CSR Report 2007 - Nikko AM · Investment Banking Business—Provides corporate customers with...

CSR: Corporate Social ResponsibilityReport on fulfilling our corporate social

responsibilities and related initiatives

Cert no. SA-COC-1210

Please address comments and inquiries to:

CSR Promotion Department, Nikko Cordial Corporation6-5, Nihonbashi Kabuto-cho, Chuo-ku, Tokyo, 103-8225, JapanTel: +81-3-5644-4109Fax: +81-3-5644-4397E-mail: [email protected]: http://www.nikko.jp/csr_e/Issued in October 2007

This CSR Report 2007 was prepared to provide information on Nikko Cordial Corporation and its Groupcompanies’ efforts in CSR, and is not meant to induce trading of securities. It is not a disclosure documentrequired under the Securities and Exchange Law of Japan. This report is printed on FSC-certified paper using 100%

vegetable-based ink (non-VOC ink) and waterless printing.


CSR

Report2007

CSR Report 2007

Table of Contents

2 CSR Dialogue with Top ManagementRestoring trust and continuing to grow together with stakeholders

6 Measures for ImprovementStrengthening corporate governance and rebuilding our internal control system torestore trust

12 Management Principle: Basic PolicyWhat initiatives are being undertaken to firmly establish the Management Principle?

14 Business Content and StrategyWhat are the aims of the alliance with Citigroup?

16 Approach to Group EmployeesWhat do employees mean to Nikko Cordial Group?

20 Approach to SocietyWhat does it take to create a society that takes advantage of the financial services industry?

28 Approach to the EnvironmentHow can the financial services sector contribute to environmental conservation?

36 Independent Evaluation

37 Basic Report Information

Overview of Nikko Cordial GroupNikko Cordial Group is a financial services group that

centers on securities-related businesses. It is comprised

of the holding company and its Group companies.

Nikko Cordial Group’s core operations are made up

of four business operations, as indicated on the right.

Nikko Cordial Group Overview

Retail Business—Provides mainly individual customers withconsulting services for management of various financialproducts.

Asset Management Business—Provides all investors,including individuals, corporate customers, andoverseas investors, with asset management services.

Investment Banking Business—Provides corporatecustomers with integrated services in corporatemanagement and financial strategies, includingfundraising, fund management, IPOs and mergers andacquisitions.

Merchant Banking Business—Through this operation, weinvest our own funds in stocks and bonds issued by

public and non-listed corporations,securities products, and replacement assetinvestment products.

◆Retail Business Nikko Cordial Securities Inc./Monex, Inc.

◆Asset Management Business Nikko Asset Management Co., Ltd./Nikko antfactory K.K.

Simplex Investment Advisors Inc.

Nikko Global Wrap Ltd.

◆Investment Banking Business Nikko Citigroup Limited/Nikko Cordial Securities Inc.

Nikko Investor Relations Co., Ltd.

◆Merchant Banking Business　Nikko Principal Investments Japan Ltd.

Nikko Principal Investments Ltd.

Nikko Principal Finance Co., Ltd.

Nikko Cordial Securities Inc.

Other Related Businesses　Nikko Systems Solutions, Ltd./Nikko Business Systems Co., Ltd.

Nikko Financial Intelligence, Inc./Nikko Real Estate Co., Ltd.

Nikko Enterprise Co., Ltd.

Cordial Communications Inc./Financial Sun Inc.

I-N IFORMATION SYSTEMS, Ltd./NikkoCiti Trust and Banking Corporation

Nikko Pension Consulting Co., Ltd.

Nikko Cordial Corporation

Retail Business

AssetManagement

Business

Investment BankingBusiness

Merchant BankingBusiness

1

Commitment by Management

Aiming for further growth as a financialservices group that is the choice of customers

We deeply accept responsibility for seriously erodingthe bonds of trust with stakeholders due to a seriesof events associated with the restatement of part ofour financial report.

We fully recognize that CSR is a prerequisite forNikko Cordial Group to remain indispensable forsociety, in other words, for “management” itself.Nikko Cordial Group’s business activities are highlypublic in nature and are built upon social trust. Withthis in mind, we have made our utmost efforts torestore trust in the Group.

As part of these efforts, we are reviewing ourstructure for business promotion, strengthening corporate governance, and rebuilding our internalcontrol systems. Additionally, we are formulatingguidelines and policies that would serve as a codeof conduct for all executives and regular employeeswithin the Group, as we strive to foster a corporateculture that is deeply ingrained with a law-abidingspirit and an awareness of risk management.

For the purpose of continually providing stake-holders with innovative and beneficial value, NikkoCordial Group has concluded a comprehensivestrategic alliance agreement with Citigroup. Bycombining the solid business foundation of NikkoCordial Group based in Japan with the extensive

infrastructure of Citigroup, which operates its business globally, we are confident that we cancontinue fulfilling our responsibility of “contributingto the creation of a better society and economicgrowth around the world through investment activities,” more specifically, our traditional corebusiness of financial services. We will continue tocherish our bonds with stakeholders, beginningwith employees of Nikko Cordial Group, in strivingto achieve further growth as a “financial servicesgroup chosen by customers.”

Shoji KuwashimaPresident & CEO (Representative Executive Officer)Nikko Cordial Corporation

2

CSR Dialogue with Top Management

What Securities Markets Must Do to EarnPublic Trust— Today, we will learn how Nikko Cordial Group plans to

move forward in the future amid a dramatically evolving

environment. One of the most noteworthy changes in Nikko

Cordial Group’s environment is the flow of personal financial

assets “from savings to investments.” However, this trend is

unlikely to get fully on track if the public lacks trust in securi-

ties markets. As a leading player in the market, what do you

feel is necessary for the market to win the trust of the public?

Kimura: To answer with a sense of self-reproach, I believe

trust in the market originates with “proper accounting pro-

cedures” and “timely information disclosure.” The adequate

functioning of these two factors is a prerequisite for allowing

investors to participate in capital markets with a sense of

reassurance.

Unquestionably,

Nikko Cordial’s

involvement in a

series of incidents

played no small

role in disrupting

market transac-

tions. As a listed

company and leading market player, we deeply regret any

loss of trust resulting from our conduct and are devoting our

utmost efforts to make doubly sure there is no recurrence of

such incidents in the future. We will accurately fulfill our

responsibilities to provide proper guidance and strive to act

as a model for other companies as well.

Kuwashima: As the globalization of financial markets

gathers pace, it is essential to ensure that investors worldwide

have the perception that “the Japanese market is extremely

sound in terms of global standards” by working to realize

Restoring trust and continuing to growtogether with stakeholders— Chairman Kimura and President Kuwashima discuss the aims

of Nikko Cordial Group —Chairman Kimura and President Kuwashima discuss such issues as what society and stakeholders demand from

companies today and how Nikko Cordial Group will meet the expectations of stakeholders in the future upon

elucidating the underlying causes of a series of incidents and subsequent improvement measures taken.

This dialogue was held in a conference room at the Head Office on May 8, 2007.

common and standardized rules, such as accounting systems

for example, from a global perspective.

Realizing that we were a central party involved in

undermining trust in markets, we are now working with

unwavering resolve to restore trust.

First Priority on Top ManagementLeadership by Example— How will you work in unison with employees as you

promote initiatives for restoring trust?

Kuwashima:Above all, I want

to maintain the

highest aware-

ness of the

importance of

sharing a strong

sense of profes-

sional ethics

among employees in undertaking our business activities,

which are imbued with a crucial social mission. This concept

is tantamount to a “manufacturer’s product liability.”

Specifically, we must properly and completely fulfill responsi-

bilities in each phase of our entire operations spanning

business execution, services, and the products we develop.

Kimura: In other words, this involves fulfilling all responsibil-

ities as a player in capital markets. We must be oriented

toward customers and provide them with a sense of assurance.

To mutually foster a high sense of professional ethics

among employees, the most important factor is in-house

education. While our intent was to instill a solid sense of

ethics as our Management Principle, some areas of this

principle, however, were lacking in substance. First and

3

foremost, I believe that top management must provide

leadership by example. The management team needs to

resolutely demonstrate to all employees in an easily under-

standable manner that we are firmly putting sound ethics

and a code of conduct into practice, as well as make

repeated efforts to firmly permeate these principles within

the Company.

— What steps are needed to prevent a recurrence of recent

problems and to gain acceptance by stakeholders?

Kuwashima: First of all, we are seriously reflecting upon

those aspects of our rules that lacked substance and are

establishing manuals and building a structure conducive

to corporate management under clear guidelines within

a more-solid framework. The bottom line is that we will

significantly raise internal transparency. It is necessary to

establish a structure that considers whether or not each

individual is acting correctly in accordance with rules without

being told do so by top management.

How Companies Are Responding to theParadigm Shift Sweeping the Industry— Next, how do you view the dramatically changing

environment surrounding Nikko Cordial Group?

Kimura: I sense that the huge paradigm shift taking place

underscores a broader change in society as a whole. The

leading economic players have transitioned from companies

to consumers and users. Capital markets, our business field,

once served as a venue for companies to procure long-term

funds. As the central economic players shift from companies

to investors, capital markets are now assuming an extremely

vital function as a place for asset management. Consequently,

there are growing demands on companies in the industry

to institute governance and compliance that meet the

expectations of society amid this evolving environment.

Kuwashima: Let me add as another example that the

ongoing advance of the Internet enables anyone to easily

and instantly obtain diverse information. As this trend

progresses, companies are being questioned about their

management direction and the ways in which they disclose

information. The waves of change created by this paradigm

shift are immense.

Fulfilling Responsibilities amid the Flowof Capital “from Savings to Investments”— We are currently witnessing a situation where the

establishment of rules and laws has not kept pace with

the drastic paradigm shift. Corporate management must

therefore be sensitive to and anticipate the demands of a

society where rules and laws have yet to be established.

With this in mind, what do you think are the demands of

society on Nikko Cordial Group? Also, can you tell us about

what roles Nikko Cordial Group should play in addressing

such important social issues as the mass retirement of the

baby boom generation of workers as well as declining

birthrates and the aging of society?

Kuwashima: We are most aware of the shift “from savings

to investments.” Traditionally, by leaving arrangements to

4

CSR Dialogue with Top Management

the government, in past years people could count on

receiving a sufficient pension upon reaching a certain age.

However, this scheme is breaking down due to changing

social conditions accompanying the graying of society and

shrinking birthrates. In responding to these changes, people

must now assume risks and manage their funds by

themselves. Under these circumstances, we anticipate that

Nikko Cordial Group will be called upon to provide optimal

solutions to such questions as what types of products

should be offered to customers and what are the best ways

of enabling customers to understand the products we offer.

For our traditional long-term internationally diversified

investments as well, an extremely important point will be

whether we can provide products demanded by individual

customers in an easy-to-understand manner.

Kimura: The flow of funds “from savings to investments”

has two sides. As the description implies, one side is the shift

from indirect financing to direct financing, which is extremely

efficient from the perspective of a country’s economic

mechanisms. It is important to value the benefits of this

financing, such as helping to invigorate the nation’s

strengths and its economic capabilities as well as

diversifying risk.

At the same time, for investors these mechanisms must

enable long-term and stable asset formation, an area where

we will be required to exercise our ingenuity. I believe that

long-term internationally diversified investments can combine

a country’s economic mechanisms and the perspectives of

investors, which are the two sides of the shift “from savings

to investments.”

Kuwashima: Investment domains will broaden significantly

in the future. It is now becoming commonplace for products

previously considered somewhat esoteric, such as commodi-

ties and REITs (Real Estate Investment Trusts) to be investment

targets. The flow of money has also diversified to countries

worldwide in step with

the globalization of

economic activities.

This trend has been

paralleled by mounting

interest in a variety of

currencies besides the

U.S. dollar, beginning

with the Euro.

Investors’ horizons

are now transcending

traditional investment

spheres, and I envision

that we will play a crucial role in offering a broader

spectrum of investment opportunities.

Kimura: In this regard, it is essential that we adopt an

investor’s perspective. The attributes and needs of individu-

als are becoming extremely diversified and include, for

example, age, level of accumulated assets, or lifestyles.

It is also important to keep in mind that it will be crucial to

offer products that respond closely and widely to these

diversifying characteristics as well as to take responsibility

for providing explanations.

Education that Instills a Proper Sense ofMoney — The shifting flow of funds “from savings to investments”

is being paralleled by an increase in the investor class

participating in new markets.

Kuwashima: That is correct. In thinking from the perspective

of these investors, our first prerequisite is to provide

education for employees involved in sales activities. Next,

product pamphlets must also contain easy-to-understand

explanations. Alternatively, we must devote considerable

efforts toward activities that raise investors’ knowledge

pertaining to investments.

Kimura: To the present,

we have complied a

solid track record in

supporting financial

literacy through NPOs

(nonprofit organiza-

tions). However, I

would also like to see

Nikko Cordial make a

greater contribution to

investor education

through its regular

business operations. As

the baby boom generation acquires a bonafide interest

in investing, we plan to convene numerous investment

seminars and economic seminars in regions throughout Japan.

Additionally, we will present opportunities that allow primary

school and junior high students to cultivate a proper sense

of finance. Having a correct sense of money—not making or

increasing money—is extremely important from an ethical

perspective as well. Failing to acquire such sense will eventu-

ally lead to a deformation of capital markets and well as an

unfounded sense of insecurity about investment activities.

