ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 1

ANNUAL REPORT 2005

JAPAN SECURITIES FINANCE CO., LTD

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ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 2

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 certificates needed by
securities companies for delivery and settlement of margin transactions.
This margin loan business can be transacted solely by securities financecompanies licensed in accordance with the Securities and Exchange Law.
As Japan’s largest securities finance company designated by the Tokyo,
Sapporo, Fukuoka, and JASDAQ Stock Exchanges, JSF is contributing
significantly to improve the fairness of stock price formation and liquidityof stocks in the secondary equity markets.

CONTENTS
Financial Highlights

1

Message from the President

2

Our Business Development

4

Our Business Field

5

Corporate Governance11

Business Results

13

Financial Section

16

Independent Auditors’ Report

31

Outline of the Corporate Group32

Corporate Data

33

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ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 1

FINANCIAL HIGHLIGHTS

Japan Securities Finance Co.,Ltd. and Consolidated Subsidiaries

2005(April 1, 2004 March 31, 2005)

2004(April 1, 2003 March 31, 2004)

Thousands of
U.S. dollars
2005(April 1, 2004 March 31, 2005)

￥

￥

＄

Millions of yen

Consolidated financial results

Oparating revenues

36,145
5,519
126,337

Net income
Shareholders' equity (period end)

30,897
4,002
114,201

Yen
2005

292,336
37,8651,080,528
U.S. dollars
2005

2004

Amounts per share

Net income￥

Shareholders' equity

54.08
1,276.04￥

38.76
1,151.52

＄

0.50
11.88

Note:U.S. doller amounts in this annual report are translated from Japanese Yen, for convenience only, at the rate of ￥107.39=US$1, the approximate
exchange rate at March 31,2005.

Operating revenues

Net income（Millions of yen）

（Millions of yen）

40,00035,0006,000

36,14531,56831,68630,00028,661

5,519

5,000

30,897

4,002

4,000

25,0003,000

20,00015,000

2,837

2,989
1,746

2,000

10,000
1,000

5,000
0

01

02

03

04

0

05

01

Net income per share

02

1,400

54.08

1,200

50.00

1,045

1,169

1,151

03

04

1,276

1,089

1,000

38.76

800

26.75
24.17

600

20.00

15.86

400

10.00
0

05

（Yen）

60.00

30.00

04

Shareholders' equity per share

（Yen）

40.00

03

200
01

02

03

04

0

05

1

01

02

05

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MESSAGE FROM THE PRESIDENT

Minoru Masubuchi
President

It is my sincere hope that the Annual Report 2005 for the fiscal year ended March 31, 2005 will be of use toshareholders, investors and other supporters of Japan Securities Finance Company.
BUSINESS REVIEW

Meanwhile, the outstanding balance of standardized
margin buying in the Tokyo market, which increased
from about 2,200 billion yen at the start of the fiscal
year to about 2,800 billion yen in May, began gradualdecrease toward the end of the year. It recovered
along with the rise of stock market since the New Year,and ended the fiscal year at approximately 2,600
billion yen. On the other hand, the outstandingbalance of standardized margin selling moved within
the range of 600 billion yen to 900 billion yen, ending
the fiscal year at the level of 800 billion yen.

Business Environment
In stock market, the Tokyo Stock Price Index (TOPIX),
which started the fiscal year at 1,175, recovered 1,200
points in April for the first time in 2 years and 8months with the support of active buying by investors
in Japan and abroad against a background of heightened
expectations of economic recovery. In May, however, theTOPIX declined to 1,053 under selling pressure causedby the emerging anticipation of tightening monetary
policies in the United States and China and anxiety
about rising oil prices. Subsequently, stock market
proceeded within a narrow range as investors kept
watching on the trend of the U.S. stock market and oil
prices. After the turn of the New Year, foreign investors
increased their buying as they took a fresh look at therelative delay in the upturn of Japanese stocks as well as
improved corporate earnings, and the TOPIX finishedat 1,182 at the end of the fiscal year.

Business Results of the JSF GroupThe amount of total outstanding loans extended by JSF
group companies during the period averaged 2,314.3
billion yen, a substantial increase of 740.2 billion yen
over the previous period. This was due to large increasein the amount of loans for margin transactions caused
by increase in the outstanding balance of standardized
margin buying.

The average daily trading volume on the firstsection of the Tokyo Stock Exchange during the fiscal
year stood at 1,524 million shares, an increase of 136
million over the previous fiscal year; likewise, theaverage daily trading value increased by 183.4 billion
yen over the previous fiscal year to reach 1,328.7
billion yen.

