form of CSR.

Arimura: Our mission is to maximize the capital of customers

so that they can pass it down to the next generation. Ensuring

that we are the financial institution that best aids in this

endeavor requires that each employee understand our man-

agement principle. Our corporate culture and traditions rest on

the fact that every member of management and employee of

the Group considers the customer’s perspective and acts in an

honorable way, regardless of title or post.

The Most Natural Form of CSR for OurCore Business

Tanaka: I feel that what is

most important is for each

company is to realize the

most natural form of CSR

suited to their operations.

But it must be more diffi-

cult to pin down the

results of CSR in a finan-

cial institution compared with a standard manufacturer.

Nikko Cordial Group rates very well in comparison to other

financial institutions, but how exactly do you integrate CSR into

your operations?

Kaneko: It’s true that we don’t produce manufactured prod-

ucts, so it is much more difficult to compare benchmarks like,

for example, the level of reduction of CO2 emissions we have

achieved. However, we are involved with a great many compa-

nies through the capital markets. So, if we provide financial

backing to companies that earnestly implement CSR, that com-

pany’s performance will improve, their corporate value will rise

and we will have been successful in contributing to both society

and the environment.

Moreover, securities companies consume considerable

resources in their operations. For example, we distribute

incredible volumes of print media, including prospectuses for

stock investing. So there are many areas in which we need to

improve and be more creative, for instance, the form of printing

or shipping we use.

Arimura: A clear example is in our activities with the Nikko Eco

Fund1. Our Eco Fund was Japan’s first when we created it in

1999. While there is only so much we can do from our position,

along with our investors, we try to support companies that

implement CSR. For the same 10,000 yen we would have

invested previously in a regular company, we now team up with

Pursuing Groupwide CSR based on the“Cordial” name to become the industry leaderin name and substanceWhat is the proper role of CSR in financial institutions? How should CSR be pursued withinthe Nikko Cordial Group? Risa Tanaka, the editor-in-chief of Sendenkaigi monthly maga-zine and recognized authority on CSR, interviewed Nikko Cordial Corporation ChairmanMasashi Kaneko and President and CEO Junichi Arimura.

CSR Dialogue with Top Mangement

11

“Cordial” was the notion I wanted to add. I have grown up to

live a simple, honest life just as expressed in the Chinese char-

acters of my name chosen by my parents. Since CSR is a

Groupwide endeavor, its realization requires the understanding

of each and every employee. Our Group will truly become

“Cordial” only when the principle takes root both in the board-

room and on the office floor, and when society approves of our

activities from all angles.

Tanaka: The name sounds powerful. I suppose it would be

hard to get employees to embrace it if it was devised by some

far-removed expert who knew nothing about the dynamics of

the workplace.

Arimura: That’s right. We have to resolutely implement CSR in

a way that best fits our Group. For example, at branches,

employees have begun verbally reciting the management

principle every morning despite our not having instructed them

to do so. Unless a philosophy takes root among the conscious-

ness of employees, it has no value. Also, a philosophy

difficult to grasp or that is too abstract is no good either.

Creating a Group That Welcomes Women

Tanaka: Management principles must be simple, easy to

implement and easy to understand. Being the first in the indus-

try to develop the kind of Group where women can work more

easily is truly an example of CSR, wouldn’t you agree? I’m also

interested in this application of CSR as a working woman.

investors to invest that same capital in companies that are

effecting change. 1 The Nikko Eco Fund is Japan’s first socially responsible investment (SRI) fund. For details,

see pages 42-43.

A Quantum Shift in Employee Mindsets

Tanaka: We publish the magazine Kankyokaigi in which we

include quotes from general consumers. A common sentiment

is that consumers feel very powerless to effect widespread

change in solving environmental problems, so they want to

contribute in some way by buying from companies that are

proactively tackling environmental problems. Have employee

mindsets changed since you implemented CSR?

Arimura: I feel like employee mindsets have experienced

a quantum shift.

Kaneko: Actually, when we changed our Group name, many

employees voiced opposition, but we were firm in our decision.

This was a symbolic act indicating that we took responsibility

for the Group name, and that we were willing to greet customers

with a spirit of sincerity.

Arimura: We wanted to

display our commitment to

the ideals of our name

toward society. “Nikko

Cordial” has a first and a

last name, just as I do, and

12

Arimura: I feel that women’s unique qualities can be of great

use to a securities company. Men tend to be very impulsive.

While that can be useful, to achieve our mission of maximizing

the capital of customers so that they can pass it down to the

next generation, we will increasingly need to call on the unique

temperament of women, which includes a systematic, paced

approach toward goals, as well as empathy and sensitivity. It

may well be that women’s strong

sentiments toward the environment

and society may rest in a DNA that

encourages bearing and raising chil-

dren. Nikko Cordial Group wants to

be the kind of organization where

women can play an active role.

That’s why we formed the Xshe’s

business office2 made up solely

of women.

Kaneko: Traditionally, ideas within the Group tend to reflect

those of the men. But women make up roughly half the popula-

tion, and female customers are rising. I feel that it is important

for us to use the natural sentiments common among women.

We have already begun tearing down the barriers to the “pro-

fessional track” and general positions for women, and are the

first securities company to offer management positions for

women. Currently, roughly 10% of our management positions

are held by women.

To ensure that this is a Group where women can play an

increasing role, we must create a work environment in which

both women and their spouses can meet their obligations on the

work and home fronts. Branches, in particular, need to institute

a more flexible work schedule. If conditions are too constricting

at the workplace, women will be less likely to stay on as staff.

Arimura: We have experienced two failures in terms of pay-offs

and corporate extortion, but what really hit home was the need

to overcome the estrangement from the public that was at the

heart of the problem. These events were also the catalyst for

promoting greater participation by women. The ideal hybrid

model would be to manage the Group so that it functions on

the same principles as society. Isn’t that the heart of corporate

governance?

Kaneko: In essence, we have a clear-cut “corporate

constitution” that transcends the boundaries of race, age and

gender. We are incorporating the views of female employees

and have endeavored to hold seminars for women. When we

started selling the Nikko Eco Fund, women were actively

involved in the process.

2 For a description of Xshe’s business office, refer to page 19.

Contributing to Improved Financial Literacy

Tanaka: I have heard even from acquaintances that Nikko

Cordial is a securities group accessible to women.

Moving on, while I am

aware that you are invest-

ing resources in invest-

ment education as a step

toward CSR, from what

perspective are these

activities being pursued?

Kaneko: In short, we are implementing CSR through our

business. In this respect, we want investors to improve their

financial literacy so that they can make more informed invest-

ment decisions. This is the right approach toward investing.

We promote greater understanding of investment by supporting

NPOs and holding lectures at high schools and colleges. This is

an ongoing effort, in which we have to take a 10- or 20-year

approach, or maybe longer. We are also currently active at

around 20 college campuses.

Tanaka: Since finance has historically been an area long

ignored by the general public, this kind of education will grow

increasingly important.

Kaneko: We want to assist investors in their efforts to study

and understand investing before investing their capital. We

would also like them to understand such mechanisms as

take-over bids (TOB) and mergers and acquisitions (M&A).

Tanaka: You certainly seem to be aggressively pursuing CSR.

Is there any company in particular that you strive emulate?

Arimura: Not especially, no. As long as we continue making

progress in our own way, we are satisfied. You see, we are

engineering our own corporate climate, or culture. It probably

won’t be complete for another 5 or 10 years. The reason being

that if we take the time to properly fashion this culture, it won’t

easily come undone.

Is There Sufficient Accountability?

Tanaka: In the public relations and advertising world that I work

in, communication starts from the drive to actively communicate

our feelings to others. Nikko Cordial is receiving high praise from

experts, but is the public aware of your accomplishments?

CSR Dialogue with Top Mangement

13

Kaneko: We must endeavor to communicate the efforts in

CSR we have pursued in a balanced manner. The true benefit

of this would be to have our stakeholders understand our

accomplishments.

Arimura: We must eliminate estrangement from the public as a

matter of course and without fanfare. Manufacturers strive

everyday to make even small improvements in their operations,

as does the convenience store manager down the street. We

have to learn from these other industries in improving our own

operations. Concurrently, we have to take to heart that fact that

we are not highly regarded in all avenues of the industry. Even

regarding SRI indexes, it is not widely known that we were one

of the investment targets of the four indexes of DJSI,

FTSE4Good, Morningstar Socially Responsible Investment

Index and Ethibel Sustainability Index. However, because CSR

is second nature to our operations, we have no interest in

unduly publicizing it. Since the only venue in which we can

widely communicate our CSR activities is through this CSR

Report, we have revamped the CSR Report 2005 from the

standpoint of making it more easily understood by readers.

Companies Are a Microcosm of Society

Tanaka: Our discussion today has further reconfirmed my belief

that the company is a microcosm of society. If companies

change, then society will change, and if society is sustainable,

companies must reform themselves to become sustainable.

Kaneko: We try to remain conscious of the “triple bottom line.”

Meaning, as a member of the capital markets, we must prop-

erly raise profits and reflect on how these profits will benefit

society and the environment. We are intent on implementing

CSR through measures

tailored to our own organi-

zation and everyday oper-

ations. Four years have

passed since we drafted

our management principle.

During that time, there

have been many structural

changes in industry and

values, as exemplified by CSR. Additionally, the sentiment

reflected in our name “Cordial” has played an increasingly

important role.

Arimura: Management and all Group employees will unite

to preserve top-down and bottom-up communications in

order to become the top CSR company in finance, so we can

live up to our name in both name and substance. We reaffirm

our resolve to make our services irreplaceable to both

customers and society.

Tanaka: I think that the meaning of “Cordial” as well as the

“Nikko Cordial” name have become a little easier to grasp

through our conversation. Thank you for the opportunity to

learn more about Nikko Cordial Group today.

Ms. Risa Tanaka (Profile)

1989 Graduated from Gakushuin University and joined anadvertising company

1993 Entered Sendenkaigi Co., Ltd.1996 Assumed post of editor-in-chief of Sendenkaigi monthly

magazine (current)2000~ Assumed added post at Hansokukaigi monthly magazine2003~ Assumed added posts as editor-in-chief of Kankyokaigi

and Ningenkaigi

Major Social Activities1997~ Committee member of the “Assessment Committee on

Government PR” of the Government PR Office in thePrime Minister’s Office (currently Cabinet Office)

1998~ PR adviser for the Japan Public Relations Association1998 Judge for the “National PR Magazine Contest”2000 Appeared as regular commentator on TBS’ Broadcaster

television program2004~ Researcher of Waseda Institute of Glocal Cultures2005~ Member of investigative committee for Forestry Agency’s

“Ideal Forest Management in the 21st Century”

14

Aiming to become an irreplaceablepillar of society

Management PrincipleOrientation MeetingsThe 2004 Management Principle Orientation Meetingswere held at respective workplaces of the Group inOctober. Over 5,500 employees from around the coun-try participated in the meetings, including dispatchedemployees, and engaged in active discussions underthe theme of “Daily Observance of the ManagementPrinciple.” Various tools were used to promote debate,including the prearranged distribution of videos featur-ing the Chairman and President as well as referencematerials for the masters of ceremony. The meetingsgave participants the opportunity to further deepentheir understanding of the management principle andfor further implementing this concept within the Group.

0 10 20 30 40 50 0 10 20 30 40 50

Do not understand

Understand

Planned

Enacted

Do not understand

Understand

Planned

Enacted

Do not understand the principle well

Understand the principle

Do not understand how to implement the principle

Concrete measures have been chosen

Measures are being implemented

Measures have been completed

6%

15%

15%

64%

0%

40%

39%

21%

Majority of persons responded “understand” before the meetings “Planned” and “Enacted” rose dramatically after the meetings

Breakdown of Response (%) Breakdown of Response (%)

Basic PolicyNikko Cordial Group is aware of its social mission and role as a financial services group, and wants to grow alongside societyas one of its members. We strive to maintain a balance in man-agement among the three areas of economic prosperity, socialequity and environmentalism, as well as to produce profits tobecome an irreplaceable pillar made up of shareholders, NikkoCordial Group employees and society at large.

Management PrincipleOur management principle remains as our fundamental philosophy and constitution and is approved of and trusted bythe public. The concepts of this management principle havebolstered the Group’s cohesiveness, and through their enactment, obtained the trust and approval of the public.

“Everything begins with action.” Acting on our managementprinciple as embraced by each employee changes peoples’behavior and environment, as well as alters destiny. We arededicated to implementing this management principle as second nature to our operations.

Founding SpiritOn October 1, 2001, Nikko Cordial Group experienced its second founding as a securities holding company.

The word “Cordial” embraces the principles of “sincerity”and “wholeheartedness.” We, of Nikko Cordial Group, alsointerpret our corporate name to include the concepts of “cord(i.e. ties)” and “dialogue” to emphasize our intention of “buildingties with our customers through heart-to-heart dialogue” and“cementing ties with society through fulfilling our responsibilities.”

This notion of “Cordial” is a basic value that expresses theorientation of each member of management and employee towork together with society. In that way, the Company logo for“Cordial” is “Co,” meaning “with” and “together.” With this logomark, our goal is to be a financial services group capable ofmoving forward “with” customers and creating new values“with” customers.

Management Principle: Basic Policy

MANAGEMENT PRINCIPLEThink and act from customers’ point of view

Create new value with an innovative spirit

Respect individuals’ unique and distinct abilities as the prime mover of creating new value

Integrity as a member of a socially reliable financial services group

15

The Number-one Trusted and Respected BrandNikko Cordial Group believes that a brand is recognized, valuedand relied on only by the total assessment of its people, serv-ices and products. Any brand gains trust from customersbased on a long, successful track record.

People are the medium by which the value of a brand iscommunicated. We are fully aware that if even one person isnegligent in their duties, our trust from the public is lost.

Nikko Cordial Group has gained a reputation for havingemployees who earnestly implement our management principle,and aims to become the number-one brand that is unwaver-ingly trusted and respected by customers and the public.

Toward Satisfying CustomersThe mission of Nikko Cordial Group is to maximize the capitalof customers so that they can pass it down to the next generation.

Every Group employee feels that they have a responsibilityto our customers. Each employee is dedicated to supportingevery customer’s needs by considering their perspective andproviding the utmost attention. This dedication is a culturalGroupwide element of Nikko Cordial, and is found equally in alltiers of the Group irrespective of title or rank.

To satisfy our customers, we of Nikko Cordial Group willobserve our management principle and maintain our policy ofhonesty and integrity toward customers.

MeasuresPeople, Services

and Products

Management Strategy

Management Principle

Plan

Achieve

Pursue

Implement

Measures to Firmly Establish OurManagement Principle Within the GroupNikko Cordial Group drafted its management principle when itshifted to a holding company structure in October 2001. Since then, various measures have been implemented to firmlyestablish the management principle within the Group. Thesemeasures included talks by management executives withemployees at the workplace, management principle orientationmeetings among various departments, divisions and branches,dissemination of video dialogues by the Chairman andPresident via the Internet, as well as the Cordial Award.

Cordial AwardThe Cordial Award is awarded to Group compa-nies, divisions, teams and individuals who rely onthe Group management principle to work dili-gently in their operations, dramatically improveresults and raise the visibility of the Group withinthe industry and society. Recipients are selectedthrough a vote of Group directors, auditors andexecutive officers at the Nikko Cordial GroupMeeting held in March of each year.

At the third award in 2005, following muchdiscussion and debate, Nikko PrincipalInvestments Japan Ltd. was selected to receivethe award from among four stellar candidates.

16

Treating Customers with Sincerity We deal honestly with customers and act in a manner that maximizes their profit.

Offering the Most We provide the most suitable products and services that conform to our Best Product policy and are carefully Suitable Products evaluated. We provide accurate and sufficient information to customers so that they can make the best

possible choices.

Selection of Business Partners We fairly and equitably select the best business partners based on our policy of Best Partnership.

Compliance We comply with social norms and applicable laws and regulations in line with our paramount emphasis on conducting business fairly and honestly.

Fair Trading We trade honestly by forming fair relationships with business partners. We observe no unsound business practices in our dealings. Moreover, we conduct no unjust activities detrimental to others.

Restricted Contact and Gifts We pursue absolutely no prohibited forms of contact with public officials or gift giving. Contact and gift giving involving management representatives and others of private institutions comply with established regulations.

Separation of Public and Private Group facilities and information are never used for private use. Moreover, we do not use our position of influence unfairly for personal gain nor in a way that endangers the profits of the Group.

Termination of Relationships with We absolutely repudiate and abstain from promoting all relations with criminal elements or organizations. Criminal Elements The Group as a whole works to aggressively handle any problems that arise in this area.

Timely and Suitable Disclosure To ensure accurate understanding of the Group’s financial condition and activities, we implement timely and suitable disclosure to stakeholders based on internal disclosure guidelines.

Strict Confidentiality Excluding times when disclosure is necessary or legally mandatory, we carefully control and maintain the confidentiality of personal and other information gained in the course of business.

Protection and Proper Use of We will remain conscious of the fact that Group assets are the source of corporate value and will protect them Group Assets carefully and leverage them optimally.

Respect for Human Rights We respect human rights, and therefore disavow all discrimination or harassment based on nationality, race, ethnicity, beliefs, religion, gender, age, birthplace, disability or medical conditions such as AIDS.

Support of an Environment that We respect one another and work to build and maintain a sound, safe and open work environment.Respects the Individual

Prohibition of Sexual Harassment We do not permit or conduct sexual harassment in any form.

Protection of Privacy We approach personal privacy with the utmost care and avoid unwarranted infringement on it.

Reporting of Unfair, Illegal and We will immediately report any employee discovered to be behaving unfairly, illegally or immorally as expressly Immoral Behavior stated by regulations. Those reporting such actions will not be penalized for doing so.

Cooperation with the We respect the culture and customs of the countries in which we operate and work in a cooperative spirit for the Global Community benefit of each country and its economy.

Operational Activities that We always remain conscious of our responsibility toward preserving the environment, comply with environmental Consider the Environment laws and internal regulations and take an active role in environmental activities.

Social Responsibility We strive to be a better Group in our role as a corporate citizen. We each reflect on how we can contribute to society and participate actively in various activities to make an ongoing contribution to society.

Code of Conduct

Management Principle: Basic Policy

17

Overview of Nikko Cordial GroupNikko Cordial Group is a financial services Group comprised ofthe holding company and its Group companies.

We optimally leverage the whole of the Group’s manage-ment resources to contribute as much as possible to the futuregrowth of financial markets. Based on the Committee System1,we are endeavoring to raise corporate value through the promotion of highly transparent, sound and responsive Group management.

To achieve fluid response to changes in the environmentand bolster competitiveness, the Group management structureis composed of the four businesses of retail business for indi-vidual customers, wholesale business for corporations, assetmanagement business, and merchant banking business, aswell as additional related businesses. These four businessesform the core of the Group’s operations and are managed byGroup executive officers.

◆Retail BusinessNikko Cordial Securities Inc./Monex Beans, Inc.

◆Wholesale Business Nikko Citigroup Limited/Nikko Cordial Securities Inc.Nikko Investor Relations Co., Ltd.

◆Asset Management Business Nikko Asset Management Co., Ltd.Nikko antfactory K.K.Simplex Investment Advisors Inc.Global Wrap Consulting Group Co., Ltd.

◆Merchant Banking Business Nikko Principal Investments Japan Ltd.Nikko Principal Investments Ltd. Nikko Cordial Securities Inc.

Other Related BusinessesNikko Systems Solutions, Ltd.Nikko Business Systems Co., Ltd.Nikko Financial Intelligence, Inc.Nikko Facilities Co., Ltd.Nikko Enterprise Co., Ltd.Nikko Cordial Advisors Ltd.Cordial Communications Inc.Financial Sun Inc.I-N IFORMATION SYSTEMS, Ltd.NikkoCiti Trust and Banking CorporationNikko Pension Consulting Co., Ltd.

Nikko Cordial Corporation

Retail Business

Wholesale Business

Asset Management

Business

Merchant Banking Business

Pursuing sound, accelerated Group management to improve corporate value

We are working to expand and reinforce the operationalbase for the retail business, improve profitability in the whole-sale business using optimal planning of corporate strategy,reorganize the operational promotion structure in the assetmanagement business, bolster the risk management structurein the merchant banking business and further expand overseas.Concurrently, efforts are being made to raise the comprehen-sive strength of the Group via internal Group alliances.