5

Changes Envisioned through the Alliancewith Citigroup— In March 2007, you announced a comprehensive

strategic alliance with Citigroup. What changes do you

envision through your alliance with Citigroup, which is one

of the major global players in the financial industry? Also,

what is the significance of this alliance in terms of executing

CSR demanded of financial institutions?

Kuwashima: I believe that this type of global alliance will

provide a highly effective means for accurately developing

the products and services demanded by our customers. Also,

I would like to see the alliance become a cornerstone for

raising the value of our own existence. Strengthening our

relationship with Citigroup will also yield a host of extremely

large benefits, chief among these being an expansion of our

product lineup, greater diversification of risk hedging, and

the adoption of global standards.

Kimura: Collaboration with the world’s most powerful

financial player will bolster our creditworthiness, including

our credit ratings. Also, utilization of Citigroup’s global

network and bank platform will position us to better design

products suited to customer needs. The benefits of this

collaboration are also probably quite easy for customers

to understand.

Kuwashima: As a multinational corporation, Citigroup

undertakes its operations in over 100 countries worldwide.

These operations encompass a host of activities that

contribute to societies where people live and work*1.

We have high expectations that Citigroup’s global social

contribution activities and knowledge and experience in

providing financial education

will exert a positive influence on

our own CSR activities.

Kimura: In our own business as

well, we will embrace

Citigroup’s approach of making

environmental and social

considerations, as evidenced by

Citigroup’s involvement as a

founding member of the

Equator Principles*2, in actively

undertaking investing and

financing activities, which are

the business activities of a

financial institution.

Kuwashima: The alliance with Citigroup will also have

an impact on Nikko Cordial’s corporate governance. We

foresee a significant change in our governance, which has

been based on our own ideas and management methods,

and I believe that transparency will increase even further.

Kimura: Management will demonstrate behavior that is

consistent with its words through the promotion of our

business activities, or simply, “leading by action rather than

with words.” This means that top management will set

examples by leadership in terms of maintaining a high

sense of ethics and a code of conduct, which in turn will

nurture a self-awareness of ethics throughout entire

management team.

This leadership also involves fostering more open

communications with employees. I would like to see more

frequent and proper communications with employees

regarding management principles and policies. CSR is

meant to be put into practice, not showcased externally.

I would like to see Nikko Cordial become a company where

each employee maintains a thorough awareness of ethics

and CSR as well as a spirit of high management principles.

Kuwashima: Nikko Cordial will honestly undertake its

utmost efforts to regain the trust of customers, with top

management and regular employees working as one.

*1 Please refer to page 15 for details on Citigroup’s CSR activities. *2 Autonomous guidelines for determining and assessing the environmental

and social impacts of large-scale development businesses that were formu-lated in accordance with standards of the World Bank and the InternationalFinancial Corporation.

6

Measures for Improvement

Strengthening corporate governance andrebuilding our internal control system torestore trustNikko Cordial Corporation is implementing sweeping improvement measures in view of the recent series of

incidents. In addition to strengthening our own corporate governance and internal control system, we are

working to firmly establish internal control systems and their respective functions at our subsidiaries.

Furthermore, we are constantly striving for cooperation with our subsidiaries to gather and assess risk

information that has been detected in a timely and appropriate manner and are establishing functions that

enable flexible solutions.

The “Measures for Improvement” section on pages 6 through 11, in principle, describes the state of conditions as of the end of May 2007. For more

details regarding the recent series of incidents and the Company’s measures for restoring trust, please refer to the Improvement Report (published in

Japanese only) issued on March 26, 2007 and to Nikko Cordial Corporation’s news releases. Also, the status of improvements will be disclosed periodically

on the Nikko Cordial Corporation homepage: http://www.nikko.jp/GRP/index_e.html.

On December 18, 2006, Nikko Cordial Corporation (hereinafter,the “Company”) announced it would adjust its securitiesreports and semi-annual securities reports for the fiscal yearsended March 2005 and 2006. In conjunction, on the same daythe Company’s stock was transferred to supervisory posts onthree Japanese securities exchanges, specifically, the TokyoStock Exchange, Osaka Securities Exchange, and Nagoya StockExchange.

In addition, the Company was cited by the Securities andExchange Surveillance Commission (SESC) for having “causedthe acquisition of ¥50.0 billion in bonds in a general offering inNovember 2005 based on a Supplement to Shelf RegistrationStatement that utilized an improperly disclosed Securities Reportfor the period ended March 2005 as a reference material.” This action was determined to constitute an “act causinginvestors, etc. to acquire securities through an offering basedon disclosure documents for securities issuance containing falsified statements with respect to material matters.”Moreover, on January 5, 2007, the Company was ordered topay a ¥500 million fine by the Financial Services Agency (FSA).Payment of this fine was made on January 9, 2007.

The facts of this legal violation are indicated as follows:(1) Non-consolidation of NPI Holdings

Nikko Cordial Corporation did not include in the scope of itsconsolidation the special purpose company NPI Holdings Inc.(hereinafter “NPIH”), which is wholly owned and substan-tially controlled by Nikko Principal Investments Japan Ltd.(hereinafter “NPI”), a wholly owned Company subsidiaryengaged in the Merchant Banking Business.

(2) Improper Issuance of Exchangeable Bonds*1

Nikko Cordial Corporation prepared the accounting booksand documents of NPI by falsifying the issue dates of

exchangeable bonds issued by NPIH and held by NPI, andposted valuation gains on such bond certificates that shouldnot have been posted.

From November 2004, the audit commissioner expressedconcerns about the aforementioned improper disclosure onnumerous occasions to the Company’s Chief Financial Officer(CFO) and other parties. However, the management team as awhole failed to make any organizational response to this issue.Further, an investigation of Nikko Cordial Corporation was alsoconducted from December 2005. At this time, however, theproblem was considered to be within the domain of the technical application of accounting standards. Therefore, theCompany was unable to actively and thoroughly clarify actualcircumstances, such as by undertaking a detailed examinationof the facts of the situation concerning NPI.

After March 2006, the SESC ordered the submission ofreports and materials on securities transactions and other matters, and from July 2006 the SESC initiated an investigation.In response to being cited by the SESC, Nikko CordialCorporation announced its decision to restate its securitiesreports and other financial statements.

Aware of the limitations of an internal investigation, onDecember 27, 2006, Nikko Cordial Corporation established theSpecial Investigation Committee, consisting of external expertsindependent of any Company internal organization, to clarifythe facts leading up to the Company’s decision to restate theprevious fiscal years’ securities reports and other financial statements. Additionally, an external consulting company was commissioned to conduct investigations of transactionsregarding both domestic and overseas-based special purposecompanies, including NPIH.

*1 Exchangeable Bonds: Bonds with conditions for redemption that varyaccording to the price of certain shares specified at the time of redemption.

7

CEO, Mr. Hirofumi Hirano, former Group Executive Officer, andMr. Hajime Yamamoto, then CFO, as well as petitioning for thepayment of ¥300 million in personal assets of Mr. MasashiKaneko, former Director and Chairman. Determined to dealseverely with those involved in the incident, on April 23 NikkoCordial Corporation filed a civil suit for compensation againstthe three former executive officers.

In recognition of the aforementioned situation, we are taking measures to strengthen corporate governance, rebuild Group-wide internal control, and move forward withimprovements.

Strengthening Corporate Governance1. Establishment of Management Ethics CommitteIn February 2007, we established the Management EthicsCommittee to gather information regarding various management issues and to discuss overall and specific policies concerning risk management. The Management Ethics Committee is tasked with collecting, investigating, and discussing information (risk-related information for eachcompany) regarding various issues such as those related to compensation systems, organizational issues, and issues concerning corporate structure or corporate culture that couldexert a significant impact on the operations of the Company orGroup companies.

The committee consists of all Company officers and ischaired by the Group’s Chief Compliance Officer, who overseesthe Group’s internal control. Moreover, an advisory team com-prised of outside experts and intellectuals will be incorporatedas needed. This allows for the appropriate introduction of thirdparty opinions and the performing of checking functions for theManagement Committee. By integrating the business knowl-edge and decision-making capabilities of Company executiveofficers with the high-level perspectives of external experts andintellectuals that are backed by their expertise, we can achieve

On February 13, 2007, Nikko Cordial Corporationannounced preventive and business improvement measures taking into consideration the results of the Special InvestigationCommittee’s investigations announced on January 30, 2007 aswell as the results of the investigation of transactions relating tospecial purpose companies. Additionally, we reconsidered infor-mation disclosed and accounting practices adopted in previousfiscal years, and on February 27, we submitted restated financialreports for previous fiscal years. As a result of an examination ofthe restated financial reports, on March 13, 2007 the threeJapanese securities exchanges removed the Company’s sharesfrom their respective supervisory posts.

The Company recognizes that the main reasons for theseproblems were inadequacies of its risk management structureand its structure for monitoring subsidiaries, as well as defi-ciencies and insufficiencies in the internal control systems and internal management structures of subsidiaries.

Specifically, the Company has categorized this problem intofour main causes: (1) adequate and highly transparent financialdata was not disclosed due to the Company’s insufficient corporate governance system; (2) checking functions ceased tooperate because there was a problem with the internal controlsystem, and under our structure a limited number of directorsbore multiple work responsibilities; (3) the Company could notadequately verify, audit or provide guidance concerning theinternal control systems of Group companies; and (4) NPI’sinternal control system was not only inadequate, but its directors and employees had serious flaws in their ethics andawareness toward compliance.

To devise sweeping solutions to these issues, it will be crucialto strengthen and maintain the functions of internal control systems for subsidiaries as well as for Nikko Cordial Corporationitself. Further, we believe it to be critical that internal controlsystems have sufficient functions for ensuring constant coopera-tion with subsidiaries so that risk-related information fromthroughout the Group is collected and assessed in a timely andappropriate manner and that flexible solutions can be provided.

On February 1, 2007, the Responsibility Pursuit Committeewas established as an advisory organ to the Board of Directors.The mission of the committee, which has solicited external legalexperts as members, is to determine such matters as whereresponsibility was vested during the sequence of events leadingup to the restatements, the degree and scope of responsibilityof those involved, and the methods of pursuing responsibility.On February 27, this committee presented its specific recommendations regarding the responsibility of the Company’s former management members. Upon receiving therecommendations of the committee, the Company decided topursue specific responsibilities by entering into civil litigation for compensation with Mr. Junichi Arimura, former President and

Group Human Resources Committee

Executive Officers

Management Committee

CSR Committee

IT Committee

Operating Investment Committee

Strategic Investment Committee

Management Ethics Committee

President Disclosure Committee

NominationCommittee

CompensationCommittee

AuditCommittee

General Shareholders’Meeting

Board of Directors

Management Structure

8


*2 The Internal Control Reporting System is being built through the evaluationsand reporting of internal controls by management executives and auditsconducted by auditors to ensure the reliability of financial reporting.

of knowledge, insights, and decision-making capabilitiesrequired as members of management and to ensure they maintain the highest ethical values, adhere to a code of conduct, and possess meticulous moral standards.

Strengthening an Internal Control Systemthat Includes Subsidiary ManagementIn response to the problem of not sufficiently being able to verify, audit, and provide guidance about the structures of subsidiaries, we are implementing the following improvementmeasures to strengthen and enhance internal control systemsthat include the monitoring of subsidiaries. 1. Appointment of the Group’s Chief Compliance

OfficerIn February 2007, the Group’s Chief Compliance Officer wasappointed to oversee Nikko Cordial Group’s internal controlsand be responsible for compliance. As the individual responsiblefor overseeing both the operations of the ManagementAdministrative Division, which promotes the building of theinternal control system, as well as the Group’s RiskManagement Division, which was established in February 2007to conduct checks and monitoring of risks faced by NikkoCordial Group, the Group’s Chief Compliance Officer works tostrengthen the Group’s internal control system through thePDCA (Plan, Do, Check, Action) Cycle.2. Establishment of Internal Control OfficeThe Internal Control Office was established in February 2007 topromote the building of an internal control system under theoversight of the Chief Administrative Officer. Keeping in mindthe actual conditions at subsidiaries, the Internal Control Office,together with the Group’s Planning Division, has formulatedbusiness processes for properly managing risk, which includessetting up the Internal Administrative Department, which isindependent of subsidiaries.

The Internal Control Office will serve as the core of ourresponse to the Internal Control Reporting System*2 set to beintroduced in the fiscal year ending March 2009, and this officeis also currently building an internal control system for theCompany and its subsidiaries. The internal control systemrequired by the Internal Control Reporting System is being positioned as a part of a broader internal control system beingbuilt by the Company that will utilize audits to obtain properevaluation of all main subsidiaries.

Specifically, keeping in mind the advice of outside experts,the Internal Control Office has informed each Group companyof the uniform evaluation categories that it has considered and

high consistency in our business operations and offer highlysophisticated and specialized solutions. The results of the inves-tigations and other actions conducted by the committee arepresented to the Board of Directors and Audit Committee, aswell as the Management Committee in an appropriate manner,as we strive to enhance the Board of Directors’ oversight ofexecutive officers.

Although the Management Ethics Committee is to meet atleast four times per year, emphasis will be placed on flexibility inorder to swiftly hold committee meetings in the case that variousissues arise regarding the management of Group companies.