As to our performance during this fiscal year,
operating profits totaled 10,149 million yen, up 69.3%
from the previous period, due to increased interest on
loans for margin transactions as well as increased revenues
from Japanese government bonds held by JSF Trust andBanking Co., Ltd. Taking account of investment loss due

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MESSAGE FROM THE PRESIDENT

Trust and Banking which achieved a record profit forthe current period, foresees a considerable reduction in
profit, while among equity affiliates, Japan Information
Processing Service Co., Ltd. expects to turn profitable
and Japan Securities Agents Ltd. forecasts a deficit
reduction.

to performance of equity-method affiliates, and loss onretirement of fixed assets resulting from system renewal,
and adding profits from sale of investment securities, thenet income for this period stood at 5,519 million yen, up
37.9% from the previous period.
Dividend Policy
Providing long and stable returns to shareholders is
one of the most important issues in corporate
management, and we plans to pay dividends by taking
account of its financial results, while considering its
shareholders’ equity and appropriate internal reserves
as a financial institution.

Current Challenges (Strategy)
In Japan, in addition to reform in securities taxationand deregulation of the securities agency business, therestrictions on payoffs at financial institutions were
removed across the board as of April 1, 2005. A
transition from “saving” to “investment” is expected toaccelerate in the greatly changing environment
surrounding securities and financial markets. By 2009,
stock certificates computerization will be introduced.
In May this year, Japan Government Bond Clearing
Corporation (JGBCC) commenced operations, while
general bonds transfer system will be inaugurated in
January next year, thereby continuing the progress of
the reform of securities clearing and settlement system.

As our dividend policy for the present, we decide
our dividend according to Dividend Payout Ratio of
about 40% on non-consolidated financial results.
In consideration of this good performance,
dividend to shareholders for this period has been
doubled to 14 yen per share compared to the previous
year. Beginning with fiscal year 2005, there will be aninterim dividend to provide greater opportunity to our
profit with our shareholders.

Against this background, we consider it ourutmost responsibility as a financial institution
specializing in the securities market to endeavor to
improve the convenience of our customers and provide
flexible services designed to meet diversifying needs of
securities and finance industry. In loans for margintransactions, which is our principal business, we will
endeavor to improve our system and to strengthen ourability to procure stock certificates with a view toexpand the number of loanable issues. We also planaround autumn this year to start a new service entitled“negotiable margin loan finance” to meet the increased
needs for funds for negotiable margin transactions.

OUTLOOK FOR NEXT FISCAL YEAR
Earnings Outlook
As the overseas economy expands and domestic
demand continues solid, the impact of adjustments in
IT fields and of structural adjustments of excessive
facilities and debts of business enterprises is slowly
diminishing. In addition to export and production,
which are increasing, personal income of workers is
likely to grow at a gradual pace, so it seems that therecovery trend is continued as a whole.

JSF group, with our company at its core, willfurther strengthen ties among group companies, takeadvantage of our respective specialties, and contributeto the progress of securities market by actively
addressing the reform of securities clearing andsettlement system.

Under these circumstances, although we
anticipate decrease in the outstanding balance of loans
for margin transactions due to a downward swing of theoutstanding balance of standardized margin buying (inthe Tokyo market), which maintained a high level
during this term, we expect reduced revenues but
increased profits owing to increase in dividend
payments received from JSF Trust and Banking.

Minoru Masubuchi
President

With respect to consolidated subsidiaries, JSF

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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

Bond services
Securities lending
services

Brokerage between borrowers and lenders in bondborrowing and lending market

General stock lending
Lending stock certificates needed to settle stock trading

Bond financing

Loan funds needed in bond underwriting, trading, etc.

General loans

Loan working funds, etc., to securities companies

Securities business

Gensaki transactions of JGB,Outright transactions

Secured loans on securities for indivisual and corporate investors
Direct loans
Direct loans to customer

Bond financing
Mediated loans
General loans

Mediated loans to customer through an associatedsecurities company

Safe keeping
deposited loans
Loans on securities in safe keeping 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

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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.
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.

Apart from the purpose of obtaining margins as
described above, an investor can use margin transactions
as a means for 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,such as that convertible bond is within its convertible
period or that it is a publicly-offered stock just purchased,
the investor can avoid loss with hedging sale by using
margin transactions.
There are two types of margin transactions,standardized margin transactions and negotiable margintransactions. In standardized margin transactions, interest
rate on loans or terms of repayment are determined bystock exchanges, and a securities company can borrowfunds for purchasing and stock certificates for sale needed
to settle transactions from a securities finance company(loans for margin transactions).
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 by internal
matching (Note) or external procurement withoutborrowing from a securities finance company, thecondition of margin transactions may be decided freely innegotiations between a securities company and its
customer.

