ANNUAL REPORT 2008

JAPAN SECURITIES FINANCE CO., LTD.

PROFILE
Growing in step with the securities industry andsupporting its future development
In June 1951, Japan Securities Finance Co., Ltd. (JSF) launched
its loaning operations, dealing with funds and stock certificatesneeded by securities companies for delivery and settlement ofmargin transactions.
This margin loan business can be transacted solely by securities
finance companies licensed in accordance with the Financial
Instruments and Exchange Law.
As Japan ’s largest securities finance company designated by the
Tokyo, Sapporo, Fukuoka, and JASDAQ Stock Exchanges, JSF iscontributing significantly to improving the fairness of stock priceformation and liquidity of stocks in the secondary equity markets.

CONTENTS
Financial Highlights

1

Message from the President

2

Our Business Development

7

Our Business Field

8

Corporate Governance15

Risk Management

17

Business Results

21

Financial Section

24

Independent Auditors’ Report

42

Outline of the Corporate Group

43

Corporate Data

44

FINANCIAL HIGHLIGHTS

Japan Securities Finance Co.,Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars
2008(April 1, 2007 March 31, 2008)

Millions of yen

2008(April 1, 2007 March 31, 2008)

2007(April 1, 2006 March 31, 2007)

Consolidated financial results¥

Oparating revenues
Net income (loss)
Net assets (period end)¥

50,582(1,300)111,304
Yen

2008

$

43,524
4,156
122,876

504,861(12,975)
1,110,929
U.S. dollars
2008

2007

Amounts per share¥

Net income (loss)		
Net assets(13.15)
1,125.72

¥

$

42.09
1,244.61(0.131)
11.24

Note:U.S. doller amounts in this annual report are translated from Japanese Yen, for convenience only, at the rate of ¥100.19=US$1, the approximate
exchange rate at March 31,2008.

Operating revenues

Net income（Millions of yen）

55,00040,00036,14537,2264,000

30,8971,000

15,00010,000

0

5,000
04

05

06

07

(1,300)
04

54.08

50.00

42.09

1,200

38.76

08

1,151

1,276

1,205

1,244

1,125

1,000

30.00

800

20.00

600

10.00
04

07

（Yen）

1,400

48.93

06

Shareholders' equity per share

（Yen）

60.00

05

08

Net income per share

0

4,156

4,002

2,000

20,000

40.00

4,953

3,000

25,000

0

5,519

5,000

43,52445,00030,0006,000

50,58250,00035,000（Millions of yen）

05

06

07

400

(13.15)

200

08

0



04

05

06

07

08

MESSAGE FROM THE PRESIDENT

Minoru Masubuchi
President

It is my sincere hope that the Annual Report 2008 for the fiscal year ended March 31, 2008 will be ofuse to shareholders, investors and other supporters of Japan Securities Finance Co., Ltd.
concern about a recurrence of the credit contraction
and a sharp appreciation of the Japanese yen against
dollar to below 100 yen for the first time in 12 years
and 6 months has made the index drop to 1,149
points, the lowest level during the fiscal year in midMarch, and closed the fiscal year at 1,212 points.

BUSINESS REVIEWBusiness Environment
When we look back on the fiscal year, thanks to theincreased export and capital investment, the Japanese
economy has maintained its basic tone of moderate
expansion against the background of steady consumer
spending. On the other hand, the turbulent financial
market in and outside the country and soaring raw
material prices have spread the feeling of decelerationof the economy.

The average daily trading volume on the First
Section of the Tokyo Stock Exchange during the fiscal
year stood at 2,193 million, an increase of 208 million
by comparison with the previous fiscal year. The
average daily trading value increased by 215.8 billion
yen over the previous year, to reach 2,879 billion yen.

In the stock market, the Tokyo Stock Price Index(TOPIX), which started the fiscal year at 1,682 points,
continued to perform strongly, partly because of
the feeling that the Japanese stock market failed tokeep pace with the equity market in major countries
including the USA, and reached the highest 1,792
point during the fiscal year in early July. Thereafter,
however, on fears of slump in financial institutions
which stemmed from the subprime loan in the
United States and anticipated downturn in the US
economy, the market has been stagnant in generalwith continuous instable trend. In mid-March, serious

Meanwhile, the outstanding balance ofstandardized margin buying in the Tokyo market
moved within the range between 3,300 billion yen and
3,600 billion yen till early August. Since mid-August,however, the balance has followed a gradual declining
tendency because individual investors pulled back on
the standardizing margin buying on account of slumps
in the stock market, and closed the fiscal year below
1,800 billion yen, the lowest level in 4 years and 6

MESSAGE FROM THE PRESIDENT

As a result, the consolidated operating incomes
totaled 2,345 million yen (down 75.7% year-on-year),and the consolidated recurring profits totaled 2,852
million yen (down 69.8% year-on-year), because theinvestment gain on equity method of 255 million yen
resulted from the gain on sale of fixed assets by theequity method companies was posted as non-operating
income.

months. On the other hand, the outstanding balanceof standardized margin selling fluctuated between thelevels of 900 and 1,000 billion yen till July and thengradually declined, ending the fiscal year at the level of
500 billion yen, the lowest level in about 5 years.
Turning to the bond market, the yield on newly
issued 10-year Japanese government bonds (JGBs),
which started the fiscal year at 1.645 %, rose to 1.965 %in mid-June, due to speculation that the Bank of Japan
would announce additional interest rate increase at an
early date. Since late July, the yield has kept a declining
tendency in general due to emerging concern about
worldwide credit contraction and economic downside
risk, and reached 1.274% at the end of the term.

Because Netwing Securities Co., Ltd. has been
no longer our affiliate because of the integration
with Maruwa Securities Co., Ltd. as of October 1,
2007, JSF posted 1,037 million yen in extraordinary
profits attributable to the stock transfer of equity
interest of relevant companies and 965 million yen in
extraordinary losses resulting from the dilution loss ofchanges in equity interest. As a result, the consolidated
net loss for the term was 1,300 million yen.

Business Results of the JSF Group
Under these circumstances, the total value ofoutstanding loans extended by JSF group companies
during the fiscal year averaged 1,498.9 billion yen,a decrease of 752.9 billion yen by comparison withthe previous year. This was due mainly to falls in theoutstanding loans for margin transactions and of trustbank loans.

OUTLOOK FOR NEXT FISCAL YEAR

Earnings Outlook
Turning to the future outlook, the economy as awhole is expected to continue to decelerate for sometime under the influence of subprime fallout andrising prices of oil and raw materials, in spite of steadyconsumer spending backed by gradually increasing
employees’ income and strong capital investment
owing to the relatively high levels of company profit.

The consolidated operating revenues totaled
50,582 million yen (up 16.2% year-on-year), due toraised loan rates in the bond borrowing and lendingtransactions, as well as to the increased coupon
income of JGBs. On the other hand, the consolidated
operating expenses rose to 39,437 million yen (up58.2% year-on-year), due to increased interest
payments resulting from higher short-term interest
rates and the valuation loss in the value of 6,587
million yen of investments in securities of CDO(Collateralized Debt Obligation), REIT (Real Estate
Investment Trust) and others held by JSF Trust andBanking Co., Ltd., JSF’s subsidiary, including thegeneral and administrative expenses totaling 8,799
million yen (down 1.8% year-on-year).

Under these circumstances, the outstandingbalance of standardized margin buying and sellinghovered at the low level and the company predicts thatthe outstanding balance of margin loans and stockloans would fall below the level of previous term. In
view of resulting decreases in interest revenues fromloans for margin transaction and fees on lending
securities, we anticipate significant decreases inoperating income, recurring income and net income.

With regard to consolidated subsidiaries, it isexpected that JSF Trust and Banking Co., Ltd. will
significantly reduce the deficit, while Nihon Building
Co., Ltd. will maintain its steady performance. Amongthe equity-method affiliates, JBIS Holdings, Inc., andits subsidiaries forecast a similar level of profits to thatof the previous term at large.

under which we return on our profits so that thedividend payout ratio (non-consolidated) is about 40%.

MANAGEMENT POLICY

On the basis of this principle, we have decided to
pay an annual dividend of 26 yen per share for this fiscal
year, and we forecast to pay 20 yen per share for next
fiscal year.

In conformity with our fundamental policy ofsetting the dividend payout ratio on a non-consolidated
basis at about 40%, we will take account both of
dividend payout ratio and dividend on equity (DOE)
on a consolidated basis.

Basic Management Policy
As an institution specializing in the securities financebusiness, Japan Securities Finance has a mission
to contribute to the development of the securities
industry. The company will continue to meet thedemands that society may make upon it and to movewith the times. Our basic policy is as follows.

Present Management Strategy
1. Mid-Term Management Plan
The Mid-Term Management Plan formulated in
March 2006 set the target to achieve recurring profitof 12 billion yen (on a non-consolidated basis) by
the final year of the Plan, i.e. fiscal 2008. The Planassumed an annual average margin loan balance of
1,600 billion yen and an increase of approximately
0.50% percentage points in short-term interest rates
from the time at which the plan was announced.

(1) Capture various needs in securities industry
with sincere recognition of its social
responsibility and public mission(2) Promote improvement systematically andoperationally and extend margin loanbalance in margin loan business, and furthers t re n g t h e n p ro f i t f o u n d a t i o n i n o t h e rbusiness(3) Obtain firm trust of stake holders by the
improvement of corporate governance andthe control of management risk

The short-term interest rates have now risen
close to 0.50% which is an assumed condition of
the Plan. However, the present trend in the stock
market is far different from the trend assumed
when the Plan was formulated, and the margin loanbalance is completely different from the assumed
level. Such conditions are expected to continue forsome time.

Basic Policy on Profit Sharing
JSF regards the stable long-term return on its profits to
its shareholders as an important priority. The company
follows a basic dividend payments policy, with a viewto strengthen its capital base and its internal reserves,
taking account of its business performance.

Against this background, Japan Securities
Finance has decided to revise the figure of the
management target by changing the annual averagemargin loan balance, an assumed condition of the
Mid-Term Management Plan, to 420 billion yen.

As a standard which reflects our businessperformance, we have established a dividend policyMESSAGE FROM THE PRESIDENT

However, there is no change in the basic policyof the Plan and various strategies for achieving themanagement target, and we will be fully committed
to achieving the Mid-Term Plan in the current year.

meetings. JSF mounted an IR event for individual
investors in August 2007, and will continue to holdIR meetings with institutional investors. We shallalso engage in proactive IR undertakings with foreign
institutional investors.

[Management Target]
To achieve a recurring profit of 3,400 million yen on
a non-consolidated basis by the final year of the Plan,i.e. FY2008 (this management target makes certain
assumptions in respect of loan balance and shortmarket interest rates)

3. Achievements during This Term
Our major achievements during this term are as
follows:i)		Increase in the number of loanable issues
In order to improve the convenience of margintransactions, the number of loanable issues wasincreased (up 30 issues from the end of theprevious term) by increasing the customers for
procuring stock certificates. This has increased
the number of loanable issues to 1,718 as of theend of March 2008.

[Strategies]i) Strengthen Margin Loan Businessii) Expand secured loan and stock loan through
JSFNETiii) Boost Loans for Negotiable Margin Transactions
and loans to individuals via through internet
facilityii)		Expanded scope of securities eligible for loans
for margin transactions
With the improvement of the Foreign Stocketc., JDR (Japanese Depository Receipts) andCommodity-ETF listing systems, these wereadded in the scope of securities eligible for ourloans for margin transactions.

iv) Offer low-priced and good quality service bystrengthening cash funding sources and improved
efficiency of organization and business operationv) Positive action for Securities Settlement Systems
Reformvii) Review capital tie-up with group companies forsynergy and unrestricted managementiii)		 Expanded secured loans on securities
Through the formation of a business alliancewith a number of securities companies on
the brokerage of secured loans on securities
for meeting the demand for fund by wealthy
customers, we strived to increase theoutstanding balance of loans.