In February 2007, the Group’s Risk Management Divisionwas established to consolidate information on risks in a timelyand proper manner directly from the Company and Group companies and to collectively manage such risks, as we establisha structure for reporting risk-related information to theManagement Ethics Committee.

2. Review of Concurrent Roles for Full-time Directorsas Directors of Group Companies

To improve areas where check functions failed because certaindirectors were holding multiple positions of responsibility, we are correcting the situation of having full-time directors concurrently hold positions as directors of Group subsidiaries.

In April 2007, the policy concerning the Company’s full-timedirectors concurrently holding positions as directors at Groupsubsidiaries was discussed at the Group Human ResourcesCommittee (a discretionary committee comprised of mainlyexternal members that performs as an advisory organ to deliber-ate and decide policies and other matters relating to NikkoCordial Group’s personnel and compensation). Upon receivingthe report from this committee, the Management Committeeestablished standards regarding full-time directors of theCompany holding concurrent positions as directors of sub-sidiaries. In principle, these standards prohibit the Company’sfull-time directors from holding positions as directors of Groupcompanies but allow directors to hold concurrent positions provided that their execution of duties is within a range wheregovernance can be sufficiently maintained, which includesdetermining the existence of conflicts of interest and whetheror not checks on business operations are performing properly.

In accordance with these standards, to build an effectivegovernance structure, as of the end of June 2007 we hadimproved the situation whereby full-time directors concurrentlyworked as directors at Group companies. As of February 2007,full-time Company directors no longer concurrently held postsat NPI.

3. Implementation of Director Training SessionsTo further bolster corporate governance, we will hold DirectorTraining Sessions at least four times per year. This training aimsto provide directors with information that forms the foundation

9

Strengthened auditing

Management Ethics Committee Aggregates risk-related information

ActionGroup’s Chief Compliance OfficerIndicate areas for improvement to the

Management Administrative Department for the purpose of

undertaking organized improvements concerning any problems arising in the

Group Risk Management Division

DoAll Group Companies

Coordinate with holding companies and promote operations that strive to enhance and strengthen internal

controls, monitoring, and internal audits

CheckRisk Management Divisions

Group Risk Management Division, Governance Monitor Office

Gather risk-related information from each Group Company and collectively

manage risk company-wide

Plan

Build a framework and process for Company-wide internal control that

properly manages risks

Management Administrative Department

Group Management Division, Internal Control Office ( ) ( )

Rebuilding Nikko Cordial Group’s Internal Control System (PDCA Cycle)

4. Strengthening Group-wide Internal Audit FunctionsWe will significantly increase the number of personnel engagedin internal auditing throughout the Group. Internal audits willbe conducted in accordance with top priority audit themes for fiscal 2007 and the Basic Policies on Internal Audits decided at the Management Committee meeting held in March 2007, as we build an organizational structure with “self-correcting” functions.5. Appointment of Co-Chief Financial OfficerIn February 2007, we established the new position of Co-ChiefFinancial Officer. By supporting the operations of the CFOthrough the creation of the Co-Chief Financial Officer position,we have effectively built a structure for double-checking theexecution of operations. In creating this position, we aim toestablish a structure also allows the CFO to perform duties witha high level of transparency as well as ensure that no duties areoverlooked given the increasing burden on the CFO in the execution of duties. 6. Strengthening Ties with Subsidiary Auditors To quickly determine risks associated with internal managementand to share information with Group company auditors andothers, to the present we have conducted meetings once perquarter. In the future, we will continue to hold meetings asappropriate and maintain close contact. Following the recentincident, the Company’s Audit Committee members and Groupcompany audit officers have met at Group Audit LiaisonMeetings three times between January and March 2007.

formulated and that will be applied Group-wide (approximately90 items were added to the 42 evaluation categories illustratedas examples under the Performance Standards Relating toEvaluation and Audit of Internal Control as Pertains to FinancialReporting). By the end of April, each Group company had completed exhaustive checks in accordance with the evaluationcategories. Based on the details contained in these same evalua-tion categories, the Internal Control Office is carrying outdetailed audits of actual conditions at the Company and Groupcompanies and is also holding meetings with various relateddepartments as it works to confirm the status of each company.

3. Appointment of Chief Risk Management Officerand Establishment of the Group Risk ManagementDivision and Governance Monitor Office

The Chief Risk Management Officer was appointed in February2007 to consolidate management of risk for the entire Group.The Chief Risk Management Officer will oversee the Group RiskManagement Division and Governance Monitor Office. The Group Risk Management Division gathers information onrisks in a timely and proper manner directly from the Companyand each Group company and collectively manages all risks forNikko Cordial Group. The Governance Monitor Office, a subor-dinate organization of the Group Risk Management Division,collects information necessary for management of governance.

10


Comprehensive Review of NPI and theMerchant Banking BusinessBy implementing the following improvement measures, we areworking to strengthen the internal control system not only forNPI but also for all subsidiaries that engage in the MerchantBanking Business.1. Review of Future Business Development

Methods, Direction and StrategyIn consideration of the situation surrounding the recent series of incidents, the Company temporarily ceased new merchantbanking investments that had the objective of investingCompany funds. Each company engaged in merchant bankinghas rebuilt its internal control system, after which the resumptionof new investments was contingent on Company verificationand confirmation of the effectiveness of their internal controlsystems. NPI has completed the restructuring of its internal control system, and in May 2007 NPI announced it was resum-ing investment activities following verification and confirmationof its system by the Company. 2. Measures to Improve NPI1) Appointments of New Chairman and New Vice

ChairmanIn February 2007, a new Chairman was appointed to overseeand check overall execution of business operations as well as tocomprehensively review NPI’s business strategy. Furthermore, in April 2007, we appointed a new Vice Chairman to serve as an advisor for building an internal control system. In additionto holding qualifications as an attorney, the Vice Chairman possesses deep knowledge and diverse expertise in the privateequity field. 2) Appointment of Director in Charge of Internal

Management In January 2007, we newly established the Investment Division(Sales Department), Business Control Division (AdministrativeDepartment) and a wholly independent Director in charge ofinternal management. This director administers the overall internal control system and supervises the building of a structurefor internal management together with working to check business processes within and between departments.3) Establishment of General Council In January 2007, a General Council was newly established tostrengthen the system of checks, mainly in the legal field withregards to the conduct of business activities. The GeneralCouncil possesses approval authority over regulatory matterscovering NPI’s important business processes, and assures thelawful execution of each process of investment operations.Further, in addition to the execution of NPI business, theGeneral Council will offer legal advice with regards to overallcompany operation.

4) Development of Internal Control Divison StructureWith the aim of ensuring mutual supervision functions betweendepartments, in January 2007, the General Manager of theInternal Control Division was assigned as a director, while twoadditional staff were added to the department. Together withthis increase in staff, we segmented areas of responsibility,specified multiple operations prone to conflicting relationships,and established a structure for assigning different personnel incharge of these operations.5) Review of Business ProcessesBecause NPI operated under an organization consisting of asmall number of personnel, it was able to execute its operationsflexibly and fluidly, but conversely, this same organizationalenvironment was an underlying cause of the problem of inat-tention to standardization and documentation (visualization) ofprocesses. In late December 2006, NPI commenced a review ofits business processes and began creating a business operationmanual. Following the assignment of a Director in charge ofinternal management, we progressed with initiatives to improvebusiness processes, led by the Director in charge of internalmanagement, and as of the end of April 2007, we had completed a manual for our business processes and business,taking into consideration the reviews of external specialists. We will continuously revise our manual for business processesand business operations to build a structure that prevents a recurrence of problems.6) Review of Compensation SystemIn the Investigation Report issued by the Special InvestigationCommittee, NPI’s compensation structure was cited as one possible cause behind the inappropriate disclosure. To addressthis problem, we implemented a review undertaken by externalexperts aimed at improving our compensation system, and in April 2007 a highly transparent and fair system was put into place. 7) Human Resources DevelopmentIn March 2007, the person in charge of human resources development was assigned to promote the spread of moral and compliance awareness among all employees. This personimplements training covering systems related to legal, account-ing, and other areas of business operations to heighten business ethics and awareness of compliance among directorsand employees.

11

Implementation ScheduleIn addition to the improvement aforementioned measures, we are also executing the following measures aimed atimprovement. 1. Building an Internal Control System Based on

Uniform Evaluation CategoriesThe Company works to confirm the status of internal controlsthroughout the Group by implementing periodic and ongoinginvestigations based upon uniform evaluation categories thatapply to the entire Group. Consequently, together with correct-ing any inadequacies in the internal control system, ongoingimprovement is reinforced to create an internal control systembased upon global standards.2. Building a Structure and Business Processes to

Audit the Implementation of Appropriate RiskManagement

In April 2007, NPI built a structure of independent internal management departments for each business and established a business process for appropriately managing risk in the execution of business operations. Similarly, Nikko PrincipalFinance Co., Ltd. and Nikko antfactory K.K., both of which areengaged in merchant banking, will by the end of June establishinternal management departments as well as business processesto appropriately manage risks in executing business. Other

subsidiaries are also scheduled to set up internal managementdepartments by the end of March 2008.

The Company is moving forward with the development of a structure for collectively managing risks of Nikko CordialGroup and that directly reports to the Group’s RiskManagement Division in a timely and precise manner on risk-related information that is sent from internal managementdepartments established at each Nikko Cordial Group company.3. Establishing Guidelines and Policy that Form

a Code of Conduct for All Group Employees The Internal Control Office is currently preparing the draft ofguidelines and a policy that will become a code of conduct forall Group employees. By the end of September 2007, theManagement Committee will have established and distributedthe policy and guidelines to all Group employees to foster a corporate culture with a built-in consciousness of a law abiding spirit and risk management.4. Strengthening of Internal Audit Functions

throughout the GroupBy March 2009, we will develop a Group-wide structure consisting of 150 personnel engaged in internal audits.Together with bolstering the ability to discover anomalousitems, we will build an organization that can self-correct any problems.

Internal audit departments(internal audit functions)

Management Ethics CommitteeReport

Report

General Shareholders’ Meeting

Board of Directors

Management Committee

Report

Report ReportReport/ instruct

Holding company(the Company)

Group companies

Executive Officers ofother departments

Other divisionsand officesReport/gather information

Report Chief Compliance Officer

Chief RiskManagement Officer

Chief Administrative Officer

Group Risk Management Division

(Governance Monitor Office)

Internal Control Office

Group Management Division

Report/gather information

Information-gathering structure built

Report

Internal Audit Division

Co-operation

Sales departments(front office)

Instruct/ manage

Instruct/ manage

Internal control departments

(compliance, risk management)

Administrative departments(back office)

Internal audits

Internal audits

Internal Audit Officer

Audit CommitteePoint out problems

Nikko Cordial Group’s Internal Control System

12

Management Principle: Basic Policy

Q. What initiatives are being undertaken to firmly establish theManagement Principle?

A. We are reviewing our Action Guidelines andformulating policies and guidelines that will serveas a code of conduct.

Basic PolicyNikko Cordial Group realizes its social mission and role as afinancial services group, and desires to grow alongside societyas one of its members.

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 “building ties with our customers through heart-to-heart dialogue” and “cementing ties with society through fulfillingour responsibilities.”

The notion “Cordial” is a basic value that expresses the orientation of each employee to work together with society.Reflecting this concept, the Company logo for “Cordial” is“Co,” meaning “with” and “together.” With this logo mark, our goal is to be a financial services group capable ofmoving forward “with” customers and creating new value“with” customers.

Management PrincipleNikko Cordial Group’s mission first and foremost is to maximizethe capital of customers so they can pass it down to the nextgeneration.

Nikko Cordial Group adopted the Management Principlewhen we transitioned to a holding company structure in 2001,and since then, the Management Principle has served as thebasis of all our businesses. We have implemented a variety ofmeasures to firmly establish the Management Principle withinthe Group. These measures include management principle orientation meetings among Group companies, departments,divisions and branches; the Nikko Cordial Group Conferencethat assembles all Group companies; and dissemination of video dialogues of “Executive Summaries of the President’sStatements” via the Intranet.

MeasuresPeople, Services and Products

Management Strategy

Management PrinciplePlan

Achieve

Pursue

Implement

Guidelines for Putting CSR into PracticeNikko Cordial Group believes that “CSR is the essence of man-agement.” Companies cannot achieve sustainable developmentacting only on their own. We strive to be a group with “anindispensable existence” that continually creates new value forour stakeholders including customers, shareholders, and thegeneral public.

In accordance with our Management Principle—the basis ofour operations—under Guidelines for Putting CSR into Practice,we pledge to implement corporate governance—the corner-stone of our corporate activities—as the foundation of our core businesses. We will also repeatedly give consideration tostakeholders while further promoting activities that contributeto society.

MANAGEMENT PRINCIPLE

“Client Focus”

“Innovative Spirit”

“Respect for the Individual”

“Integrity”

13

Nikko Cordial Group’s Code of ConductWe have carried out our activities based on the following guide-lines to realize the Nikko Cordial Group Management Principle.