Moreover, while making efficient use of capital and realizingflexible management, we are reevaluating risk tolerance in exist-ing businesses and investing capital in new high value-addedbusinesses to further expand shareholder value.

1 Nikko Cordial Corporation and Nikko Citigroup Limited have adopted a Committee System.See pages 22-23 for details.

Nikko Cordial Group Overview

Business Content and Strategy

18

Financial Highlights (Consolidated basis)

Management StrategyIn March 2004, Nikko Cordial Group established the “24-monthManagement Goals,” in which efforts from April 2006 will begeared toward bolstering the management base and imple-menting long-term strategies to steadily work toward the targetsof consolidated ordinary income of ¥100 billion and dividends of¥20 per share.

As improved corporate performance fueled a gentle eco-nomic recovery in the financial securities market in fiscal 2004,the industry-wide framework for promoting stock investmentwas further firmed up and the shift from savings to investmentfor individual capital continued to accelerate. In addition, thepush to enhance products and services across all financial categories intensified markedly on the back of increased corporate M&A and capital mergers as well as a succession ofrestructurings and tie-ups.

Amid such developments in finance, Nikko Cordial Groupexpanded businesses in order to expand in capital markets andaugment customers’ financial assets.

In August 2004, the online trading company Nikko Beans,Inc. conducted a share transfer to establish the joint holdingcompany Monex Beans Holdings, Inc. Consequently, MonexBeans Holdings and Monex Securities, Inc.2 became newlyadded Group companies. In investment education, Cordial

Communications Inc. took over a portion of operations fromNikko Financial Intelligence, Inc. to relaunch those operationsfrom October 2004.

To improve management efficiency, we spun off NikkoBuilding Co., Ltd., which is responsible chiefly for holding andmanaging real estate used in business operations, into a sub-sidiary and then transferred all of its operations to a newly estab-lished company and liquidated it. In asset management, NikkoAsset Management pursued management reforms under itsnew management structure, and worked to establish an efficientand highly transparent management structure through tie-upswith international investment companies (U.S.-based WarburgPincus LLC and an investment subsidiary of The Government ofSingapore Investment Corporation Pte Ltd.).

In January 2005, we concluded contracts for operational tie-ups between Nikko Cordial Corporation, Nikko CordialSecurities, Mizuho Corporate Bank, Ltd. and Mizuho SecuritiesCo., Ltd. Through this tie-up, Nikko Cordial Securities, NikkoCitigroup Limited and Mizuho Securities will gradually expandtheir joint operations in equity underwriting and provide servicesto consumers that leverage the strengths of each company.

2 Monex Securities, Inc. and Nikko Beans, Inc. merged in May 2005 to form Monex Beans, Inc.

250.6 307.8 313.9

Net Operating Revenue

Unit: ¥ billions

FY2003 FY2004 FY2005

31.6 76.8 77.7

Ordinary Income

Unit: ¥ billions

FY2003 FY2004 FY2005

-21.6

38.7 46.9

Net Income (Loss)

Unit: ¥ billions

FY2003 FY2004 FY2005

Total Assets

Unit: ¥ billions

5,770.9 6,031.8 6,607.6

FY2003 FY2004 FY2005

Business Content and Strategy

19

PerformanceIn the fiscal year ended March 31, 2005, operating revenueedged up 1% to ¥343.4 billion, and net operating revenue,which is operating revenue less ¥29.5 billion in interest expense,rose 2% to ¥313.9 billion. Selling, general and administrativeexpenses grew 4% to ¥242.4 billion, resulting in a 5% decline inoperating income to ¥71.4 billion. Ordinary income, which is thebalance of non-operating income and expenses, edged up 1%to ¥77.7 billion. With the inclusion of extraordinary losses andcorporate taxes, net income jumped 21% to ¥46.9 billion.

Management IssuesNikko Cordial Group has established the following five items asbusiness challenges necessary for making steady progresstoward the “24-month Management Goals,” and is working tobolster the management base and implement growth strategies.

◆ Implementation of financial operations that raise shareholdervalue, as well as improve financial health

◆ Completion of a corporate governance structure applicable toglobal standards

◆ Creation of a group equipped with advanced information technology

◆ Promotion of the diversification of human resources◆ Completion of a business model suitable for “the age of

direct financing”

Special Organization for AddressingWomen’s Unique Investment NeedsNikko Cordial Securities established the Xshe’s business office inMarch 2005 to offer investment information and various products,services and seminars for women. Xshe’s offers comprehensive life plans that link women’s everyday activities to their investmentactivities.

Xshe’s is a business office specializing in fully addressing therapidly expanding investment needs of women, while also acting toprovide a means for Nikko Cordial Group to meet the needs offemale employees for a Group organization where women can play a more active role.

Analyst MeetingAn Analyst Meeting about Nikko Cordial Group was held onNovember 5, 2004 at TSE Arrows.

Analyst Meeting Held in November 2004

20

Business Content and Strategy

Nikko Cordial Group Corporate History

1918 July Kawashimaya Shoten starts operations

1920 April Kawashimaya Shoten Co., Ltd. established

June Predecessor of The Nikko Securities Co., Ltd. established

1943 September Merger with former Kawashimaya Securities and company name changed

1944 April The Nikko Securities Co., Ltd. established

1948 November Registered as a securities business under the Securities Exchange Law

1949 April Became official member of Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya Stock Exchange

1951 June Completed registration as a securities management company under the Securities Investment Trust Law

1959 October Japan Tourist Development Co., Ltd. established (name changed to Nikko Enterprise Co., Ltd. in July 1964)

December Nikko Securities Investment Trust & Management Co., Ltd. established

1961 October The Company lists its shares on the second sections of the Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya Stock Exchange

1965 July Nikko Securities Co. International, Inc. established

1970 February The Company lists its shares on the first sections of the Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya Stock Exchange

December The Nikko Research Center, Ltd. established

1973 August The Company lists its shares on the Frankfurt Stock Exchange and the Duesseldorf Stock Exchange (delisted in April 2005)

1974 March Nikko Bank (Luxembourg) S.A. established

1981 July The Company lists its shares on the Luxemburge Stock Exchange through European Depository Receipts (delisted in March 2005)

September Nikko International Capital Management Co., Ltd. established

1983 April The Nikko Computer Systems House Co., Ltd. established

July Nikko Venture Capital Co., Ltd. established (name changed to Nikko Capital Co., Ltd. in March 1990)

1984 December The Nikko Merchant Bank (Singapore) Ltd. established

1988 July The Company lists its shares on the Paris Stock Exchange (delisted in March 2005)

December Nikko Securities Business Service Co., Ltd. established (in April 1999, took over the business of Nikko System Center Ltd., established in 1977, and changed its name to Nikko Business Systems Co., Ltd.)

1990 August P.T. Nikko Securities Indonesia established

September Nikko Investor Relations Co., Ltd. established

October The Company lists its shares on the Stock Exchange of Singapore

1993 October The Nikko Trust and Banking Corporation established

1994 April Nikko School System Corporation established

1998 February Global Wrap Consulting Group Co., Ltd. established

December Nikko Principal Investments Ltd. established (takes over business transferred from Nikko Europe Plc. established in December 1972)

1999 February Purchased 51% of outstanding shares of Solomon Smith Barney Japan Limited, the securities division of Citigroup Inc., and established Nikko Salomon Smith Barney Limited (corporate name changed to Nikko Citigroup Limited in April 2003)

April Nikko Asset Management Co., Ltd. established with the merger of Nikko Securities Investment Trust & Management Co., Ltd. and Nikko International Capital Management Co., Ltd.

May Nikko Beans, Inc. established (company name changed to Monex Beans, Inc. in May 2005)

October Financial Network Technologies Ltd. established

2000 March Nikko Principal Investments Japan Ltd. established

2001 March Nikko Shoken Bunkatsu Junbi Kabushiki Kaisha established (name changed to Nikko Cordial Securities Inc. in October 2001)

April The Nikko Research Center, Ltd. absorbed the operations of Nikko School System Corporation (company name changed to Nikko Financial Intelligence, Inc. in October 2001)

June Nikko Pension Consulting Co., Ltd. established

July Financial Human Planet Inc. established as a joint venture with Pasona Inc.

October Nikko Cordial Securities Inc. takes over the entire securities business and other operations from The Nikko Securities Co., Ltd.(The name of The Nikko Securities Co., Ltd. is changed to Nikko Cordial Corporation)

October Nikko Facilities Co., Ltd. established (operations begin in April 2002)

December A 50% share of The Nikko Trust and Banking Corporation is transferred to Citigroup Inc., and NikkoCiti Trust and Banking Corporation is established

2002 September antfactory K.K. makes Nikko Capital Co., Ltd. a wholly owned subsidiary and the name of the subsidiary is changed to Nikko antfactory K.K.

December Nikko Cordial Advisors Ltd. established

2003 January Nikko antfactory K.K. absorbs Nikko Capital Co., Ltd. into its operations

April Nikko Salomon Smith Barney Limited changes its name to Nikko Citigroup Limited

July Financial Network Technologies, Ltd. and The Nikko Computer Systems House Co., Ltd merged, and the company changes its name to Nikko Systems Solutions, Ltd.

August Financial Human Planet Inc. changes its name to Financial Sum Inc.

2004 April Nikko Cordial Advisors Ltd. begins operations

June Shift to Committee System

August Monex Beans Holdings, Inc. established

October Cordial Communications Inc. begins operations

2005 January Nikko Securities Co. International Inc. changes its name to Nikko Alternative Asset Management, Inc.

21

Approach to CSR

Guided by a recognition that CSR is the essence of management

Maintaining Even Better Relationshipswith Stakeholders“Acting with a continual awareness of society.” In a nutshell,this is how Nikko Cordial Group fulfills its responsibilities tosociety. The Group owes its very existence to the presence ofsociety and believes that its ongoing existence depends onaccurately understanding the society in which we do business.

We recognize that CSR is both the essence of managementand a prerequisite for Nikko Cordial Group to be indispensablefor society.

Until now, companies strove to expand their business andachieve globalization amid unhindered competition that focusedon achieving economic efficiency. However, in parallel with theexpansion of corporate activities, the relationship among com-panies, society and the environment has become increasinglyimportant. Governments, municipalities, companies and individuals all shoulder responsibilities for economic, social andenvironment-related problems. Given the significant influentialpowers of companies, however, demand for solutions to theaforementioned problems is inevitably directed at companies.

In view of this situation, corporate activities are attractingcloser scrutiny from stakeholders, including customers, shareholders, investors, employees, business partners andsociety. Nonetheless, the nature and level of demands fromeach of these stakeholders differs. Consequently, we believethe key to maintaining even better relationships and sustainingsmooth communications is a sufficient understanding of what,how, and how much stakeholders expect of Nikko CordialGroup and for the Group to explain its responsibilities, or inother words, accountability.

Guidelines for Putting CSR into Practice

Corporate GovernanceRespect and comply with laws and social norms, and act in accordance with the Management Principle

Putting CSR into Practice in Our Main BusinessRespond to the trust of the people who support the Group, andprovide quality services in our main business

Consideration for StakeholdersBe aware that the Group is a part of society, and work to promote the development of capital markets and to create newbusiness opportunities

Contribute to SocietyMake contributions to humankind, the natural environment andsociety as a good corporate citizen

Corporate governance is the basis of a company, and in puttingCSR into practice Nikko Cordial Group pledges to progresswith activities that contribute to society while constantly consid-ering our stakeholders. Even as we apply the ManagementPrinciple and Guidelines for Putting CSR into Practice to solidifyour “defense,” CSR will be deployed as our “offense.”

Relationship Between Our Management Principle and Guidelinesfor Putting CSR into Practice

Structure for Implementing CSR

Respect for the individual(internal approach)

Client focus(external approach)

Innovative spirit

IntegrityCorporate governance

Put into practice in main business

Consideration of stakeholders

Social contributions

(Source: Materials by Professor Junichi Mizuo, Surugadai University)

Str

ate

gic

CS

R

ManagementCommittee

CSR PromotionDepartment

CSR Committee

Solidarity, advice, support Advice, support

Advice,support

Advice,support

Report, consult

Informationgathering

Informationgathering

Nikko Cordial Securities Inc. Group company Group company

Branch Branch Branch Branch Branch

Affiliated Departments of Nikko Cordial Securities Inc.

CustomerHelp Desk

Retail Business Planning

Department

Customer Service Planning

Department

SalesCompliance Department

Report, consult

Management, support

22

A financial services group required to have akeen sense of its public mission and strong ethics

Control System for Multi-FacetedSurveillance and Inspection Nikko Cordial Group has built an advanced corporate governance system as a financial services group that musthave a highly public mission and socially fair ethics.

We believe that maintaining and further developing our corporate governance system is contingent on managementand all other Group employees undertaking business with a high sense of ethics. The basis of the Group’s corporate governance is a framework that encompasses a control systemwith mutual surveillance and inspection functions of all directorsand employees both externally and internally.

1997 October Reviewed entire Management Committee➝ Invigorated discussions and improved

transparency levels1998 February Set up Office of Statutory Auditors

➝ Strengthened problem discovery functionsJune Reduced number of directors and estab-

lished Executive Officers System under theCommercial Code of Japan ➝ Separated management and business

execution functionsDecember Selected external director

➝ Mr. Deryck Maughan, Citigroup 1999 June Selected external directors

➝ Mr. Yukinobu Ozaki, former SupremeCourt judge and Mr. Nobuo Kobayashi,CPA

October Set up Management CompensationCommittee➝ Extensively reviewed compensation

system for directors and executive officers 2000 March Set up Business Execution Committee

➝ More versatile execution of everydaybusiness affairs

2001 October Shifted to a holding company structure➝ Formulated management strategies for

the overall Group October Strengthened the activities of Group Audit

Committee ➝ Strengthened Group auditing functions

along with shift to holding company2002 February Established inspection system for holding

company and Group companies➝ Set up the Internal Inspection Division I

and Internal Inspection Division IIOctober Set up external consultation liaison for sex-

ual harassment and other problems2003 January Introduced Nikko Alarm (Internal Reporting

System) ➝ Aimed at detection of legal violations and

quick prevention and improper conductby reporting to external legal counsel

2004 March Set up CSR Committee May Disclosed compensation for each

representative directorJune Shifted to Committee System

2005 February Set up CSR Promotion DepartmentStrengthened functions of DisclosureCommittee

Regular employees and contract employees

Directors andExecutive Officers(top management)

Managers(department managers and

section managers)

Achieve efficiency and proper compliance with laws through a top-down approach•Reform Board of Directors (shift to a Committee System), reform the director compensation system

Achieve efficiency and proper compliance with laws through external surveillance•Shift to a Committee System

Increase and strengthen external directors •Proactively disclose information to shareholders and other stakeholders

Enhance the General Meeting of Shareholders (Early sending of notification of General Meeting of Shareholders, hold informal discussion forums with shareholders), upgrade IR and disclosure (disclose quarterly results)

Achieve efficiency and proper compliance with laws through a bottom-up approach•Strengthen internal control functions(Nikko Alarm, 360-degree evaluation system, etc.)

•Implement compliance tests

Basic Stance on Corporate Governance

Initiatives for Strengthening Corporate Governance

Corporate Governance

23

Corporate Governance Structure We overhauled our management structure by transitioning to aCommittee System after receiving approval at the GeneralMeeting of Shareholders in June 2004. In parallel, to enhancemanagement surveillance functions and raise transparency weset up the Nomination Committee, the CompensationCommittee and the Audit Committee, each of which has amajority of external directors. Also under our revamped structure, executive officers appointed by the Board ofDirectors will concentrate on executing day-to-day businessoperations. Additionally, under the President, an executive officer, we have discretionally established seven committees tostrengthen our response capabilities with regard to variousmanagement issues.

Group Personnel Compensation Committee

Nomination Committee

Compensation Committee

Audit Committee

General Meetingof Shareholders

Board of Directors

Executive OfficersPresident & CEO

Roles of Discretionally Established Committees

Board of Executive Officers

Management Committee

CSR Committee

Disclosure Committee

IT Committee

Investment Committee

Responsible for discussing and making decisions on management plans and other Group matters

Responsible for discussing and making decisions on the management strategy of the Group and other matters

Responsible for discussing and making decisions on overall policies, specific measures, and other important matters related to social responsibility

Responsible for discussing and making decisions on the establishment, implementation and monitoring of disclosure control systems

Responsible for discussing and making decisions on overall policies, specific measures, and other important matters related to IT

Responsible for discussing and making decisions on overall policies, specific measures, and other important matters related to investments

Responsible for discussing and making decisions on overall policies, specific measures, and other important matters related to personnel and compensation

Information Disclosure As the “policy for maintaining the trustworthiness of its disclosure system,” the Disclosure Committee consolidates andundertakes uniform management of legally required informationdisclosure while formulating Guidelines on InformationDisclosure to establish and improve internal control of informa-tion disclosure. Guidelines on Information Disclosure dividesdisclosure into three categories—appropriate timing of disclo-sure, disclosure of business results and disclosure of otherinformation—and prescribes procedures and governs the establishment, operation and monitoring of a control structurefor assuring the accuracy, completeness and timeliness of information.

Flow of autonomous inspections as listed in the AnnualSecurities Report of Nikko Cordial Corporation

Inspection assignment flow

President & CEOSubmit response

documents and others

Finance & Treasury Division

Group Management Planning Division

Reporting flow

Executive officer concurrently in charge of Finance & Treasury Division

and Group Management DivisionExecutive officer of internal management departments

Internal Audit Division

Nikko Cordial’s Management Structure

In fiscal 2004, the Nomination Committee convened twice, the Compensation Committee twice, and the Audit Committee 13 times.

24

Appropriately managing risk and maintaining management soundness

Risk ManagementThe advance of liberalization and internationalization of financecoupled with the increasing sophistication of financial technol-ogy has led to a pronounced diversification and growing com-plexity of various types of risk, including market risk, credit risk,liquidity risk and operational risk. Based on the principles ofself-responsibility, companies in the financial services industrymust appropriately manage risk and fulfill their obligation to pro-tect investors while maintaining the soundness of management.

As Japan’s largest financial services group that providesinnovative and comprehensive solutions, mainly in securities-related businesses, Nikko Cordial Group believes that thoroughcompliance is its top management issue. Accordingly, theGroup is taking initiatives to build a compliance structure and toensure that compliance becomes firmly entrenched in theminds of directors and employees. Nikko Cordial Group is alsobuilding an internal risk management structure to comprehen-sively ascertain and manage the Group’s assorted and diverserisks and to appropriately allocate management resources incommensuration with relevant risk.

Catastrophic (Disaster) Risk

Contingency plan

Market risk

Credit risk

Liquidity risk

System risk

Administrative risk

Legal risk

Reputation risk

Crisis Management

Ris

k M

anag

emen

t

Risk Management PolicyTwo pillars comprise the basis of our risk management. First,we have established and operate a structure for controlling riskto ensure that various risks do not emerge. Second, we under-take risk management to minimize any damage in the unex-pected event that risks emerge and to ensure the continuity ofour business operations.

Determined to appropriately undertake risk control, we haveformulated regulations and guidelines that respond to individualrisk, appointed persons responsible for managing risk andimplement regularly scheduled risk monitoring.

Crisis Management StructureAs the organization for responding to the occurrence of a riskor disaster, Nikko Cordial Securities has permanently estab-lished the Crisis Management Task Force within the CSRCommittee, and this task force is headed by an executive officer overseeing group management. By taking this measure,we are firmly positioned to make versatile responses to theoccurrence of any unforeseen problems at any Group com-pany. Under this task force, the secretariat continually gathersinformation, and matters that could significantly affect theGroup are reported immediately to the president. A quickassessment of the situation is made and if necessary aComprehensive Countermeasure Headquarters is set up.