2. Strengthening of Investor Relations Activities
We will commit ourselves to the strengthening ofIR activities by further improving the quality of our
information disclosure to shareholders and investors
through our home-pages or financial presentationiv)		Integration of group companies
Netwing Securities Co,. Ltd., equity-method
affiliate, was integrated with Maruwa Securities
Co,. Ltd. on October 1, 2007 to establish
a joint holding company M&N Holdings,vi) Strengthen corporate governance and risk
management, and enhance compliance programMESSAGE FROM THE PRESIDENT

Inc,. Because of the reduced investment ratio,
Netwing Securities Co,. Ltd. was excluded
on the day of establishment from our equitymethod affiliates.

of securities finance business by flexibly responding
to diversifying needs of the securities and financial
industries, and will strive to enhance its competitivenessby focusing on the institutional and operational
improvements in the loans for margin transactions,which is our main business. We also make utmost to
expand the scope of other businesses in addition toloans for margin transactions, and further solidify ourrevenue base. To give a concrete example in respect of
the secured loans on securities, which were launched lastyear and provided by the agency of securities companies
to respond to the fund demanded by wealthy customers,
we will endeavor to further increase the outstandingbalance of loans and find new partners to affiliate with.
We will also enhance the competence as a group bystrengthening the internal governance of our groupcompanies, particularly our subsidiaries, and improving
efficiency of business management while maximizing theuse of business characteristics of each company.

Future Challenges (Strategy)
In the financial and securities market where global
competitions are increasingly severe, many different
countermeasures are examined and taken to provide
more attractive markets for diverse market players, suchas increase in exchange-listed products including ETF(Exchange Traded Fund). Also in order to accelerate andensure the shift “from saving to investing”, the Financial
Instruments and Exchange Law, a comprehensive
legal system for protecting investors, came into force
in September of last year, as a measure to secure theinfrastructure that can gain the trust of investors.
Moreover, with the upcoming dematerialization of stock
certificates in January of next year, necessary revisions
and improvements in the system and practice are now inprogress.

JSF Trust and Banking Co,. Ltd. will make further
efforts to re-construct a stable profit structure by
reducing high-risk assets and increasing the trust assets
of its main operations, such as customers’ segregatedmoney trust and securities trust, thus contributing to thedevelopment of the securities market.

Under such circumstances, Japan Securities Financerecognizes its mission to contribute to the developmentof the securities industry as a specialist institution

Minoru Masubuchi
President

OUR BUSINESS DEVELOPMENT

Services for securities companies and financial institutions
Funds loan
Loans for margintransactions

Loan funds needed to settle standardized margintransactions

Stock loan
Loan stock certificates needed to settle standardized
margin transactions

General stock lending

Bond services

Loans for negotiablemargin transactions

Lending stock certificates needed to settle stock trading

Brokerage between borrowers and lenders in bondborrowing and lending market

Loan funds needed to settle negotiable margintransactions

Bond financing

Loan funds needed in bond underwriting, trading, etc.

General loans

Loan working funds, etc., to securities companies

Secured loans on securities for indivisual and corporate investors

Bond financing

Direct loans
Direct loans to customer

General loans

Safekeeping
deposited loans
Loans on securities in safekeeping account, withincredit line set before

Peripheral services

Securities custody

Custody services for securities owned byinstitutional investors, etc.

Government bonddebt servicing

Designated by the Bank of Japan, repayment services
for principal and interest on government bonds

OUR BUSINESS FIELDLOANS FOR MARGIN TRANSACTIONSWhat is Margin Transactions?
In margin transactions, an investor trades stocks after(1) depositing a certain amount of collateral (margin
requirements) with a securities company and (2)borrowing funds for purchasing stock or stock certificatesfor sale. Margin transactions help investors to expand
their trading volumes by enabling them to purchase stock
which value is in excess of their available funds, or to sell
stock that they do not own. Thus, margin transactions
broaden and strengthen stock trading and contribute to
the smooth circulation of stocks and the fair stock prices
formation.

Apart from the purpose of obtaining margins as describedabove, an investor can use margin transactions as a meansfor hedging. In other words, in the event that, although
an investor expects that the stock price in hand may
decline, the stock is not to be sold for some reasons, suchas that convertible bond is within its convertible period
or that it is a publicly-offered stock just purchased, theinvestor can avoid loss with hedging sale by using margintransactions.
There are two types of margin transactions, standardized
margin transactions and negotiable margin transactions.
In standardized margin transactions, terms of repayment
are determined by stock exchanges, and a securities
company can borrow funds for purchasing and stock
certificates for sale needed to settle transactions
from a securities finance company (loans for margintransactions).
In negotiable margin transactions, which is limited
to cases in which a securities company can procure
funds and stock certificates to be lent to customers byinternal matching (Note) or external procurement withoutborrowing from a securities finance company, thecondition of margin transactions may be decided freely
in negotiations between a securities company and its
customer.

Margin transactions is used, for example, when an
investor considers that the stock price of a certain issue
will rise or decline sharply in a short period of time.
・When it is expected that the stock price will rise, aninvestor borrows funds for purchasing stock from asecurities company (margin buying), and if the stock
price rises as expected within a term of repayment(6 months), the investor sells the stock, repays thefunds borrowed (reversing transaction) and receives
the margin. The investor may also receive the stock
certificates (actual receipt) by procuring funds
separately and depositing it with a securities company.

(Note) This is a system of appropriating purchased stock certificatesreceived from buy side as collateral to sell side's stock certificatesfor sale within a company or, conversely, of appropriating sell
side's proceeds of sale to buy side's funds for purchasing stocks.

・Conversely, when it is expected that the stock pricewill decline, an investor borrows stock certificatesfrom a securities company and sells them (margin
selling). If the stock price declines as expected within
the term of repayment (6 months), the investor buys
back the stock, returns it to a securities company andreceives the margin. The investor may also receive
the equivalent money to stock certificates sold byprocuring stock certificates separately and offering
them to a securities company (actual delivery).

OUR BUSINESS FIELD

What is Loans for Margin Transactions?
Loans for margin transactions is a system in which asecurities finance company receives a certain amount ofmargin (margin requirements) from a securities company,
who is a general trading participant of stock exchanges(3) and lends funds or stock certificates necessary for
margin transactions (4). This is executed through theclearing facilities of stock exchanges. Loans for margintransactions is authorized only for the securities financecompanies with a license given by the Prime Minister.
We, Japan Securities Finance Co., Ltd. conduct loans for
margin transactions through the stock exchange in Tokyo,
Sapporo, Fukuoka, and JASDAQ.

JSF receives loan applications for each issue from asecurities company on the trading date of standardized
margin transactions (5).To execute the loan, JSF, inplace of the securities company, delivers funds or stock
certificates to clearing facilities of stock exchanges(6). The stock certificates purchased (collateral stock
certificates for loans) or proceeds from sale (collateralmoney for stock loans) are received by JSF (7), and theneach collateral is appropriated.

Standardized margin transactions and Loans for margin transactions

Standardized margin transactions

Loans for margin transactions

Securities company

Loan funds for purchasing
stock or stock certificates to sell(2)Deposit collateral for margintransaction(3)JSF

Customer

Deposit brokerage margin(1)Loan funds for purchasing stock
or stock certificates to sell(4)Receive purchased stock
certificates or sale proceeds
(6)

(7)

Stock exchange
clearing facilitiesJapan Securities Finance

Submit application(5)Place trade orderHandling of over-lent issues
JSF usually appropriates stock certificates received ascollateral for loans to stock loans. However, should theoutstanding stock loans exceed the outstanding loans,
it is necessary to procure the stock certificates needed
for settlement by bidding with securities companies or
institutional investors such as life and non-life insurancecompanies, banks and other sources. The highest bidding
rate becomes the lending rate (Premium Charges) ofthat issue. This premium charge is applied to all users ofstandardized margin transactions, and should be collectedby all sell sides and paid to all buy sides or successful
bidders.

In case of Premium Charge may apply
Standardized margin transactions

Loans for margin transactions

Issue A
7,000shares
Funds loan application

2,000
shares5,000shares

7,000shares
Amount matchedwithin each firm

5,000
sharesMargin selling Margin buying
balancebalance2,000shares

Securities company A
Stock loanbalance

Margin loanbalanceJSF

10,000shares
Stock loan application
7,000
sharesStock procurement through bidding
3,000shares

Amount matchedwithin each firm

Stock loan application for bidding
Margin selling Margin buying
balancebalanceSecurities company B

Securities companies / Institutional investors

10

OUR BUSINESS FIELD

BOND SERVICES

In bond borrowing and lending transactions, a lenderlends bonds to a borrower, and after mutually agreed
period, the borrower repays the lender with bonds of thesame type and quantity. JSF serves as a broker between
borrowers and lenders.

that matches the needs of both lender and borrower,
maintaining high confidentiality of information to ensure
the complete privacy of both parities, and transferring
all counterparty credit risk to JSF. The arrangement also
contributes to creating fair and stable market by publicly
disclosing indication via QUICK, Bloomberg, and otherinformation services.

The bond borrowing and lending transactions market
was established in May 1990 for the purpose of covering
bonds sold short, and was followed in April 1996 by the
introduction of REPO (cash-collateral bond borrowing
and lending transactions). JSF was the first company inJapan to be authorized to offer such brokerage services,because JSF can link securities industries and financial
industries on neutral ground and is well versed inhandling of bond transactions.

Transaction types
REPO transactions
JSF borrows bonds after depositing cash collateral with alender and then lends bonds after receiving cash collateralfrom a borrower. This transaction can be either a Special
Collateral transaction that specifies an issue or a General
Collateral transaction that does not specify an issue.

JSF receives applications from both parties and, on
their behalf, lends and borrows bonds on the basis ofloan agreement. This type of arrangement has several
advantages, including helping to form a transaction

Ordinary bond borrowing and lending transactions
JSF, in principle, borrows bonds without collateral froma lender and then lends bonds after receiving collateralfrom a borrower.

Types of bond transactions

Borrowing rate

Lending rate

Cash collateral

Cash collateral

Borrower

Bonds

Securities collateral

Borrower

LenderInterest

Interest

JSF(Fund rasing)

Bonds(Fund investment)

REPO transactions

Ordinary transaction(securities-collateral transaction)

Lender

Bonds

Bonds

Borrowing rate

Lending rate

11

GENERAL STOCK LENDING

This business lends stock certificates needed to settle
trades to securities companies. A securities company
would use General Stock Lending when it has no stock
certificates on hand, for the purpose of hedge sale ofconvertible bonds or arbitrage transactions with spots andfutures, and so forth. JSF has done its utmost to increase
the number of eligible issues and shares for brokerage
services since the business was launched in 1977.

JSF procures stock certificates for lending frominstitutional investors such as life and non-life insurancecompanies. JSF also receives stock certificates in advancefor quick stock lending.

In February 2002, we implemented offer-bid
borrowing and lending transactions (e Stock Lending)by expanding the online network that is linked withsecurities companies, so as to include institutional
investors, such as life and non-life insurance companies.