・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 (6months), the investor sells the stock, repays the funds
borrowed (reversing transaction) and receives themargin. The investor may also receive the stock
certificates (actual receipt) by procuring funds
separately and depositing it with a securities company.
・Conversely, when it is expected that the stock pricewill decline, an investor borrows stock certificates froma 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 and receives themargin. The investor may also receive the equivalentmoney to stock certificates sold by procuring stock
certificates separately and offering them to a securities
company (actual delivery).

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

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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 margintransactions (4). This is executed through the clearing
facilities of stock exchanges. Loans for margin transactions
is authorized only for the securities finance companies
with a license given by the Prime Minister. We, Japan
Securities Finance Co., Ltd. conduct loans for margintransactions 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, in placeof the securities company, delivers funds or stock
certificates to clearing facilities of stock exchanges(6). The
stock certificates purchased (collateral stock certificates forloans) or proceeds from sale (collateral money for stockloans) are received by JSF(7), and then each collateral isappropriated.

Standardized margin transaction and Loans for margin transactions

Submit application(5)Securities company

Deposit brokerage margin(1)Loan funds for purchasing
stock or stock to sell(2)(6)

Deposit collateral for margintransaction(3)Loan funds for purchasing stock
or stock certificates to sell(4)Receive purchased stock
certificates or sale proceeds(7)

Stock exchange
clearing facilities

6

JSF

Customer

Place trade order

Loans for margin transactions

Japan Securities FinanceStandardized margin transactions

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 7

OUR BUSINESS FIELD

Handing 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 isnecessary to procure the stock certificates needed forsettlement 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 Charge) of thatissue. This premium charge is applied to all users ofstandardized margin transactions, and should be paid by
all sell sides 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
5,000shares

2,000
sharesFunds loan application

7,000shares
Amount matchedwithin each firm

5,000
sharesMargin sellingbalance2,000shares

Margin buying
balanceSecurities company A
Stock loanbalance

10,000shares

Margin loanbalance

JSF
Stock loan application

7,000
sharesStock procurement through bidding

3,000shares
Amount matchedwithin each firm

Stock loan application for bidding
Margin sellingbalance

Margin buying
balanceSecurities company B

Securities companies / Institutional investors

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BOND SERVICES

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.
Ordinary bond borrowing and lending transactions
JSF, in principle, borrows bonds without collateral from alender and then lends bonds after receiving collateral froma borrower.
GensakiThis transaction involves resale or repurchase of the same
type and quantity of bonds, etc., at a prescribed price after
a fixed period agreed upon in advance between transacting
parties.
JGB Gensaki operations by BOJ
The Bank of Japan has selected JSF as a participant ofJapanese government bond (JGB) operations. Transaction
format between JSF and the Bank of Japan is Gensaki,
while the transaction between JSF and counterparty is
conducted by Gensaki or Repo transaction.
Outright transactions
JSF conducts outright buying and selling of Treasury Billsor Financial Bills, and has developed a system in its
securities business that enables efficient investment andmanagement in combination with Gensaki.

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.
The bond borrowing and lending transactions
market was established in May 1990 for the purpose ofcovering bonds sold short, and was followed in April
1996 by the introduction of REPO (cash-collateral bondborrowing and lending transactions). JSF was the firstcompany in Japan to be authorized to offer such brokerage
services, because JSF can link securities industries andfinancial industries on neutral ground and is well versed
in handling of bond transactions.
JSF receives applications from both parties and, on
their behalf, lends and borrows bonds on the basis of loan
agreement. This type of arrangement has several
advantages, including helping to form a transaction thatmatches 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.

Transaction structure(Process from application to agreement)
Application(offer)

Application(bid)Notice of agreement

Notice of agreement

Lenders
Securities Companies
Financial institutions
Institutional inverstors

Pledge of collateral (＊)

JSF

Borrowing

Borrowers

Pledge of collateral (＊) Securities Companies
Financial institutions
Lending

Indication

QUICK
Bloomberg*In cash-collateral bond borrowing and lending transactions,only cash is acceptable.In ordinary bond borrowing and lending transactions, no collateral is pledged to lenders.