Compliance Committee

Board of Directors

Compliance Coordination

Compliance

Reputation risk Legal risk Market riskCredit risk

Liquidity risk Other risk Administrative risk System risk

Operational risk

Systems CommitteePersonal InformationMonitoring Committee

Risk Management Committee

Risk Management Coordination

Safety Measures Committee

Emergency Measures Headquarters

Secretariat

Nikko Cordial Securities Risk Management Structure

Risk Management Structure

Risk Management

25

Managing Personal Information Responding to the full-fledged enforcement of the PersonalInformation Protection Act as of April 1, 2005, each NikkoCordial Group company has built a structure for managing personal information and has bolstered security to preventinformation leaks.

Together with the disclosure of personal information protection policies and the establishment of regulations andstructures in accordance with the Personal InformationProtection Act and the FSA guidelines, we operate a frameworkthat encompasses introducing security platforms1 for our computer systems, strengthening customer authentication andinformation encrypting and maintaining printing and operationallogs as audit trails.

Nikko Business Systems Co., Ltd., which handles out-sourced securities-related operations, has acquired the PrivacyMark, while Nikko Systems Solutions, Ltd., which develops andoperates systems, has acquired ISMS (a system for evaluatingthe appropriateness of security management systems).Additionally, Nikko Cordial Securities, Nikko Business Systemsand Nikko Systems Solutions are proceeding with personalinformation protection responses in accordance with thePrivacy Framework formulated by the American Institute ofCertified Public Accountants, which is noted for being theworld’s most stringent framework.

1 Software to prevent information leaks and fraudulent operation.

President

[Respective Departments and Offices]

Persons of each Division or Branch

Person in charge of managing information security

Person responsible for managing information security

Division responsiblefor liaison activities

Division responsible for improving programs

Information Security Secretariat

Person responsible formanaging personal information

Management Committee

CSR Committee

Human Resources Division

Legal Division Makes legal decisions and responds to lawsuits

Monitors employee information

Internal Audit Division Audits the monitoring structure

Respond to requests for disclosureDepartments holding customer information

Nikko Cordial Corporation’s Personal Information Protection Management System

Incidents of Customer Information Leaks

•November 1, 2004: At the Takaoka Branch of Nikko Cordial Securities (leaks of names of 80 people due to an automobile break-in and theft)•January 14, 2005: At the Nagoya Branch of Nikko Cordial Securities (leaks of names of 65 people due to a bag snatching incident) •March 25, 2005: At the Listed & OTC Companies Division of Nikko Cordial Securities (leaks of the names of 31 companies and 51 persons due to the lossof documents)

*In the aforementioned incidents, we immediately apologized to the customers involved, reported the incidents to the FSA and issued a press release. As ofthe end of May 2005, there had been no reports of damage from fraudulent use of the leaked information.

http://www.nikko.jp/GRP/policy_e/privacy.html

26

Becoming a sincere and fair company thatGroup employees can point to with pride

Strengthening ComplianceAs a financial services group, Nikko Cordial Group believes thatcontinually operating and improving its compliance system isessential. This is because compliance is the basis for enablingthe execution of business operations with sincerity and fairnessto win the trust of customers and earn their business as well asbecome a company that each Group employee can point towith pride.

Highlighting our determination to foster a greater awarenessof compliance among all directors and employees, fromOctober 2004 Nikko Cordial Corporation and Nikko CordialSecurities began administering Compliance Tests to over 2,000employees, including all directors, management-level staff andmanagement candidates. These tests cover various areas ofcompliance from a broad perspective, covering such subjectsas ethical fairness, adherence to laws and regulations, security,risk management, human rights and the protection of personalinformation. Employees pass this highly stringent test only whenthey have answered all questions correctly.

Compliance Structure of Nikko CordialSecuritiesWhile working to further upgrade and strengthen its compliancestructure, Nikko Cordial Securities took steps to appropriatelyimplement compliance for such new businesses as those targeting high net worth clients and new securities brokeragebusinesses. Specifically, as part of organizational reformsundertaken in January 2005, we appointed 11 staff as “personsresponsible for controlling area compliance” to monitor andoversee compliance in sales departments.

Additionally, to strengthen the independence of compliancemanagers responsible for overseeing practices at the salesfront, we officially announced that these managers will worksimultaneously under the SalesCompliance Division, with primary affiliation being with the ComplianceDepartment.

Beginning with the formation phaseof products, it is essential to proceedquickly with uniform screening andpreparing of contracts and handlingrules. To undertake these processesquickly, under organizational reformscarried out in February 2005, productscreening, product management andadvertising screening were separated asindependent functions into the ProductCompliance Division. At the same time,

we consolidated several functions, mainly the compliance sys-tem in sales departments, into the Sales Compliance Division,and have now reorganized into a two-division structure, thereby establishing a structure that raises the specializationand versatility of each department.

Each individual director and employee must continually raisetheir awareness of the importance of strictly adhering to lawsand utilize this enhanced consciousness in their day-to-daybusiness operations. With this in mind, we have worked tostrengthen our compliance system under the theme “continuallymaintain and improve compliance levels throughout theCompany.” As part of these efforts, we also dispatch supportstaff from our headquarters to branch offices when necessary.To bolster this initiative, we also implement a trainee system toraise employee compliance levels and enhance employeeawareness of compliance as well as established rules andguidelines that include revisions to our Compliance Manual inresponse to amendments to relevant laws.

On a different front, we have reorganized our SalesRegulations to make these even clearer and easier to under-stand. At the same time, to ensure employees recognize thatstrict adherence to laws is closely interwoven with their duties,we have posted two features on our intranet: CompliancePractical Course, which explains basic compliance rules by givingspecific examples, and Compliance Letter, which provides actualexamples to spread the principles of stringent adherence to laws.

Each branch holds a monthly audit conference under theauspices of the branch managers. The results of these confer-ences are reported to the directors in charge of sales and theSales Compliance Division. Once every three months, the areacompliance supervisors, who provide compliance guidance ineach area, attend these conferences. Moreover, the InternalInspection Division carries out annual branch audits and asks

General Affairs section chief

Board of Directors Audit Committee

Compliance Committee

President

Person with responsibility for coordinating internal monitoring

Person in charge of compliance

Branches Branch manager

Customer Help Desk

Person with responsibility for controlling area compliance

Sales Compliance Division

Product Compliance Division

Securities Trading Supervisory Division

Internal Inspection

Division

Nikko Cordial Securities Compliance Structure

Compliance

27

Nikko Cordial Securities Best Execution Policies In March 2005, in line with adhering to Article 43-2-1 of theSecurities Exchange Law enforced from April 1, 2005, we estab-lished our Best Execution Policies that determine methods and policies for enforcement under the most ideal trading conditions for customers.

Details of the Best Execution Policies are listed on our website(http://www.nikko.co.jp/SEC/sairyo/) [Japanese only]. Additionally,related information is available to customers upon request at ourmain branches.

Framework of Nikko Alarm

ReasonableSolution

Detection of legal violations

or fraud

(1) Report

(6) Feedback

Outside legal counsel

Report is examined from an objective standpoint by outside legal counsel

Report on legal violations, etc.

(2) Consultation

(3) Private hearing

Confidentiality*

Position

*The identity of the reportee is kept confidential by legal counsel.

(4) Notification

Notification

Nikko Cordial Corporation

Office of Audit

Committee

Report

(5) Investigation

Board ofDirectors

Name Contact information

Directors and employees

◆ Operational Framework•Persons with information about illegal and unethical behavior reporttheir name section, and contact number to an outside legal counsel,who serves as the liaison.

•Keeping the reporter’s name confidential and anonymous, the outsidelegal counsel contacts the Office of Audit Committee.

•Based on the information received, the Office of Audit Committee asksthe Enforcement Department to investigate, and necessary measuresare devised.

•The outside legal counsel informs the reportee of the results.

◆ Number of Reports and DetailsDuring the 27-month period from January 2003, when the Nikko Alarmwas implemented, to March 2005, a total of 32 reports were received.The details of the reports are as shown below. The status of responseshas been reported to the Board of Directors.

Details of information Total cases

Employee violations of code of ethics 6

Compliance 8

Harassment arising from abuse of authority 12

Information management 2

Labor management 2

Complaints against the Company, etc. 2

Total 32

Number of Reports by Type Up to March 31, 2005

branches to make improvements or devise improvement measures for any deficiencies cited.

As another feature of our compliance system, we have setup Compliance Bulletin Boards to enable persons in charge ofinternal operations at branches (branch managers) to gathernecessary information and exchange opinions.

As business models become more diverse and the tempoof change accelerates, we recognize the growing need to raisethe compliance level of relevant staff in compliance depart-ments. We will address this need by using outside specialistsand further augmenting our education and training structure.

Nikko AlarmIn January 2003, we began operating Nikko Alarm, an internalreporting system, at all companies comprising Nikko CordialGroup. Nikko Alarm is intended to prevent illegal and unethicalbehavior and to discover any such behavior as quickly as pos-sible. At the same time, by strengthening our internal controlmechanisms, we have made it possible for employees to assistin taking remedial actions and strengthen surveillance and control over management. This internal reporting system is stipulated as a company rule.

Best Execution Policies

2928

CustomersShareholders andInvestors

Society

SRI

EnvironmentPartners

Nikko Cordial Group Employees

InvestorEducation

Aiming to be indispensable for our stakeholders

Nikko Cordial Group undertakes business operations that achieve a balance among economic prosperity, social fairness and environmental awareness as we work to achievehigh-quality earnings. We strive to be an indispensable presence for shareholders, customers, Group employees and society as a whole. In broad terms, we view our stakeholders as those in the following six categories.

We respond sincerely to our customersand act to realize optimal profits for cus-tomers. In building relationships with eachindividual customer, we aim to “think andact from customers’ point of view” as aninnate part of our business activities. Wewill emphasize “everything for the cus-tomer” and listen to customers with asense of appreciation, as well as strive toforge even stronger bonds of trust.

We continually recognize ourresponsibility for protecting theenvironment, adhere stringently toenvironmental laws and internalregulations and are strongly committed to environment-relatedactivities. Through such actions, weare ensuring that we pass down avital and healthy planet to futuregenerations.

Serving as an active member ofsociety, we pursue growth anddevelopment hand-in-hand withsociety. Aside from our main busi-nesses, we will also contribute tosociety in our role as a responsiblecorporate citizen. Moreover, eachindividual employee will think abouttheir social contributions andproactively participate in variousactivities to contribute continuouslyto society.

To foster a sense of pride and satisfactionamong shareholders and investors, we ful-fill our responsibilities as a company andtake a proactive approach to buildingdeeper bonds through dialogue.

Unquestionably, people are our most-valuable asset as well as the foundation ofthe Nikko Cordial Group. While raising thelevel of our four strengths in securitiesexpertise, Nikko Cordial Group strives fordiversification and dynamism with anemphasis on people’s individuality andaims to create a highly satisfying workingenvironment that is full of vitality.

We collaborate with the most suitablepartners as determined by timing andbusiness fields, without being bound bythe frameworks of financial groups or theconventional thinking of the financialindustry. By maintaining and nurturinghealthy relationships with our partners, weare able to offer optimal products andservices to our customers and raise levelsof satisfaction within society.

Relationship with Stakeholders

30

Fostering a sense of pride and satisfaction forshareholders and investorsTo nurture a sense of pride and satisfaction among shareholders and investors, NikkoCordial Group is fulfilling its corporate responsibilities while making proactive initiatives todeepen bonds of trust through dialogue.

Our Responsibilities as a Public Company◆ Economic ResponsibilitiesWe believe that our number-one responsibility to shareholdersand investors is economic, namely, generating stable and highearnings and redistributing these earnings to shareholders inthe form of dividends. In the fiscal year ended March 31, 2005,Nikko Cordial Group generated ¥207.0 billion in value addedand Nikko Cordial Corporation paid out ¥19.0 billion in dividends to shareholders, representing an added value distribution of 9.2%. (For specific details, please refer to the section entitled “CSR Accounting” on page 54.)

Besides fulfilling economic responsibilities, we are alsodeepening bonds of trust with shareholders through variousforms of communication.

◆ Shareholders’ RightsIn accordance with the number of shares held, all shareholderspossess fair rights, receive allocations of income and can participate in important decision-making at the annual GeneralMeeting of Shareholders.

With an emphasis on speedy management, Nikko CordialCorporation has adopted a system for entrusting a large shareof decision-making to members of top management such asthe Board of Directors and Executive Officers1. For example,the Board of Directors decides on the appropriation of earnings,including the portion of generated earnings to be paid to share-holders as dividends and the portion to be retained internally.Because of this, we have adopted a system under which direc-tors are elected at each annual General Meeting of Shareholders.

To ensure that management’s actions are not in conflictwith the interests of shareholders, we have adopted a system

that requires a majority agreement of two-thirds or more at theGeneral Meeting of Shareholders for any fundamental changesto the Company or matters that cause important changes toshareholders’ rights.

◆ General Meeting of ShareholdersTo allow as many shareholders as possible to attend theGeneral Meeting of Shareholders, Nikko Cordial Corporationmakes its best effort to avoid holding this meeting on dayswhen there is a large concentration of other shareholders’meetings and strives to hold this meeting earlier than those ofother companies.

Four weeks prior to the General Meeting of Shareholders,we send shareholders a copy of our Business Report, whichintroduces our varied business approaches, together with thenotification2 of the convening of the General Meeting ofShareholders. Moreover, we also post this notification of theGeneral Meeting of Shareholders on our website and strive toensure that our shareholders can give sufficient considerationto proposals.

Additionally, to allow shareholders who are unable to attendthe General Meeting of Shareholders to participate in the resolu-tions, we accept proxy votes (exercise of resolution voting rights)by mail or the Internet3. To enable both shareholders and investorsto view our General Meeting of Shareholders, explanation materials and video images are also accessible via our Website.

1 This framework adopted by companies is called a Committee System.

2 This document explains key matters for discussion at the General Meeting of Shareholders.As stipulated by the Commercial Code, this document must be sent to shareholders no laterthan two weeks prior to a shareholders’ meeting.

3 Can be accessed using PCs, mobile phones and L-mode.

Convening of Analyst MeetingsNumber of meetings held in fiscal 2004: 189Among these 189 meetings, directors attended 47 meetings while 32 meetings were held overseas.

Interim Business Report for the Fiscal Year Ended March 31, 2004

Business Report for the Fiscal Year Ended March 31, 2004

No response or other:69 people (1.8%)

Difficult to understand:138 people (3.6%)

Average: 1,817 people (46.9%)

Easy to understand: 1,851 people (47.8%)

Not very easy to understand:71 people (3.2%)

No opinion:447 people (20.4%)

No response or other: 72 people (3.3%)

Easy to understand:1,602 people (73.1%)

Results of Questionnaire on Our Business Report* Percentage of Voting Rights Exercisedand Number of Shareholders Attendingthe General Meetings of Shareholders

62nd Business Term 63rd Business Term(fiscal 2003) (fiscal 2004)

Percentage of voting 71.27% 77.29%

rights exercised

Number of shareholders457 744

present at meeting

Approach to Shareholders and Investors

* Survey targeting shareholders residing in Japan

31

Securing an Even Larger Number of ShareholdersTo ensure that an ever-growing number of people are shareholders with a sense of reassurance, it is imperative thatshareholders also be able to easily sell their shares and recovertheir investment if they no longer desire to be shareholders.

Nikko Cordial Corporation is listed on domestic and overseas stock exchanges, beginning with the Tokyo StockExchange, and thereby provides numerous investors withopportunities to invest in the Group. As an integral part of ouroperations, we also disclose information using appropriatemethods and timing as required by laws and stock exchangeregulations, as well as take a proactive approach to self-initiatedinformation disclosure.

◆ Disclosure of Dividend ForecastsAware that shareholders have a keen interest in dividend information, we announced a policy of paying 35% or more ofour fiscal year net profit for dividends. To make investmentdecisions even easier for shareholders and investors, weannounce forecasts of per share dividends prior to the closingof each fiscal term. Moreover, we freely disclose informationcritical to investment decision-making, including held securities investments.

For the year ended March 31, 2005, cash dividends pershare amounted to ¥12.

◆ Announcements of Business ResultsNikko Cordial Corporation is working to speed up preparationsfor its business results announcements and aims to announceits results 26-27 days after the close of each fiscal term. Thistiming is significantly faster than the average time required (44.8 days4) for all listed companies.

Concurrent with our results announcement, we use confer-ence call systems to explain our business results to analystsand institutional investors. To encourage the simultaneous participation of individual shareholders and investors, we

provide real-time voice and video as well as accept and answerquestions via the Internet.

◆ Providing Information on Our WebsiteThe many types of materials released by Nikko CordialCorporation are also available on our website5. Particularlynoteworthy, we have established a special page for individualinvestors that presents all necessary relevant information in aneasy-to-understand format. Such principal subsidiaries asNikko Cordial Securities list various types of managementindices (number of accounts and assets held), and this informa-tion is updated monthly. Additionally, we have established apage where shareholders and investors can make inquiries andreceive quick responses to their opinions and requests.

◆ IR6 News MailNikko Cordial Corporation provides delivery service for sendingGroup news releases and the latest information from our website via e-mail. (This service is for the investors residing in Japan)

◆ IR Seminars for Individual InvestorsTo foster even smoother communications with individualinvestors, we hold annual IR seminars, where top managementexplains our future growth strategies to individual investors. The most recent IR seminar7 was simultaneously broadcast tovenues in regions throughout Japan via satellite, and a total ofapproximately 2,000 investors attended.

4 The average number of days for required for announcement of consolidated results by TSE-listed companies with March 31 fiscal year-ends. Source: Tokyo Stock Exchange, “Resultsof Tabulated Business Results (Consolidated) Announcements for the Fiscal Year EndedMarch 31, 2004”.

5 http://www.nikko.jp/GRP/irinfo_e/index.html

6 Investor Relations (information for investors)

7 Seminar not held during the fiscal year ended March 31, 2005. (The most recent IR seminarwas held in February 2004.)

Striving for Even Closer Ties•Shareholder DiscussionsEach year following the close of the General Meeting of Shareholders, Nikko Cordial Corporation holdsshareholder discussions, which provide an opportunity for informal and frank communication betweenshareholders and the directors of various Nikko Cordial Group companies.

•Preferential Treatment System for ShareholdersWe began giving preferential treatment to shareholders as of the end of March 2005 with a program thatgives consideration to LOHAS8. Based on the number of shares held, this system allows shareholders tochoose from stringently selected specialized items from long-established shops from throughout Japan aswell as lifestyle, health and environment-related products in addition to our own original products such asKnowledge of Tax, a publication explaining taxes.

Also, depending on the status of applications for lifestyle, health and environment-related products, theCompany will donate ¥100 per item to the WWF-Nikko Green Investors Fund (Refer to Page 43).8 An acronym for Lifestyles of Health and Sustainability. This refers to the environment, nature and health-friendly lifestyles. In Japanese this means

kyosei, or “coexistence.”

Leaflet introducing preferentialtreatment system for shareholders

32

Nikko Cordial Group believes that the “quality of service reflects the quality of the personwho provides it.” This is why we aspire to having every person who works for Nikko CordialGroup put our management principle into practice in dealing with customers, and in particular, having our concept of “Think and act from customers’ point of view” becomenatural to them. We will act solely “for the benefit of our customers” and accept customers’ feedback with appreciation so as to build greater trust.

Thinking and acting from customers’ pointof view

Customer Help DeskIn September 2001, Nikko Cordial Securities set up a CustomerHelp Desk to quickly respond to the opinions of our customers.Major missions include “putting together and responding tocustomers’ opinions,” “drawing up company measures,” and “implementing CS1 Surveys and accordingly makingassessments.”

Full-time staff members are assigned to the Customer HelpDesk to respond to daily needs, whereby such personnel studyrecurrence prevention/preventive measures jointly with branchoffices in the field. Staff are prepared to seriously listen to cus-tomer feedback and requests, and take immediate actionregarding issues that require immediate attention. TheCustomer Help Desk functions as a liaison between branchoffices and the headquarters divisions, with the aim to create atrusting relationship with customers.

Internal control managers are assigned at branch officesnationwide in order to address customer complaints. Theseinternal control managers are authorized by the managers ofmarketing divisions and branch offices to solve problems basedon the principle of taking action before the end of the day, whilecooperating with divisions at the headquarters.