Mechanism of stock lending business
Stocks(deposit)

Stocklenders
Institutional
investors

Stocks(lend)

JSF
Borrowing fee

Collateral deposit
Lending fee

12

Securities
companies

OUR BUSINESS FIELDLOANS FOR NEGOTIABLE MARGIN TRANSACTIONSWhat is Loans for Negotiable Margin Transactions?
Loans for negotiable margin transactions is a system
which lends the necessary funds for securities companies
to purchase stocks in negotiable margin transactions onbehalf of its customer (3), receiving stock certificatespurchased (1) or certain margin requirement (2) ascollateral for loans

Conditions of loans
Loanable stock Issues
In principle, loanable stock issues are those listed on
stock exchange. (However, they can be limited to those
we admit available.) Newly listed stocks can be acceptedfrom the 1st day of its listing.

Interest rate
The interest rate on loans is determined individually
between JSF and securities companies.
Collateral
JSF receive stock certificates purchased in negotiablemargin transactions and certain margin requirement
as collateral for loans. Margin requirement can besubstituted by a certain ratio of cash or by securities.

Loan Period
In principle, the due date of loan is the day following thelending date, but it can be extended to the deferment
deadline for repayment of negotiable margin transactions
for securities companies.

Negotiable margin transactions and Loans for negotiable margin transactions
Negotiable margin transactions

Loans for negotiable margin transactions

Place an order for negotiablemargin buying

JSF

Loan funds forpurchasing stocks

Deposit margin requirement (2)Loan funds (3)Deposit stock certificatesas collateral (1)Payment for the purchaseReceive purchased stock certificates

Stock exchange
clearing facilities

13

Japan Securities Finance

Customer

Deposit margin requirement

Securities company

Application

OUR BUSINESS FIELD

BOND FINANCING

The aim of bond financing is to contribute to smooth
underwriting, circulation and fair price formation inbond markets. This business offers low-interest loans

by using government and other bonds as collateral toprovide funds required by securities companies in bondoperations.

GENERAL LOANS

This business loans working funds required by securities
companies by using stocks, bonds, and other securities as

collateral, and aims to respond quickly and flexibly to theneeds of securities companies.

SECURED LOANS ON SECURITIES FOR INDIVIDUAL AND CORPORATE INVESTORSJSF provides individual investors with direct loans
keeping securities as collateral, mediated loans and safe

keeping deposit loans. JSF provides corporate investors,
separately, with loans secured by securities.

Secured loans on securities for individual
Direct loans

Customers

JSF

Securities
companies
Deposited securities

14

Safe keeping deposit loans

CORPORATE GOVERNANCE
BASIC CONCEPT OF CORPORATE GOVERNANCE
Japan Securities Finance is constantly aware of its social responsibilities and public mission as an institution expert insecurities finance, and believes that firm establishment of social trust through sound business operations is management's
most important issue. To achieve this goal, the company continuously implements the following measures:
・Active invitation of outside directors (three directors, two auditors)
・Attendance of corporate auditors at internal meetings and instigation of necessary checks
・Establishment and implementation of risk management policies
・Establishment of compliance system
・Internal audit by the Audit Department, which is independent from other departments
Furthermore, from the perspective of ensuring management transparency, we are committed to making active andtimely disclosure of management information that goes beyond legal requirements via our website.

Corporate Governance System Structure
Decision Making ofManagement
General Meetingof Shareholders

Inspection System
Board ofAuditors

Audit

Board of Directors

External
Financial
AuditorBusiness
Operation
Audit

President
Management Committee
Compliance
Committee

Executive Officers
Meeting
Audit
Department

Audit
Subsidiaries

Compliance Department
Executive Officers in Charge

Management
Administeration& Report. etc.

Personnel in chargeof compliance

Mutual CheckBusiness
Departments
and branches, etc.

Risk Management
Department

Affiliates

JSF Group
Company

15

External Reporting
Contact Desk

Consultation and Report for Compliance

ReportCorporate
Auditors

All Depertment
and branches ,etc.

CORPORATE GOVERNANCECOMPLIANCE SYSTEM

The following details our compliance system and consulting and reporting system in regard to compliance.

The company's compliance system centers on our Board of Directors, the Management Committee, the Compliance
Committee and the Compliance Department.The situation regarding internal compliance is constantly studied by theCompliance Department and the results are regularly reported to the Board of Directors and the Management Committee.
The Compliance Committee deliberates important matters concerning compliance. The Compliance Department
makes all possible efforts to promote and thoroughly establish compliance through such measures as urging managers andemployees alike to take faithful and honest actions based on clear ethical standards.
In addition, the company takes the initiative in the promotion of the establishment and strengthening of overall groupcompliance system.

Consulting and reporting system regarding compliance
In order to strengthen the compliance system, the company has its external consulting and reporting contact desk by
lawyers, in addition to the Compliance Committee, the Compliance Department and personnel in charge of compliance.
This external consulting and reporting contact desk guarantees the complete anonymity of any person consulting
or reporting matters regarding the company, thereby reducing the psychological burden on those persons and making
consulting and reporting easier.

Consulting and Reporting
Board of Directors
Management Committee
Compliance Committee

Deliberation of thecountermeasure(Chairman : Executive officer in charge ofCompliance Depertment)

Compliance Department

ReportPersonnel in charge ofcompliance

External reporting contact desk
Consult & report

Consult & report

Consulting & Reporting personnel(Managers and employees)

BUSINESS CONDUCT GUIDELINESi) As an institution specializing in securities-related financing, the company recognizes its social responsibility andits public mission. It aims to establish firm trust through sound business operation.
ii) The company will comply strictly with relevant rules and regulations. It will conduct its business activities in afair and reliable manner, in accordance with social norms.
iii) In the interests of its shareholders, the company will maximize its communications with a broad spectrum ofsociety and will disclose information on the management of the organization in a fair and positive manner.

16

RISK MANAGEMENTRISK MANAGEMENT
Basic Policies in Risk Management
With environmental changes such as financial deregulation and globalization as well as striking advances in information
technologies, risks which financial institutions face have become diversified and more complicated. Accordingly, risk
management has become more important in the management of financial institutions than ever before.
In this situation, in order to increase profitability while maintaining sound management, we have positioned risk
management at the highest priority and has established basic policies in risk management at our Board of Directors.
More precisely, we have established basic policies for risk management: "Keeping all employees informed ofcompany's emphasis on risk management", "Proper management of each category of risk", "Promotion of integrated risk
management", "Establishing a system of mutual checks and balances", and so forth.
Methods for Risk Management
We classify expected risks broadly into 5 categories and then set these categories as management objectives: credit risks,market risks, liquidity risks, processing risks, and system risks. Among these categories, for credit risks and market risks, weare striving to secure profits while quantitatively grasping the risks and controlling them within proper levels as feasible forour management vitality (integrated risk management).
On the other hand, for liquidity risks, processing risks and system risks, we are taking preventive measures against
occurrences of these risks by executing proper management according to risk characteristics.

INTEGRATED RISK MANAGEMENT
Integrated risk management is a method to quantify various risks with unified methodology and to manage the total
amount of risks within the realm of management vitality. For credit risks and market risks, after allocating risk capitalto each risk operation department by risk category within the realm of our own capital, we quantify risks with themethodology of Value at Risk (VaR) and manage the calculated volume of risks within the range of that allocated risk
capital. With corresponding to BaselⅡ regulation enforced in March 2007, operational risks, which consists of processing
risks and system risks, is measured by basic method and we allocate risk capital amounts on it.
Allocated amounts of risk capital are determined as final at the Management Committee, with prior deliberation at
regular "Risk Capital Meeting" in every March.
Each risk operation department controls the risks within the realm of the allocated risk capital. Risk Management
Department, which is independent of risk operation departments, quantifies the risks, monitors risk operation conditions,and reports to board members.
In case a possible rise for a risk may exceed the allocated amount of the risk capital, an extraordinary "Risk Capital
Meeting" will be held to deliberate responses to the case and then consult the Management Committee

Risk Capital
Risk capital is capital necessary to cover losses caused by risks generated from business operation.
Value at Risk (VaR)
VaR is the maximum expected loss on an asset calculated with a certain period (holding period) and a certain probability(confidence level). This is calculated based on data in the past with statistical method. In our company, VaR is calculated
based on confidence level of 99% and holding period of 1 year.
Risk Capital Meeting
This is a meeting to deliberate issues such as allocated amount of risk capital and so forth. The meeting is organized by the
managers of Risk Management Department (chairperson), Planning Department, Treasury Department, and all the otherbusiness departments concerned.

17

Management CommitteThis is a committee to deliberate important matters concerning business execution. The committee is organized bydirectors who serve as the executive officers concurrently.

Risk Management System
Board of Auditors,
Corporate Auditors

Board of Directors
President

Management

Management
Committee
Executive Officers Meeting

ALM
Committee

Risk Operation Sector

Executive Officer in charge of
Risk Management
Depertment and lnformation
Systems PIanning Depertment

Executive Officer incharge of Department
and Branch

Executive Officer
in charge of Audit
Department

Risk Capitall
Meeting

Liquidity
Risk

MarketRisk

CreditRisk

SystemRisk

Processing
Risk

Treasury
Depertment

Risk
Management
Department

Risk
Management
Department

lnformation
Systems
Planning
Department

Each
Department
andBranchTreasury
Department

・Treasury
Department
・Margin
Loan
Department

・Loan
Department
・Margin
Loan
Department
・Treasury
Department
・Branches

Each
Department
andBranchEach
Department
andBranch18

Internal Audit Sector

Risk Management
Depertment

Audit Department

Risk Management
SectorRisk
Categories

Integrated Risk
Management Sector

Meetlng

Executive Officer incharge of Treasury
Depertment

RISK MANAGEMENTCREDIT RISK MANAGEMENT
Credit risks are the risks to suffer losses by decreasing or losing the values of the assets due to credit events such asdeterioration in the financial standing of counterparty.
We try to sustain and improve the soundness of the assets by strictly managing overall credit risks.
More precisely, Risk Management Department assesses credit risks according to in-house ratings, and quantifies
and manages credit risks using a default rate for each in-house rating. Furthermore, to complement management by
quantification, we implement stress tests. On the other hand, for credit control, apart from screening client companies
and loan transactions by the Risk Management Department, each risk operation department sets and manages amounts
for transaction limitation for each client. In addition, each department implements rigid self-assessment of those assets forwhich they hold jurisdiction.
Additionally, for each loan transaction, as a general rule, we take adequate collateral. By implementing a daily marking
to the market of the relevant collaterals, we suppress occurrences of impaired loans. In a case where a borrower falls into
bankruptcy, by selling off collateral securities and so forth, we collect receivables in an expeditious manner.

In-house Rating System
We introduced a rating system which segmentalizes credit ratings of client companies into 6 ranks, based on ratings byexternal credit rating agencies, quantitative assessment of financial standing, obligor classifications used in self-assessment,
and so forth. With this system, we assess the levels of credit risks properly, quantify credit risks, and set up amount fortransaction limitation.
Stress Tests
Since VaR is statistical estimated figure, it cannot include possible losses, which can be caused by extreme market
fluctuation such as Black Monday or economic crisis (stress event). In this situation, to be prepared for unforeseeable
circumstances, we implement stress tests to calculate amount of losses in a case of occurrence of stress event based on datain the past or on hypothetical scenarios and assess the soundness of our financial management.