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OUR BUSINESS FIELD

Types of bond transactions            

Borrower     

Buyer

Lender  


 

  

Borrower     

REPO transactions  

Ordinary transaction



JSF

Lender(securrities-collateral transaction)  

Gensaki  

Seller

Gensaki     




   

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.
In February 2002, we implemented offer-bid

borrowing and lending transactions (e Stock Lending) byexpanding the online network that is linked withsecurities companies, so as to include institutional
investors, such as life and non-life insurance companies.
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.

Mechanism of lending stock business  

Stocklenders              

JSF
         

9Securities
companies

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 10

OUR BUSINESS FIELD

BOND FINANCING
The aim of bond financing is to contribute to smooth
underwriting, circulation and fair price formation in bondmarkets. This business offers low-interest loans by using

government and other bonds as collateral to provide funds
required by securities companies in bond operations.

GENERAL LOANS
This business loans working funds required by securities
companies by using stocks, bond, 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 Customers

Securities
companies  

10       

JSF

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 11

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, three auditors)･Attendance of corporate auditors at internal meetings and instigation of necessary checks･Establishment and implementation of risk management policies･Establishment of compliance system
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

General Meetingof Shareholders
Board of Auditors(Including three personsof Outside Auditor)
Board of Directors(Including three personsof Outside Director)

Chairman & President

Director in Chargeof Risk Management

Director in Chargeof Inspection

Compliance
Committee

Directors in charge

Business department
and branch, etc.

Director in Chargeof Compliance

Research Department

Inspection Department

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Personnel in chargeof complianceANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 12

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 and the Compliance Committee. The situation
regarding internal compliance is constantly studied by the Compliance Committee and the results of the committee'sdeliberations are regularly reported to the Board of Directors. The Compliance Committee, chaired by the director in
charge of compliance, makes all possible efforts to promote and thoroughly establish compliance through such measures asurging managers and employees alike to take faithful and honest actions based on clear ethical standards.
Major activities of Compliance Committee･Annual drafting and implementation of compliance program･Drafting of compliance manual･Advice and guidance regarding compliance･Identification and evaluation of compliance system･Implementation of compliance education training
In addition, the company takes the initiative in the promotion of the establishment and strengthening of overall
group compliance system.
Consulting and Reporting System Regarding Compliance
Establishment of an external reporting contact desk
From October 2004, in order to strengthen the compliance system, the company expanded its compliance consulting andreporting contact desk. In addition to the Compliance Committee and reception by personnel in charge of compliance, we
also established an external consulting and reporting contact desk.
This external consulting and reporting contact desk guarantees the complete anonymity of any person consulting orreporting matters regarding the company, thereby reducing the psychological burden on those persons and making
consulting and reporting easier.

Consulting and Reporting
Board of Directors
President

Compliance Committiee
Chairnan : Director in charge of ComplianceComprehensive Compliance Section【General Affairs Department】
ReportReportPersonnel in charge of compliance    

    

Consult & report

External reporting
contact desk

Consult & reportManagers and employees     12

  

Consult&
reportANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 13

BUSINESS RESULTS

securities increased in concert with the fees on lending
securities reported in the operating revenues.
As a result, consolidated operating profit increased
by 69.3% over the previous period to 10,149 million yen.
Other profits and losses include profit of 234 million yen
from the sale of investment securities and loss of 778
million yen because of loss of the equity method, and lossof 337 million yen on retirement of system renewal. The
consolidated net income for this fiscal year is, therefore,
5,519 million yen, up 37.9% over the previous fiscal year.

Consolidated operating revenues for the fiscal year ended
March 31, 2005 increased by 17.0% over the previous
year to 36,145 million yen, due to increased interest on
loans for margin transactions as well as increased profits
related to Japanese government bonds held by JSF Trustand Banking.
On the other hand, consolidated operating expenses
decreased by 0.3% from the previous period to 16,429
million yen due to curtailment of expenses related toowned Japanese government bonds, despite the fact thatinterest payments increased and the fees on borrowing

Breakdown of JSF group operating revenues
2005(April 1, 2004 March 31, 2005)
Amount(¥ million)

2004(April 1, 2003 March 31, 2004)
Amount(¥ million)

Securities financing business

33,17827,520Loans for margin transactions

17,30914,146

6,794

4,061

889

1,239

9,040

8,455

Bond financing and general loans

887

959

Interest on bond financing

14

16Interest on general loans

873

943

1,926

1,517

Stocks

1,016

725

Bonds

910

792

Fees on lending

693

622

Interest on collateral money for securities borrowed

217

170

8,206

4,680

Trust charges

227

229

Real estate leasing

939

963

3,911

5,255

2,967

3,377

2,755

3,148

Fees on machinery leasing

107

155

Others105

74

36,14530,897

Interest on loansinterest on collateral money for securities borrowed
fees on lending securities