Nevertheless, serious deficiencies in awareness of ethics andcompliance with norms in several Group companies—in otherwords, failure to sufficiently establish the ManagementPrinciple—was one factor underlying the series of events associated with the restatement of part of our financial report.To rectify deficiencies and ensure that all Group employees canfirmly share the Management Principle in undertaking workbased on high professional ethics, we plan to formulate policiesand guidelines to serve as a code of conduct for all executivesand employees of Nikko Cordial Group, with these initiativesbeing completed by the end of September 2007. We intend todistribute these policies and guidelines to all Group executivesand employees as part of efforts to ensure that such an incidentnever occurs again.

Adopted as of December 2004

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

Offering the Most Suitable We provide the most suitable products and services that conform to our Best Product Policy and are carefully evaluated. We provide accurate and sufficient information to Products 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 We absolutely repudiate and abstain from promoting all relations with criminal elements or organizations. The Group as a whole works to aggressively handle any problems with Criminal Elements 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 Except 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 We will remain conscious of the fact that Group assets are the source of corporate value and will protect them carefully and leverage them optimally.of Group Assets

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 a Work Environment We respect one another and work to build and maintain a sound, safe and open work environment.that 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 We will immediately report any employee discovered to be behaving unfairly, illegally or immorally as expressly stated by regulations. Those reporting such actions will not

and Immoral Behavior be penalized for doing so.

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

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

Contribution to Society We strive to make a better society 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.

Corporate GovernanceRespect and comply with laws and social norms, and actin accordance with the management principle

Putting CSR Into Practice in Our Main BusinessRespond to the trust of the people who support theGroup, and provide quality services in our main business

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

Contribution to SocietyMake contributions to humankind, the natural environ-ment, and society as a good corporate citizen

Nikko Cordial Group’s Guidelines for Putting CSRinto Practice

14

Consolidated Financial Highlights

Note: The figures in this report for fiscal years 2005 and 2006 are the amended figures.

For detailed information on the financial conditions of Nikko Cordial Corporation and its main subsidiaries, please refer to our website at http://www.nikko.jp/GRP/irinfo_e/financial/index.html

Business Content and Strategy

Management StrategyUnder the “24-Month Management Plan” established in March2006, Nikko Cordial Group aims to maintain consolidatedROE*1, a key management indictor, at 10% or higher, and real-ize sustainable growth by building new business models capableof responding to every financial services need of our individualand corporate customers.

*1 Return on Equity: This indicator shows net income as a proportion of shareholders’ equity to reveal how much profit a company generates withthe money shareholders have invested in it and how efficiently it uses this money.

◆ PerformanceIn the fiscal year ended March 31, 2007, consolidated net oper-ating revenue rose 3% to ¥432.4 billion. However, consolidatedordinary income declined 33% to ¥100.4 billion, and consoli-dated net income after tax was down 11% to ¥78.1 billion.

In the Retail Business, Nikko Cordial Securities Inc. carefullyselected those products that are favored as investments by customers and strived to upgrade and expand its product lineup.

In the Asset Management Business, we worked to expandsales channels and upgrade asset management capabilities,which underpinned a steady expansion in the balance of managed assets. Additionally, in diversified investment-typeasset management business, which is expected to achieve

Unit: billions of yen

FY2004 FY2005 FY2006

291.0

420.7 432.4


54.0

149.7

100.4

FY2004 FY2005 FY2006


36.9

87.9

78.1

FY2004 FY2005 FY2006


6,727.0

8,591.1 8,917.0

FY2004 FY2005 FY2006

Net Operating Revenue Ordinary Income Net Income Total Assets

dramatic growth in the future, we reorganized related Groupcompanies to ensure the stable provision of a wider range ofhigh-quality products.

The Investment Banking Business (Securities Business forCorporate Clients) posted favorable results, centered mainly onlarge-scale transactions in equities and bond underwriting,buoyed by strong domestic and overseas sales networks thatencompass collaboration with Nikko Citigroup Limited andNikko Cordial Securities.

The Merchant Banking Business (Investment Business) suspended all new investments as of the end of March 2007 in view of recent problems, and progressed with a sweepingreview covering such areas as the future shape and direction ofits business operations and business strategies. New invest-ments will be resumed on the condition that an internal controlsystem is rebuilt and that Nikko Cordial Corporation verifies andconfirms the system’s effectiveness. Nikko Principal InvestmentsLtd. has already completed the rebuilding of its internal controlstructure, and in May 2007, announced it would resume investment activities upon system verification and confirmationby Nikko Cordial Corporation.

Q. What are the aims of the alliance with Citigroup?

A. We aim to establish a structure capable of providingeven higher quality financial products and servicesand to become a financial services group that is thechoice of customers.

15

Implement tender offer• Tender offer of ¥1,700 per share• Acquire more than 50% and up to 100% of shares• March 15 - April 26 (30 business days)

An alliance for utilizing the strength of both groups and for becoming a comprehensive financial services group

Business Alliance

• Retail Business• Investment Banking Business• Asset Management Business• Merchant Banking Business• Technology and Management Divisions• Organizations• Personnel• Strengthening Governance

Capital Alliance

Overall Image of the Comprehensive Strategic Alliance with Citigroup

Comprehensive Strategic Alliance withCitigroupThe financial industry is witnessing growing demands torespond to the internationalization of customer needs amid theaccelerating global trend toward mega-sized financial institu-tions and the emergence of business models combining banksand securities companies. In view of these trends, in March2007 Nikko Cordial Corporation and Citigroup concluded acomprehensive strategic alliance agreement consisting of bothbusiness and capital alliances. Utilizing the respective strengthsof both companies, we will strive to achieve growth in Japan,establish a comprehensive financial services group, and raisecorporate value with our unique characteristics. Under thealliance agreement, Citigroup made a tender offer (TOB) forNikko Cordial’s stocks and then further increased its holdings inNikko Cordial Corporation. As a result, Citigroup became themajority shareholder with 68.23% of Nikko Cordial’s shares(voting rights basis) as of June 11, 2007. Nikko Cordial willstrive for further growth through the alliance with Citigroup,with which we have built strong bonds of trust through ourcooperative relationship over many years.

The details and direction of the business alliance are as follows.

In the Retail Business, we will create a new alliance betweenthe retail securities brokerage business of Nikko Cordial Securitiesand Citigroup’s retail banking and credit card business toenable the combined franchise to provide their respective retailcustomers with a wide range of products and services thatinclude securities brokerage, funds, deposits, foreign exchange,loans, and credit cards.

In the Investment Banking Business, we will further providecomprehensive solutions to the corporate and institutionalclients of Citigroup and Nikko Cordial to further strengthenNikko Citigroup’s premier investment banking franchise. At the same time, we will strengthen cross-marketing betweenCitigroup’s corporate banking business and Nikko Cordial’s

wholesale securities business. In the Asset Management Business, we will consider

collaboration between Nikko Asset Management Co., Ltd. and Citigroup in selling funds that include alternative assets.

In the Merchant Banking Business, we will utilize Citigroup’sknow-how and expertise in principal investments and privateequity to help devise strategic solutions for Nikko PrincipalInvestments, while prudently optimizing that company’s portfolio.

In establishing a foundation for promoting these alliances,we will optimize and maximize efficiencies in such areas as business organizations, capital usage, and credit ratings.Additionally, utilizing the abundant human resources withinNikko Cordial Group, we will cultivate a management team thatwill lead our future business foundation in Japan.

Citigroup fulfils its social responsibilities through community-focused activities in the countries where it does business worldwide. As a global approach through its main business,Citigroup is a participant in the Equator Principles as a foundingmember. The Equator Principles are autonomous guidelines fordetermining, assessing, and managing the environmental andsocial impacts of large-scale development businesses. Citigroupis strengthening initiatives for the uniform implementation ofthese principles.

Regarding social contribution activities in Japan, we providesupport mainly for programs related to the development oflocal communities as well as education, mainly focusing onfinancial education for children, who will be the leaders of thenext generation. We provide expertise and funds for supportingactivities and have established an environment that makes iteasy for employees to participate in volunteer activities.

With the recent comprehensive strategic alliance, NikkoCordial Group will participate in the activities Citigroup hasundertaken to the present and share the philosophy of theseactivities as we strive to further develop our own social contribution activities.

16

Building a Work Environment that PrizesDiversity and IndividualityNikko Cordial Group aims to foster a working environment inwhich there is mutual respect for diversity and individuality andallows all employees to realize their full potential. We firmlybelieve that increasing the satisfaction of employees drivesimprovement in customer satisfaction, which in turn serves toincrease corporate value. (Unless otherwise stated, systemsrelated to personnel affairs are applicable to employees of theNikko Cordial Corporation and Nikko Cordial Securities as wellas temporary transfer employees from the respective companies.)

Various Systems◆ Infant Care Leave SystemOur childcare leave system allows employees to take leave upuntil the day before their child’s second birthday, which exceedsthe statutory period. Of 130 employees who took childcareleave in fiscal 2006 (excluding those who resigned mid-term),88% returned to work upon completion of their leave. We havealso introduced a program to assist employees’ return to workfollowing childcare leave. As of the end of March 2007, 121employees had taken advantage of this system, with 90 returning to work.

We are also endeavoring to eliminate the anxieties andproblems of these returning employees and promoting theunderstanding of superiors by utilizing the above program toencourage communication between employees taking childcareleave and their immediate superiors. We aim to further improvethe return rate by creating a work environment in which ouremployees find it easier to utilize the childcare leave system.

◆ Family Care Leave SystemOur family care leave system enables employees to take a maximum of one year off work to care for a family member.This period exceeds the related statutory period. A total of twoemployees took family care leave in fiscal 2006.

◆ Shorter Working Hours System for ChildcareWe revised our reduced working hours system for childcare in July 2004, extending the applicable period from the month of the child’s third birthday to the month immediately before he or she enters elementary school. Employees covered by the system can reduce their working hours by a maximum of2.5 hours (previously 1.5 hours). A total of 46 employees madeuse of this system during fiscal 2006.

◆ Shorter Working Hours System for Family CareWe revised our reduced working hours system for the familycare system in July 2004, extending the maximum reduction inworking hours from 1.5 to 2.5 hours. One employee made useof this system during fiscal 2006.

◆ Flexible Work Week SystemWe introduced the Flexible Work Week System*1 in January2005, thus helping to improve and balance the working environ-ment by clearly distinguishing between work hours and time off.

*1 A system that enables employees to designate their days off during anygiven four-week period.

Nikko Cordial Corporation Nikko Cordial Securities

March 31, 2006 0.0% 1.73%

March 31, 2007 0.62% 1.74%

Shortfall 1 4

Along with an increase in the total number of employees during fiscal year2006, the employment rate for people with disabilities at both Nikko CordialCorporation and Nikko Cordial Securities increased during the year. The totalnumber of employees is anticipated to grow again this year, and we alsointend to actively continue with the employment of people with disabilities,with a goal of achieving the statutory employment rate of 1.8%.

Employment Rate of People with Disabilities

◆ Continued EmploymentIn the past, individual contracts were used to allow the company to utilize employees beyond the statutory retirementage of 60 years. However, from April 2006, we introduced theContinued Employment System, to create a work environmentconducive to retaining senior employees beyond the age of 60.Under this system, upon reaching the statutory retirement age,employees who meet certain conditions have the option ofextending their employment contract up to the age of 65. Thishas served to give employees in their 60s stable employmentopportunities and ensure the company retains its highly specialized and proficient personnel.

In 2006, 22 of the 35 employees who reached the statutoryretirement age of 60 chose to continue working.

Approach to Group Employees

Q: What do employees mean to Nikko Cordial Group?

A. Our employees are our greatest asset.

Male Female Total

Full-time employees 125 41 166

(Management-level employees) 20 0 20

Temporary employees 0 16 16

Total 125 57 182

17

◆ Income Compensation for Those Who CannotWork

A system for fixed income support through group long-termincome compensation insurance was introduced in March 2007.This system will help to alleviate employee worries about loss ofincome if they are injured or become ill. The goal of the systemis to create an environment where the employee can confidentlydedicate his or her efforts to work.

◆ Mental Health CareDoctors and nurses are on duty on a regular basis at our headoffice’s Health Care Management Office. In addition, we have a tie-up with a specialist agency and have established a 24-hourInternet consultation system where colleagues and family can also be discussed. These steps are all part of our goal ofproviding a system that includes face-to-face and telephoneconsultation as well as introduction to medical facilities. Mentalhealth checks are also carried out annually as part of a processfor the early detection and prevention of depression and othermental illnesses.

◆ Response to Sexual Harassment and Abuses ofAuthority

In addition to internal and external points of contact forresponding to sexual harassment and other complaints arisingfrom abuse of authority, the employment union has set up a counseling service in an effort to facilitate prompt actionregarding such problems as well as to prevent their occurrence.

Personnel Evaluation◆ Personnel Evaluation SystemIn April 2003, we abolished the previous Personnel System jobclassification framework and consolidated the so-called “careertrack” and “general” rankings under a single “professionaltrack” banner, thereby establishing a system under whichemployees are evaluated as financial service professionals.

This system was again revised in April 2006 in line with thefollowing objectives: (1) elicit “employee satisfaction” withthe system by enhancing its rationality and transparency,and (2) increase “employee motivation” by ensuring thatevaluations are appropriate and that the resultant payment deals are fair and commensurate.

Along with the revision, individual departments have beengiven greater authority and annual salary assessments are nowbased solely on performance*2 and competency*3.