MARKET RISK MANAGEMENT
Market risks are risks to suffer losses caused by fluctuations of values of possessed assets (bonds, stocks) due to fluctuationsof various market risk factors such as interest rates and prices of securities.
In our company, Risk Management Department quantifies and manages market risks, and to complement
management by quantification, it implements stress tests. Furthermore, to validate the reliability of the market risk
quantification model we are adapting, we are also implementing back testing to compare the calculated VaR with actual
profits and losses.

LIQUIDITY RISK MANAGEMENT
Liquidity risks are risks to suffer losses caused by failures of raising necessary funds or by procurement of funds withunusually high interest rates or risks caused by halt of transactions due to market disruptions or by forced transactions withunusually unfavorable prices.
In our company, the Treasury Department has jurisdiction over the management of liquidity risks and attempts todiversify procurement methods and to secure stable suppliers. As for cash flow management, while we are implementing
development of cash flow projection, grasping the amount which can be procured or liquidity of assets, and paying
attention to concentrated settlement dates for large capital, we have a system to report to our management with daily cash
19

RISK MANAGEMENT

flow status. Furthermore, to be prepared for unforeseeable circumstances, we take measures to supplement liquidity such as
possessing a certain amount of government bonds with high liquidity.
In addition, at the "ALM Committee” held in every quarter, we develop cash flow projection based on forecasts ofloans outstanding, deliberate policies for ALM (Asset Liability Management) such as revenue management for assets andliabilities of the company as a whole and thus report to the Management Committee.

ALM Committee
This is a committee to deliberate ALM such as development of fund management plans and revenue management for
assets and liabilities of the company as a whole. The committee is organized by the executive officer in charge of Treasury
Department, and managers of Treasury Department (chairperson) and all the other departments concerned.

PROCESSING RISK MANAGEMENT
Processing risks are risks to suffer losses from failed processing due to negligence, accidents or fraud by officers andemployees.
In our company, each department and branch has jurisdiction over the management of processing risks. To lessen
processing risks, through facilitation of regulations and manuals and also through trainings, all employees are familiarizedwith proper handling of operational work. In addition, by ensuring that each department and branch implements its
own voluntary inspection on a regular basis, we endeavor to prevent occurrence of accidents and improve our businessprocessing system.

SYSTEM RISK MANAGEMENT
System risks are risks to suffer losses due to system defects such as failures or malfunction of computer systems or due tounauthorized use of computer systems.
In our company, the Information Systems Planning Department holds jurisdiction over management of system risks.
To ensure stable operation of our computer systems, the department takes preventive measures for occurrence of system
failures such as duplicating networks and equipment and so forth. To develop and operate our computer systems safely
and effectively, all operation procedures are clarified and our monitoring system is facilitated. In addition, concerning
protection of our own information assets (information and information systems), necessary regulations are consolidated
and all officers and employees are familiarized with handling of the information assets. Furthermore, to minimize theeffects of system failures, measures are taken such as facilitation of various handling manuals, implementation of drills, andso on.

INTERNAL AUDITING SYSTEM
In our company, the Audit Department, which is independent from other departments, implements strict internal auditingof overall business operation on management status of each category of risk along with regulatory compliance status andvalidates the appropriateness and efficacy of our internal control system in each department.

20

BUSINESS RESULTS
JSF group companies recorded the consolidated
operating revenues of 50,582 million yen (up 16.2%
year-on-year), due to raised loan rates in the bondborrowing and lending transactions, as well as to theincreased coupon income of JGBs. On the other hand,the consolidated operating expenses rose to 39,437
million yen (up 58.2% year-on-year), due to increased
interest payments resulting from higher short-term
interest rates and the unrealized loss in the value of
6,587 million yen of investments in securities of CDO(Collateralized Debt Obligation), REIT (Real Estate
Investment Trust) and others held by JSF Trust andBanking Co., Ltd., JSF’s subsidiary, including thegeneral and administrative expenses totaling 8,799
million yen (down 1.8% year-on-year).

As a result, the consolidated operating incomes
totaled 2,345 million yen (down 75.7% year-on-year),and the consolidated recurring profits totaled 2,852
million yen (down 69.8% year-on-year), because theinvestment gain on equity method of 255 million yen
resulted from the gain on sale of fixed assets and othersof companies accounted for by the equity method wasposted as non-operating (other) income.
Because Netwing Securities Co., Ltd. has been nolonger our affiliate because of the merger with Maruwa
Securities Co., Ltd. as of October 1, 2007, JSF posted
1,037 million yen in extraordinary profits attributable
to the stock transfer of relevant companies and 965
million yen in extraordinary losses resulting fromchanges in equity. As a result, the consolidated net loss
for the term was 1,300 million yen.

Breakdown of JSF group operating revenues

Securities financing business
Loans for margin transactions

Interest on loans
Interest on collateral money for securities borrowed
Fees on lending securities
Bond financing and general loans
Securities lending
Stocks
Bonds
Fees on lending
Interest on collateral money for securities borrowed
Trust banking
Interest on loans
Trust charges
Real estate leasing
Other businessInformation processing business
Fees on information services
Fees on machinery leasing
OthersTotal operating revenues

21

2008
(April 1, 2007 March 31, 2008)
Amount(¥ million)

2007(April 1, 2006 March 31, 2008)
Amount(¥ million)

50,582
23,156
10,581
1,683
10,383
1,428
6,297
848
5,448
517
4.929
10,844
3,833
198
1,118
7,736
－
－
－
－
50,582

42,91423,187
10,954
1,345
10,225
1,254
5,093
1,442
3,651
986
2,665
6,981
2,964
178
1,015
5,384
610
583
15
12
43,524SECURITIES FINANCE BUSINESSOperating revenues of JSF group companies increased to 50,582 million yen (up 16.2% year-on-year).
Loans for Margin Transactions
In margin loan business, since the outstanding balance of standardized margin buying remained at low levels, the average
outstanding balance of loans for margin transactions during the fiscal year was decreased by 527.1 billion yen from theprevious year to 917.2 billion yen. Though the interest rates on loans were raised, the revenue from interest on loans wasjust below the level of the previous year. On the other hand, while the average outstanding balance of stock loans for
margin transactions during the fiscal year decreased by 132.8 billion yen from the previous year to 591 billion yen, thefees on lending securities remained at the levels of the previous year, due to the increased number of over-lent issues. As aresult, the operating revenues from loans for margin transactions totaled 23,156 million yen, down 0.1% on the previous
fiscal year’s figure.
Average balance of loans

Average balance of stock loans（Billions of yen）

1,800

1,638

1,600

600

1,099

1,200

600

500

917

1,000

651
504

591

538

400

651

300

400

200

200

100

0

724

700

1,444

1,400

800

（Billions of yen）

800

04

05

06

07

0

08

04

05

06

08

07

Bond Financing and General Loans BusinessIn bond financing and general loans business, although the loan to individual investors and non-financial companies was
slightly above the outstanding balance level of the previous year, demands for loans from financial instruments firms weredecreased due to the sluggish stock market. As a result, the average outstanding balance of bond financing and generalloans was 76.9 billion yen (of which that of negotiable margin transactions represented 34.3 billion yen) during the fiscal
year. However, the operating revenue of the business was 1,428 million yen (up 13.9% year-on-year) due to the rise ofinterest on loans.
Average balance of bond financing

Average balance of general loans（Billions of yen）

（Billions of yen）

10

80

07

08

60
50

6

3.7

40

3.5

05

41.8

04

05

44.6

20

0.8
04

42.5

30

1.8

2
0

76.8

70

8

4

78.6

06

07

10

0.1

0

08

22

06

BUSINESS RESULTS

Securities Lending Business
As regards securities lending business, demand for stock borrowing in order to avoid fails in delivery was decreased fromthe previous year in the general stock lending department. However, interests on collateral money for securities borrowed
were increased due to the rise of transaction rate in the bonds department. As a result, the operating revenues from thisbusiness totaled 6,297 million yen (up 23.6% year-on-year).
Trading volume of general stock lending

Trading volume of bond lending（Billions of yen）

995

1,000
800

（Billions of yen）

246,586

250,000

1,200

1,057
862

680

664

203,408

200,000

175,075

150,000

600
100,000

400

50,000

200
0

04

05

06

07

0

08

82,57735,509
04

05

06

07

08

Trust Banking BusinessIn trust banking business, despite of our efforts to increase syndicated loans, the average outstanding loan balance during
the fiscal year was decreased by 262.9 billion yen from the previous period to 448.9 billion yen. Nonetheless, due toincreased interest revenues from loans thanks to the rise of interest rate as well as increased coupon income on JGBs, theoperating revenues of trust banking business was 10,844 million yen (up 55.3% year-on-year). As mentioned earlier, alarge amount of valuation loss from the investment of securities was recorded.
Other BusinessIn respect of other revenues, the company recorded 7,736 million yen (up 29.1% year-on-year) due to increasing coupon
income on JGBs

23

FINANCIAL SECTIONCONSOLIDATED BALANCE SHEETSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Balance Sheets As of March 31, 2008 and 2007

Assets

2008

Millions of yen

Thousands of
U.S. dollars(note 2)
2008

2007

Current assets:¥

Cash (note 3)
Call loans

4,629

¥

4,858

$

46,202

24,000130,200

239,545

Short-term investments (notes 4 and 15)

1,980,835

898,761

19,770,786

Short-term loans receivable (note 15)

1,131,385

2,028,633

11,292,394

431,517713,295

4,306,987

Securities in custody (note 15)

8,751

161,317

87,344

Securities in deposit (note 15)

256,732

1,114,258

2,562,451

301

697

3,004

900,506

1,919,195

8,987,983

Other current assets (note 15)

4,984

30,77849,746

Allowance for doubtful receivables

(839)

(734)

(8,374)4,742,801

7,001,258

47,338,068

Buildings and structures

8,111

8,102

80,956

Tools, furniture and fixtures

1,201

1,260

11,987

Land

3,316

3,316

33,097

219

3

2,186

12,847

12,681

128,226(5,735)(5,466)(57,241)

7,112

7,215

70,985

2,546

2,797

25,412

335,042404,884

3,344,066

Deferred tax assets (note 9)

4,818

4,377

48,089Other investments and other assets

1,562

2,683

15,590Allowance for doubtful receivables

(43)

(34)

(429)

341,379

411,910

3,407,316¥ 5,093,838¥ 7,423,180$ 50,841,781

Securities lent

Deferred tax assets (note 9)
Collateral money for securities borrowed (note 15)

Total current assets
Property, plant and equipment:

Construction in progress
Accumulated depreciation
Net property, plant and equipment
Intangible assets, net
Investments and other assets:

Investments in securities (notes 4, 5 and 15)

Total investments and other assets
Total assets
See accompanying notes to consolidated financial statements.