1 CS refers to Customer Satisfaction.

Customer Response SystemIn May 2002, Nikko Cordial Securities launched the CordialResponse System, which facilitates the sorting, accumulation,searching and analysis of opinions from customers so that theCustomer Help Desk, marketing divisions and branch offices,as well as the headquarters can work together in solving problems. The opinions and requests that we receive from customers at our Call Center and our website are also moni-tored and managed accordingly.

The Customer Help Desk analyzes the above informationand reports each month at an in-house meeting of the CS-ESImprovement Committee2, where measures to be taken for theagendas are decided on. Agendas of particular importance arealso brought up at the meeting of the Business ManagementCommittee comprising directors. Issues related to complianceare discussed at the Area Compliance Meeting, and measuresare fully communicated thereafter. Contents of the report/evaluations and materials used at the CS-ES ImprovementCommittee meetings are posted on the intranet.

The analysis results of customer requests are reported toplanning departments and directors at the headquarters sothey can be used as study materials for development of futureproducts and services.

2 CS-ES Improvement Committee is a periodical meeting body chaired by the president ofNikko Cordial Securities, with directors, general managers, responsible staff of the divisionsconcerned and observers participating, and is held for the purpose of promoting CS. For further details, please refer to page 34. (ES stands for Employee Satisfaction.)

Improvements

Telephone calls

Customer visits to the branches

Internet messages

Letters

Staff visits to customers

Call Center

Divisions at the headquarters

Intranet (in-house information

sharing network)

Branches

Complaints

Analysis

Feedback and requests

Business Management Committee

CS-ES Improvement Committee

Respective meetings

Suggestions to relevant divisions

Report of results to customers

Cust

omer

s

Customer Help Desk

Response and analysis

Discussion meetings

Cordial Response System

Approach to Customers

33

Other Customer Response MeasuresIn recognition that post-sales service following the purchase orcontract of products and/or services is essential in supportinglong-term asset management of our customers, we are activelyworking on improvement measures.

In the area of investment trusts, for instance, we are com-mitted to reliable communication activities by way of having themanagement company hold a periodical management reportmeeting for customers who own investment trust products, andhaving the Call Center make a semi-annual “periodicalcheckup” call to explain the status of the held assets to cus-tomers who own variable insurance policy products for which abuy and hold stance is the major premise. In addition, we arealso striving to diversify contacts with our customers andstrengthen the contents of our services for added convenience.

Furthermore, we are concurrently promoting qualityimprovement in our existing face-to-face services provided atbranches and enhancing convenience and functions of non-face-to-face services including our online trading service, NikkoezTrade, as well as the Call Center.

At our Call Center, specially assigned operators respond tocustomer inquiries and requests. For customers who are usersof Nikko ezTrade, for example, staff members respond to anyquestion ranging from how to connect to the Internet or how toset up a PC or cellular phone connection to how to input infor-mation on different screens.

As for frequently asked questions, we have a database pertaining to customer feedback and requests, along with awell-prepared manual compiling response examples so that wealways remain able and ready to respond to questions from ourcustomers. Even in the case of an unprecedented inquiry, wetake our best efforts to respond to the customer before the endof the day by contacting the relevant division(s) immediately.

CS (Customer Satisfaction) SurveysNikko Cordial Securities quantitatively ascertains CS levelsthrough CS Surveys, targeting customers of all branches. Atthe same time, we also carry out storefront-monitoring surveys,making comparisons with competitors for the purpose ofimproving our storefront services.

The CS Surveys are outsourced to an external organizationsemi-annually to ascertain general satisfaction levels of our

customers. We send questionnaire forms to a total of 50,000customers, who are selected at random from among all Nikko Cordial Securities customers, and ask them to returntheir replies.

The collection rate of the survey conducted in the first halfof fiscal 2004 was 28% (14,563 responses) and 26% (13,493responses) for the second half of the year. The questionnaireconsisted of a broad array of approximately 40 items rangingfrom assessment of the person in charge to requests and feedback regarding the company.

The results of survey analyses are relayed back to thebranch offices, where the staff members in charge of CS promotion take the initiative in carrying out improvement activities. Subsequently, Customer Help Desk staff visit branchoffices and hold CS improvement and promotion meetings.

In addition, the results of CS Surveys and storefront-monitoring surveys are available over the intranet after reporting the results to the CS-ES Improvement Committee so that all corporate personnel can share information onrespective issues.

CS Survey Results

Satisfied More or less satisfied

First half2001

Second half2001

First half2002

Second half2002

First half2003

Second half2003

First half2004

Second half2004

52.3

21.1

51.3

20.1

53.0

22.5

53.7

25.0

53.4

27.3

54.1

27.7

53.0

27.9

54.8

27.6

73.4 71.4 75.5 78.7 80.7 81.8 80.9 82.4

Unit: %

Number of Responses Received from Customers by Channel (April 2004 - March 2005)

Complaints Feedback and requests InquiriesMonthly

Percentage Percentage Percentage Total average(%) (%) (%)

Cordial Response System 1,014 97.0 12 1.1 19 1.8 1,045 87

Call Center 2,887 16.7 461 2.7 13,921 80.6 17,269 1,439

Internet 604 7.2 554 6.6 7,243 86.2 8,401 700

Total 4,505 16.9 1,027 3.8 21,183 79.3 26,715 2,226 CS Survey response form

34

◆ CS-ES Improvement CommitteeThe CS-ES Improvement Committee was inaugurated in April2001. It is a periodical meeting body chaired by the president ofNikko Cordial Securities, with directors, general managers andresponsible staff of the divisions concerned participating, and isheld for the purpose of promoting CS.

Based on the judgmental standard of “what should we dofor our customers?” a meeting is held each month as a forumfor serious discussion of problems in the field. A total of 49 ses-sions have been held as of March 2005.

Based on customer feedback and requests and employeeopinions, the Committee studies issues and then decides onmeasures. It sets a CS-ES improvement target each month andoperates the committee in a manner outlined below under themotto of “Applying our intellect to overcome any obstacles inputting the customer first.”

•As the chairperson, the president participates in the meeting anddecides on responses then and there.

•Held monthly•Minutes are taken with the mention of the speakers’ names, andmaterials prepared for reporting and study purposes at the meetingare made available to all employees via the intranet.

The agendas of the CS-ES Improvement Committee during fiscal 2004 included the following:

•Assessment of the results of CS Surveys and storefront-monitoringsurveys

•Improvements in response to customer feedback•Response to suggestions and improvement requests that arise from employees

•Response to “Suggestion Box to the President”•Improvements in the content descriptions for transaction balance reports

•Revision of the “information on payment of dividends” for investment trusts

•Improvements in Nikko ezTrade •Important issues concerning improvements in ES

Services Offered by Nikko CordialSecurities ◆ Premier-port Our “Premier-port” SMA3, introduced in April 2003 for the firsttime in the securities industry, offers individual customers highlysophisticated asset management services that conventionallyhave been providedexclusively to institu-tional investors.

Based on a discre-tionary investment man-agement contract, NikkoCordial Advisors Ltd.offers comprehensiveservices to customers tosuit their respectiveinvestment funds, riskallowance, and other factors, and Nikko Cordial Securitiesundertakes securities transactions and asset management.

In order to respond to requests from our customers, ourspecially assigned staff members at the SMA Advice Centeroffer a variety of advice, including explaining the contents of theservices offered, suggesting optimal management methods andproviding support for ongoing management.

3 SMA stands for separately managed account. SMA is an asset management and controlservice initiated in the 1970s in the United States. It is characterized as follows: (1) investorsdeposit assets with their accounts at a securities company, (2) management is entrusted to aspecialized management company, (3) includes comprehensive services such as accountmanagement and management reports, and (4) enables management and control thatreflects specific management needs of investors.

◆ Direct ServiceNikko Cordial Securities has set up a specialized customer sup-port service center to quickly and properly respond to customerrequests.

•Call CenterThe Call Center manages accessible services that include a dedicatedtoll-free number for providing support service to existing customers, a toll-free number for brochure requests for prospective customers and a dedicated toll-free number for Japanese government bonds forindividual investors.

With regard to our dedicated toll-free number for customers, ourspecially assigned operators are responsible for different tasks such asaccepting orders, supporting Nikko ezTrade online trading service,explaining about our products, providing information about procedures,and accepting feedback, requests and complaints.

•Equity Advice CenterThe Equity Advice Center was established for customers who seekhighly specialized and professional advice for their equity transactions.

Since its establishment in October 2003, we have continued tooffer appropriate and timely information and advice, placing top priorityon increasing returns forcustomers. We have further undertaken suchmeasures as significantlyincreasing the number ofstaff and strengtheningand enhancing our services.

Approach to Customers

Advertisement for Equity Advice Center

Web-based “Premier-port” SMA service

35

“Start to Enjoy Traveling with JapaneseGovernment Bonds for IndividualInvestors”For all customers who have purchasedJapanese government bonds for individualinvestors at Nikko Cordial Securities, weoffer traveling plans and premium gifts incooperation with Japan Travel Bureau(JTB).

◆ Investment Seminars for WomenWe started holding investment seminars especially for womenin cooperation with five securities exchanges in Japan (Tokyo,Osaka, Nagoya, Fukuoka, and Sapporo) starting from July2003. We held a total of 29 seminars targeted at womeninvestors with limited experience in investing in fiscal 2004.

At the IR Seminar for Women held at the Tokyo StockExchange in August 2004, 14 companies closely associatedwith women participated, providing informational presentationson the mechanism and dynamism of investments.Approximately 2,000 visitors took part in this particular seminar,the highest record attendance to date.

In fiscal 2005, we plan to hold 30 seminars for women incooperation with stock exchanges, thereby helping to makeinvestment more accessible to women who may feel awkwardvisiting a securities company.

◆ Japanese Government Bonds Available via TV Shopping

We started to offer TV shopping for the first time among securi-ties companies in order to familiarize people with Japanesegovernment bonds for individual investors. The features andpurchasing procedures of the Japanese government bonds forindividual investors are explained dur-ing the program, and applications foraccount opening and subscriptionsfor purchase are accepted via a dedicated toll-free number.

◆ Nikko Loppi TradeNikko Cordial Securities has been advancing forward with business alliances nationwide in the area of securities interme-diary services and has successfully expanded its securities network into every corner of respective business categories.

Starting from August 2004, Nikko Loppi Trade (servicename “Peekaboo”), which was realized through an operatingalliance with LAWSON, a major convenience store operator,made securities trading accessible even during night hours oron holidays by using “Loppi” multimedia terminals located atLAWSON store outlets.

This service has facilitated use of securities trading servicesin a more casual environment at more accessible locations bythose people unable to visit branch offices during securitiescompanies’ regular business hours and those who feel awk-ward visiting a securities company’s branch office in spite of aninterest in securities investments.

Nikko Loppi Trade, a blend of Nikko CordialSecurities’ financial know-how and LAWSON’slong-standing support forconsumers’ daily needs,has seen favorablegrowth as an industry-first“convenient securitiesinvestment channel.”

◆ Electronic Delivery ServiceNikko ezTrade, Nikko Cordial Securities’ online trading service,offers “Electronic Delivery Service,” which enables customers toview documents on our website that have conventionally beensent by mail such as transaction reports, transaction balancereports, management reports and prospectuses.

This system dramatically shortens the time required fordelivery of documents to our customers compared with mailing,and at the same time, eliminates worries about misdelivery ortheft during the mailing process. As the documents are view-able online for a period of five years, there’s no need to sortand keep documents. In addition, documents can be used fortax returns and printed on demand.

Regarding public invitation for subscription and purchase ofsecurities or other investment opportunities, faster transactionsare possible in that customers can subscribe for shares just byviewing the prospectus on-screen.

printerPDF

Without electronic delivery service

With electronic delivery service

Speedy, easy and convenient, secure and safe

Nikko ezTrade

Nikko Cordial Securities

◆ Cordial MailCordial Mail is an e-mail magazine service delivered everyFriday that offers the latest information on financial markets andinformation on Nikko Cordial Securities’ products and services.Delivery requests can be made via our website. Cordial Mail iscurrently delivered to 120,000 readers.

Menu screen for Nikko Loppi Trade“Peekaboo” service

Flyer introducing Japanesegovernment bonds for individual investors availablevia TV shopping

Cordial Mail e-mail magazine service

36

Building a worker-friendly climate andrespecting individuals “People” are the most valuable asset and a vital resource of Nikko Cordial Group. Whileaspiring to improve our four strengths in securities expertise, Nikko Cordial Group strivesfor diversification and dynamism with an emphasis on people’s individuality and aims tocreate a highly satisfying working environment that is full of vitality.

Four Strengths to Enhance IndividualityNikko Cordial Group aspires to become a vibrant corporategroup by vitalizing and diversifying human resources throughenhancement of our “four strengths” outlined below.

•Excelling at concluding deals by making a reasonable proposal andpresentation on optimal investment opportunities to customers ingood faith in terms of risk/return profile

•Having an edge in providing influential advice of top management tocustomers based on the concepts of the fundamental principles ofcapital markets

•Superior in creating and offering innovative financial instruments ahead of the times through thorough research on global investmentopportunities

•Having a strong ability to take risks proactively to achieve returnsunder our advanced risk management system through thoroughresearch on global investment opportunities

Concurrently, Nikko Cordial Group is making improvementsin personnel systems and training programs, while consideringthe health and human rights of our employees so as to create acomfortable working environment. We attach importance tocommunication and practice “respect for the individual” asdeclared under our management principle by conductingemployee satisfaction surveys and engaging in discussions withlabor union members.

Breakdown of PersonnelNikko Cordial Securities Inc.

Employment StatusNikko Cordial Corporation

Various Systems◆ Infant Care Leave SystemWe have a system in place that allows employees to take infantcare leave until the day before the child’s second birthday,which exceeds the statutory period. Of 97 employees who tookchildcare leave in fiscal 2004, 70% have returned to their previous jobs. We also have a program supporting return to the workplace of those employees who took childcare leave. As of the end of March 2005, a total of 54 employees used thesystem, with 24 returning to work.

We are also taking efforts to eliminate anxieties and problems upon returning to work following childcare leave and promoting the understanding of superiors by leveraging the above program, while facilitating communication amongthose persons taking maternity leave and between persons taking maternity leave and their superiors in the office. We aim to improve the return rate further by creating a workingenvironment in which our employees find it easier to take infantcare leave.

◆ Family Care Leave SystemWe have in place a system that enables our employees to takea maximum of one-year family care leave, which is longer thanthe statutory period. In fiscal 2004, a total of four employeestook family care leave.

◆ Shorter Working Hours System for Child Care We revised our shorter working hours system for child care inJuly 2004, and extended the applicable period from the monthof the child’s third birthday to the month immediately beforeentrance into elementary school. An employee can shorten hisor her working hours up to 2.5 hours (previously 1.5 hours). A total of 22 employees used the system in fiscal 2004.

Nikko Cordial Corporation

Men Women Total

Employees 110 61 171

(Management-level24 1 25

employees)

Dispatched employees 0 17 17

Total 110 78 188

Men Women Total

Employees 2,934 2,055 4,989

(Management-level 691 58 749

employees)

Sales specialists 440 631 1,071

Independent financial86 3 89

advisors (IFA)

Temporary employees 0 14 14

Dispatched employees 227 948 1,175

Total 3,687 3,651 7,338

Men Women

New employees 0 persons 0 persons

(new graduates)

New employees 7 persons 4 persons

(mid-career hires)

Average age44.7 36.4

years old years old

Average years of service 11.9 years 12.7 years

Agreed annual working1,837.5 hours

hours

Workers’ Accident 1 case 1 case

Compensation Insurance

Nikko Cordial Securities Inc.

Men Women

New employees 80 persons 96 persons

(new graduates)

New employees 363 persons 190 persons

(mid-career hires)

Average age41.0 32.7

years old years old

Average years of service 15.3 years 10.0 years

Agreed annual working1,837.5 hours

hours

Workers’ Accident 4 cases 22 cases

Compensation Insurance

Approach to Group Employees

37

◆ Shorter Working Hours System for Family CareWe revised our shorter working hours system for family care inJuly 2004. An employee can shorten their working hours up to2.5 hours (previously 1.5 hours). In fiscal 2004, two employeesused the system.

◆ Flexible Work Week SystemWe introduced the Deemed Working Hours System1 in October2004, and thus created an environment in which eachemployee can display his or her ability in performing duties in aresponsible and creative manner. In addition, we introduced theFlexible Work Week System2 in January 2005, and thusimproved the working environment by clearly separating workhours and off hours.

1 A system for recording the number of hours worked as stipulated beforehand by work regulations and labor-management agreements onto a wage calculation sheet regardless of actual number of working hours.

2 A system enabling employees to designate their days off work during any given four-week period.

◆ Use of Senior EmployeesAs an initiative for extending the employment period for employees beyond the statutory retirement age limit of 60 yearsold, we made it possible for sales specialists to extend theircontracts up the maximum age of 65. We currently have 51employees who were re-employed (of whom 20 were newly re-employed in fiscal 2004).

As for personnel services, the Group also introduced theContract Employee System, which allows the extension of contracts up to the maximum age of 65. Three staff memberswere employed under this system in fiscal 2004.

◆ Employment Rate of the DisabledThe employment rate of the disabled at Nikko Cordial Securitiesslightly declined in fiscal 2004 compared with the prior fiscalyear. This is attributable to an increase in population demo-graphics as a result of active employment of sales specialists.In fiscal 2005 both Nikko Cordial Corporation and Nikko CordialSecurities plan to achieve the statutory employment rate of1.8% by proactively employing disabled persons.

◆ Mental Health CareAs for mental health care, doctors and nurses are on duty on a regular basis at our headquarters’ Health Care ManagementOffice. In addition, the Group’s Health Insurance Union stands ready to provide advice and counseling via telephone,thereby making the service available for employees and theirfamily members.

◆ Response to Sexual Harassment and Abuse of Authority

Apart from internal and external points of contact for respondingto complaints of sexual harassment and harassment arisingfrom the abuse of authority, we have the consultation desk setup under the employees union, so as to quickly take action regarding such problems as well as prevent their occurrence.

◆ Personnel Evaluation SystemWe revised the Personnel System in April 2003 and eliminatedthe previous job classification system, which distinguishesbetween personnel on the main career track and employeesengaged in a limited range of jobs, and integrated them into“professional track” players3, thereby establishing the systemas one under which employees are evaluated as financial services professionals.

Personnel evaluations are conducted as a fair assessmentprimarily geared toward rewarding employees based on per-formance results. Annual salary evaluations are proportionatelybased on competency4 (70%) and performance5 (30%) criteria,with bonus evaluations based 100% on performance6.

Management-level personnel conduct evaluation interviewswith respective employees and provide feedback concerningtheir personal goals and objectives. For the purpose of promoting self-improvement of management-level personnel, a comprehensive evaluation from multiple levels is carried out to encourage interpersonal sensitivity toward subordinates and colleagues.

Three Main Purposes of Personnel System•Penetrate the principle of performance-based results—Fair remuneration geared toward rewarding those employees who demonstrate results

•Strengthen personnel development—Support employees who strive toachieve results

•Respect for “individuality”—Provide fair and equal opportunities thatenable personnel to undertake active and bold challenges

3 This system is divided into classes I, II and III.

4 Competency: Assesses behavior that became evident in the process of performing duties(process-focused). The target of the evaluation is not the results, but whether or not the subject being evaluated has taken steps that could lead to results.

5 Performance: Assesses results and contribution level during the evaluation period based onresults management and quantitative and qualitative aspects.

6 Applies to Class II and III. Competency is also taken into consideration for Class I.

Nikko Cordial Corporation Nikko Cordial Securities Inc.

March 31, 2004 2.27% 1.82%

March 31, 2005 2.27% 1.73%

38

◆ Personnel DevelopmentBased on the idea that personnel development is the founda-tion for the development of corporate business, Nikko CordialGroup proactively carries out training programs. We have a group training system and an e-learning system, which leverages the intranet and Internet and in which courses can betaken online at home on an ongoing basis.

Primary group training programs include New EmployeeTraining, Consulting and Sales Training aimed at improvingconsulting abilities, Nikko Business College focused on busi-ness frameworks and featuring prominent specialists invitedfrom outside as lecturers (a total of 14 sessions were carriedout on 22 occasions in fiscal 2004), and Training for NewManagers. All these programs are available for each employeeto choose from based on his or her career plan. We also holdsupport training as necessary to help employees studying toacquire licenses.