Through interviews, management-level personnel evaluaterespective employees and provide feedback concerning theirperformance. Feedback discussions include goals and objectivesas well as any expectations and issues for the next fiscal period.With a view to improving management-level personnel proficiency, a comprehensive evaluation from multiple levels iscarried out to encourage interpersonal sensitivity not only fromsuperiors but also subordinates and colleagues.

*2 Performance assessments evaluate results and contribution levels based onresults management and quantitative and qualitative aspects.

*3 Competency assessments evaluate employee behavior evident in theprocess of performing duties.

Male Female Total

Full-time employees 3,162 2,131 5,293

(Management-level employees) 747 54 801

Full-time sales staff 654 672 1,326

Commission-based independentfinancial advisors (IFA) 134 12 146

Casual employees 0 7 7

Temporary employees 214 984 1,198

Total 4,164 3,806 7,970

Personnel Composition (as of March 31, 2007)

Nikko Cordial SecuritiesNikko Cordial Corporation

18

Human Resources DevelopmentAt Nikko Cordial Corporation and Nikko Cordial Securities, we are interested not only in employee education and thedevelopment of people who can contribute to the company,but support the continuing development of our employees. We proactively undertake HR development based on two mainpillars of general employee training and practical training tofacilitate the acquisition of technical skills. The latter includesoverseas study and dispatching trainees*4.

*4 Practical business trainee aiming to learn specialized professional skills

◆ Comprehensive TrainingWe provide two types of mandatory and optional training based on age and employee position, with participationthrough both group and individual training.

New employees hired fresh from university receive mandatory training covering a broad range of issues from corporate life basics to the preliminaries of becoming a financialservices industry professional. These begin with independent

Training System

** These training sessions are for professional employees only. *5 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.*6 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 who have received sophisticated training in the respective fields of financial planning and passed a difficult examination conducted by the CFP Board.

Employment/Labor Status for FY2006


Male Female

New employees (new graduates) 0 0

New employees (mid-career hires) 2 5

Average age 43.8 36.4

Average years of service 12.9 11.4

Resignations 8 3

Prescribed annual working hours 7.5 hours x 246 days = 1,845 hours

Workers accident compensation insurance claims 0 0

participation in informal decision-making studies, training afterunofficial acceptance to the company (optional), and continuingwith three follow-up training sessions upon entering the company over the next two years, as well as independent participation in correspondence educational sessions.Thereafter, we provide a variety of training programs thatemployees can choose to take part in on their own initiative.During fiscal year 2006, more than 90 group training sessionswere held, and more than 120 sessions are scheduled for 2007.

In addition, we are working to improve our e-learningcourses to provide employees with the latest product informa-tion, as well as up-to-date resources on tax systems andaccounting. We are consider-ing a number of differentmethods to ensure that weincrease the talent pool ofhighly specialized people witha higher global sensibility.

Mandatory training

• Training after unofficial acceptance to the company• Upon entering the company• Follow-up training• Strategic skill improvement• Management concept meetings• Compliance training • Administrative training**

• Communication• CS improvement• Presentations• Logical thinking• Marketing

Qualification acquisition training

• AFP*5

• CFP*6

• Security analyst

e-Learning Other training

• Strategy• Motivation• Leadership• Management• Finance

Note: Fields covered since 2006

Independent participation training

• Cordial Learning System (Nikko Cordial’s independently developed e-Learning program)

• School system** Domestic and international study system Dispatch for training, etc.

Male Female

New employees (new graduates) 361 261

New employees (mid-career hires) 138 58

Average age 40.8 33.2

Average years of service 15.0 10.1

Resignations 272 273

Prescribed annual working hours 7.5 hours x 246 days = 1,845 hours

Workers accident compensation insurance claims 0 19

Approach to Group Employees

19

Initiatives for Human RightsIn line with the Group’s basic plan and the Law on thePromotion of Human Rights Education and Human RightsAwareness-Raising that was formulated in 2000, the NikkoCordial Group and Nikko Cordial Securities aim to raiseemployee awareness of respect for human rights. Issues relatedto the protection of basic human rights have been incorporatedinto the training programs for new recruits, mid-career hires,and management-level personnel. Related content is also postedon the e-Learning system to allow employees to repeat the cur-ricula at any given point in time. These contents are continuouslyreviewed and updated to include the latest information.

Diversity ProgramNikko Citigroup, a joint venture between Nikko Cordial andCitigroup, operates in 38 countries with employees transcend-ing gender, age, language and religion. The respect for andunderstanding of diversity, which values the wide variety ofpeople working in the company, also forms the basis for a widerange of business values.

To encourage the recognition of the importance of diversity,a Diversity Committee was established in 2004, to propose,plan, and carry out a number of different programs each year.During the period from April 2006 to March 2007, some 650people took part in these activities. In addition, its efforts toemploy more people with a variety of talents and skills as wellas appoint more women to senior posts, Nikko Citigroup ismaking efforts to address such issues as employing more peoplewith disabilities.

Labor Union Activity Update The labor union of Nikko Cordial Group carries out activitiesaimed at maintaining and improving the working conditions ofits members and ensuring common issues are reflected in theGroup’s operations. As of April 1, 2007, the labor union wascomprised of 5,147 employees of 9 Nikko Cordial Group compa-nies, and had affiliations with 142 societies throughout Japan.

The union identifies labor-management issues via organizingactivities, social gatherings at the workplace, personal interviewsand hearing surveys targeting labor union members, and thenexchanges opinions with top management. As a result of theseefforts, weekly “leave early days” were promoted company-wideas of last year in order to reduce the effects of overly heavy workschedules and to enable employees to work independently. Inaddition, a continuous vacation acquisition promotion campaignwas instituted to encourage more employees as union membersto make use of their vacation days for better health and self-development as well as to provide more private time and enablea better balance between work and family obligations.

At the same time, responding to a series of account management problems, an urgent telephone hearing was heldwith representatives of all groups across the company, withopinions collected from all 137 separate committees within theNikko Cordial Securities headquarters. This brought togetherlabor and management, as the real voices of labor union members were directly transmitted to company management.

To keep union members well informed, information such asthe status of negotiations, important changes in management,and overall information on union activities is posted on thecompany Intranet.

Type of program/event Name of program/event Target Years held

Diversity training Basic Diversity Training, Phase I All employees From 2003

Basic Diversity Training, Phase II Management employees From 2005

Network-building Women’s Conference Female employees From 2002support event Diversity Lunch Female employees From 2005

Panel Discussion Female employees From 2006

Employment event Panel discussion by outstanding women Female college students seeking employment From 2006in investment banking

Career Career Development Workshop Female employees From 2006development Global Banking Lunch Senior women executives at investment banks From 2006

Others Kids Day Children of employees From 2005

Diversity Intranet A variety of information on diversity is communicated to employees From 2006

Women@Workplace Lecture Series All employees (held in conjunction with Citigroup) From 2006

Out In the City, Tokyo Lesbian, gay, bisexual and transsexual employees (held in conjunction with a foreign based financial institution) From 2006

GEWEL (Global Enhancement of Women’s Executive Leadership) Opinion Poll of Female employees 2006Working Women

Nikko Citigroup Diversity Program Events

20

Investor EducationRecognizing that promoting the spread of securities and financial knowledge is an obligation as a company operating in the financial services industry, Nikko Cordial Group activelypursues investor education initiatives for the purpose of nurturing individual investors. To this end, we are involved in a wide range of activities that include offering free courses at colleges and universities, providing instructors for lecture presentations as well as joint industry-university research. We also offer education programs in collaboration with thenonprofit Association for the Promotion of Financial Literacy.

◆ Sharing Knowledge at the Tertiary LevelNikko Financial Intelligence, Inc. offers free courses at colleges,universities and graduate schools and provides instructors forlecture presentations as a way to promote a move from “nurturing healthy investors” to the “formation of healthy capital markets.”

Covering subjects ranging from the fundamentals of eco-nomics and finance to financial theory, the easy-to-understandlectures have been very well received at universities throughoutJapan. In particular, sessions on Internet-based stock tradingsimulations and newspaper commentary on economic topicshave been very popular, helping participants to gain a bettersense of the stock market and economic activities.

From two courses held at two universities in fiscal 2001, theprogram has flourished to comprise 27 courses at 24 universi-ties in 2006. This highlights the growing demand for learning atthe tertiary level that parallels the rising interest in and need forinvestor education. To date, some 7,200 students have earnedcredits through these free courses.

Nikko Family Exciting Experience DayIn August 2006, Nikko Cordial Securities held the Nikko FamilyExciting Experience Day, a special hands-on learning programfor primary school students and their families held at companybranches across the nation. Participants visited the branches,met with the employees working there, and were able to learnthe role that securities firms play in the flow of money and the economy.

In the questionnaire distributed to parents and guardiansafter the event, about 80% expressed their satisfaction with the experience. More than 90% also responded that they want their children to continue to take part in such hands-onlearning experiences.

Event Information

Branches taking part: 108 (event held 111 times)

Participants: 818 (333 adults, 485 children)

Approach to Society

Q: What does it take to create a society that takes advantage of thefinancial services industry?

A. It requires investment education of the individualinvestor. This means an active approach toeveryone across a wide stratum of society.

Poster introducing Nikko Family ExcitingExperience Day

21

◆ Nikko Cordial Securities, Saga Branch (August 18, 2006)

◆ Nikko Cordial Securities, Oita Branch (August 22, 2006)

◆ Nikko Cordial Securities, Fukuyama Branch (August 3, 2006)

◆ Nikko Cordial Securities, Fukui Branch (August 4, 2006)

◆ Nikko Cordial Securities, Jiyugaoka Branch (August 25, 2006)

◆ Nikko Cordial Securities, Ikebukuro Branch (August 23, 2006)

◆ Nikko Cordial Securities, Nanba Branch (August 14, 2006)

◆ Nikko Cordial Securities, Nara Branch (August 25, 2006)

◆ Nikko Cordial Securities, Shizuoka Branch (August 9, 2006)

◆ Nikko Cordial Securities, Shin-Yurigaoka Branch (August 24, 2006)

◆ Nikko Cordial Securities, Kawasaki Branch (August 18, 2006)

◆ Nikko Cordial Securities, Morioka Branch (August 9, 2006)

Nikko Family Exciting Experience Day

◆ On-site TrainingSpecial lesson, Shosei Junior High School, Tonami, Toyama•Nikko Cordial Securities, Toyama Branch (July 2006)

Acceptance of corporate trainees•Nikko Cordial Securities, Sakai Branch (August 2006)

Investment seminar, Kawasaki Frontale•Nikko Cordial Securities, Intermidiary Business Network I(November 2006)

Raising Financial LiteracyNikko Cordial Corporation fully supports the Financial LiteracyScholarship Program, a finance and economics course offered by the nonprofit Association for the Promotion ofFinancial Literacy.

Aimed at students who wish to learn about finance and theeconomy, the Nikko Cordial Corporation bears the full coursefee in the form of scholarship funds for Financial LiteracyCorrespondence Course Program (Ground Stage = PrimaryCourse) provided by the Association for the Promotion ofFinancial Literacy.

In fiscal 2006, the third year of the program, the qualifi-cations for enrollment were extended from university and vocation school students to high school students as well, with161 new scholarship students taking part in the studies.

22

Approach to Society

Tours, Training and On-site Training◆ Tours and TrainingOur Public Relations Divisionhandles requests for companyvisits and training. Informationon the “Tour Course” and the“Training Course” is providedon the Nikko CordialCorporation website.Applications from the generalpublic are most welcome.

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

Visiting lecture, Chiba Prefecture Shogai University•Nikko Cordial Securities, Matsudo Branch (February 2007)

Leaflet introducing Financial LiteracyScholarship Program

23

Approach to SRISocially Responsible Investment (SRI) refers to the practice ofaugmenting financial indicators and other economic informa-tion with an account of companies’ social and environmentalinitiatives and the environmental impact of their business activities when making investment decisions.

In 1999, Nikko Cordial Group began managing and sellingthe Nikko Eco Fund, Japan’s first SRI fund to incorporate environmental considerations into its investment practices. Since 2000, we have also been managing and selling the NikkoGlobal Sustainability Fund, commonly referred to as “Globe,”which evaluates corporations globally from an economic, environmental, and social perspective.

◆ Nikko Eco FundNikko Eco Fund is an investment fund that invests actively in“Eco Excellent Companies” that have been selected on thebasis of the analysis of their corporate value, including theirenvironmental initiatives, and are judged to be corporationswith growth potential that are making an excellent response toenvironmental issues.

Research on the environmental activities of these companiesis conducted jointly with Good Bankers Co., Ltd.*1, an invest-ment consulting company specializing in environmentally conscious investing. Nikko Asset Management carries out investigations regarding the profitability and growth potentialof candidate companies.

As of March 31, 2007, 61 companies selling the Nikko EcoFund had outstanding balances, and net assets were ¥36.4 billion, a decrease of 33.4% from the previous fiscal year-end.

*1 Good Bankers Co., Ltd., established on July 14, 1998, is Japan’s first independent investment consulting company specializing in SRI.

Overview of Nikko Eco Fund

Prospective underlying stocks for this fund undergo two screenings: “economic” and “ecological”

Nikko Eco Fund Component Company Selection Process

Total listed companies: approximately 3,800 companiesSurvey target companies: approximately 600 companies

Economic screeningConsider company’s medium-term growth potential, financial condition, and management strategies.Nikko Asset Management prepares proprietary earnings forecast.Based on these and considering stock price levels, five levels of ratings are decided.