24

FINANCIAL SECTION

Liabilities and Net Assets
Current liabilities:
Call money (notes 7 and 15)
Short-term borrowings (notes 7 and 15)
Commercial paper (note 7)
Payables under repurchase agreements (notes 7 and 15)
Accrued income taxes (note 9)
Collateral money received for securities lent (note 15)
Collateral securities deposited
Securities borrowed (note 15)
Securities lent opposite account
Other current liabilities (notes 7 and 15)
Total current liabilities

2008

Millions of yen

2007

Thousands of
U.S. dollars(note 2)2008¥ 1,857,600
894,91068,000341,943
1,371
1,029,100
508,588
184,262
4,149
37,565
4,927,488¥ 2,191,400
802,530
110,000
96,7382,945
1,949,169
1,634,701
349,645
4,526
94,625
7,236,279$ 18,540,773
8,932,129
678,710
3,412,945
13,684
10,271,484
5,076,235
1,839,126
41,411
374,938
49,181,435

51,000
445
99
2,757
745
55,04660,000
188
99
2,991
747
64,025509,033
4,442
988
27,5187,436
549,417

4,982,534

7,300,304

49,730,852

10,00010,00099,8105,182
106,874
(440)

5,182
111,252(457)

51,722
1,066,713(4,391)

121,616

125,977

1,213,854(10,455)
143(10,312)(3,244)143(3,101)(104,352)
1,427(102,925)

111,304

122,876

1,110,929¥ 5,093,838¥ 7,423,180$ 50,841,781

Non-current liabilities:

Long-term borrowings (notes 7 and 15)
Deferred tax liabilities (note 9)
Deferred tax liabilities for land revaluation (note 6)
Liabilities for retirement and severance benefits (note 8)
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ equity:

Common stock (note 10):
Authorized 200,000,000 shares ; issued 99,704,000
shares in 2008 and 2007
Additional paid-in capital (note 10)
Retained earnings (note 11)
Treasury stock, at cost; 831,013 shares in 2008
and 977,940 shares in 2007
Total Stockholders’ equity
Valuation and translation adjustments:

Net unrealized loss on other securities (note 4)
Gain on revaluation of land (note 6)
Total valuation and translation adjustments
Total net assets
Commitments and contingencies (note 17)

Total liabilities and net assets

25

CONSOLIDATED STATEMENTS OF OPERATIONSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Operations For the years ended March 31,
2008 and 2007
2008¥

Millions of yen

Thousands of
U.S. dollars(note 2)
2008

2007

$

50,582¥ 43,524

Operating expenses

39,43724,923393,622

Operating profit

11,145

18,601

111,239

8,799

8,959

87,823

2,346

9,642

23,416

Interest income

9

13

90

Dividend income

137

97

1,367

Interest expenses

(1)

(1)

(10)

255

(432)

2,545

Gain on transfer of investment in an affiliate

1,038

–

10,360

Reversal of allowance for doubtful receivables

–

576

–

Dilution loss from changes in equity interest(965)(1,276)(9,632)

85

15

849

558

(1,008)

5,569

2,904

8,634

28,985Current

3,322

4,317

33,157

Deferred

882

161

8,803

4,204

4,478

41,960Operating revenues

General and administrative expenses (note 12)
Operating income

504,861

Other income (deductions):

Equity in earnings (loss) of affiliates

Other, net
Income before income taxes
Income taxes (note 9)¥

Net income (loss)
See accompanying notes to consolidated financial statements.

26(1,300)

¥

4,156

$

(12,975)

FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Changes in Net Assets For the years ended
March 31, 2008 and 2007
Commonstock(note 10)

Balance at March 31, 2006
Changes arising during year:
Cash dividends
Bonuses to directors andcorporate auditors
Net income
Increase resulting from thecorporate seperation
Decrease resulting from exclusionof a consolidated subsidiary
Acquired treasury stock
Decreased treasury stock ofsubisidiary
Net changes other thanstockholders’ equity
Total changes during the year

Balance at March 31, 2007
Changes arising during year:

Cash dividends
Net loss
Decrease resulting from exclusionof a consolidated subsidiary
Acquired treasury stock
Decreased treasury stock ofsubsidiary
Net changes other thanstockholders’ equity
Total changes during the year

Balance at March 31, 2008

Balance at March 31, 2007
Changes arising during year:
Cash dividends
Net loss
Decrease resulting from exclusionof a consolidated subsidiary
Acquired treasury stock
Decreased treasury stock ofsubsidiary
Net changes other thanstockholders’ equity
Total changes during the year

Balance at March 31, 2008

Stockholders’ equity
Additional
Retained
Treasurypaid-inearnings
stock
capital(note 10) (note 11)¥ 10,000 ¥ 5,182 ¥109,872 ¥Millions of yen
Valuation and translation adjustments
Net unrealized Gain on
Total net
Total
Total
loss on other revaluation
assetsof landsecurities(note 4)(note 6)(484) ¥124,570 ¥ (5,751) ¥143 ¥ (5,608) ¥118,962(2,583)(123)(2,583)(123)(2,583)
(123)

4,156
394

4,156
394

4,156
394

(464)

(464)

(464)

(12)
39

(12)
39

(12)
39

2,507
－
10,000

－
5,182

1,380
111,25227(457)(2,683)(1,300)
(395)
(5)
22

1,407
125,977

2,507(3,244)

2,507

2,507
(3,101)

3,914
122,876(2,683)(1,300)(395)(2,683)(1,300)
(395)

(5)
22

(5)
22
(7,211)(4,378)－－¥ 10,000 ¥ 5,182 ¥106,874 ¥

－
143

2,507

17
(4,361)(7,211)(440) ¥121,616 ¥ (10,455) ¥(7,211)(7,211)(7,211) (11,572)－
143 ¥ (10,312) ¥111,304

Commonstock

Thousands of U.S. dollars(note 2)
Stockholders’ equity
Valuation and translation adjustments
Additional
Net unrealized Gain on
Retained
Treasury
Total net
Total
Total
paid-inloss on other revaluation
earnings
stock
assetscapitalof landsecurities$ 99,810$ 51,722 $1,110,410 $ (4,561) $1,257,381 $ (32,379) $ 1,427 $ (30,952) $1,226,429(26,779)(12,975)(3,943)(50)
220(26,779)(12,975)(3,943)(26,779)(12,975)(3,943)

(50)
220

(50)
220
(71,973)－$ 99,810(43,697)170(43,527) (71,973)－$ 51,722 $1,066,713 $ (4,391) $1,213,854 $ (104,352) $See accompanying notes to consolidated financial statements.

27(71,973)(71,973)－ (71,973) (115,500)
1,427 $ (102,925) $1,110,929

CONSOLIDATED STATEMENTS OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Cash Flows For the years ended March 31,
2008 and 2007
2008

Cash flows from operating activities:

Income before income taxes
Adjustments to reconcile income before income taxes to net cash
provided by operating activities:
Depreciation and amortization
Losses relating to short-term investments and investments insecurities
Allowance for doubtful receivables
Decrease in liabilities for retirement and severance benefits
Interest and dividend income
Interest expenses
Equity in (earnings) losses of affiliates
Dilution loss from changes in equity interest
Gain on transfer of investment in an affiliate
Decrease in short-term loans receivable(Increase) decrease in call loans(Increase) decrease in collateral money for securities
borrowed
Increase (decrease) in call money
Decrease in bills soldIncrease (decrease) in borrowings
Increase (decrease) in payables under repurchase agreements
Increase (decrease) in commercial paper
Decrease in collateral money received for securities lent
Decrease in collateral money received for loan transactions
Purchase of short-term investments
Proceeds from sale/redemption of short-term investments
Other, net
Sub totalInterest and dividend received
Interest paid
Income taxes paid
Income taxes refunded
Net cash provided by operating activities¥

Millions of yen

2,904

2007

¥

8,634

Thousands of
U.S. dollars(note 2)
2008$

28,985

1,576
7,219

1,649
3,235

15,73072,053113(234)(35,439)
21,211(255)
965(1,038)897,248
106,200
1,018,688

(577)
(274)
(27,527)
11,198432
1,276−
1,165,795(12,200)(256,963)

1,128(2,336)(353,718)
211,708(2,545)
9,632(10,360)
8,955,465
1,059,986
10,167,562(333,800)−
92,380245,204(42,000)(920,069)(23,558)(7,675,531)
6,647,268(13,476)(4,424)34,920(21,072)(5,006)－
4,418

227,000(672,400)(775,280)(17,681)
110,000(513,688)(33,860)(8,623,903)
9,352,511
42,698(9,925)27,009(10,227)(3,247)893
4,503(3,331,670)－
922,048
2,447,390(419,204)(9,183,242)(235,133)(76,609,751)
66,346,621(134,505)(44,156)
348,538(210,321)(49,965)－
44,096

(740)
40
(269)
(981)
(8)
(1,958)

(375)
0
(309)
(195)
116
(763)

(7,386)399(2,685)(9,791)(80)(19,543)

Dividends paid to stockholders
Other, net
Net cash used in financing activities(2,683)(6)(2,689)(2,583)(11)(2,594)(26,779)(60)(26,839)

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents of subsidiaries excluded fromconsolidation
Cash and cash equivalents at end of year (note 3)

(229)
4,858
−

1,146
3,824
(112)

(2,286)48,488－Cash flows from investing activities:

Purchase of investments in securities
Proceeds from sale/redemption of investments in securities
Capital expenditures
Purchase of intangible assets
Other, net
Net cash used in investing activities

Cash flows from financing activities:¥

See accompanying notes to consolidated financial statements.

28

4,629

¥

4,858

$

46,202

FINANCIAL SECTIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
recognized as goodwill or negative goodwill, is amortizedover 5 years.
For the year ended March 31, 2007, as a result of theshares exchange described in note 19, JSF Information
Technology Co., Ltd. (JSFIT) which was formerly aconsolidated subsidiary of the Company became anaffiliate, and the statement of income of JSFIT was
consolidated during the time JSFIT was a subsidiary.
Japan Information Processing Service Co., Ltd. (JIPS)
and Japan Securities Agents, Ltd. (JSA) established a joint
holding company, JBIS Holdings Inc. (JBIS) by transfer
their shares on October 1, 2006, and JBIS has been an
affiliate of the Company accounted for by the equity
method.
Netwing Securities Co., Ltd. (“Netwing”), formerly
named Nihon Kyoei Securities Co., Ltd. which was anaffiliate of the Company accounted for by the equity
method, established a joint holding company named
M&N Holdings Inc. (“M&N”), with Maruwa Securities
Co., Ltd. (“Maruwa”) by transfer their shares on October
1, 2007. As a result of the shares exchange, Netwinghas not been an affiliate, and the investment in Netwing
was accounted for by the equity method during the time
Netwing was an affiliate. Difference between the carrying
amount of Netwing and the fair value of M&N isrecorded as gain on transfer of investment in an affiliate.

(a) Basis of Presenting Consolidated Financial
Statements
Japan Securities Finance Co., Ltd. (the Company) and its
consolidated subsidiaries maintain their books of accountand prepare their financial statements in conformity withfinancial accounting standards of Japan.
The accompanying consolidated financial statements
have been prepared in accordance with the provisions
set forth in the Japanese Financial Instruments andExchange Law and its related accounting regulations,and in conformity with accounting principles andpractices generally accepted in Japan, which may differ incertain respects from accounting principles and practices
generally accepted in countries and jurisdictions otherthan Japan.
In preparing the accompanying consolidated financial
statements, certain reclassifications have been made in
the financial statements issued domestically in Japan inorder to present them in a form which is more familiar
to readers outside Japan. In addition, the notes to theconsolidated financial statements include information
which is not required under accounting principles
generally accepted in Japan but is presented herein as
additional information.
(b) Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries(2 subsidiaries both for 2008 and 2007).
All significant intercompany accounts andtransactions have been eliminated in consolidation.
Investments in affiliates are accounted for by theequity method.
The Accounting Standards for Consolidation require
the control or influence concept for the consolidation
scope of subsidiaries and affiliates. Under the control
or influence concept, a company in which the parent
company or its consolidated subsidiaries, directly or
indirectly, are able to exercise control over operations isfully consolidated, and a company over which the parent
company and/or its consolidated subsidiaries have theability to exercise significant influence is accounted for by
the equity method.
The difference between the cost and the underlying
net assets at the date of investments in subsidiaries oraffiliates is allocated to identifiable assets and liabilities
based on fair market value at the date of investments.
The unallocated portion of the difference, which is(c) Cash and Cash Equivalents
For the purpose of the statements of cash flows, theCompany considers all highly liquid investmentswith insignificant risk of changes in value which havematurities of generally three months or less whenpurchased to be cash equivalents.
(d) Short-term Investments and Investments in Securities

Un d e r t h e Ac c o u n t i n g St a n d a rd s f o r Fi n a n c i a l
Instruments, securities are classified into four categories– “trading securities,” “held-to-maturity securities,”“investments in affiliates” and “other securities.”
Securities classified as “trading securities” are stated at fairvalue and unrealized gains or losses are recorded in the
consolidated statement of income. Securities classified as“held-to-maturity securities” are stated at amortized cost.
Securities classified as “other securities” with fair value
are stated at fair value and unrealized gains or losses, netof related taxes, are excluded from earnings and recorded
in a separate component of net assets. Realized gains
or losses on the other securities are determined by the29

moving average method. Bond securities classified as“other securities” for which fair value is not available arestated at the amortized cost. Equity securities classified as“other securities” for which fair value is not available arestated at the moving-average cost.