Personnel System Required Training Courses Optional Training Courses

Class III

Class II

Class I

Promotion

Promotion

Skill Development

CareerAdvancement

SkillImprovement

FinancialAdvisors

Training forNew Managers

Prospective Employee Training

Follow-upTraining

New Employee Training

ManagementPrinciple

OrientationMeetings

ComplianceTraining

Career Advancement

Training

Product Knowledge

Work Skill Training

Training for License

Acquisition

•CFP7

•AFP8

•Securities Analyst

•Nikko Business College

•Basic Management Training

•Consulting and Sales Training

Training System Structure

Employee Satisfaction SurveyNikko Cordial Group conducts an employee satisfaction surveyaimed at gaining a quantitative understanding of the degree ofemployee satisfaction with regard to various aspects of thework environment, including Group companies, work contentand the workplace. The survey is also conducted for the pur-pose of clarifying factors that influence current satisfaction levels. Fiscal 2004 is the second year to perform this survey,which is commissioned to an external survey company andconducted anonymously over the Internet.

As a result of analyzing responses from 6,696 employeesworking for 13 Nikko Cordial Group companies, the satisfactionlevel among companies increased from the previous survey.Similar to the previous survey, the tendency to value relation-ships with superiors and colleagues in the workplace wasobserved. In particular, the tendency to attach importance in“caring for the feelings of others,” “strong ties,” and “mutualgrowth” was elucidated.

The results of the survey have been posted on the Groupintranet and will be used as a reference for devising initiativesfor raising employee satisfaction and improving internal communication.

Initiatives for Human Rights In line with the Law on the Promotion of Human RightsEducation and Human Rights Awareness-Raising formulated in2000 and its basic plan, Nikko Cordial Group aims to raiseawareness of our employees regarding respect for humanrights. We also seek to support basic human rights throughcompanywide training for management-level personnel, newemployees and career advancement training, thereby enablingeach employee in the Group to understand and respond tohuman rights issues as a personal issue.

7 CFP (Certified Financial Planner) is an international license introduced in partnership with the CFP Board (Certified Financial Planner Board of Standards, Inc.). The CFP license is awarded to those whohave received sophisticated training in respective fields of financial planning and passed a difficult examination conducted by the CFP Board.

8 AFP (Affiliated Financial Planner) is a domestic license awarded to financial planners qualified to provide appropriate advice and the technical skills to offer financial management proposals to customers. AFP licenses are granted by the Japan Association for Financial Planners, a nonprofit organization.

Approach to Group Employees

39

Management 5.9%Compliance 5.9%

Personnel 2.2%

Salary 8.1%

Administrative Process 21.3%

System 7.4%

Products, Services and Sales Measures 32.4%

Working Environment, Superiors, Colleagues 8.1%

Other 8.8%

Details of Suggestions Posted in the Suggestion Box to the President

Labor Union Activity UpdateNikko Cordial Group labor union members carry out activitiesaimed at “realizing subjective and creative ways of working.” Asof March 25, 2005, the labor union comprises 4,304 employeesof 10 Nikko Cordial Group companies and has 142 affiliatedsocieties in Japan.

As for labor-management issues, labor union membersexchange opinions with top management by ascertainingissues through organizing activities9, social gatherings at theworkplace and hearing surveys targeting labor union members.In light of the introduction of the Deemed Working HourSystem, in particular, both the Group and the labor union areworking together so as to create a working environment thathelps members display creative abilities and work in a diversi-fied manner. In addition, information relating to the labor union’sactivities such as the negotiation status on important changesin management is posted over the intranet.

9 Organizing activities refer to the management and leadership of the Union.

Suggestion Box to the PresidentThe “Suggestion Box to the President” is set up as a directcommunication channel with the president for all employeesworking at Nikko Cordial Securities. Long-cherished thoughts,job ideas, workplace concerns and other issues can beaddressed freely to the president via the intranet. Anonymousinput is also possible if desired.

Each opinion is received by the president and subsequentlydiscussed at a meeting of the CS-ES ImprovementCommittee10. All suggestions and replies are posted andupdated over the intranet on a weekly basis.

The number of suggestions has received reached 1,002 inthree years since its inception in March 2002. Although themajority of suggestions were anonymous during the earlystages, there has recently been an increasing number of sug-gestions accompanied by names. The attention of respectiveemployees, which used to be focused on internal issues suchas the working environment, has begun to switch to externalissues, for instance, customer service and social issues. Thereare some instances in which sales persons themselves deviseand suggest sales strategies. Also, there are an increasingnumber of suggestions, which indicate that employees’ awareness of social contribution has changed. The “SuggestionBox to the President” has nurtured a corporate climate where issues are raised in the course of communication withtop management.

Accordingly, this enables Nikko Cordial Securities to gain aninsight into the bottom line of issues raised and respond in asincere manner, thereby aiming to encourage more colleaguesto make suggestions on “specific ideas of their own” withoutceasing to make critical comments.

10 CS-ES Improvement Committee is a periodical meeting body chaired by the president ofNikko Cordial Securities, with directors, general managers, responsible staff of the divisionsconcerned and observers participating, and is held for the purpose of promoting CS. For further details, please refer to page 34.

Diversity Program Nikko Citigroup, a joint venture with Citigroup, has conductedbasic diversity training for approximately 1,200 employees sincethe summer of fiscal 2003 in order to have all employees commonly recognize the significance of diversity (respect fordiversity). Since that time, training for new employees and mid-career employees has been conducted as they reach a certaingroup size. In March 2005, diversity training was held for allmanaging directors under the theme of specific ways to dealwith diversity issues.

In January 2004, a Diversity Committee consisting of 11senior managers selected from several divisions was set up.The matters discussed in the committee meetings are recom-mended to top management as diversity promotion measures.Diversity training geared towards managers arose as one suchrecommendation. The committee also assumed an advisoryrole in the Second Women’s Conference held in June 2004 and in developing a questionnaire survey targeting all female employees.

For fiscal 2005, based on the analysis results of the abovequestionnaire survey conducted in fiscal 2004, the committeeplans to study and improve such issues as fair treatment in theworkplace, dispelling concerns about taking leave for childbirthand child nursing, setting up an internal diversity website andthe possibility of networking.

40

Always providing customers with the bestproducts and services

Best Partnership and Best Product PolicyFollowing the implementation of a pay-off ceiling on bankdeposits, the trend from saving to investment has stepped intohigh gear, thereby further expanding the asset managementoptions available to customers. On the other hand, the barriersof the conventional business categories of banking, securities,and insurance are breaking down, thereby making it possiblefor companies in such business lines to offer attractive financialproducts and services irrespective of business categories.

Nikko Cordial Securities is continuing its efforts to alwaysoffer the best products and services to customers under itsBest Partnership and Best Product Policy.

•Best PartnershipNikko Cordial Group works with the best partners in the field irrespective of the framework of financial groups or common practices of the financial industry.

•Best Product PolicyThe Group always considers the customer’s perspective and carefullyselects only the best products and services that anticipate customerneeds from around the world.

Selection of Investment TrustsIn collaboration with Group companies, Nikko Cordial Grouphas committed itself to offering a large number of quality invest-ment trusts of time-tested management companies worldwide.

In selecting products, Nikko Cordial Group applies its accumulated know-how as a basis, and analyzes and evaluatesa broad array of items such as management results, manage-ment policy, risk management methods, compliance and governance. The Group monitors the management status ofthe selected investment trusts and delivers information on acontinuous basis so as to provide customers with a greater volume of beneficial information.

Structure for Offering Investment Trusts

Time-tested management companies around the world including those from Japan, Europe, the United States and Asia

Nikko Cordial Group

Nikko Financial Intelligence, Inc. Global Wrap Consulting Group Co., Ltd.Nikko Cordial Securities Inc. Nikko Asset Management Co., Ltd.

Nikko Mellon Global Market FundNikko Global Allocation FundNikko Fidelity Global Star FundNikko Global CB FundJF Global CB Open ’95Nikko Global Currency FundNikko Fidelity Global SelectionNikko Arrow Fund others

Nikko Pimco High Income Sovereign Fund (monthly distribution type)Nikko GS Global Sovereign Fund (monthly distribution type)Nikko AMP Global REIT Fund (monthly distribution type)Nikko Australia Income Open (monthly distribution type)Nikko Pimco Global Short-Term Bond Fund (informally known as “Saizo”)Nikko CS Global High-yielding Stocks Fund (monthly distribution type) others

GW 7 Eggs FundGlobal Wrap (Investment Trust Wrap)

Product offeringOffers management services including management advice

Products Due Diligence Analysis concerning a broad range of items including management performance assessment, management policy, risk management, etc.

Management Assessment Assesses management institutions and management products qualitatively and quantitatively and monitors on a continuous basis

Asset allocation and assessment, selection, advice for changing management advisor

Product offering

Nikko Cordial Group works with the best partners in the field irrespective of the frameworkof financial groups or common practices in order to offer our customers optimal productsand services. The Group always considers the customer’s standpoint and carefully selectsonly the best products and services that anticipate customer needs.

Best Partnership

41

Selection of Insurance ProductsSince being one of the first to commence sales variable annuityinsurance products ahead of others in the industry, Nikko CordialSecurities has accumulated proven results and know-how.

In offering insurance products, the major preconditions arethat the insurance company who becomes our partnerempathizes with the ideals of Nikko Cordial Securities, and thatthe company can provide continued support through the development and provision of the best products.

Selection criteria include 1) financial strength ratings andsolvency margin ratio1; 2) having a system in place to provideuniform training to Nikko Cordial Securities’ branches nation-wide and conduct follow-up activities; and 3) establishing a reliable information security management system for the protection of personal information and other data.

1 Solvency margin indicates whether or not an insurance company has sufficient underlyingassets to pay insurance claims in accordance with contracts.

Investigation

•Credit strengths of insurance company•Support system•Information security system

Rejection

Adoption

•Sales preparation period: approximately 3 months

Ongoing investigation

•Continue investigation to see if it is possible for the company to satisfy the selection criteria in the future

•Request insurance company to develop product

•Receive a new product proposal from insurance company

Selection of ServicesNikko Cordial Securities offers various benefit services such as its“Premium Service” to help make customers’ lives more fulfilling.

Because it is an exclusive service for our valued customers,together with our carefully selected and most reliable partners,we provide support to make our customers’ lives more satisfying for a variety of occasions.

Insurance Products Selection Process

Examples of Premium Service Offerings•Wellness and health care counseling/medical specialist referral service•Legal counsel referral service•Certified tax accountant referral service•Exclusive travel counter

Pamphlet introducing “PremiumService” for valued customers

42

SRI Lectures to Student AssociationsIn March 2005, Nikko Asset Management held a lecture underthe theme of “SRI in Japan and SRI by Nikko AssetManagement” and “Management of the Nikko Eco Fund” forGLOCAL ENERGY TRANSFER (GET), an official student asso-ciation of Hitotsubashi University, and 20 students from theUniversity of Koln in Germany, which has an exchange programwith the association. The lecture was followed by a Q&A session concerning comparisons of SRI between Japan, theUnited States and Europe, plus the pursuit of performance inSRI. Comments received from participants noted that the “contents of the lecture were extremely interesting.”

We will continue toactively carry out awareness-raising activities concerningSRI funds managed by Japan and Nikko AssetManagement by taking full advantage of such opportunities.

Corporate Assessment Based on theViewpoint of Working WomenNikko Financial Intelligence has developed an NFI-CSR ValueCalculation Model2 as a new SRI index. This model enablescorporate assessments based on the viewpoint of supporting

Japan’s pioneer in socially responsible investment (SRI)

Managing and Selling of SRI FundsSRI means that in selecting stocks for their portfolios, investorsnot only take economic factors into account but also the initia-tives that corporations take toward preserving the natural environment and contributing to society.

In 1999, Nikko Cordial Group started managing and offeringthe Nikko Eco Fund, the first SRI fund in Japan that incorpo-rates an environmental viewpoint in investment. Thereafter, in2000, we started managing and selling the Nikko GlobalSustainability Fund, informally known as “Globe,” whichassesses companies globally from an economic, environmentaland social aspect.

Later, in December 2004, we established the DiscoveryFund1 under the umbrella of Tokyo Spirit InvestmentCorporation, which is invested in by the Tokyo metropolitangovernment. The funds are managed under the SRI policy aswell. In addition, Nikko Asset Management is entrusted by theMutual Aid Society for Teachers in Tokyo to manage its pensionfunds by investing in SRI funds.

SRI is an investment action that encourages corporations torecognize the importance of considering the environment andsociety by having such viewpoints reflected on the capital markets, thereby leading to anticipated improvements in suchinitiatives. Nikko Cordial Group intends to continue to take a pioneering role in developing the SRI market in Japan and a proactive stance toward promoting SRI.

1 Outline of the Discovery Fund (Limited Partnership of Tokyo Discovery Investment Business)Date of establishment: December 14, 2004Unlimited partner: Nikko antfactory K.K.Total fund amount: ¥3.25 billion Investment target: Unlisted companies whose headquarters or business centers are located

in TokyoInvestment policy: 1) Corporate social responsibility (CSR)

2) Efforts towards environmental issues3) Creating a society that is friendly to the elderly and persons with dis-

abilities4) Preserving and leveraging traditional business foundations to create

new businesses and industriesIncluded as core investment targets are those companies located in Tokyo and which areworking on the above agendas as advocated by the Tokyo metropolitan government. Inaddition to pursuing profits, we aim to make a difference in society and contribute to thevitalization of industries in Tokyo.

As the SRI pioneer in Japan, Nikko Cordial Group manages and sells SRI funds includingthe Nikko Eco Fund and Nikko Global Sustainability Fund. The Group also engages in various initiatives including awareness-raising activities such as holding SRI lectures forstudent associations and developing indices that are used to evaluate companies from theviewpoint of working women.

We received a letter of appreciation from Mr. HiromasaMochida, who is in his junioryear studying economics atHitotsubashi University, and isa member of the “GLOCALENERGY TRANSFER 2005Germany Project.”

Approach to SRI

working women. The company plans to market SRI funds leveraging this model. 2 NFI-CSR Value Calculation Model is a multi-dimensional assessment model that enables

corporate assessments from a CSR viewpoint, including “assessment by employees,”“assessment by consumers,” and “assessment by the members of society,” as well asassessment and analysis based on multiple stakeholders’ viewpoints.

43

Nikko Eco FundThe Nikko Eco Fund is an investment trust that invests activelyin “Eco Excellent Companies” that have been selected on thebasis of the analysis of their corporate value, including theirenvironmental initiatives, and are judged to be corporations thatare making an excellent response to environmental issues andhave growth potential.

Research on the environmental activities of these companiesis conducted jointly with Good Bankers Co., Ltd.3, a companyspecializing in consulting on environmentally conscious investingand providing investment advisory services; in tandem, investi-gation regarding the profitability and growth potential of companies is carried out by Nikko Asset Management.

In October 2004, we switched from the conventional fundmanager system to a team system in order to strengthen ourmanagement ability. 3 Good Bankers Co., Ltd., established on July 14, 1998, is Japan’s first independent invest-

ment consulting company specializing in SRI.

Management results:Net assets as of March 31, 2005 were ¥36.8 billion, down approxi-mately 11.7% from the previous fiscal year-end due to withdrawals.

The number of companies offering the Nikko Eco Fund who hadoutstanding balances as of March 31, 2005 was 60.

Management results:Net assets as of March 31, 2005 were ¥1.83 billion, down 9.5% fromthe previous fiscal year-end. Over 90% of Globe’s investments are inforeign stocks, and movements in foreign stock markets and exchangerates easily influence their value. The base value of Globe increased infiscal 2004, buoyed by improvements in world stock markets; however,net assets declined because of withdrawals.

The number of companies offering Globe who had outstanding balances as of March 31, 2005 was 9.

Globe (Nikko Global SustainabilityFund) Globe is a full-fledged sustainability-oriented SRI fund, emphasizing not only economic rationality in the choice of itsinvestments but also environmental and social compatibility ofcompanies. Nikko Asset Management bases its investmentjudgments for Globe on a review of the list of “SustainabilityLeaders” prepared by the SAM Group4, a company specializingin screening companies on the basis of sustainability criteria.Nikko Asset Management further screens the “SustainabilityLeaders” to select stocks with growth potential, liquidity andrelatively low market prices. 4 Founded in 1995 in Switzerland, the SAM (Sustainable Asset Management) Group is an

independent management research firm specializing in the evaluation of corporations basedon sustainability criteria.

Unit: ¥ billions

20009.29

20013.30 9.28

20023.29 9.30

20033.31 9.30

20043.31 9.30

20053.31

108.7 87.9 67.7 63.4 49.0 34.7 37.9 41.7 37.3 36.8

Unit: ¥ billions

20013.30 9.28

20023.29 9.30

20033.31 9.30

20043.31 9.30

20053.31

9.4 6.3 6.7 3.2 2.1 2.1 2.0 1.8 1.8

Eligibility for grants Groups, individuals and others conducting activities that promote the preservation of nature and the environment in Japan

Eligible project types Those engaging in activities that contribute to the preservation of the natural environment and the creation of a sustainablesociety. Activities receiving grants should be able to achieve specific results. In addition, projects that have the objective ofachieving symbiosis among the economy, society and the natural environment in the future are desirable. Activities conducted for private profit, political purposes or for proselytizing religions are not eligible.

Themes (1) Reviewing and changing lifestyles, (2) Environmental training and enlightenment and (3) Preserving nature and the environment

Interested corporate person-nel made a contribution to theWWF-Nikko Green InvestorsFund at a social gathering of a convention attended byfinancial advisors fromthroughout Japan.

Outline of the WWF-Nikko Green Investors Fund

WWF-Nikko Green Investors FundNikko Cordial Group established the WWF-Nikko Green InvestorsFund in October 2000 in cooperation with WWF Japan, an organiza-tion that aspires to conserve the natural environment and realize asustainable society. The fund provides support for nature and envi-ronmental preservation activities of groups and individuals in Japan.Between fiscal 2000 and fiscal 2004, the fund provided a total of¥178.04 million and subsidized 87 projects, which produced numer-ous results towards environmental conservation and the realizationof a sustainable society.

We donate a portion of the profits derived from the SRI funds

Nikko Eco Fund and Globe to the WWF-Nikko Green Investors Fund. By placing thefund under the control and management ofWWF Japan, we aim to expand environmen-tal awareness not only among the personsinvolved in environmental issues but alsoamong investors, and thereby strike a bal-ance between economic activities andnature conservation activities.

Net Assets of the Nikko Eco Fund Net Assets of Globe

•Ritsumeikan UniversityIn 2003, Nikko Financial Intelligence began joint experimental eco-nomics2 research on stock markets with the Ritsumeikan UniversityResearch Center for Finance for the purpose of verifying individualinvestors’ investment motives and the relationship between risk pref-erences and investment satisfaction levels.

As a result of performing an experiment on the simulated trading ofstocks of listed companies by recruiting test subjects and using anexperimental system developed basedon the integrated know-how of bothparties, we discovered, for instance,that the motives for SRI enhanced thesatisfaction level of the investors.

In fiscal 2004, the project was certi-fied by the Open Research CenterProject under the Academic ResearchEnhancement Promotion Project forPrivate Colleges and Universities of theMinistry of Education, Culture, Sports,Science and Technology, and hasdeveloped into a five-year joint indus-trial-government-academic researchand experimental project.

We plan to use the research resultsin developing investor education toolsand financial products that can give individual investors a high level of satisfaction.

2 In experimental economics, participants are asked to act out simulations of real life economicactivities, and their behavior patterns are analyzed.

◆ Financial Literacy Student Scholarships Nikko Cordial Group fully supports the Group’s FinancialLiteracy Scholarship Program, which was started by theAssociation for the Promotion of Financial Literacy, a specified

Aiming to grow alongside society as a corporate citizen that is a member of societyNikko Cordial Group aspires to grow with society as a good corporate citizen, contributingto society by constantly recognizing the social mission and roles that we should assume asa financial services group.