Ecological screeningGather information by ascertaining and analyzing environment-related problems and visit each company to prepare a six-level rating of the degree to which a company implements environmental initiatives as well as its competitiveness in environmental businesses.

Possible investment targets: approximately 200 companies

Final decision-making

Final component companies: around 100 companies

* Stock numbers shown in the process above are hypothetical, with figures being selected to promote an easy-to-understand view of the selection process. The actual number of stocks included in the fund’s management may differ.

Screening Matrix

Low Economic Viability High

Low

Ecol

ogic

al V

iabi

lity

H

igh

Ecological screeningPossible Investment

Targets

Economic screening

◆ Globe (Nikko Global Sustainability Fund) Globe is a full-fledged, sustainability-oriented SRI fund emphasizing not only economic rationality in the choice of itsinvestments but also the environmental and social compatibilityof companies. Nikko Asset Management Co., Ltd. bases itsinvestment judgments for Globe on a review of the list of“Sustainability Leaders” prepared by the SAM Group*2, a research firm specializing in sustainable management. NikkoAsset Management further screens the “Sustainability Leaders”to determine overall portfolio composition while selectingstocks with growth potential, liquidity, and relatively low market prices.

Net assets as of March 31, 2007, were ¥1.43 billion, down18% from the previous fiscal year-end, and 12 companies offering Globe had outstanding balances.

*2 Founded in 1995 in Switzerland, the SAM (Sustainable Asset Management)Group is an independent management research firm specializing in the evaluation of corporations based on sustainability criteria.

◆ WWF-Nikko Green Investors FundIn cooperation with WWF Japan, an organization that aspires toconserve the natural environment and realize a sustainable society, Nikko Cordial Corporation established the WWF-NikkoGreen Investors Fund in October 2000. This fund has providedsupport for individuals and groups in Japan working on natureand environmental preservation activities.

Using a portion of the profits of the Nikko Eco Fund andGlobe (Nikko Global Sustainability Fund), the fund provided a total of ¥208.06 million and supported 99 projects by citizensand researchers in a wide number of fields across the countrybefore activities were completed in December 2006. These projects produced numerous positive results to assist in environ-mental conservation and to help realize a sustainable society.

24

Approach to Society

◆ Attendance at TBLI ConferenceNikko Asset Management Director Yoshitaka Akamatsu partici-pated as a panelist at the TBLI (Triple Bottom Line Investment)Bangkok 2007 conference on Socially Responsible Investment(SRI), held in Bangkok, Thailand, in May 2006. Mr. Akamatsuaddressed the issue, “Does SRI Provide Added Value?” andthereafter, joined in active discussion with specialists fromaround the world. Mr. Akamatsu spoke about the suitability ofSRI for long-term investment and about the poor state of manycorporations. “SRI has an important role when it is seen as partof a level-headed corporate governance decision-making, butSRI is not limited to along-term view basedon corporate gover-nance analysis,” Mr. Akamatsu said. “It should also be oneof the elements mak-ing up any generalcorporate decision.”

New Criteria for Measuring CorporateValueThe Nikko Cordial Group is incorporating unprecedented criteriasuch as the involvement of women in company activities andthe use of natural resources into its evaluation of companies.

◆ Women’s PowerScoreWomen’s PowerScore is an indicator developed by NikkoFinancial Intelligence, to measure the degree to which companies utilize women as one aspect of human resourcediversity. Women’s PowerScore takes into consideration boththe company’s established principles in regard to women as human resources (their valueas employees) and as consumers(their value in daily life).

The creation of workplacesthat facilitate contributions by adiverse group of employees is aneffective way to address socialimperatives such as achievinggender equality, balancing workand personal life, and counter-acting Japan’s declining

birthrate. Moreover, awareness is spreading of the practice asan essential source of added value that can help differentiatecompanies from competitors.

Nikko Cordial Securities has been offering Plus Angle, aninvestment trust incorporating the Women’s PowerScore into itsevaluation of candidate companies, since February 2006.

◆ Rising TomorrowNikko Cordial Securities began offering the Nikko DWS NewResource Fund, commonly referred to as “Rising Tomorrow,” in December 2006. This investment trust focuses on the threethemes of water, agriculture, and alternative energies.

Worldwide population increases are accelerating consump-tion of water, food, and energy required for human life, necessitating a fundamental re-evaluation of how we shouldapproach resources in the future.

Recent years have witnessed an explosion of new possibili-ties, for example, in technology for creating fresh water fromseawater, produce grown inincreasingly harsh environments,and CO2 emission-free energysources. Rising Tomorrow makeslong-term investments in sharesof companies that are involvedin these businesses.

The themes embraced by thisfund are important ones thatmust be addressed globally. It isour hope that Rising Tomorrowwill provide an opportunity foreach of us to consider a moreenriched future for humankind.

While the CSR Report 2007 introduces a number of investmenttrusts, the purpose of this report is not to solicit investments butrather to help readers understand the Group’s activities. Fundinvestments may decline in value due to fluctuations in the valuation of constituent securities, exchange rates, and otherfactors. Investments are subject to certain fees and overheadcosts. Prospective investors should consult prospectuses andother information sources as each investment trust has its ownfee and risk structure.

Channel Complaints Feedback and requests Inquiries Total

Cordial Response System 1,154 16 9 1,179

Call center 3,635 295 15,691 19,621

Internet 1,043 594 7,524 9,161

Total 5,832 905 23,224 29,961

Methods to Improve Customer Satisfaction◆ Customer Help DeskIn September 2001, Nikko Cordial Securities set up a CustomerHelp Desk to quickly and more efficiently respond to the opin-ions and requests of our customers. Three central missions havebeen set for personnel in this area, namely, “coordinating andresponding to customers’ requests,” “coordinating companyresponse measures,” and “implementing Customer Satisfaction(CS) Surveys with commensurate analysis of results.”

The Customer Help Desk’s full-time personnel are alsoresponsible for responding to daily needs, studying recurrenceprevention and preventive measures, and providing guidance to branch office personnel in direct contact with customers.Staff members are trained to sincerely listen to feedback and requests from customers and provide an immediate andappropriate response. The Customer Help Desk functions as a liaison between branch offices and head office divisions withthe aim of establishing trusting relationships with customers.

◆ Customer Response SystemNikko Cordial Securities has been operating its CustomerResponse System since May 2002 to facilitate the sorting, accumulation, screening, and analysis of customer feedbackand requests so that the Customer Help Desk, marketing divisions and branches can work together in solving problems.

The system represents part of our ongoing efforts to ensurecomplete customer satisfaction by promoting the collection andprocessing of customer opinions, thereby allowing consolidated

Customer Feedback by Channel (April 2006 – March 2007)

25

Cordial Response System (operated under the Customer Help Desk)

Telephone calls

Customer visits

Letters

Staff visitsto customers

Internetmessages

Call center

Cust

omer

s

Improvements

Head Office divisions

Branch offices

Complaints

Analysis

Feedback and requests

BusinessManagementCommittee

CS-ES ImprovementCommittee

Respective meetings

Suggestions tothe relevant

divisions

Information disclosure

Response and analysis

Discussion meetings

Intranet (in-house information

sharing network)

management and, ultimately, progress. The Customer HelpDesk analyzes the information collected and subsequentlyreports each month to the CS-ES Improvement Committee*3, a top-level internal panel under the president of Nikko CordialSecurities that was formed to promote customer satisfaction.The analysis of the results of customer requests is reported tothe project office and its officers at the company headquarters.This information is in turn used in both examining ways to makeimprovements and developing new products and services.

*3 Established in April 2001, this committee meets regularly and is made up ofthe president as chairperson, officers, managers, those in charge in relatedbusiness activities, and observers. The committee uses the requests of customers and comments from employees as the basis for examination ofcurrent issues and in finding solutions to them. A record of committee pro-ceedings and materials for examination are available on the company intranet.

Trends in Customer Satisfaction

53.0

22.5

53.7

25.0

53.4

27.3

54.1

27.7

53.0

27.9

54.8

27.6

75.5 78.7 80.7 81.8 80.9 82.4

Unit: %

48.6

33.7

82.3

50.5

30.1

80.6

49.6

31.2

80.8

Satisfied Reasonably satisfied

FY2002First half

FY2002Second half

FY2003First half

FY2003Second half

FY2004First half

FY2004Second half

FY2005Second half

FY2006FY2005First half

◆ CS (Customer Satisfaction) SurveysNikko Cordial Securities quantitatively assesses CS levelsthrough CS Surveys targeting customers of all branches. At thesame time, we also carry out storefront monitoring surveys as a means to improve our over-the-counter response.

The CS Surveys, which are outsourced to an external organization, are sent to a total of 50,000 randomly selectedcustomers of Nikko Cordial Securities. The collection rate for thepoll conducted in fiscal 2006 was 30% (14,654 responses).

The results of the survey analyses are communicated back tobranches, where staff members in charge of CS promotion takethe initiative in implementing improvement activities.

26

Approach to Society

◆ Co-sponsoring Musée d’Orsay ExhibitsAs part of its cultural support activities, Nikko CordialCorporation sponsored the Musée d’Orsay Exhibit (Kobe Exhibit:September 2006 to January 2007; Tokyo Exhibit: January toApril 2007) in commemoration of the 20th anniversary of themuseum’s opening. Subsequent to similar events held in 1996and 1999, the exhibit was the third in a series bringing togethera number of exceptional works from the museum’s collection. Atotal of about 140 paintings by impressionist painters and otherartists, as well as sculptures, photographs, and crafts, illumi-nated the exhibit’s theme of a “19th Century Artists’ Paradise.”

The Kobe and Tokyo venues provided more than 800,000visitors with an opportunity to view and appreciate numerousoutstanding works of art.

Contributing to Society◆ FIT for Charity RunNikko Citigroup and Nikko Asset Management participated as sponsors and a member of the executive committee in theMay 2006 Financial Industry in Tokyo (FIT) for Charity Run, an industry-wide charity event held in May 2006. The eventbegan in 2005 with the goal of giving financial service profes-sionals in the metropolitan area, as well as employees of theirsubsidiaries, the opportunity to support charity groups. Pleasesee http://www.fitforcharity.org/home-en.htm for details.

Some of Nikko Citigroup participants in the FIT for Charity Run

Moving toward the Future as a GoodCorporate CitizenNikko Cordial Group aspires to grow with society as a good corporate citizen that is fully aware of its social mission andresponsibilities as a financial services group.

In order to build and pass down an enriched society to thenext generation, every member of Nikko Cordial Group feels asense of heartfelt gratitude and carries out his or her duties byactively engaging in society as a corporate citizen, and as a mat-ter of course, contributes to society through our core businesses.

In fiscal 2006, expenditures for corporate citizenship activities (on a consolidated basis) totaled ¥260.33 million(including ¥13.5 million in donations to political parties). Thissection introduces some of the company’s principal activities.

◆ Support for HEM-NetSince 2004, Nikko Cordial Corporationhas been supporting the activities ofHEM-Net (Emergency Medical Networkof Helicopter and Hospital), a nonprofitorganization aimed at providing emergency medical treatment to people in need, contributing to solvingmedical care issues, and improving survival rates.

◆ Assistance Following the Earthquake in CentralJava, Indonesia

In May 2006, corporate officers and employees from respectiveNikko Cordial Group companies donated funds to assist victimsof the earthquake in Central Java, Indonesia. Group companiesmatched employee donations.

◆ Environmental Conservation ActivitiesCreating Hadano, Japan’s most beautiful valley town andhome of a thousand-year old forest•Nikko Cordial Securities, Atsugi Branch (October 2006)

Participating in a monthly cleanup of Chuodori Avenue inTakamatsu City•Nikko Cordial Securities, Takamatsu Branch

27

November 2006: Members of the ABAC Japan Council present the ABAC Proposalto Japanese Prime Minister Abe (to the left of whom is Mr. Kanzaki).

International Contribution Activitiesthrough ABACThe APEC Business Advisory Council (ABAC) is the sole publicadvisory organ given the opportunity to directly express theopinions of business leaders to the leaders and cabinets of the21 member countries and regions of the Asia-Pacific EconomicCooperation (APEC). Nikko Cordial Corporation provides support to this council via its membership on the SupportCouncil for ABAC Japan.

Mr. Yasuo Kanzaki, Special Advisor to Nikko Citigroup, hasbeen appointed to the ABAC Japan Council, where he is work-ing to build the international economic order by liberalizing andfacilitating trade and investment in the APEC region.

ABAC addressed a variety of issues in fiscal 2006 under thetheme of “Promoting an APEC Community Characterized byProsperity and Harmony.” Against the backdrop of the area’sremarkable economic growth, members also held productivediscussions on the feasibility of the Free Trade Area of the AsiaPacific (FTAAP) proposed by the United States in light of therapid proliferation of bilateral free trade agreements (FTAs)between countries and regions in Asia.

Incorporating CSR into Our Preferential Treatment System forShareholdersReflecting our desire for social prosperity and health of our shareholders, each March through our pref-erential treatment system for shareholders, Nikko Cordial Corporation offers shareholders a selection oforiginal items, eco-friendly and health conscious products, and regional specialties from around Japan.Gifts are based on the number of shares held by each shareholder.