(i) Retirement and Severance Benefits
The Company and its consolidated subsidiaries haveretirement benefit plans covering substantially all
employees.
Under the Accounting Standards for Retirement andSeverance Benefits, provisions have been made in theaccompanying consolidated financial statements basedon the present value of the projected future retirement
and severance benefits attributable to employee services
rendered by the end of the year, less amounts funded
under contributory and noncontributory pension plans.

(e)Inventories
Inventories are stated at cost. Cost is determinedprincipally by the specific identification method.
(f ) Property, Plant and Equipment
Property, plant and equipment are carried at cost.
Depreciation is provided principally by the declining-balancemethod based on the estimated useful lives.
The estimated useful lives are as follows:
Buildings and structures 3–50 years
Pursuant to an amendment to the Corporation Tax Law,
the Company and its domestic consolidated subsidiaries
changed the estimated residual value of property, plantand equipment which was acquired on or after April 1,
2007 from 5% of the acquisition cost to ¥1. The effect of
this change was immaterial.
Pursuant to an amendment to the Corporation Tax Law,property, plant and equipment acquired on or before
March 31, 2007 which were depreciated to the allowable
limit (95% of the acquisition cost) in a particular businessyear can be further depreciated down to ¥1 evenly over
five years starting from the following business year. As aresult of the change, both operating income and income
before income taxes and minority interests decreased by¥11 million ($110 thousand).

(j) Leases
Finance leases, except for those where the legal title ofthe underlying property is transferred from the lessor to
the lessee at the end of the lease term, are accounted forsimilarly to operating leases.
(k) Income Taxes
The Accounting Standards for Deferred Income Taxes
require that deferred income taxes should be accounted
for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the expected future
tax consequences of events that have been included in thefinancial statements or tax returns. Under this method,deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable incomein the years in which those temporary differences are
expected to be recovered or settled, and the effect ondeferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes theenactment date.

(g) Intangible Assets
Intangible assets are carried at cost less amortization.
Software development expenses are deferred and amortizedby the straight-line method over estimated useful lives (5years). Intangible assets other than software are deferred andamortized by the straight-line method at rates based on theestimated useful lives of the respective assets.

(l) Directors’ Bonus
Directors’ bonuses are accounted for as an expense whensuch bonuses are accrued.
Effective from the year ended March 31, 2007, theCompany and its domestic consolidated subsidiaries
adopted the “Accounting Standard for Directors’ bonus”(Accounting Standards Board of Japan Statement No.
4, issued by Accounting Standards Board of Japanon November 29, 2005). According to the standard,
directors’ bonuses are accounted for as an expense whensuch bonuses are accrued, instead of being accounted foras an appropriation of retained earnings upon approval at
general meeting of stockholders. The effect of adoptionof the new standard was to decrease income before
income taxes and minority interests by ¥156 million.

(h) Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided at an
amount of uncollectible receivables based on historicalloss ratios and an amount that takes into consideration
the possibility of specific liabilities.

30

FINANCIAL SECTION(m) Presentation of Net Assets on Balance Sheet
Effective from the year ended March 31, 2007, theCompany adopted the “Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (AccountingStandards Board of Japan Statement No. 5, issued by
Accounting Standards Board of Japan on December 9,2005) and the “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (AccountingStandards Board of Japan Guidance No. 8, issued by
Accounting Standards Board of Japan on December 9,2005).
According to the standards, former “Stockholders’equity” is presented as “Net assets” and classified into
“Stockholders’ equity” and “Valuation and translation
adjustments.” At March 31, 2007, the stockholders’equity amounted to ¥122,876 million based on theformer classification.

(n) Reclassifications
Certain reclassifications have been made to the prioryears’ consolidated financial statements to conform to thepresentation used as of and for the year ended March 31,
2008.

(2) FINANCIAL STATEMENT TRANSLATIONThe consolidated financial statements are expressed in Japanese yen. However, solely for the convenience of the reader,the consolidated financial statements as of and for the year ended March 31, 2008 have been translated into United States
dollars at the rate of ¥100.19=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market on March
31, 2008. This translation should not be construed as a representation that the amounts shown could be converted into
U.S. dollars at such rate.

(3) CASH AND CASH EQUIVALENTS

A reconciliation between “Cash” in the accompanying consolidated balance sheets and “Cash and cash equivalents” in theaccompanying consolidated statements of cash flows as of March 31, 2008 and 2007 are as follows:2008¥ 4,629¥ 4,629

Cash
Cash and cash equivalents

31

Millions of yen

2007¥ 4,858¥ 4,858$$

Thousands of
U.S. dollars
2008

46,202
46,202

(4) SHORT-TERM INVESTMENTS AND INVESTMENTS IN SECURITIESBalance sheet amount of trading securities as of March 31, 2008 and 2007 are ¥422,450 million ($4,216,489 thousand)and ¥59,935 million, and net unrealized loss which are charged to income are ¥276 million ($2,755 thousand) and ¥25
million, respectively.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity securities as ofMarch 31, 2008 and 2007 are summarized as follows:
March 31, 2008
Government bond securities
Corporate bond securities
March 31, 2007
Government bond securities
Corporate bond securities

March 31, 2008
Government bond securities
Corporate bond securities

Balance sheet amountMillions of yen
Gross unrealized gain
Gross unrealized loss

¥

15
9,100
9,115

¥

15
6,700
6,715

¥

¥
¥
¥

¥

¥

－
124
124

¥

−
70
70

¥

¥

¥

－
－
−

¥

－
－
－

¥

Balance sheet amountThousands of U.S. dollars
Gross unrealized gain
Gross unrealized loss

$

$

150
90,827
90,977

$

$

−
1,238
1,238

$
$

Fair value

－
－
−

¥

¥

15
9,224
9,239
15
6,770
6,785
Fair value

$
$

150
92,065
92,215Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities with fair value
as of March 31, 2008 and 2007 are summarized as follows:
March 31, 2008

Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities
March 31, 2007

Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

March 31, 2008

Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

Millions of yen
Gross unrealized gain
Gross unrealized loss

Balance sheet amount

¥

2,129

¥

1,821,788
24,417
37,115¥ 1,888,011¥

Acquisition cost

¥

4,691

1,548

1,164,307
66,92847¥ 1,232,830
Acquisition cost$

46,821

18,183,332
243,707
370,446$ 18,844,306

32

¥

856

¥

1,805
−
10
3,944

¥

15,948129
1,075
18,008

¥

4,961

¥

－

¥

1,089
12
40
6,102

¥

13,6383－
13,641

1,151,758
66,93787¥ 1,225,291

Thousands of U.S. dollars
Gross unrealized gain
Gross unrealized loss

Balance sheet amount$

21,249$18,016－100
39,365

$

8,543

$

159,178
1,287
10,730179,738

5,964

1,807,645
24,28836,050¥ 1,873,947
¥

$

6,509

59,52718,042,170
242,420
359,816$ 18,703,933

FINANCIAL SECTION

The Company recognized impairment losses on other securities with fair value of ¥6,587 million ($65,745 thousand) and¥9 million for the years ended March 31, 2008 and 2007, respectively.
Securities classified as other securities for which fair value is not available are unlisted equity securities amounting to¥2,314 million ($23,096 thousand) and ¥727 million as of March 31, 2008 and 2007, respectively.
Projected future redemption of other securities with maturities and held-to-maturity securities as of March 31, 2008 issummarized as follows:
Due within one year

Bond securities:

Government bond securities
Corporate bond securities
Other securities¥ 1,536,249
22,136－¥ 1,558,385¥ 12,289
9,100
21,698¥ 43,087

Due within one year

Bond securities:

Government bond securities
Corporate bond securities
Other securities$ 15,333,357
220,940－$ 15,554,297

Millions of yen
Due after one year
Due after five years
through five years
through ten years¥ 34,220－
13,410¥ 47,630

Thousands of U.S. dollars
Due after one year
Due after five years
through five years
through ten years$ 122,657
90,827
216,569$ 430,053$ 341,551－
133,846$ 475,397

Due after ten years¥ 224,902
2,152－¥ 227,054
Due after ten years$ 2,244,755
21,479－$ 2,266,234

For the years ended March 31, 2008 and 2007, proceeds from sale of other securities are ¥4,785,032 million ($47,759,577
thousand) and ¥6,325,438 million, the gross realized gains are ¥831 million ($8,294 thousand) and ¥297 million, and thegross realized losses are ¥1,970 million ($19,663 thousand) and ¥3,636 million, respectively.

(5) INVESTMENTS IN AFFILIATES

The aggregate carrying amount of investments in affiliates as of March 31, 2008 and 2007 are ¥8,052 million ($80,367
thousand) and ¥10,978 million, respectively.

(6) LAND REVALUATIONAs of March 31, 2002, the Company revaluated its land at fair value, pursuant to the Enforcement Ordinance for the Law
Concerning Land Revaluation and its amendments (the “Law”). According to the Law, net unrealized gain is reported ina separate component of net assets, net of related taxes, and the related deferred tax liabilities are reported in liabilities asdeferred tax liabilities for land revaluation.
The value of the land at March 31, 2008 decreased by ¥34 million ($339 thousand) in comparison with the bookvalue of the land after the revaluation.