In order to build and pass down an enriched society to the next generation, every mem-ber of Nikko Cordial Group feels a sense of heartfelt gratitude and carries out his or herduties by actively engaging in society as a corporate citizen, and as a matter of course, bycontributing to society through our core businesses.

We have been engaging in social contribution activities through SRI initiatives in ourcore businesses, as well as other endeavors that include activities in partnership withNPOs, the provision of investment training programs and matching gifts1.

We aim to be an integral part of society by increasing our economic value through ourcore businesses and enhancing our social value through social contribution activities.

1 Under the matching gift program, the company matches the amount of monetary contributions made by employees.

Investor EducationAlong with the building and development of a well-balancedand sound financial system, it has become necessary for indi-viduals to improve the levels of their social, economic, financialand investment knowledge. Recognizing that disseminatingsecurities and financial knowledge is an obligation and socialcontribution as a company operating in the financial servicesindustry, Nikko Cordial Group has been actively offeringinvestor education for the purpose of nurturing individualinvestors. We believe that these activities will foster individualinvestors with a solid knowledge of investment and finance andin turn develop a sound capital market.

◆ Providing Free Courses at Colleges and UniversitiesNikko Financial Intelligence offers free courses at colleges anduniversities and provides instructors to give lectures. We pro-vide support so that students at colleges and universities, whoare to lead the economy of Japan in the future, can enhancetheir investment knowledge through more practical-mindedeconomics and finance courses and lead a fuller social life.During fiscal 2004, we sponsored 23 courses, with a total of1,865 students earning credits.

◆ Joint Industry-University Research •Hitotsubashi University

Nikko Cordial Securities jointly conducts research into individualinvestment activities in the area referred to as Behavioral Finance incooperation with Hitotsubashi University and Simplex AssetManagement Ltd., a Group asset management company. BehavioralFinance analyzes what investment actions investors actually take, asthe markets do not necessarily factor in the information of suchrationale.

While Nikko Cordial Securities is aiming to improve advisory servic-es for individual investors, Simplex Asset Management is seeking todevelop a new management model.

44

Approach to Society

Pamphlet introducing jointresearch with RitsumeikanUniversity Research Center forFinance

Number ofUniversity Course Target Students Students who Period

Earned Credits

Musashino University Cash Planning Juniors and above, all departments 31 First semester of academic year 2004

Musashino University Economic Education Theory (beginners’ course) Freshmen and above, all departments 128 First semester of academic year 2004

Ryukoku University Securities Investment Theory Juniors and above, Department of Economics 106 First semester of academic year 2004

Kacho College Global Trends / Personal Financing Theory (beginners’ course) Freshmen and above, all departments 133 First semester of academic year 2004

Seinan Gakuin University Basic Introduction to Securities Investment (intermediate course) Sophomores and above, Department of Economics 96 First semester of academic year 2004

Nihon Fukushi University Financial Planning and Basics of Securities Investment Juniors and above, Department of Economics 95 First semester of academic year 2004

Hitotsubashi University Basic Course on Securities MBA course 22 First semester of academic year 2004Graduate School

Musashi University Investment Education Theory (beginners’ course) Freshmen and above, all departments 194 First semester of academic year 2004

Rissho University Financial Literacy Theory (beginners’ course) Sophomores and above, Departments of Economics 262 First semester of academic year 2004and Business Administration

Kurume University Life Planning and Fund Management Planning (beginners’ course) Sophomores and above, Department of Commerce 17 First semester of academic year 2004

Setsunan University Basic Knowledge of Money (beginners’ course) Sophomores and above, four departments including 152 First semester of academic year 2004Management Information

Osaka Seikei College Living and Economics (beginners’ course) Freshmen and above, Department of Business 95 First semester of academic year 2004Management and Accounting

Osaka University of Introduction to Finance (beginners’ course) Juniors and above, Department of Economics 160 First semester of academic year 2004Economics and Law

Nakamura Gakuen University Financial Literacy Program (beginners’ course) Sophomores and above, Department of Marketing 47 First semester of academic year 2004and Distribution Science

Teikyo University Securities Investment Theory Juniors and above, Department of Economics 43 Second semester of academic year 2004and other departments

Aoyama Gakuin University Basics of Securities and Asset Selection Juniors and above, Department of International 38 Second semester of academic year 2004Politics and Economics and other departments

Senshu University Basic Introduction to Securities Investment Juniors and above, Department of Commerce 102 Second semester of academic year 2004

Showa Women’s University/College Financial Planner Basics (beginners’ course) Juniors and above, Open College — Second semester of academic year 2004

Musashi University Investment Trust Theory Freshmen and above, Department of Economics 44 Second semester of academic year 2004

Meiji University Institutional Investors Theory Department of Commerce, Part 1: Juniors and 41 Second semester of academic year 2004seniors, Part 2: 2 evening courses

Ritsumeikan University Practicing Finance Theories and Related Issues Juniors and above, Finance Institute 14 Second semester of academic year 2004

Osaka University of Practicing Finance (beginners’ course) Juniors and above, Department of Economics 45 Second semester of academic year 2004Economics and Law

Mukogawa Women’s University Basics of Finance (beginners’ course) Freshmen and above, all departments and Open College — Second semester of academic year 2004

List of Courses Provided to Colleges and Universities in Fiscal 2004

Making Wise Investments in Foreign CurrencyMaking Wise Investments in Foreign Currency (illustration by Erika Sakurazawa, published by Shogakukan) is an introductory book on foreign currency investments forwhich Nikko Cordial Securities was responsible for the contents and editing. The bookconsists of comic and explanation sections and is easy to understand for noviceinvestors. It is recommended for both those who have already started investment activities and those who are thinking about making investments.

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nonprofit organization (NPO). The program targets students in colleges, universities and

vocational schools who desire to learn about finance and eco-nomics. In relation, Nikko Cordial Group bears the full coursefees as scholarship funds provided for the Financial LiteracyCorrespondence Course (beginners’ course), which is offeredby the Association for the Promotion of Financial Literacy.

A total of 100 students were initially recruited in 2004, with69 students starting to take courses from January 2005. Thenext recruitment period is scheduled for October 2005.

It is the worthwhile hope of Nikko Cordial Group that students who took the course not only lead more affluent livesequipped with a sound basic knowledge of finance and eco-nomics, but also develop into a new type of individual investors,who can exert a favorable influence on people around them.

Flyer introducing FinancialLiteracy Scholarships

Making Wise Investmentsin Foreign Currency

Corporate CitizenshipNikko Cordial Group seeks to raise and spread an awarenessof fulfilling our social responsibility obligations by co-sponsoringsocial contribution activities, with each member of the Groupactively engaged in such activities.

◆ Support for HEM-NetNikko Cordial Group supports the NPOHEM-Net (Emergency Medical Networkof Helicopter and Hospital), which carriesout activities for the purpose of providingemergency medical services for peoplewho are in need, mainly by using a heli-copter, contributing to solving medicalcare issues and improving survival rates.

◆ Support for the Victims of the Niigata ChuetsuEarthquake

In support of the victims of the Niigata Chuetsu Earthquake, wepackaged and donated a total of 453 relief goods, which werecollected by well-wishers of Nikko Cordial Group companies.

◆ Support for Damage Resulting from Great SumatraEarthquake and Tsunami

In support of the disaster area of the Great Sumatra Earthquakeand Indian Ocean Tsunami that took place on December 26,2004, we donated relief and condolence money on behalf ofthe entire Group. •Under the matching gift program and in cooperation with voluntarydirectors and employees of 18 Nikko Cordial Group companies, a totalof ¥12,685,882 was donated to three organizations, including theJapanese Red Cross Society.

•Nikko Cordial Securities donated ¥20 million from profits of its IndiaAdvantage Fund to the Japanese Red Cross Society and donated ¥5million to a support fund for Indonesia.

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◆ Co-sponsorship of the 2005 Special OlympicsFrom February 26 through March 5, 2005,the 2005 Special Olympics World WinterGames3 was held in Nagano, which wasthe first time in Asia. Nikko Cordial Groupendorses these activities and served as aco-sponsor of the Games.

3 The Special Olympics is an international sports organizationdedicated to helping intellectually challenged persons tobecome autonomous and play a productive role in societythrough daily physical training and sports competitions.

◆ Co-sponsorship of New Cultural Creation Events atEXPO 2005 Aichi Japan

We are co-sponsoring New Cultural Creation Events at EXPO2005 Aichi Japan, which being held under the theme of“Nature’s Wisdom” in Aichi Prefecture from March 25, 2005 toSeptember 25, 2005.

◆ Support for J-LeagueNikko Cordial Securities endorses the “J-League 100-yearConcept,” which aims to nurture a sense of solidarity, coopera-tiveness, consideration and a spirit of mutual support with thecommunity through “watching sports,” “participating in sports,”and “interacting with people in the community through sports.”In relation, we officially sponsor two club teams, KawasakiFrontale and the Omiya Ardija.

Uniform of Kawasaki Frontale

Approach to Society

International ContributionsMr. Yasuo Kanzaki, Special Advisor to Nikko Citigroup, wasnamed a Japanese member of ABAC4 (APEC5 BusinessAdvisory Council) by the Japanese government. From a privatebusiness standpoint, Mr. Kanzaki oversees the implementationof specific measures and action plans aimed at attaining thebasic objectives of APEC, which include liberalization and facili-tation of trade and investment, and makes recommendations toleaders and cabinet members of APEC countries and regionsregarding the priority issues of other business sectors. In fiscal2004, Mr. Kanzaki was engaged in additional activities such aspromoting the widespread use of APEC travel cards, which isaimed at liberalizing and facilitating the flow of people, andholding symposiums aimed at developing bond markets in theAPEC region as part of capacity building.

Nikko Cordial Corporation participates in the SupportCouncil for ABAC Japan as a member company. The SupportCouncil for ABAC Japan is engaged in activities aimed at pro-moting more in-depth organic communication between ABACJapan members and the business community and to reflect theopinions of respective business sectors in Japan by activelyleveraging opportunities provided by APEC.

4 ABAC is the abbreviation for APEC Business Advisory Council. It is a standing committeethat consists of representatives (up to three persons) from among respective business sec-tors, who are appointed by the leaders of 21 APEC participating countries or regions. ABAC functions as APEC’s sole public advisory organ. It was decided at the 1995 APEC OsakaConvention to set up the organ as a mechanism to directly listen to the opinions of privatebusinesses. ABAC started activities in 1996. (ABAC Japan members’ website: http://www.keidanren.or.jp/abac/)

5 APEC stands for Asia Pacific Economic Cooperation. It is organized by 21 countries andregions in the Asia Pacific region and serves as a forum and gathering for intergovernmentalcooperation aimed at heightening stability, safety, and prosperity of the region. Established in 1989.

The three Japan members submitted ABAC recommendations to PrimeMinister Koizumi at the office of the Prime Minister in November 2004. (From left: Mr. Yasuo Kanzaki, Mr. Nobuhiko Kawamoto, Prime MinisterJunichiro Koizumi and Mr. Noriyuki Yonemura)

Symposium concerning developing bond markets in APEC held in Taipei inMay 2004. (Mr. Kanzaki is the third person from the right.)

Co-sponsorship of ConcertsSince October 2001, Nikko Cordial Group has been co-sponsoringthe “Nikko Cordial Concert—Andre Rieu with the Johann StraussOrchestra,” in a heartfelt effort to deliver “cordial” music to people in Japan.

Andre Rieu produces classical music, which is often interpretedsolemnly, in a beautifully joyful and exuberant manner, and contin-ues to inspire many people the world over. The fourth concert seriesin Japan in fiscal 2004 was held in 10 cities spanning from Sapporoto Fukuoka.

Performance Dates and Venues in Fiscal 2004Sendai (October 10), Sapporo (October 12), Kanazawa (October 14), Osaka(October 16 and 17), Nagasaki (October 18), Fukuoka (October 19),Okayama (October 21), Shizuoka (October 22), Nagoya (October 25) andTokyo (October 28 through October 31)

Communications PartnerAs a symbol of the new company name“Cordial”, we asked Mr. Ichiro Suzuki, amember of the U.S. Major League BaseballSeattle Mariners, to become our “commu-nications partner” in October 2001. We aredelivering our message to everyone, includ-ing our customers, by associating Mr.Suzuki’s earnest attitude towards baseballand his unremitting commitment to improvehis mind with the direction that Nikko Cordial Group should aspireto. We are determined to continue to do our best to be true to Mr.Suzuki’s ideals and the “Cordial” name.

<Past messages>– Our corporate name underscores our commitment to our customers.– Dedicated baseball player Ichiro Suzuki serves as our role model.– “Cordial” signifies the will to keep trying.– “Cordial” means being wholehearted.– We aspire to be the most reliable corporate entity in an era of change. – Giving substance to the name “Cordial”

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Corporate Apprenticeship CoursesAt Nikko Cordial Corporation, the Public Relations Divisionfunctions as the point of contact regarding requests for trainingand seminars held internally as well as in arranging visits to theTokyo Stock Exchange, Shinkawa Trading Department, CallCenter and our branches.

Nikko Cordial Securities also makes its branches availableto the community as a place to “learn actual investment” first-hand, and uses such opportunity for disseminating securitiesand financial knowledge. For instance, seminars held under theauspices of Nikko Open College are open to anybody free ofcharge and are held at branches (on the first Saturday of eachmonth) nationwide. We also offer workplace visits and studymeetings for junior high school and high school students inaddition to lectures on basic mechanisms of stock transactions,as presented by branch managers during their visits to juniorhigh schools.

July 2004 Shizuoka Futaba High School Visit and workplace experience at Shizuoka Branch

August 2004 Board of Education of Ota Ward, Tokyo Seminar on company outline and social contribution (investment education);Visit to the Tokyo Stock Exchange; Visit to the Call Center; Visit to a branch;Product explanation (investment trusts) seminar; Product explanation(stocks); Seminar on social contribution and brand strategy

October 2004 Hiroshima Prefecture Hatsukaichi High School Visits to the Tokyo Stock Exchange and Shinkawa Trading Department

November 2004 Sumida Ward Terajima Junior High School Visits to the Tokyo Stock Exchange and Shinkawa Trading Department

January 2005 Suginami Ward Takaido Junior High School Visit to and workplace experience at Hamadayama Branch

Initiatives at BranchesBranches of Nikko Cordial Securities proactively participate incommunity activities.

◆ Cooperated in Holding the Annual Meeting of Inter-American Development Bank (IDB)—Naha BranchSupported the 46th Annual Meeting of the IDB Board ofGovernors in Okinawa.

◆ Participated in the Sanno Festival—Ichigaya BranchBranch employees took part in the Sanno Festival, a majorbiennial community event.

Nikko Cordial Corporation’s websitegives information about corporate visitsand seminars. We are able to arrangecourse visits/tours and seminars attimes convenient for applicants.

http://www.nikko.jp/GRP/company/socially/study/index.html (Japanese only)

List of Organizations Accepted in Fiscal 2004

During visit/workplace experience at Shizuoka Branch(Shizuoka Futaba High Schoolin July 2004)

Approach to Society

49

Aggressively promoting environmental measures for the whole of societyThe financial services industry must create opportunities to invest in environmentally con-scious companies, support their activities and help raise their corporate value, while con-currently working to encourage more environmental activities at other companies. NikkoCordial Group aims to continue working toward reducing our own direct environmentalimpact in daily business operations in tandem with proactively working to help society as awhole embrace more environmentally conscious practices.

Interaction between Financial ServicesIndustry and the EnvironmentAgainst the backdrop of increasingly serious environmental issuesaround the world, every industry, including the financial services industry, has a responsibility for doing what it can do—one step at atime—for the sake of the environment.

Nikko Cordial Group undertakes its own environmental initiatives,namely, providing opportunities to invest in environmentally consciouscompanies through management and offering of SRI funds, includingthe Nikko Eco Fund and Globe1, and encouraging companies to disclose their environmental information, thus enhancing their environ-mental initiatives. Through these two initiatives we can expect toincrease the values of environmentally conscious companies andexpand eco-consciousness to other companies as well.

Also, the securities industry can be considered a highly resource-consuming industry due to the delivery and sending of statutoryprospectuses and brochures, along with CO2 emissions from vehiclesused for marketing and sales activities, among others.

In March 2000, Nikko Cordial Corporation—as a financial institutionengaged in banking, securities and other related businesses—was thefirst financial services company in Japan to sign the UNEP “Statementby Financial Institutions on the Environment and SustainableDevelopment” (UNEP FI)2, thereby declaring internationally our intent toparticipate in global environmental preservation activities. Havingestablished our Environmental Policy in 2001 on the basis of this statement as our environmental principle, we have been working onenvironmentally consciousness issues through our business activitiesand daily operations.

1 SRI funds: Please refer to page 43 forNikko Eco Fund and Globe.

2 UNEP FI (United Nations EnvironmentProgramme Finance Initiative) represents apartnership between UNEP and financialinstitutions around the world. In 1992approximately 30 world banks signed thestatement. Later in 1997, the group of signatories was expanded to include invest-ment banks, asset management companies,and securities companies, and the originalstatement was revised accordingly. In 2003,this statement was combined with a similarstatement issued by the insurance industry.UNEP FI website: http:www.unepfi.org/

Approach to the Environment

Environmental preservation activities

Environmental preservation activities

Environmental preservation activities Greenhouse gases

CO2, NOx

Electricity Water Gas Paper

Office activities

Waste

Transportation Gasoline

Greenhouse gasesCO2, NOx

CSR Report

Nikko Cordial Group

Prospectuses Eco bulletins, etc.

Green procurement

Environmentally conscious companies

Private corporations

Increase in stock prices

WWF-Nikko GreenInvestors Fund

Environmental protection groups

Improvement ofSRI fund performance

IndividualsGreen investors

Expansion of green investor base

Info

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disc

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form

atio

ndi

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sure

Inve

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Contributions

Finan

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An Environment Where We Can Live Safely

Resource and energy conservation

Green procurementSRI funds Nikko Eco Fund

Globe

Green procurement

Interaction between Nikko Cordial Group and the Environment

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Takes action to attain the objectives and targets under the organizational structure based on ISO 14001

Nikko Cordial Group Global Environmental Conference

Chairperson: Chairperson of CSR Committee

Department responsible in each company

Department responsible in each company

Group companies that have acquired ISO 14001 certification

Chief Environmental Officer

Environmental Management Representatives

Internal Environmental Audit Team

Secretariat

Nikko Cordial Corporation

Environmental ManagementPromotion Members

Nikko Cordial Securities Inc.

Environmental ManagementPromotion Members

Nikko Asset ManagementCo., Ltd.

Environmental ManagementPromotion Members

Nikko Pension ConsultingCo., Ltd.

Environmental ManagementPromotion Members

Nikko Investor RelationsCo., Ltd.

Environmental ManagementPromotion Members

Environmental Management Promotion Board

Establishes environmental policies and action plans for the Nikko Cordial Group. Acts as a forum for the exchange of ideas and opinions

Secretariat: CSR Promotion Department, Group Management Planning Division, Nikko Cordial Corporation

Members: Group companies that have acquired ISO 14001 certification: Environmental management representatives/board members responsible for environmental activitiesOther Group companies: Board members responsible for environmental activities

Actions are taken based on Nikko Cordial Group Environmental Policy to achieve the objectives and targets set by each company

Environmental Management SystemNikko Cordial Group Global Environmental Conference is theGroup’s highest decision-making body in carrying forward environmental initiatives.

Group member companies that have acquired ISO 140013

certification conduct their energy and resource saving activitiesand business activities in accordance with ISO standards so asto strengthen the overall structure. Nikko Asset Managementincorporates planning and development of SRI funds and infor-mation disclosure into the environmental management program,thereby strengthening the funds’ administrative system.

On the other hand, Nikko Investor Relations Co. Ltd., whichprovides consulting services for the investor relations activitiesof its corporate clients, has incorporated the environmentalmanagement program into its service portfolio by providing its clients with consulting assistance on holding information

meetings on their environmentalactivities.

3 ISO 14001 is an environmental management sys-tem established by the International Organizationfor Standardization (ISO). It aims to help privatecompanies grasp the impact of their business operations on the environment, and assist them inmaking improvements through a continued processof “Plan,” “Do,” “Check” and “Act.”