Also, the Company donates ¥100 to environmental conservation and other social contributionfunds for each special lifestyle, health, and environment related item ordered under the preferentialtreatment system.

At the end of March 2006, we had received 30,017 applications for these special products anddonated approximately ¥3 million to the National Land Afforestation Promotion Organization’s “Green Fund.” Leaflet introducing Nikko Cordial’s preferential

treatment system for shareholders

28

The Financial Services Industry and theEnvironmentWhile many believe that the financial service industry’s links tothe environment consist of little more than office-based energyand resource conservation activities targeting “paper, waste,and electricity,” in reality the ties run much deeper.

We believe that the financial service industry’s ability to con-tribute to environmental conservation lies in furnishing investorswith opportunities to invest in companies that produce positiveenvironmental impacts through their business activities whilegenerating profits. For example, we manage and sell our NikkoEco Fund and Globe SRI funds (for details, please refer to page23) as well as offering investors the Rising TomorrowInvestment Trust, which focuses on water, food, and alternativeenergy (for details, please refer to page 24).

At the same time, we work to minimize the impact ofGroup operations on the environment. We recognize the consequences of the vast quantities of paper consumed in theproduction of documents including prospectuses, brochuresand proposals introducing new products, and our CSR andannual reports, along with CO2 emissions from vehicles used for marketing and sales activities, among others.

Interaction between Nikko Cordial Group and the Environment

Environmental conservationactivities


Waste

Sales vehicles Gasoline

Greenhouse gases

WWF-NikkoGreen Investors Fund

Environmental groups


Donations

Fina

ncia

l sup

port

Heightened environmental awareness and a society that fosters peace of mind

Greenprocurement

CSR Reports, prospectuses, brochures, etc.

Information disclosure


Environment-consciouscompanies

Fund

s

Resource and energy conservationGreen procurement

Office activities

Nikko Eco FundGlobe

Management andmarketing of SRI funds

Green investors

Greenprocurement

Inve

stm

ents

Increase in stock prices

Improved resultsfrom SRI

fund management

Individuals Ordinary companies

Electricity Water Gas Paper

While the burden of these individual activities may be smallin comparison to other industries, their cumulative effects havea global impact.

Nikko Cordial Group therefore supports companies thattake constructive environmental initiatives by familiarizing thepublic with the option of investing in environment-consciouscompanies and by leveraging financial flows. We are pursuingenergy and resource savings in routine operations and, by issuing our own CSR and environmental reports detailing theinitiatives being taken by Group companies, we are promotinginformation disclosure and encouraging other companies to beproactive in taking action for the environment. With these threemeasures, our goal is to increase the value of environment-conscious companies and to prompt other companies tobecome more environmentally aware.

Approach to the Environment

Q: How can the financial services sector contribute to environmental conservation?

A. In addition to working to reduce resource andenergy use in our daily business operations, wecan create environment-friendly capital flows.

29

Environmental PolicyWith environmental concerns becoming an increasingly pressingglobal issue, we believe that we have a responsibility to do whatwe can one step at a time.

In March 2000, Nikko Cordial Corporation—as a financialinstitution engaged in banking, securities and other relatedbusinesses—became the first financial services company inJapan to sign the UNEP*1 Statement by Financial Institutions onthe Environment and Sustainable Development. This policy con-stitutes the Group’s Environmental Policy and forms the founda-tions of the environmental initiatives we are striving to integrateinto our business activities and routine operations.

*1 The United Nations Environmental Plan (UNEP) is an auxiliary institutionestablished by the United Nations to implement the Declaration on HumanEnvironment and the International Action Plan on the Environment adoptedat the United Nations Conference on the Human Environment held in 1972in Stockholm.

Established January 2001 and revised October 2001.

UNEP FI—United Nations EnvironmentProgramme Finance InitiativeThe United Nations Environment Programme Finance Initiative(UNEP FI) is a partnership between UNEP and financial institu-tions from around the world. In recognition of the contributionsto environmental conservation and sustainable developmentthat can be made by financial institutions in the pursuit of profits, in 1992, some 30 commercial banks joined forces withUNEP and became signatories to the UNEP Statement by Bankson the Environment and Sustainable Development. In 1997, thisgroup of signatories was expanded to include investmentbanks, asset management companies, and securities companies,and in 2003, was combined with a similar statement issued bythe insurance industry.

Today, more than 160 financial institutions that are signato-ries to the UNEP statements are proactively working to realize abetter future for the industry through ongoing activity-basedand region-based (Africa, Asia-Pacific, the Middle East, Europe,Latin America and North America) discussions. Issues at the coreof these discussions include climate change, investment, sustainable management, and reporting.

Carbon Disclosure ProjectThe Carbon Disclosure Project (CDP) is a joint initiative launchedin 2002 by institutional investors, banks, and other financialinstitutions with an interest in global warming. Each year theproject sends major companies worldwide a jointly signed questionnaire about their stance with regard to environmentalissues and associated initiatives, and publishes the responsesand analysis of the results. Some 225 institutional investors(with more than US$31 trillion in assets under management)participated in CDP4 in 2006.

As an institutional investor, Nikko Asset Management hasparticipated in the Carbon Disclosure Project since 2005.

30


ISO 14001 Environment Management System (as of March 2007)

Person responsiblefor environmental issues

Internal EnvironmentalAudit Team




Person in charge ofenvironmental management promotion

CSR Committee (top management)





Secretariat







Divisions Divisions Divisions DivisionsKabutocho Nikko Bldg: DivisionsShinkawa/Tokyo Dia Bldg: Divisions

Top management Top management Top management

Nikko Asset Management Nikko Pension Consulting Nikko Investor Relations





Secretariat Secretariat Secretariat

ISO 14001 Environmental ManagementSystemIn April 2001, Nikko Cordial Corporation became the firstJapanese corporation in the securities and investment trustindustry to have its environmental management systems (EMS) accredited by the International Organization forStandardization (ISO).

In addition to energy and resource conservation activitiessuch as those targeting “paper, waste and electricity,” Groupcompanies that have acquired ISO 14001*2 certification areimplementing the PDCA cycle that is a feature of ISO 14001 intheir business activities relating to the environment. Nikko AssetManagement incorporates the planning and development of SRIfunds and related information disclosure into its EMS, therebystrengthening the fund’s administrative system. Meanwhile,Nikko Investor Relations Co., Ltd., which provides IR consultingservices to its corporate clients, has incorporated EMS into itsservice portfolio by encouraging clients to hold informationmeetings on their environmental activities.

*2 ISO 14001 is an environmental management system established by theInternational Organization for Standardization (ISO). It aims to help privatecompanies ascertain the environmental impact of their business operationsand assist them in making improvements through a continued cycle of“Plan,” “Do,” “Check,” and “Action.”

◆ External ISO 14001 AuditsTo monitor ISO 14001 compli-ance, two external audits wereconducted during fiscal 2006.These were carried out byLloyd’s Register QualityAssurance (LRQA) inSeptember 2006 and February2007. Although the triennialcertification renewal audit conducted in February 2007identified several areas forimprovement, we received arecommendation for renewal.Going forward, we will beinvestigating how to implement environmental activities relatedto our business operations.

Regular external audit conducted in September 2006

◆ Internal Environmental AuditsInternal environmental audits are performed at least once a yearin Group companies that have acquired ISO 14001 certificationby personnel who have obtained internal audit qualificationsthrough related third-party expert training seminars. Internalauditors check program progress and records, interview personnel, and otherwise review operations to ensure efficientand ongoing improvements to environmental activities in theGroup’s companies.

31

Date of Audit Company/Facility Audited

August 2006 Nikko Asset Management Co., Ltd. (Tokyo TakarazukaBldg.)

January - Nikko Cordial Corporation (Kabuto-cho Nikko Bldg.)February 2007 Nikko Cordial Securities Inc. (Kabuto-cho Nikko Bldg.

and Tokyo Dia Bldg. No. 5)Nikko Asset Management Co., Ltd. (Tokyo TakarazukaBldg.)Nikko Pension Consulting Co., Ltd.Nikko Investor Relations Co., Ltd.

Internal Environmental Audits Conducted in FY2006

February 2007 Renewal Audit of the ISO 14001 EMS (Excerpts)

The renewal audit recognized ongoing improvements in environmental objectives and target activities,

external audit compliance, internal audit compliance, management reviews, and other areas. The audit

confirmed that the EMS is functioning effectively, as defined in manuals and other documentation.

While individual companies conduct environmental evaluations, it is necessary to articulate the more

remarkable environmental aspects of the system as a whole. It is also recommended to strengthen efforts to

set and pursue environmental targets related to business operations.

Rather than confining this audit’s comments and recommendations to the departments in which they

originated, please work to apply corrective action laterally throughout the organization by verifying whether

similar problems are occurring in other departments. Lead LRQA auditor Nobuaki Takagi

◆ Environmental EducationTo raise the environmental awareness of all Group employees,we are currently working to expand our overall environmentaleducation program. In addition to environmental education covering the scope of ISO 14001 certification, the training cur-riculum for new employees includes lectures on environmentalinitiatives. We have also established structures conducive toindependent study with the introduction of an e-Learning format that covers the Group’s environmental initiatives, ISO 14001 mechanisms as well as CSR and SRI funds. This isavailable via the Company intranet.

History of Environmental Initiatives

November 1998 Installed solar energy generation system in theKabuto-cho Nikko Building

August 1999 Started managing and marketing Nikko Eco Fund,Japan’s first SRI fund(Nov. 2000: started managing the Nikko GlobalSustainability Fund [Globe])

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

Participated in the First Global MinisterialEnvironment Forum (Sweden)

October 2000 Established the WWF-Nikko Green Investors Fund inconjunction with WWF Japan(Donated part of the profits generated from theNikko Eco Fund and Globe to this fund)

January 2001 Established Environmental Principle, EnvironmentalPolicy, and Environmental Rules

April 2001 Became the first in the securities industry to acquireISO 14001 certification

October 2001 Established Management PrincipleOctober 2003 Former chairman Kaneko gave the closing address

at the UNEP FI 2003 Global Roundtable, focusing onthe “Environmental Impact of the Business Activitiesof Financial Institutions and Investments and Loansto Corporations (Businesses)”

March 2004 Set up CSR CommitteeJune 2004 Shifted to Statutory Committee SystemFebruary 2005 Set up CSR Promotion DepartmentMarch 2005 Named winner of Japan Environmental

Management Association’s “Excellent SustainableManagement Award”

August 2005 Completion of transition to revised ISO 14001:2004confirmed

December 2006 Concluded WWF-Nikko Green Investors Fund support activities

32


Nikko Asset Management initiatives—Improving Environmental Awareness of EmployeesAs part of the company’s efforts to provide individual employees opportunities

to increase their awareness of environmental issues, Nikko Asset Management’s

CSR Promotion Department publishes the internal newsletter SAWAKAI as well

as arranges conversational gatherings where workers can get together to think

about the environment. Altogether, 231 employees had participated in a total

of seven meetings held by the department as of the end of March 2007. These

events included screenings of movies and videos related to the environment

and guest lectures by experts in environmental fields.

In February 2007, 62 employees, including Nikko Asset Management

chairman Timothy McCarthy and president Bill Wilder, gathered to view the

environmental film An Inconvenient Truth. Based on participants’ description of

how their awareness of environmental issues has changed and how they have

started taking steps to prevent global warming at home, we are committed to

continuing our environmental education efforts, including the possibility of

introducing environmental volunteer programs such as outdoor activities.

Internal communication promoted through internal newsletter

Nikko Cordial Securities—Initiatives to Go Paperless for Stock Ownership PlanPromotional MaterialsAs one of its fiscal 2006 environmental initiatives, Nikko Cordial Securities

created a CD-ROM of stock ownership plan promotional materials designed for

customers of client companies that offer stock ownership plan outsourcing

services. The disc is designed to make employee stock ownership programs and

investments more accessible to a larger audience by using animations to explain

these plans in an easy-to-understand manner.

The use of CD-ROMs to provide information about stock ownership plans

has replaced pamphlets and other paper media, enabling the company to

dramatically reduce its paper consumption.

Companies receiving the CD-ROMs make use of them in a variety of

ways, including on their corporate networks and at company seminars, stock

ownership plan information meetings, and new employee training.

In fiscal 2007, the company plans to produce a CD-ROM explaining the

computerization of stock certificates, its second release in a series of paperless

promotional materials.

In addition to the administration of an ISO 14001 EMS, Nikko Cordial Group’s environmental initiatives include a variety of activities and programs being undertaken by individual companies and departments.

CD-ROM of stock ownership plan promotional materials

33

Environmental PerformanceNikko Cordial Group conducts activities at offices located inmany parts of the country. While the environmental impact ofindividual office energy consumption and waste discharge is notsignificant, neither is it nil. Despite a nationwide tally showingthat the environmental load of the Group’s operations is smallrelative to other industries, we take the issue seriously and doour best to minimize such impact.

In conducting our business, we consume large quantities ofpaper through the compilation of proposals and introductorymaterials as well as prospectuses that we are required by law toprovide to customers. We also make use of newspapers andmagazines in gathering information aimed at improving servicequality, and these are subsequently discarded.