(7) DEBTThe composition of debt and the weighted average interest rate on debt as of March 31, 2008 and 2007 are as follows:
Millions of yen

March 31, 2008

Short-term borrowings
Long-term borrowings
Call money
Commercial paper
Payables under repurchase agreements¥ 894,910
51,0001,857,600
68,000341,943¥3,213,453

33

Thousands of U.S. dollars$

8,932,129
509,033
18,540,773
678,710
3,412,945$ 32,073,590

Weighted average rate

0.672%
1.046
0.552
0.684
0.662

Weighted average rate

Millions of yen

March 31, 2007¥

Short-term borrowings
Long-term borrowings
Call money
Commercial Paper
Payables under repurchase agreements
Other

802,530
60,0002,191,400
110,000
96,739494¥ 3,261,163

0.563%
0.787
0.550
0.619
0.651
1.375

(8) RETIREMENT AND SEVERANCE BENEFITSThe Company has defined benefit retirement and pension plans, which consist of tax qualified noncontributory pension
plan and unfunded retirement and severance plan that provide for lump-sum payment of benefits, and a defined
contribution plan, which is a noncontributory funded contract-type corporate pension plan.
The consolidated subsidiaries have defined benefit retirement and pension plans, which consist of unfunded retirement
and severance plan that provide for lump-sum payment of benefits and welfare pension plan, and a defined contribution
plan, which is a noncontributory funded contract-type corporate pension plan. Regarding the welfare pension plan,
one subsidiary has joined Zenkoku Jutakuchi Kaihatsu Kosei Nenkin Kikin which was established as a multi-employer
noncontributory fund. The welfare pension plan consisted of two tiers, the substitution portion of Japanese Welfare
Pension Insurance and the corporate portion, and the plan assets of such welfare pension funds cannot be specificallyallocated to the individual participants nor to the substitution and corporate portions. However, based on the subsidiary’s
proportion of the contribution to the aggregate pension contributions, the plan asset amount at March 31, 2007 wasestimated to be ¥140 million.
Effective for the year ended March 31, 2008, the Company adopted the “Partial Amendments to Accounting Standard
for Retirement Benefits Part 2” (Accounting Standards Board of Japan Statement No.14, issued on May 15, 2007)
and by the Standard the following disclosures required for the multi-employer pension plan under which the required
contribution is recognized as the net pension cost.
Funded status of the whole welfare pension plan at March 31, 2007 is outlined as follows:
Millions ofyen¥ 36,998
35,890¥ 1,108

Plan assets at fair value (1)Benefit obligation under pension funding programs (2)(1) - (2)Thousands of
U.S. dollars$ 369,278
358,219$ 11,059

The subsidiary’s proportion of the contribution to the aggregate pension contributions in March 2007 are 0.33%.
The funded status of the pension plans as of March 31, 2008 and 2007 is outlined as follows:
2008

Millions of yen¥ (6,246)
3,064(3,182)908(2,274)−¥ (2,274)

Projected benefit obligation
Plan assets at fair value
Funded status
Unrecognized actuarial loss
Net amount recognized in the consolidated balance sheets
Prepaid retirement and severance benefits
Accrued retirement and severance benefits

34

2007

¥ (6,296)
3,469(2,827)430(2,397)−¥ (2,397)

Thousands of
U.S. dollars
2008$ (62,342)
30,582(31,760)
9,063(22,697)−$ (22,697)

FINANCIAL SECTION

Net periodic pension cost for the years ended March 31, 2008 and 2007 consists of the following components:
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Net periodic pension cost

¥

¥

2008

Millions of yen

165
124
(87)
61
263

¥

¥

2007

174
126
(82)
81
299

Thousands of
U.S. dollars
2008$ 1,647
1,237
(868)
609
$ 2,625

Significant assumptions of pension plans used to determine these amounts in fiscal 2008 and 2007 are as follows:
Periodic allocation method for projected benefit
Discount rate
Expected rate of return on plan assets
Period for amortization of unrecognized actuarial loss

2008

2007

Straight-line
2.0%
2.5%
15 years

Straight-line
2.0%
2.5%
15 years

Directors and corporate auditors are not covered by the plans described above. For such persons, the Company had
unfunded defined benefit pension plan. Under the plan, directors and corporate auditors are entitled to lump-sum
payments based on the current rate of pay and length of service when they leave the Company. The Company provided
for the amount of the vested benefits to which directors and corporate auditors are entitled if they were to retire or severimmediately at the balance sheet dates. At the general meeting of stockholders held on June 28, 2006, abolishment of
retirement benefit system for directors and corporate auditors of the Company was approved, and directors and corporate
auditors were entitled to lump-sum payment up to the date of the abolishment when they leave the Company, and at
March 31, 2007, the amount to be paid was ¥389 million. Certain subsidiaries still have unfunded defined benefit
pension plans for directors and corporate auditors. Under the plans, directors and corporate auditors are entitled to
lump-sum payments based on the current rate of pay and length of service when they leave the subsidiaries. As of March
31, 2008 and 2007, the liabilities for retirement and severance benefits related to the plans were ¥483 million ($4,821
thousand) and ¥594 million which include the lump-sum payments mentioned above, respectively.

(9) INCOME TAXESThe Company and its consolidated subsidiaries are subject to Japanese corporate, inhabitant and business taxes based on
income which, in the aggregate, result in a statutory tax rate of approximately 40.7% in 2008 and 2007.
The reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before income taxes for theyears ended March 31, 2008 and 2007 is follows:
Statutory tax rate
Consolidated subsidiaries losses
Dilution loss from changes in equity interest
Valuation allowance
Expenses not deductible for tax purposes
Equity in (gains) losses of affiliates
Income not credited for tax purposes
Gain on sale of associated company
Other
Effective tax rate

35

2008

2007

40.7%
83.6
13.5
9.8
0.5
(3.6)
(3.9)
－
4.1
144.7%

40.7%
－
6.0
－
0.6
2.1
(3.8)
1.9
4.3
51.8%

Significant components of deferred tax assets and liabilities at March 31, 2008 and 2007 are as follows:
2008

Deferred tax assets:¥

Accrued business tax
Accrued bonuses
Liabilities for retirement and severance
benefits (employees)
Liabilities for retirement and severance
benefits (directors and corporate auditors)
Allowance for doubtful receivables
Loss on devaluation of investments in securities
Net unrealized loss on other securities
Other
Valuation allowance

Millions of yen

105
175
917

¥

Thousands of
U.S. dollars
2008

2007

215
173
965

$

1,048
1,747
9,153

196

242

1,956

189
934
5,334
173
8,023
(1,137)
6,886

239
−
5,552
169
7,555
−
7,555

1,886
9,322
53,2391,727
80,078(11,349)
68,729(182)(1,595)(422)(13)(2,212)
4,674

(182)
(2,484)−(3)(2,669)4,886(1,816)(15,920)(4,212)(130)(22,078)$ 46,651

Deferred tax liabilities:

Gain on evaluation of subsidiaries’ assets
Net unrealized gain on other securities
Gain on transfer of investments in an affiliate
Other¥

Net deferred tax assets¥

Net deferred tax assets and liabilities as of March 31, 2008 and 2007 are reflected in the accompanying consolidatedbalance sheets under the following captions:¥

Current assets - Deferred tax assets
Investments and other assets- Deferred tax assets
Non-current liabilities- Deferred tax liabilities

2008

Millions of yen

301
4,818
(445)

(10) COMMON STOCK

¥

2007

697
4,377
(188)

$

Thousands of
U.S. dollars
2008

3,004
48,089(4,442)On May 1, 2006, a new corporation law (the "Corporation Law") became effective, which reformed and replaced theCommercial Code of Japan with various revisions that would, for the most part, be applicable to events or transactions
which occur on or after May 1, 2006 and for the fiscal years ending on or after May 1, 2006. Under the Corporation
Law, the entire amount of the issue price of shares is required to be designated as stated common stock account although
a company in Japan may, by resolution of its Board of Directors, account for an amount not exceeding 50% of the issue
price of new shares as additional paid-in capital.

36

FINANCIAL SECTION(11) RETAINED EARNINGS AND DIVIDENDS

The Corporation Law provides that an amount equal to 10% of distributions from retained earnings paid by theCompany and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when
the total amount of the additional paid-in capital and the legal reserve equals 25% of their respective stated capital.
The Corporation Law also provides that additional paid-in capital and legal reserve are available for appropriations by
the resolution of the stockholders. Balances of the legal reserve are included in retained earnings in the accompanying
consolidated balance sheets.
Cash dividends charged to retained earnings for the years ended March 31, 2008 and 2007 represent dividends paidout during those years. The amount available for dividends is based on the amount recorded in the Company’s nonconsolidated books of account in accordance with the Corporation Law.

(a) Dividends paid during the year ended March 31, 2007
The following was approved by the general meeting of stockholders held on June 28, 2006.
(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date

¥1,391 million¥14
March 31, 2006
June 28, 2006

The following was approved by the Board of Directors held on November 13, 2006.
(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date

¥1,192 million¥12
September 30, 2006
December 8, 2006(b)Dividends paid during the year ended March 31, 2008
The following was approved by the general meeting of stockholders held on June 27, 2007.
¥1,391 million ($13,884 thousand)¥14 ($ 0.14)
March 31, 2007
June 28, 2007(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date
The following was approved by the Board of Directors held on November 12, 2007.

¥1,292 million ($12,895 thousand)¥13 ($ 0.13)
September 30, 2007
December 7, 2007(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date(c)Dividends to be paid after the balance sheet date but the record date for the payment belongs to the year
ended March 31, 2008
The following was approved by the general meeting of stockholders held on June 26, 2008.
¥1,292 million ($12,895 thousand)
Retained earnings¥13 ($ 0.13)
March 31, 2008
June 27, 2008(a) Total dividends(b)Dividend source(c) Cash dividends per common share(d)Record date(e) Effective date37

(12) GENERAL AND ADMINISTRATIVE EXPENSES

Significant components of general and administrative expenses are as follows:
2008

Salaries
Pension cost
Provision for retirement and severance benefits (directors and corporate auditors)
Administrative and computer expenses
Depreciation¥

Millions of yen

¥

3,112
267
66
1,129
1,576

Thousands of
U.S. dollars
2008

2007

3,087
307
86
1,131
1,618

$

31,061
2,665
659
11,26915,730(13) NET INCOME PER SHARE INFORMATION(a) Net Income (loss) per Share
Basic net income (loss) per share, and reconciliation of the numbers and the amounts used in the basic net income (loss)
per share computations for the years ended March 31, 2008 and 2007 are as follows:¥

Basic net income (loss) per share¥

Net income (loss)
Net income (loss) not applicable to common stockholders
Net income (loss) applicable to common stockholders

Yen

2008

(13.15)2008

Millions of yen(1,300)－(1,300)

¥

¥

¥
¥

2007

42.09
2007

4,156
−
4,156

$

$
$

Us dollars
2008(0.13)
Thousands of
U.S. dollars
2008(12,975)－(12,975)

Number of shares(Thousands)
2008
2007

Weighted average number of shares outstanding on which basic net income per share is calculated

98,73098,874(b) Net Assets per Share
Net assets per share, and reconciliation of the numbers and the amounts used in the net assets per share computations at
March 31, 2008 and 2007 are as follows:
Yen

2008

¥ 1,125.72

Basic net income per share¥

Total net assets
Amounts deducted from total assets
Net assets applicable to common stockholders

2008

¥

Number of shares outstandings at end of year on which net assets per share is calculated(14) LEASES¥

Millions of yen

111,304－
111,304¥¥2007

1,244.61
2007

122,876−
122,876$

Us dollars
2008

11.24
Thousands of
U.S. dollars
2008$ 1,110,929－$ 1,110,929

Number of shares(Thousands)
2008
2007

98,872

98,726

Finance leases, except for those where the legal title of the underlying property is transferred from the lessor to the lessee atthe end of the lease term, are accounted for similarly to operating leases under accounting principles generally accepted inJapan.
Certain key information about such lease contracts of the Company and its consolidated subsidiaries for the years
ended March 31, 2008 and 2007 are as follows:

38

FINANCIAL SECTION(i) Acquisition cost, accumulated depreciation and net book value of leased assets, if they had been capitalized:

2008

Furniture and fixtures:
Acquisition cost
Accumulated depreciation
Net book value¥¥

Millions of yen

51
(28)
23

¥
¥

Thousands of
U.S. dollars
2008

2007

46
(19)
27

(ii) Lease expense and future minimum lease payments including interest expense:¥

Lease expense
Future minimum lease payments:
Within one year
Over one year

¥
¥

2008

Millions of yen

9

¥

7
16
23

¥
¥

$
$

509
(279)
230

Thousands of
U.S. dollars
2008

2007

46

$

90

9
18
27

$

70
160
230

$

(15) PLEDGED ASSETS

The carrying value and classification of assets owned by the Company that have been pledged to counterparties as ofMarch 31, 2008 and 2007 are as follows:
Thousands of2008

Millions of yen¥ 1,893,319
382,659
204,481
165,911
269,678457,669

Short-term investments
Short-term loans receivable
Securities in deposit
Collateral money for securities borrowed
Investments in securities
Securities received as collateral for securities
loans for margin transactions, etc.