342,994,503359,171,499

Unit: MJ

FY2004(133 facilities)

FY2003(129 facilities)

FY2004(23 facilities)

FY2003(28 facilities)

307,852 308,096

Unit: m3

FY2000 FY2001 FY2002 FY2003 FY2004

2,467,7762,356,104 2,277,360 2,207,328

2,303,088Unit: kWh

ISO 14001 certification acquired in April 2001

Nikko Cordial Group Global Environmental Conference (as of May 2005)

Energy Consumption

Consumption of Electricityand Air-conditioning Energy5

5 For electricity and air-conditioningenergy, the conversion factor (9.83MJ/kWh) provided by the Ministry ofEnvironment in its EnvironmentalPerformance Indicators for Businesses(2002 edition) has been used.

Gas Consumption

Changes in the Consumption of Electricity atKabuto-cho Nikko Building

Environmental Performance Data

Approach to the Environment

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90,12892,893

Unit: m3

FY2004(64 facilities)

FY2003(68 facilities)

1,024,744

1,115,971

Unit:

FY2004FY2003

13,840

2,377

14,460

2,589

Unit: t

FY2004FY2003

FuelElectricity/air-conditioning/gas

FY2004FY2003

FuelElectricity/air-conditioning/gas

10.7

8.0

11.2

9.2

Unit: t

Usage FY2003 FY2004Prospectuses (total) 1,022 1,082

Stocks and bonds 799 774Investment trusts 222 307

Brochures 367 435Copy paper 386 400Envelopes 95 118Total 1,872 2,037

FY2003 (89 facilities) FY2004 (106 facilities)

Amount Emitted (t) Recycling Ratio Amount Emitted (t) Recycling Ratio

Total paper 1,752 66% 1,927 64%Copy paper 227 79% 259 90%Shredded paper 304 61% 301 61%Newspapers, magazines, 628 85% 722 76%and prospectusesBrochures and flyers 199 81% 217 78%Cardboard paper 63 92% 69 90%Other paper 327 9% 356 9%

Food waste 81 0% 58 0%Bottles and glass items 9 78% 6 76%Cans and other metal items 29 81% 33 88%Plastics 46 23% 59 43%Fixtures 163 64% 133 47%Others (excluding paper) 45 54% 44 45%Total Amounts / Average Percentage 2,128 62% 2,263 61%

Water Consumption Gasoline Consumption

Carbon Dioxide (CO2 )Emissions6

6 For CO2 emissions, the emission coeffi-cient specified in the implementationordinances of the Law Concerning thePromotion of Measures to Cope withGlobal Warming has been used.

Nitrous Oxide (NOx)Emissions7

7 For NOx emissions, the coefficientspecified in the Environmental ActivitiesEvaluation Program of the Ministry ofthe Environment has been used.

Paper Consumption◆ Waste Generated and Recycling Ratios Unit: t

◆ Paper ConsumptionThe financial services industry consumes large volumes ofpaper for the statutory issuing of various products and servicesinformation as well as prospectuses4.

4 Prospectuses are formal documents issued to investors in relation to new securities offerings. They provide information on the issuer as well as the content of the securities.

Environmental PerformanceNikko Cordial Group conducts activities at branch officeslocated in many parts of the country. We have summarizedenergy consumption and waste discharge for each office andacknowledged the resulting impact on the environment.Compiled data includes Nikko Cordial Corporation, NikkoCordial Securities and Nikko Asset Management.

This fiscal year, we have disclosed the annual changes fromfiscal 2000 in the electricity consumption of the Kabuto-choNikko Building where the Group’s headquarters is located toenable year-to-year comparisons of our past efforts. Partly due to the effects of the introduction of ISO 14001, the reduction trend has continued for several years. However, consumption in fiscal 2004 showed a slight increase due to a summer heat wave.

◆ Green Procurement RateThe fiscal 2004 results were 69% (value basis) for Nikko CordialCorporation and Nikko Cordial Securities and 62% (itemizedbasis) for Nikko Asset Management. Example of prospectus contents

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Starting with the April 2005 Training for New Employees course,we changed the course format to e-learning via intranet, makingthe course readily accessible to attendees without them havingto leave their desks.

In addition, outside spe-cialists are invited once a yearto speak at training seminarsfor internal environmental audi-tors mainly targeting membersof environmental managementpromotion committees inoffices that have introducedISO 14001 systems.

Environmental Conservation Activities“NPO Support”Nikko Cordial Group supports the environmental conservationactivities of the Torisawa District in eastern Otsuki City,Yamanashi Prefecture.

The district has launched a project comprising representa-tives from various fields, including local businesses, the prefec-tural and city governments, the Yamanashi University GraduateSchool and local resident associations. The city has obtained astructural reform special district certification from the centralgovernment and has set up the nonprofit Otsuki Eco Village.Through the project, local residents are playing a central role inpromoting environmental conservation as well as agriculturaland reforestation projects. An urban-agricultural villageexchange project has also been established to help encouragecommunity participation.

On April 10,2005, as the firstinitiative of suchactivities, a “buck-wheat seedingmeet” was held,drawing a largenumber of partici-pants, mainly chil-dren. In the future,we will focus onsuch urban-agricultural village exchange projects in cooperationwith Otsuki City. Students of Otsuki City College also plan tojoin as members of the Secretariat.

“Thanks to the contribution and cooperation ofNikko Cordial, we succeeded in setting up anNPO which is chiefly run by local residents. Wewill continue to restore the agricultural land andrecover the landscape.”

Mr. Masafumi Yamada, Director of Otsuki Eco Village

Environmental EducationIn addition to environmental education in connection with thescope of ISO 14001 certification, the training curriculum for newemployees includes lectures on environmental initiatives. Inaddition to the ISO 14001 framework, CSR and SRI funds arealso comprehensively explained using past sustainability reportsand easy-to-follow summaries.

Internal Environmental AuditsInternal environmental audits are conducted at least one timeper year by personnel who have obtained the necessary qualifi-cations through training seminars for internal environmentalauditors. Their responsibilities include examining the progressof environmental programs, checking record-keeping opera-tions and interviewing employees.

Company/Facility Audited Date of Audit

Nikko Cordial Corporation (Kabuto-cho Nikko Building) October 2004

Nikko Pension Consulting Co., Ltd. (Koami-cho Nikko Building) March 2005

Nikko Cordial Securities Inc. (Tokyo Dia Building No. 5) Nikko Asset Management Co., Ltd. (Tokyo Takarazuka Building) April 2005Nikko Investor Relations Co., Ltd. (Kaisei Building)

Confirmation of Compliance withEnvironmental Rules and RegulationsGroup companies that have received ISO 14001 certificationprepare a list of legal regulations that they must observe. Groupcompanies that have not received ISO 14001 certification alsoconduct their activities in compliance with environmental lawsand local government ordinances on their business premises.During fiscal 2004, there were no confirmed violations of environmental laws by Group companies.

External Communication Past sustainability reports issued by Nikko Cordial Group arenow being used in seminars taught by Assistant ProfessorSatoru Katsuta of Sanno University’s School of Management. In August 2004, nine juniorand senior students enrolledin Assistant ProfessorKatsuta’s seminar visited ourKabuto-cho Nikko Buildingwhere we explained our ini-tiatives and current situation,and exchanged opinions.

Name of Course Date Number Attending

Training for New Employees April 2, 2004 176

Training for Mid-career Hires April and May 2004 10

Training Courses on Environmental Initiatives Offered byNikko Cordial Securities

Implementation of Internal Audits

Approach to the Environment

Screen for e-learning regarding environmental education

53

◆ Volunteer Social Service Work in Cooperation WithRotary Volunteers—Kumamoto BranchAs chairperson of socialservice work of theKumamoto Minami RotaryClub, Mr. Takashi Iwai,General Manager of theKumamoto Branch, helpedclean up Lake Etsu as partof the branch’s environ-mental preservation and improvement activities.

◆ Japanese Archipelago Cleanup Campaign—Tokushima BranchParticipated in the “SmallAct of Kindness Campaign,”involving environmentalbeautification and trash collection.

◆ Early-morning Kajo Park Cleanup—Yamagata BranchParticipated in the regularearly-morning cleanupcampaign hosted by theYamagata Rotary Club.

◆ Nagoya Clean City Campaign—Nagoya BranchParticipated in the city-sponsored citizens’cleanup campaign.

Participation in UNEP FI Working GroupNikko Asset Management participated in the UNEP FI-affiliatedAsset Management Working Group (AMWG). The firm alsoactively exchanged opinions with overseas financial institutions,cooperated in a project to promote SRI and also took part inSRI seminars in Europe as well as AMWG’s annual convention.

Participation in EnvironmentalPreservation Activities by the Branchesof Nikko Cordial Securities

History of Environmental Initiatives

November 1998 Installed a solar energy generation system in the Kabuto-cho Nikko Building

August 1999 Started managing and marketing Nikko Eco Fund (Japan’s first SRI fund)(Started managing Nikko Global Sustainability Fund (Globe) inNovember 2000)

March 2000 Set up Department of Environmental AffairsMarch 2000 Signed UNEP FIMay 2000 Issued Sustainability Report 2000

Chairman Kaneko gave a speech at The 1st World EnvironmentMinisters’ Conference (Sweden)

October 2000 Established WWF-Nikko Green Investors Fund with WWF(Donated part of the profits generated from Nikko Eco Fund andGlobe to the fund)

January 2001 Established Environmental Principle, Environmental Policies andEnvironmental Rules

April 2001 Became the first in securities industry to acquire ISO 14001 certification

October 2001 Established management principleOctober 2003 Chairman Kaneko gave the closing address at UNEP FI 2003 Global

Roundtable Theme: “Environmental Impact of the Business Activities of FinancialInstitutions and Investments and Loans to Corporations (Businesses)”

March 2004 Set up CSR CommitteeJune 2004 Shifted to Committee SystemFebruary 2005 Set up CSR Promotion DepartmentMarch 2005 Received Japan Environmental Management Association’s

“Excellent Sustainable Management Award”

Campaign participation seal

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Quantitative disclosure of value distribution

Category Corresponding profit and loss accounting item FY2003 FY2004 Change

Operating revenue Operating revenue 340,747 343,449 2,702

Selling and general and administrative Consolidated SG&A and financial expensesexpenses and financial expenses (environmental preservation and shareholder-related costs are subtracted) 139,244 145,567 6,323

Value generated by business activities 201,502 197,881 -3,621

Other income and expenses Other income, expenses and losses -893 9,203 10,096

Difference: Value generated by business activities 200,608 207,085 6,477

1) Directors Directors’ compensation and retirement allowances 5,859 2,682 -3,177

2) Employees Compensation, bonuses, legally required social benefit expenses, retirement allowances and retirement provisions 121,154 118,504 -2,650

3) Shareholders Dividends etc. 7,506 19,020 11,514

4) Public sector Corporate income taxes, other taxes and levies 34,205 37,464 3,259

5) Contributions to society Donations (includes ¥135 billion in donations to political parties) 157 695 538

6) Environmental Initiatives Environment-related costs (including personnel expenses) 497 499 2

7) Retained earnings 31,223 28,218 -3,005

Distributed amount 200,608 207,085 6,477

Distribution of Economic Value The objective of CSR accounting system is to quantify a com-pany’s economic and social responsibility to its stakeholders byshowing how its generated value is distributed. Nikko CordialGroup’s CSR accounting system differentiates between direc-tors, employees, shareholders, the public sector, contributionsto society, environmental initiatives and retained earnings. Wedisclose figures in each of these categories for comparison withthe previous fiscal year. In our most-recent figures, we haveincluded environmental accounting costs on a trial basis.

•Accounting Period: Fiscal 2003 (April 1, 2003 - March 31, 2004) andfiscal 2004 (April 1, 2004 - March 31, 2005)

•Scope: Our CSR accounting system covers Group companies con-tained in our annual securities report. Environmental accountingencompasses Nikko Cordial Corporation, the head offices andbranches of Nikko Cordial Securities and Nikko Asset Management.However, the waste material disposal costs of Nikko Cordial Securitiesapply only to the head office and its principal branches.

•Points to Consider: (1) Adjusted amounts are included in “directors”and “shareholders” in fiscal 2003. (2) The scope for “shareholders”and “contributions to society” was re-evaluated in fiscal 2004. (3) Personnel expenses are included in “environmental initiatives.”

•Adopted Guidelines: Environment Reporting Guidelines (2005 edition)

Analysis (Comparison of Fiscal 2003 andFiscal 2004)Compared with fiscal 2003, the largest increase was in the“shareholders” category, with the distribution ratio for this classification increasing 5.4 percentage points. Of the ¥11,514million increase, ¥589 million resulted from a change inaccounting. Total dividends paid rose sharply, amounting to¥18,287 million on a consolidated basis.

As a result of the payment of retirement allowances todirectors in the previous fiscal year along with the termination ofthis system as part of our efforts to build a globally acceptedcorporate governance structure, distributions to directors in fiscal 2004 declined by ¥3,177 million and the distribution ratiodecreased 1.6 percentage points.

Contributions to society showed a ¥538 million increase.Within that amount, social contributions other than donationsrose by ¥472 million, and the distribution ratio edged up 0.26percentage point.

Nikko Cordial Group is progressing with management thatplaces high emphasis on shareholders and is proceeding withactivities to make social contributions and strengthen corporategovernance. The Group’s progress in strengthening CSR management is also becoming evident on a quantitative basis.

Fiscal 2003 Fiscal 2004

Operating revenue¥340.7 billion

Value generated by business activities¥200.6 billion

Consolidated SG&A, financial, and other expenses ¥139.2 billion

Other income and expenses¥-0.8 billion

Distribution Ratio

7) Retained earnings 15.6%

6) Environmental initiatives 0.3%

5) Contributions to society 0.1%

4) Public sector 17.0%

3) Shareholders 3.7%

1) Directors 2.9%

2) Employees 60.4%

Operating revenue¥343.4 billion

Value generated by business activities¥207.0 billion

Consolidated SG&A, financial, and other expenses ¥145.5 billion Other income and expenses¥9.2 billion

Distribution Ratio

7) Retained earnings 13.6%

6) Environmental initiatives 0.2%

5) Contributions to society 0.3%

4) Public sector 18.1%

3) Shareholders 9.2%

1) Directors 1.3%

2) Employees 57.3%

CSR Accounting (Unit: ¥ millions) Environmental Preservation Costs (Unit: ¥ millions)

Category Principal initiatives FY 2003 FY 2004

Environmental and social business costs Nikko Eco Fund, Globe 334 336

Business Global environmental Energy conservation 0 0

area costs protectionResource recycling Waste disposal/recycling 71 60

Upstream/downstream costs Green procurement 0 0Internal management costs Acquiring ISO 14001 certification,

implementing environmental accounting 33 35Social costs WWF, UNEP, AsriA, etc. 57 66Total 497 499

CSR Accounting

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Consideration of CSR based on dialogue withleaders of tomorrowIn considering how to further increase readership of our CSR report, we prepared the CSRReport 2005 incorporating the opinions of third parties. Specifically, Manager ToyoshiHatakeyama and Assistant Manager Yoshie Sato of the Nikko Cordial Corporation CSRPromotion Department invited five students from Reitaku University to read ourSustainability Report 2004. At the same time, we also asked them to preview drafts of thecurrent report and solicited their impressions and opinions. (The dialogue was held on May 26, 2005 at Nikko Cordial Corporation’s head office. Because of space restraints, in some instances the participants’ opinions have been consolidated or summarized.)

Opinions on the Sustainability Report 2004Ms. Teramoto: I got the impression Nikko Cordial Group is atrue front-runner, as illustrated by initiatives such as its earlyinvolvement with the Nikko Eco Fund. Also, Nikko CordialGroup focuses on new domains, like the addition of CSRaccounting in last year’s report. However, the Group’s CSRflow in its business activities could have been made clearer andthe report given a more distinctive flavor by providing a moreindepth description of the Group’s governance framework inregard to execution functions and responsibilities.

Mr. Deyama: The report contained a wealth of informationabout various activities that have been carried out. Still, I wouldhave liked to have seen the inclusion of a chronological time linethat explains the past and current situations as well as what theGroup plans to do in the future.

Mr. Yamaga: I am majoring in accounting, so I would like tobriefly mention CSR accounting. You are preparing CSRaccounting on a consolidated basis, but there is no actual con-solidated entity. Because of this, you could improve the reportby showing CSR accounting on a non-consolidated basis.

Mr. Yamaji: I was impressed with your efforts to use the CSRreport as a tool to promote two-way communication by takingreaders’ opinions obtained from the enclosed questionnaire inlast year’s report and reflecting them in this year’s report.Although this is not directly related to the report itself, I givehigh marks to Nikko Financial Intelligence’s initiatives to providefinance and investment-related education, as these subjectsare not ordinarily taught in schools.

Ms. Yanagawa: My sense is that the report’s target audienceis not very well defined. Also, as a woman about to join a com-pany and launch my working career, I have an extremely keeninterest in employment and career advancement opportunities.However, there was not really much written about this in lastyear’s report, so I am hoping more will be included this year.

Previewing the Draft for CSR Report 2005Mr. Hatakeyama: Thank you all for your opinions. Whom doesour CSR report target? Well, because the securities business isthe foundation of the Group’s operations, our report targets indi-vidual customers and investors, potential customers, as well asuniversity students who are soon to join the workforce. For our2005 report, we have sought to create a user-friendly designwith illustrations that make people want to pick up a copy. Onthe other hand, we are also a bit vexed because the very natureof such a report requires that we adhere to GRI guidelines.

I would also like to say a word about employment. We aredetermined to demonstrate that we value our employees, andfrom this perspective have significantly enhanced the content ofour 2005 report.

Mr. Deyama: The illustrations make the report very accessiblewhile the highlighted areas make it easy for me to pick out thesections I want to read.

Ms. Teramoto: The number of articles on employment clearlytells me that Nikko Cordial Group certainly regards employmentas an important issue.

Mr. Deyama: The report could have been made more convincing if it included discussions with people who haveactually taken a leave of absence to convalesce or raise children rather than merely including the related figures.

Ms. Yanagawa: I think you could have also enhanced the levelof appeal for female college students seeking employment byincluding more articles about areas in which women can advance.

Ms. Sato: The Group’s thinking regarding the advancement ofwomen was featured in the management dialogue and theGroup’s organization for supporting women’s investment needswas also introduced. From my own experience as a woman,Nikko Cordial is a company that provides a place where I canplay an active role “precisely because I am a woman.”

Mr. Deyama: I think that the overall image of the entire securities industry could be improved if the report placedgreater emphasis on education for sales staff as well as oncompliance and governance.

Ms. Teramoto: The report could be enhanced if it showed yourlong-term targets as well as where you stand now.