To make employees aware of the environmental impact oftheir activities, we record and publish energy consumption andwaste discharge figures. In terms of paper consumption, sepa-rate totals are calculated for prospectuses, copy paper, andother such materials. We also publish data on six categories ofwaste paper. Findings are then used to raise environmentalawareness and to formulate waste reduction measures.

The compiled data is for Nikko Cordial Corporation, NikkoAsset Management, and Nikko Cordial Securities. The latter’shead office divisions, nationwide branches, sales offices, andadministration buildings are also included.

Green ProcurementOffice supplies for Nikko Cordial Corporation and Nikko CordialSecurities offices are ordered via the intranet-based RequisitionSystem that was set up in 2000 to promote green procurementby checking purchasing requests against a list of ecologicalproducts. The green procurement rate for fiscal 2006 for allpurchases was 75% (value basis) of all purchases made byNikko Cordial Corporation and Nikko Cordial Securities and60% (itemized basis) for Nikko Asset Management.

Legislative ComplianceIn addition to monitoring EMS compliance, Group companiesthat have acquired ISO 14001 certification are charged with collecting information needed to ensure all legislated environ-mental requirements are being met. On March 31, 2007, thecompliance status of buildings occupied by Group companiesand Nikko Cordial Securities’ branches and administrativeoffices that fall outside the scope of ISO 14001 certification was checked against a “legislative compliance checklist” as part of systematic Group monitoring. There were no confirmedviolations of environmental laws by Group companies duringfiscal 2006.

34


359,171,499368,413,865

Unit: MJ374,331,227

FY2004(133 facilities)


FY2006 (147 facilities)

308,096

375,793

324,735

Unit: m3




92,89384,157

Unit: m3

81,607




Energy Consumption

Electricity and air-conditioningenergy consumption*4

*4 The conversion factor (9.83 MJ/kWh) stipulated by the Ministry of theEnvironment in its Environmental Performance Indicators for Businesses(2002 edition) is used for electricity and air-conditioning energy consumption.

Gas consumption Water consumption

◆ Energy ConsumptionThe variation in three-year totals as published is accounted forby the relocation and integration of Nikko Cordial Securities’branches and administrative offices.

Although an increase in the number of Group facilitiespushed up total electricity and air-conditioning energy consumption to 5,917 GJ (1.6%), there were no branches oradministrative offices posting dramatic increases in single-facilityuse. Gas consumption fell 51,000 m3 (13.6%) year-on-year, and water consumption fell 3,000 m3 (3.0%). Total fuel consumption rose 42,000 kl (3.4%) compared to the previousfiscal year, with consumption per company vehicle increasing0.1 kl to 1.6 kl.

◆ Generated Waste and Recycling RatiosWe realized a 56-ton (2.5%) reduction in overall waste emissions, and the recycling rate increased 3% to 69%.Contributing to the increased rate was more proactive recycling of paper shredder dust, newspapers, magazines, and prospectuses.

◆ Paper ConsumptionPaper consumption in fiscal 2006 increased 197 tons (10.3%)compared to fiscal 2005 due primarily to increases in paper use for prospectuses provided to customers and internal copypaper use.

In addition to encouraging employees to utilize recycledcopy paper for internal office use, efforts to reduce the environ-mental impact of our operations included making efficient useof functionality for printing on both sides of paper and printingmultiple pages on single sheets.

In order to clarify the paper requirements for disclosure of CSR activities, we are publishing paper consumption figuresfor CSR Reports (known as the Sustainability Report up to fiscal 2004).

35

1,115,9711,211,204

1,252,955

FY2004 FY2005 FY2006

Unit:

Fuel consumption

20,919

2,577

21,582

2,797

Unit: tons

FY2004

21,810

2,893

FY2005 FY2006

FuelElectricity, air-conditioning, gas

Carbon Dioxide (CO2) Emissions*5

*5 CO2 emissions for all fiscal years have been calculated based on the Ministerial Ordinance on theCalculation of Emissions of Greenhouse Gases Associated with the Business Activities of Certain Emitters(March 2006, Ministry of Economy, Trade and Industry and Ministry of the Environment Ordinance No. 3).

Generated Waste and Recycling Ratios

FY2004 (106 facilities) FY2005 (106 facilities) FY2006 (107 facilities)

Amount emitted Recycle Amount emitted Recycle Amount emitted Recycle (tons) ratio (tons) ratio (tons) ratio

Total paper 1,927 65% 1,818 69% 1,745 71%

Copy paper 259 90% 340 93% 306 93%

Shredded paper 331 65% 251 50% 229 60%

Newspapers, magazines, prospectuses 722 76% 695 88% 697 90%

Brochures and flyers 217 78% 141 74% 137 69%

Cardboard 69 90% 78 94% 84 91%

Other paper 327 7% 309 6% 289 7%

Food waste 58 0% 56 0% 48 0%

Bottles and glass items 6 76% 5 68% 5 66%

Cans and other metal items 33 88% 23 82% 19 82%

Plastics 59 49% 66 39% 64 30%

Fixtures 133 47% 197 74% 259 70%

Others (excluding paper) 44 45% 48 36% 17 84%

Total/ Average percentage 2,263 62% 2,217 66% 2,161 69%

Paper Consumption

FY2004 FY2005 FY2006

Prospectuses (total)*3 1,082 1,126 1,277

Equities and bonds 774 579 697

Investment trusts 307 546 579

Brochures 435 250 295

CSR activity disclosure documents*1) 7 18 13

Copy paper*2) 400 415 427

Envelopes*3) 118 121 109

Total 2,037 1,913 2,110

(Unit: tons) *3 Prospectuses are marketing materials used in connection with the offeringand sale of negotiable securities. These documents provide information onthe issuer and the stock that is designed to facilitate informed investmentdecisions, and are mandatory in soliciting stock purchases.

*1) Breakdown of CSR activity disclosure documents: Sustainability Report2004 (Japanese edition: 17,000 copies; English edition: 2,000 copies;abridged edition: 200,000 copies); CSR Report 2005 (Japanese edition:33,000 copies; English edition: 2,000 copies; abridged edition: 348,500copies); CSR Report 2006 (Japanese edition: 40,000 copies; English edition: 2,000 copies; abridged edition: 120,000 copies)

*2) Copy paper: For Nikko Cordial Corporation and Nikko Cordial Securities,figures have been calculated based on purchase data from the intranet-based Requisition System. For Nikko Asset Management, figures are basedon data from copier counters.

*3) Envelopes: For Nikko Cordial Corporation and Nikko Cordial Securities, figures have been calculated based on purchase data from the intranet-based Requisition System.

36

Independent Evaluation of Nikko Cordial Group’s CSR Report 2007

The recent problem with improper accounting is the responsibility not only of individual corporations but also of financial institutions that act as the major players in the capital markets. Because the repercussions of the problemextend to large numbers of companies in every industry indirectly through securities, the issue cannot be explainedaway as the misconduct of a single company.

While various countermeasures have been taken to address the problem, they are most essentially related to companies’ pursuit of compliance through the building of internal control structures. For this reason, the relevant question is how a culture that prioritizes profit-making—assuming that such a culture exists—can best be transformed.It is not sufficient for individual departments to encourage an awareness of compliance and ethics; I must ask how thisawareness can be spread downward to individual employees along with the intentions of management. I would like tosee the Group move beyond awareness-raising through training by increasing the importance given to teamwork andethics when evaluating departments and individual employees, and by working to entrench the PDCA cycle.

The comprehensive alliance with Citigroup includes an integration of basic governance. I hope that Nikko Cordialwill approach the task in the spirit of providing a model of what such principles should mean, instead of this processending with an alignment of the two companies’ codes of conduct.

• Communication with Stakeholders Starts atthe Top

You have emphasized the importance of communica-tion with customers and other stakeholders, and I lookforward to seeing this put into practice. For example,the Group has assigned investment education animportant role in its social contribution activities. Whenselling securities products possessing risk, the Grouphas an important responsibility to ensure that cus-tomers fully understand those products, and investmenteducation can serve as a means of fulfilling that respon-sibility. I invite the Company to demonstrate its commit-ment in this area in actual practice by making not onlylocal personnel but also senior management aware ofthe activities currently being pursued at branches.

• Incorporating Environmental and SocialFactors into the Securities Business

Incorporating environmental and social perspectivesinto the securities business, for example, into the prod-ucts and services you provide, also falls within the CSR

initiatives of the finance industry. The Principles forResponsible Investment put forward by the UnitedNations last year describe the need to “incorporateenvironmental, social, and corporate governance (ESG)issues into investment analysis and decision-makingprocesses.” Expectations are taking shape regarding the role played by the finance industry in addressingenvironmental and social challenges on a global scale.

As the first company of its kind to introduce an EcoFund, Nikko Cordial must develop these themes in thefuture not only from their social aspect but also fortheir strategic competitiveness as businesses. Todayenvironmental and social factors are gaining attentionin the international finance industry not as risks but in aforward-looking context as opportunities for creatingfuture profits.

By introducing this approach, the Group will be ableto communicate to individual investors the fact thatenvironmental and social issues become concerns onour lives and thereby create an opportunity to proposea new lifestyle for the 21st century.

Mizue Unno

Managing Director, So-Tech Consulting Inc.

Founded So-Tech Consulting in 1996 after working for manage-

ment consulting firms, Ms. Unno persuades the CSR initiatives of

Japanese corporations by bringing to bear a distinctive analytical

perspective in proposing new directions for management in

sustainable development and CSR fields.

37

Basic Report Information

Editorial Policy for the ReportNikko Cordial Group has published an annual report of its social and environmental conservation activities since 2000 in the form of

the CSR Report (known as the Sustainability Report until 2004).

The Nikko Cordial Group believes CSR has an essential role to play in maintaining society’s trust. As part of the securities industry,

we understand and fully accept our responsibility in the series of revisions to financial statements and other reports that have

contributed to confusion in transactions in capital markets, and triggered a critical loss of trust in the sector.

The intention of our chairman and president to pursue initiatives to address the causes of these events and restore society’s trust

in the Group lies at the heart of CSR Report 2007. This document also reports on the comprehensive strategic alliance with Citigroup

announced in March 2007.

In producing the report, we have endeavored to make it accessible to a large audience by adopting an inviting cover design and

making it as easy to read and understand as possible.

Its compilation was based on a careful examination of what types of information the Group should report, and for this reason, it

presents a narrower focus than last year’s report. We trust that through it you will gain an understanding of our corporate efforts to

regain society’s trust and of the CSR activities being pursued by individual employees nationwide.

◆ Scope of ReportingThis report covers the operations of the 22 major Group

companies listed in the “Nikko Cordial Group Overview” on

the table of contents page, as well as the operations of Group

companies within the scope of consolidation that operate on

a regular basis.

References to “Nikko Cordial Corporation” or “the

Company” describe the activities of the holding company.

◆ Period Covered by ReportApril 1, 2006 to March 31, 2007

The report includes some information about activities

before March 2006 and after March 2007 to ensure its

completeness.

◆ Previous Publishing of ReportDate of issue: July 2006

Number of issues:

Japanese edition 40,000 copies

Japanese abridged edition 120,000 copies

English edition 2,000 copies

Environmental considerations in the printing of CSR Report 2007The following environmental considerations have been taken into account in the printing of the Nikko CordialGroup’s CSR reports since 2005.

Waterless printingThis printing method reduces the environmental impact of printing and is characterized by dramatically lower emissions and consumption of harmful substances. The waterless printing mark (butterfly mark) can be used onprinted materials produced using waterless printing by printers that have been certified by the Waterless PrintingAssociation.

Use of non-VOC inkNon-VOC ink is a special waterless printing ink made from 100% vegetable oil. It eliminates the volatile organic solvents used in conventional mineral oil inks and is well suited to paper recycling. The non-VOC ink mark can beused on printed materials produced using these inks.

Use of FSC-certified paperThis paper was made from raw materials obtained from managed forests certified by the Forest Stewardship Council(FSC). Use of the FSC mark is restricted to products for which all companies involved in the manufacturing chain upto and including the final product stage have been certified.


◆ Reference GuidelinesGlobal Reporting Initiative Sustainability Reporting Guidelines

◆ Methods of Acquiring AdditionalInformation

Information regarding the CSR activities of Nikko Cordial

Group can be found on the Group website at

http://www.nikko.jp/csr_e/.

◆ Directory of Affiliated InstitutionsNikko Cordial Corporation and its subsidiaries participate in

the following economic and industry institutes:

Nippon Keidanren

Japan Securities Dealers Association

The Investment Trusts Association, Japan

Japan Securities Investment Advisers Association

The Security Analysts Association of Japan

The Institute of Internal Auditors - Japan

CSR: Corporate Social ResponsibilityReport on fulfilling our corporate social

responsibilities and related initiatives


Please address comments and inquiries to:

CSR Promotion Department, Nikko Cordial Corporation6-5, Nihonbashi Kabuto-cho, Chuo-ku, Tokyo, 103-8225, JapanTel: +81-3-5644-4109Fax: +81-3-5644-4397E-mail: [email protected]: http://www.nikko.jp/csr_e/Issued in October 2007

This CSR Report 2007 was prepared to provide information on Nikko Cordial Corporation and its Groupcompanies’ efforts in CSR, and is not meant to induce trading of securities. It is not a disclosure documentrequired under the Securities and Exchange Law of Japan. This report is printed on FSC-certified paper using 100%

vegetable-based ink (non-VOC ink) and waterless printing.


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