2007

¥ 680,176
78,398940,091
181,221
132,991
50,698Assets in the above table were pledged for the followings:
2008

Millions of yen¥ 1,515,000
295,400
341,943
165,911
10,000−Call money
Short-term borrowings
Payables under repurchase agreements
Securities borrowed
Long-term borrowings
Other current liabilities2007¥ 1,667,000
436,700
96,739181,221−494

U.S. dollars
2008$ 18,897,285
3,819,333
2,040,932
1,655,964
2,691,666
4,568,011

Thousands of
U.S. dollars
2008$ 15,121,270
2,948,398
3,412,945
1,655,964
99,810−In addition to the above, short-term investments of ¥22,147 million ($221,050 thousand), other current assets of ¥500
million ($4,991 thousand) and investments in securities of ¥15,404 million ($153,748 thousand) are deposited for the
Clearing Fund of Japan Securities Clearing Corporation, Japan Government Bond Clearing Corporation and the foreignexchange settlement, etc. at March 31, 2008.
In addition to the above, short-term investments of ¥170,084 million, securities in custody of ¥30,300 million, othercurrent assets of ¥500 million, investments in securities of ¥208,743 million, and securities received as collateral for
securities loans for margin transactions, etc. of ¥70,610 million were deposited for the real time settlement system of Bankof Japan, the Clearing Fund of Japan Securities Clearing Corporation, Japan Government Bond Clearing Corporation andthe foreign exchange settlement, etc. at March 31, 2007.

39

The fair value of the securities received as collateral for bond borrowing and lending transaction with cash collateral andsecurities borrowed under loan for consumption agreement as of March 31, 2008 and 2007 was as follows:
2008

Millions of yen¥ 716,575
191,789
8,751

Securities loaned
Securities pledged as collateral
Securities on hand2007

¥ 1,407,181
560,858
116,017

Thousands of
U.S. dollars
2008$ 7,152,161
1,914,253
87,344(16) DERIVATIVE FINANCIAL INSTRUMENTS

One subsidiary has entered into interest rate swap agreements to manage interest rate exposures borrowings. The
subsidiary has also held interest rate swap agreements for trading purposes within a certain limit.
If interest rate swap agreements are used as hedges and meet certain hedging criteria, the difference in amounts to
be paid or received on the interest rate swap agreements is recognized over the life of the agreements as an adjustment tointerest expense.
Derivatives are subject to market risk and credit risk.
Market risk is the potential adverse financial impact of changes in values of financial instruments from fluctuations invarious market factors such as interest rates. Credit risk is the risk that a counterparty will fail to perform on an obligation
due to deterioration of financial circumstances, etc. The counterparties to the derivative transactions are financial
institutions with high credit ratings and consequently, the Company does not anticipate credit-related losses from nonperformance by the counterparties to transactions involving derivative financial instruments.
Derivative transactions have been executed and controlled in accordance with the Company’s derivative regulations.
The information relating to fair value of derivative transactions to which hedge accounting is applied is not subject todisclosure. There is no outstanding balance of derivative transactions for other than hedging purposes.

(17) COMMITMENTS AND CONTINGENCIESAs of March 31, 2008 and 2007, undrawn amount of general loan for securities companies and customers and overdraft
loan are as follows:
2008

Millions of yen¥ 592,483(40,374)¥ 552,109

Total credit line
Drawn amount
Undrawn amount2007¥ 592,483(40,374)¥ 557,408(18) SEGMENT INFORMATION(a) Industry segments
The Company has categorized its business into a single industry segment, securities finance business.
(b) Geographic segments
The Company does not have any overseas subsidiaries for the years ended March 31, 2008 and 2007.
(c) Overseas sales
Not applicable.

40

Thousands of
U.S. dollars
2008$ 5,913,594(402,974)$ 5,510,620

FINANCIAL SECTION(19) Business Combinations

JSF Information Technology Co., Ltd. (JSFIT) was engaged in the information processing services, software development,
sales and leasing, and real estate leasing and Nihon Building Co., Ltd. (Nihon Bldg) was engaged in real estate ownershipand leasing, real estate trading and brokerage and insurance agency services, both were wholly-owned subsidiaries of theCompany.
JSFIT separated its real estate business on July 1, 2006 and transferred the business to Nihon Bldg, Nihon Bldg issued
600 new shares of its common stock to JSFIT shareholders at the day before the separation at an exchange ratio of 3 sharesfor each outstanding share of JSFIT’s common stock.
These corporate restructurings were to increase business efficiency by proper concentration of group resources and toutilize the capital in group effectively.
The separation constituted a transaction under common control under the “Accounting for Business Combinations”(Statement of Opinion issued by the Business Accounting Council on October 31, 2003), the transaction has been
eliminated in consolidation. The difference between the cost and the transferred assets of ¥394 million was recorded as anincrease of retained earnings for the year ended March 31, 2007.

(20) Subsequent Event

Acquisition of Treasury Stock(a) The Board of Directors held on March 24, 2008 resolved acquisition of its own shares as treasury stock pursuant to
the provisions of Article 156 of the Corporation Law as applied mutatis mutandis to Article 165 paragraph 3 of thelaw, and the shares were acquired from April 1, 2008 to April 18, 2008 as follows:(1) Purpose of acquisition
to implement a more flexible capital policy(2) Type of shares acquired
common stocks(3) Aggregate number of shares acquired
4,312,800 shares(4) Aggregate purchase price of shares¥3,000 million ($29,943 thousand)(5) Method of acquisition
Purchased on the Tokyo Stock Exchange(b) The Board of Directors held on May 13, 2008 resolved acquisition of its own shares as treasury stock pursuant to
the provisions of Article 156 of the Corporation Law as applied mutatis mutandis to Article 165 paragraph 3 of thelaw as follows:(1) Purpose of acquisition
to implement a more flexible capital policy(2) Type of shares to be acquired
common stocks(3) Aggregate number of shares to be acquired up to 1,000,000 shares(4) Aggregate purchase price of shares¥1,000 million ($9,981 thousand)(5) Acquisition period
from May 14, 2008 to June 25, 2008(21) SUPPLEMENTAL CASH FLOW INFORMATION

Assets and liabilities of the subsidiary, JSF Information Technology Co., Ltd. (JSFIT) excluded from consolidation in 2007
by sales, and net proceeds from sales were as follows:
Millions of yen

Assets and liabilities:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Sales priceCash and cash equivalents held by the subsidiary
Net proceeds from sales

¥

1,525
1,346
(642)
(869)

¥

587
345
242

¥

41

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of Japan Securities Finance Co., Ltd.
We have audited the accompanying consolidated balance sheets of Japan Securities Finance Co., Ltd. and consolidated
subsidiaries as of March 31, 2008 and 2007, and related consolidated statements of operations, changes in net assets
and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Japan Securities Finance Co., Ltd. and consolidated subsidiaries as of March 31, 2008 and 2007, and theresults of their operations and their cash flows for the years then ended in conformity with accounting principles generally
accepted in Japan.
The accompanying consolidated financial statements as of and for the year ended March 31, 2008 have been translated
into United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our
opinion, the consolidated financial statements expressed in yen have been translated into United States dollars on the basis
described in Note 2 to the consolidated financial statements.

Toyo Horwath
Tokyo, Japan
June 6, 2008

42

OUTLINE OF THE CORPORATE GROUP(As of the end of March 31, 2008)

Securities Finance Business

JSF Group

Information Processing Business
Other BusinessSubsidiary
JSF Trust andBanking Co., Ltd.
•Trust services•Banking services for deposits and loans

Affiliate

Japan
Securities
Finance Co., Ltd.

Subsidiary
Nihon Building Co., Ltd.
•Real estate ownership and leasing•Real estate trading and brokerage•Insurance agency services

JSF Information
Technohgy Co., Ltd.
•Information processing services•Software development and sales•Real estate ownership and leasing

Affiliate
JBIS Holding, inc.
•Management of Subsidiaries

Atfiliate

Affiliate

Japan Securities Agents, Ltd.

Japan Information
Processing Service Co., Ltd.

•Securities clearing agent•Transfer agent•Securities custody•PTS services•Information processing services•Software development and sales•Information equipment sales

43

CORPORATE DATAJAPAN SECURITIES FINANCE CO., LTD.

Board of Directors and Corporate Auditors(As of June 26, 2008)

Address
1-2-10 Nihonbashi-Kayabacho, Chuo-ku, Tokyo 103-0025
Tel:+81-3-3666-3184
Fax:+81-3-3666-1403

Directors
President
Executive Vice PresidentManaging Directors

Established
July 1927

Minoru Masubuchi *Hiromitsu Matsuda *Sadamu Shimomura
Yasuhisa Hashimoto
Hiroshi Nasuno
Takashi Imai **Akira Kanno **Hiroshi Koshida **Directors

Capital¥10 billion
Branch offices
Sapporo Branch
4-5 Minami Ichijo Nishi, Chuo-ku, Sapporo 060-0061
Tel: +81-11-241-1291
Fukuoka Branch
2-14-2 Tenjin, Chuo-ku, Fukuoka 810-0001
Tel: +81-92-741-1861(* Representative Directors)(** Outside Directors)

Corporate Auditors
Shigeru Awashima
Ushio Mizuno *Toshio Kamiyama *(* Outside Corporate Auditors)

Web site
http://www.jsf.co.jp

Exective Officers
President
Executive Vice PresidentManaging Directors

Stock exchange listing
Tokyo Stock Exchange, 1st Section
Shares outstanding
99,704,000 shares (as of March 31, 2008)

Minoru Masubuchi
Hiromitsu Matsuda
Sadamu Shimomura
Yasuhisa Hashimoto
Hiroshi Nasuno
Hiroshi Asakura
Teiichi Takatori
Masayuki Hanada

Executive Officers

Number of shareholders
8,927 shareholders (as of March 31, 2008)
Transfer agent
Japan Securities Agents, Ltd.
1-2-4 Nihonbashi-Kayabacho, Chuo-ku, Tokyo 103-8202
Tel: +81-3-3668-9211
Rating Information
Long-term Rating(As of the end of July, 2008)
Short-term Rating

A
AAAA-

A-1
a-1+
J-1+

Standard and Poor’s (S&P)
Rating and Investment Information, Inc. (R&I)
Japan Credit Rating Agency (JCR)44

ORGANIZATION
General Meetingof Shareholders
Board of Auditors
Board of Directors(Chairman)
President

Managment committee
Exective Officers Meeting
Compliance
Committee

Exective Officers in Charge

Audit Depertment
Compliance Depertment

Risk Management Depertment

ALM Committee

General Affaires Department

Risk Capital Meeting

Accounting Department

System Committee

Planning Department
Treasury Department
Margin Loan Department
Loan Department
Settlement & Custody Department
Information Systems Planning Department

Sapporo Branch
Fukuoka Branch

45

JAPAN SECURITIES FINANCE CO., LTD.
1-2-10 Nihonbashi-Kayabacho, Chuo-ku, Tokyo, 103-0025
Printed in Japan