Participants: Students: Ms. Kanae Teramoto, Mr. Minoru Deyama, Mr. Yasuhiro Yamaga, Mr. Yuichi Yamaji and Ms. Yae YanagawaNikko Cordial Corporation, CSR Promotion Department: Mr. Toyoshi Hatakeyama and Ms. Yoshie Sato

Stakeholder Dialogue

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Global Reporting Initiative (GRI) Content Index

1. VISION AND STRATEGY

1.1 Statement of the organisation’s vision and strategy P.14

1.2 Statement from the CEO P.10~13

2. PROFILE

Organisational Profile

2.1 Name of reporting organisation P.8

2.2 Major products and/or services P.17,18

2.3 Operational structure of the organisation P.17,22,23

2.4 Description of major divisions, operating companies, subsidiaries, and joint ventures P.17

2.5 Countries in which the organisation’s operations are located P.8

2.6 Nature of ownership; legal form P.8

2.7 Nature of markets served P.18

2.8 Scale of the reporting organisation (including employees, assets, sales and products) P.18,19,36

2.9 List of stakeholders, key attributes of each, and relationship to the reporting organisation P.28,29

Report Scope

2.10 Contact person(s) for the report P.8

2.11 Reporting period for information provided P.8

2.12 Date of most recent previous report P.8

2.13 Boundaries of report and specific limitations on the scope P.8

2.14 Significant changes in size, structure, ownership, or products/services that have occurred since the previous report *

2.15 Basis for reporting on joint ventures, partially owned subsidiaries, leased facilities, outsourced operations, and other situations that can significantly affect comparability from period to period and/or between reporting organisations *

2.16 Explanation of the nature and effect of any restatements of information provided in earlier reports, and the reasons for such restatements *

Report Profile

2.17 Decisions not to apply GRI principles or protocols in the preparation of the report P.8

2.18 Criteria/definitions used in any accounting for economic, environmental, and social costs and benefits P.54

2.19 Significant changes from previous years in the measurement methods applied to key economic, environmental, and social information *

2.20 Policies and internal practices to enhance and provide assurance about the accuracy, completeness, and reliability that can be placed on the sustainability report P.23

2.21 Policy and current practice with regard to providing independent assurance for the full report P.8

2.22 Means by which report users can obtain additional information P.8

3. GOVERNANCE STRUCTURE AND MANAGEMENT SYSTEMS

Structure and Governance

3.1 Governance structure of the organisation, including major committees under the board of directors that are responsible for setting strategy and for oversight of the organisation P.22,23

3.2 Percentage of the board of directors that are independent, non-executive directors P.22,23

3.3 Process for determining the expertise board members need to guide the strategic direction of the organisation, including issues related to environmental and social risks and opportunities *

3.4 Board-level processes for overseeing the organisation’s identification and management of economic, environmental, and social risks and opportunities P.24,25

3.5 Linkage between executive compensation and achievement of the organisation’s financial and non-financial goals P.23,54

3.6 Organisational structure and key individuals responsible for oversight, implementation, and audit of economic, environmental, social, and related policies P.21

3.7 Mission and values statements, internally developed codes of conduct or principles, and policies relevant to economic, environmental, and social performance and the status of implementation P.16

3.8 Mechanisms for shareholders to provide recommendations or direction to the board of directors P.31

Stakeholder Engagement

3.9 Basis for identification and selection of major stakeholders P.21,28,29

3.10 Approaches to stakeholder consultation reported in terms of frequency of consultations by type and by stakeholder group P.30~35,38,39

3.11 Type of information generated by stakeholder consultations P.30,32,33,35,38,39

3.12 Use of information resulting from stakeholder engagements P.32,33,35,39

Overarching Policies and Management Systems

3.13 Explanation of whether and how the precautionary approach or principle is addressed by the organisation P.24,25

3.14 Externally developed, voluntary economic, environmental, and social charters, sets of principles, or other initiatives to which the organisation subscribes or which it endorses P.1,49,50,52,53

3.15 Principal memberships in industry and business associations, and/or national/international advocacy organisations P.8,46

3.16 Policies and/or systems for managing upstream and downstream impacts P.32~35,40,41

3.17 Reporting organisation’s approach to managing indirect economic, environmental, and social impacts resulting from its activities P.42,43

3.18 Major decisions during the reporting period regarding the location of, or changes in, operations *

3.19 Programmes and procedures pertaining to economic, environmental, P.18,19,30~39,and social performance 44~50,52~53

3.20 Status of certification pertaining to economic, environmental, and social management systems P.50

4. GRI CONTENT INDEX

4.1 A table identifying location of each element of the GRI Report Content, by section and indicator P.56,57

5. PERFORMANCE INDICATORS

Economic Performance Indicators

Direct Impact

Customers

EC1 Net sales P.18,19

EC2 Geographic breakdown of markets *

Suppliers

EC3 Cost of all goods, materials, and services purchased P.54

EC4 Percentage of contracts that were paid in accordance with agreed terms, excluding agreed penalty arrangements *

Employees

EC5 Total payroll and benefits including wages, pension, other benefits and redundancy payments broken down by country or region P.54

Providers of Capital

EC6 Distributions to providers of capital broken down by interest on debt and borrowings, and dividends on all classes of shares, with any arrears of preferred dividends to be disclosed P.54

EC7 Increase/decrease in retained earnings at end of period P.54

Public Sector

EC8 Total sum of taxes of all types paid broken down by country P.54

EC9 Subsidies received broken down by country or region *

EC10 Donations to community, civil society, and other groups broken down in terms of cash and in-kind donations per type of group P.54

Environmental Performance Indicators

Materials

EN1 Total materials use other than water, by type P.51

EN2 Percentage of materials used that are wastes (processed or unprocessed) from sources external to the reporting organisation *

Energy

EN3 Direct energy use P.50

EN4 Indirect energy use *

Water

EN5 Total water use P.51

Biodiversity

EN6 Location and size of land owned, leased, or managed in biodiversity-rich habitats *

EN7 Description of the major impacts on biodiversity associated with activities and/or products and services in terrestrial, freshwater, and marine environments *

Emissions, Effluents, and Waste

EN8 Greenhouse gas emissions (CO2, CH4, N2O, HFCs, PFCs, SF6) P.51

EN9 Use and emissions of ozone-depleting substances *

EN10 NOx, SOx, and other significant air emissions by type P.51

EN11 Total amount of waste by type and destination P.51

EN12 Significant discharges to water by type *

EN13 Significant spills of chemicals, oils, and fuels in terms of total number and total volume *

Products and Services

EN14 Significant environmental impacts of principal products and services P.42,43

EN15 Percentage of the weight of products sold that is reclaimable at the end of the products’ useful life and percentage that is actually reclaimed *

Content Index

57

Compliance

EN16 Incidents of and fines for non-compliance with all applicable international declarations/conventions/treaties, and national, sub-national, regional, and local regulations associated with environmental issues P.52

Social Performance Indicators

Employment

LA1 Breakdown of workforce P.36

LA2 Net employment creation and average turnover segmented by region/country P.36

LA12 Employee benefits beyond those legally mandated P.36

Labor/Management Relations

LA3 Percentage of employees represented by independent trade union organisations or other bona fide employee representatives broken down geographically OR percentage of employees covered by collective bargaining agreements broken down by region/country P.38

LA4 Policy and procedures involving information, consultation, and negotiation with employees over changes in the reporting organisation’s operations (e.g., restructuring) P.38

LA13 Provision for formal worker representation in decision-making or management, including corporate governance P.39

Health and Safety

LA5 Practices on recording and notification of occupational accidents and diseases, and how they relate to the ILO Code of Practice on Recording and Notification of Occupational Accidents and Diseases P.36

LA6 Description of formal joint health and safety committees comprising management and worker representatives and proportion of workforce covered by any such committees *

LA7 Standard injury, lost day, and absentee rates and number of work-related fatalities *

LA8 Description of policies or programmes (for the workplace and beyond) on HIV/AIDS *

Training and Education

LA9 Average hours of training per year per employee by category of employee P.38

LA16 Description of programmes to support the continued employability of employees and to manage career endings P.36,38

LA17 Specific policies and programmes for skills management or for lifelong learning P.38

Diversity and Opportunity

LA10 Description of equal opportunity policies or programmes, as well as monitoring systems to ensure compliance and results of monitoring P.39

LA11 Composition of senior management and corporate governance bodies (including the board of directors), including female/male ratio and other indicators of diversity as culturally appropriate P.36,39

Strategy and Management Concerning Human Rights

HR1 Description of policies, guidelines, corporate structure, and procedures to deal with all aspects of human rights relevant to operations, including monitoring mechanisms and results P.38

HR2 Evidence of consideration of human rights impacts as part of investment and procurement decisions, including selection of suppliers/contractors *

HR3 Description of policies and procedures to evaluate and address human rights performance within the supply chain and contractors, including monitoring systems and results of monitoring *

Non-discrimination

HR4 Description of global policy and procedures/programmes preventing all forms of discrimination in operations, including monitoring systems and results of monitoring P.39

Freedom of Association and Collective Bargaining

HR5 Description of freedom of association policy and extent to which this policy is universally applied independent of local laws, as well as description of procedures/programmes to address this issue *

Child Labour

HR6 Description of policy excluding child labour as defined by the ILO Convention 138 and extent to which this policy is visibly stated and applied, as well as description of procedures/programmes to address this issue, including monitoring systems and results of monitoring *

Forced and Compulsory Labour

HR7 Description of policy to prevent forced and compulsory labour and extent to which this policy is visibly stated and applied, as well as description of procedures/programmes to address this issue, including monitoring systems and results of monitoring *

Community

SO1 Description of policies to manage impacts on communities in areas affected by activities, as well as description of procedures/programmes to address this issue, including monitoring systems and results of monitoring *

Bribery and Corruption

SO2 Description of the policy, procedures/management systems, and compliance mechanisms for organisations and employees addressing bribery and corruption P.16

Political Contributions

SO3 Description of policy, procedures/management systems, and compliance mechanisms for managing political lobbying and contributions P.16

Customer Health and Safety

PR1 Description of policy for preserving customer health and safety during use of products and services, and extent to which this policy is visibly stated and applied, as well as description of procedures/programmes to address this issue, including monitoring systems and results of monitoring P.40,41

Products and Services

PR2 Description of policy, procedures/management systems, and compliance mechanisms related to product information and labeling P.40,41

Respect for Privacy

PR3 Description of policy, procedures/management systems, and compliance mechanisms for customer privacy P.25,41

*: Not possible to report due to the nature of our business, or not relevant to our operations

58

Content Index

1) Basic Headings

1 CEO’s statement, including summary of the meaning of the issue and contents of the report, and commitments to society P.10

2 Foundation of reporting (Reporting organisation, time period and field) P.8

3 Summary of the nature of the business P.17

2) Summary of Policies, Targets, and Achievements in Business Activities for Environmental Conservation

4 Environment-conscious policies in business activities P.49

5 Summary of targets, plans, and achievements regarding environment-conscious efforts in business activities *

6 Material balance of business activities *

7 Summary of environmental accounting information P.54

3) State of Environmental Management

8 State of environmental management system P.50,52

9 State of environmentally conscious supply chain management, etc. *

!!Z State of research and development of environmentally conscious new technologies, etc. *

!Q State of the disclosure of environmental information and environmental communication P.52,62

!R State of compliance with environmental regulations P.52

!S State of socially responsible activities related to the environment P.43,52,53

4) State of Activities for Dealing with Environmental Loads Generated in Business Activities and for Reducing Them

!T Total energy input, and mitigation measures P.50 #

!U Total material input, and mitigation measures P.51 #

!V Total water resource input, and mitigation measures P.51 #

!W Greenhouse gas emissions into the air, and mitigation measures P.51 #

!X Volume of chemical substance release and transfer, and mitigation measures *

!Y Total production quantity or sales of products *

@Z Total waste emissions, total volume of waste disposal, and mitigation measures P.51 #

A Total volume of water discharged, and mitigation measures *

B State of environmental burdens from transportation, and mitigation measures *

C State of green purchasing, and promotion measures P.51#

D State of goods and services that contribute to reduction in environmental burdens P.42,43

5) State of Social Activities

E State of social activities Refer to GRI Content Index

Report Content Index from Environmental ReportingGuidelines (FY2003 version) published by Japan’sMinistry of the Environment

*: Not possible to report due to the nature of our business, or not relevant to our operations#: Information on the state of activities for reduction of environmental burden is not provided

59

Independent Review Report

Independent Review Report by Ernst & Young ShinNihon

1. Outline of our workWe have reviewed the Report following the procedures enumerated below in accordance with the “Report on the conceptual frameworkfor assurance engagements of financial information, etc. [Zaimujouhoutou ni kakaru hoshogyomu no gainennteki wakugumi ni kansuruikensho]” (Kigyo Kaikei Shingikai, November 2004) and the “Framework for assurance engagements conducted by CPAs[Kouninkaikeishi ga okonau hoshogyomu ni kansuru framework]) (tentative)” (JICPA, July, 2004). A review consists principally ofmaking enquiries of those who are responsible for its preparation. A review is substantially limited in its procedures. Accordingly, wewill provide herein only limited assurance, which is not the same as reasonable assurance.

We have followed the procedures described below:(1) Understanding Nikko Cordial’s policies and systems in order to address CSR issues:

We gained an understanding of the policies and systems relating to CSR matters and the management environment relating to thereporting process by an observation of management’s dialogues and by conducting interviews with senior members of management.

(2) Understanding of Nikko Cordial’s process:We gained an understanding of Nikko Cordial’s reporting process by conducting interviews with the personnel responsible for thepreparation of the Report, and determined if the reporting process assured that all material information had been collected withoutomissions.

(3) Assessment of the documentation to, and explanations of, the contents of the Report:

•We interviewed the personnel in charge of the preparation of the Report to assess if the information presented in the Report wasaccurate, and, if necessary, we reviewed the relevant documentation.

•We conducted onsite visits in order to review the data generated by each reporting unit and we reported the results in the Report. Our site visits were limited to the locations listed below:

•The Head Office of Nikko Cordial Corporation•Two branches of the Head Office of Nikko Cordial Securities Inc.•The Head Office of Nikko Asset Management Co., Ltd.

•We observed stakeholder engagement activities in order to assess the status of achievement of Nikko Cordial’s approach to stake-holder engagements.

Our observation of stakeholder engagement activities was limited to the following:•A stakeholder communication activity entitled “Stakeholder Dialogue” aiming to walk through “CSR” with young stakeholders.

(4) Assessment of the Report’s compliance with the Reporting StandardsWe reviewed the Report and interviewed the personnel in charge of its preparation in order to determine whether or not the Reportcontained all information required with respect to the indicators referred to in the “GRI Sustainability Reporting Guidelines 2002”and the “Environmental Reporting Guidelines” (FY2003 version).

2. Our OpinionsOn the basis of our review, we are not aware of any material modifications that should be made to any of the information included in the Report.

May 30, 2005Mr. Junichi ArimuraDirectorPresident & CEONikko Cordial Corporation

Ernst & Young ShinNihon

■ Scope and objective of the engagementThe purpose of this engagement is to form and express our opinionfrom an independent standpoint on whether the information includ-ed in the “CSR Report 2005” (“the Report”) prepared by NikkoCordial Corporation (“Nikko Cordial”) was accurately calculated inaccordance with the Reporting Standards*, and covers all materialissues without omissions during the period from April 1, 2004 toMarch 31, 2005.

*The term “the Reporting Standards” here includes:• the indicators which Nikko Cordial declares that it referred to among

those outlined in the “Global Reporting Initiative SustainabilityReporting Guidelines 2002” (“GRI Guidelines”); and

• the indicators which Nikko Cordial declares that it referred to amongthose in the “Environmental Reporting Guidelines (FY2003 version)”(Japan’s Ministry of the Environment, 2003).

■ ResponsibilitiesAll the information included in the Report is the responsibility ofthe management of Nikko Cordial. Our responsibility is to expressour opinion on the Report in our capacity as an independent assur-ance provider.

■ IndependenceWe have complied with the Certified Public Accountants Law, the“Code of Ethics” of the Japanese Institute of Certified PublicAccountants (JICPA), and our own ShinNihon “Code of Ethics.”Nikko Cordial and Ernst & Young ShinNihon have no mutual inter-est which should be noted here in connection with our independ-ence on this engagement.

Itaru ShimizuRepresentative Partner Certified Public Accountant

Kazumasa Sahara Representative Partner Certified Public Accountant

Note: The above Independent Review Report was prepared based on the original Japanese version.

60

Mr. Junichi ArimuraDirectorPresident & CEONikko Cordial Corporation

◆ Scope and objective of the engagementShinnihon Integrity Assurance Inc. (“SIAI”) has been engaged byNikko Cordial Corporation (“Nikko Cordial”) to read their “CSRReport 2005” (“the Report”) and to provide them with“Strengths” and “Challenges for the future reporting.”

This engagement report does not provide any assurance onthe Report.

◆ Responsibilities of the management of Nikko Cordial and SIAI

All information included in the Report is the responsibility of themanagement of Nikko Cordial. SIAI’s responsibility is to reportthe findings of the reading.

◆ SIAI’s independenceSIAI, as a group company of Ernst & Young ShinNihon(“ShinNihon”), complies with the independence requirementsset forth in the Certified Public Accountants Law, the “Code ofEthics” of the Japanese Institute of Certified PublicAccountants, and with ShinNihon’s own “Code of Ethics.”

PROCEDURESSIAI has primarily conducted interviews with those who areresponsible for the preparation of the Report from the point ofview of the “AA1000 Principles (Materiality, Completeness, andResponsiveness)*”:

• Materiality: Does the Report provide an account covering allareas of performance which stakeholders require in order tojudge Nikko Cordial’s sustainability performance?

• Completeness: Is the information sufficiently complete toenable an assessment and understanding of Nikko Cordial’sperformance in all these areas?

• Responsiveness: Has Nikko Cordial responded coherentlyand consistently to the stakeholders’ concerns and interests?

FINDINGS ◆ StrengthsThe CSR Committee, which is headed by the Chairman ofNikko Cordial, is composed of members of top management incharge of human resources, internal management includinginternal audit and integrated management, and business man-agement, and is responsible for addressing the CSR issuesthroughout the Nikko Cordial Group. The Report provides awell-balanced representation of material aspects concerningNikko Cordial’s CSR performance with the exception of thesubject areas listed below in “Challenges for the future reporting.”

The department responsible for the preparation of theReport gathered information on the Nikko Cordial Group’s CSRperformance through hearings with other departments’ staffs,obtaining a grasp of their issues, and identifying the materialissues. The scope of the Report was determined considering,not only capital ties but also each Group entity’s materiality tothe Nikko Cordial Group.

Nikko Cordial’s aim is to prepare a report which is user-friendly and easy-to-comprehend for the stakeholders. In itsefforts to respond to various stakeholders’ needs, Nikko Cordial

has made the Report available both in a printed version and ontheir website, and has also issued a summary of the Report. Inaddition, an English version of the Report had also been prepared and issued.

Nikko Cordial has attempted to improve their CSR report byreflecting feedback from the readers as well as an independentassessment of their previous CSR report.

In addition, the Report clearly presents which indicators ofthe GRI Content Index and the “Environmental ReportingGuidelines” (FY2003 version) they referred to. Thus, the stakeholders can readily compare the Report with relevantexternal expectations.

◆ Challenges for the future reportingWe recommend the following:- Nikko Cordial should provide information, especially with

respect to numbers and figures, to maintain comparabilityamong different reporting periods;

- Nikko Cordial should, if possible, set their goals and pro-grammes for the next reporting period including the appropri-ate numeric information such as by what date and to whatextent they expect to achieve such goals and programmes;

- An Environment Department should be established withinNikko Cordial Securities Inc., one of the major companies ofthe Nikko Cordial Group, in order to promote the efficiency ofenvironmental information gathering and the appropriate utilization of such information;

- Nikko Cordial should hold meetings with the stakeholders todiscuss the issues to be included in the report, the scope ofthe reporting entities, and methods of analyzing and presenting the information.

* The “AA1000 Principles” were developed by an international NPO “AccountAbility” (the Instituteof Social and Ethical Accountability), as a framework for promoting the organization’s account-ability for sustainable development, and have been released as part of the AA1000 Series. For further information, please visit: http://www.accountability.org.uk/

Note: The above Summary of Findings was prepared based on the original Japanese version.

Summary of Findings

Shinnihon Integrity Assurance Inc.

May 30, 2005

Yasuo KuriharaExecutive Director Certified Public Accountant

Yoshinobu Shimizu Representative Director Certified Public Accountant

Please address comments and inquiries to:

CSR Promotion Department, Nikko Cordial Corporation6-5, Nihonbashi Kabuto-cho, Chuo-ku, Tokyo, 103-8225, JapanTel: +81-3-5644-4395Fax: +81-3-5644-4397E-mail: csr@mail.nikko.co.jphttp://www.nikko.jp/csr_e/Issued in August 2005

This CSR Report 2005 was prepared to provide information on Nikko Cordial Group’s efforts in CSR, and is notmeant to induce trading of securities. It is not a disclosure document required under the Securities andExchange Law of Japan.

Cert no. SA-COC-1210

CORDIAL

CSR

Report2005

CSR: Corporate Social Responsibility

CSR Report 2005

The word “Cordial” embraces the principles of “sincerity” and “wholeheartedness.” We, of Nikko Cordial Group, also interpret our corporate

name to include the concepts of “cord (i.e. ties)” and “dialogue” to emphasize our intention of “building ties with our customers through

heart-to-heart dialogue” and “cementing ties with society through fulfilling our responsibilities.”

This report is printed on FSC-certified paper using 100%vegetable-based ink (non-VOC ink) and waterless printing.

Cert no. SA-COC-1210