Securities lending

Trust banking

Other businessInformation processing business
Fees on information services

Total operating revenues

13

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 14

SECURITIES FINANCE BUSINESSOperating revenues from securities finance business increased to 33,178 million yen (up 20.6% from the previous term).
Loans for Margin Transactions
In the loans for margin transactions business, due to the increased outstanding balance of standardized margin buying, theamount of loans for margin transactions during the fiscal year averaged 1,098.6 billion yen, a dramatic increase of 448
billion yen over the previous period, resulting in increased interest on loans. On the other hand, the fees on securities
lending increased, as the stock loans for margin transactions during the fiscal year increased by 34.5 billion yen from theprevious fiscal year to 538.2 billion yen. As a result, the operating revenues from loans for margin transactions were 17,309
million yen, up 22.4% over the previous fiscal year.
Average balance of loans

Average balance of stock loans（Billions of yen）

（Billions of yen）

1,200

800

1,099

800

711

700

1,000

600

791

500

651
600

540

513

504

538

400

449
400

409

300
200

200
0

100
02

01

03

04

0

05

01

02

03

04

05

Bond Financing and General Loans BusinessIn bond financing and general loans business, demands for loans from securities companies and individual investors did notincrease. As a result, the average balances of bond financing and of general loans for fiscal year decreased to 3.5 billion yen
and 41.8 billion yen, respectively, and the operating revenues from both loans amounted to 887 million yen (down 7.4%
from the previous fiscal year).

Average balance of bond financing

Average balance of general loans（Billions of yen）

（Billions of yen）

70
60

80

72.0

61.6
60

50

55.8

40

45.7

42.5

41.8

03

04

05

40
30
20

20

7.1

10
0

01

02

7.9
03

3.7

3.5

04

05

0

14

01

02

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 15

BUSINESS RESULTS

Securities Lending Business
As for the business of securities lending, in addition to brisk demand in the general stock lending department for splitstock issues, we concentrated on SC (Special Collateral) transactions in which issues are specified, as well as on expanding
customers. As a result, the operating revenues for this business registered 1,926 million yen, up 27.0% over the previous
period.

Trading volume of general stock lending

Trading volume of bond lending（Billions of yen）

（Billions of yen）

1,400
1,200

100,000

88,411

1,170

82,57780,0001,000

63,948822

800

60,000

616

600

680

664

41,05340,00035,509400
20,000

200
0

01

02

03

04

0

05

01

02

03

04

05

Trust Banking BusinessIn the trust banking business, we made efforts to extend loans by syndication methods for general business enterprises,
resulting in average trust banking loans of 1,158 billion yen during the fiscal year, an increase of 289.2 billion yen over theprevious fiscal year. We endeavored to curtail the balance of Japanese government bonds while securing interest income,
especially for short-term bonds. Gains on sale greatly contributed to increased revenues. Thus, the operating revenues fromthis business totaled 8,206 million yen, an increase of 75.3% over the year before.

Other BusinessIn other revenues, the continued retrenchment of the balance of long-term government bonds reduced interest income,resulting in revenues of 3,911 million yen, down 25.6% from a year ago.

INFORMATION PROCESSING BUSINESSIn the information processing business, due to decreased orders for data entry services and leasing business, the operating
revenue amounted to 2,967 million yen, down 12.1% from the previous fiscal year.

15

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 16

FINANCIAL SECTIONCONSOLIDATED BALANCE SHEETSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries as of March 31, 2005 and 2004

2004

Thousands of
U.S. dollars(note 2)
2005

35,369$Millions of yen

Assets2005

Current assets:
Cash (note 3)￥

Call loans

95,956￥

893,528

136,000

333,000

1,266,412

Short-term investments (notes 4 and 15)

1,085,895

857,590

10,111,696

Short-term loans receivable (note 15)

2,528,076

2,480,333

23,541,075

Securities lent

604,540

639,825

5,629,388

Securities in custody (note 15)

255,467

374,761

2,378,871

Securities in deposit (note 15)955,999

757,591

8,902,123

Deferred tax assets (note 9)

1,014

782

9,442

2,031,907

1,839,527

18,920,821

117,092

26,171

1,090,344(1,319)(906)(12,282)7,810,627

7,344,043

72,731,418

7,695

7,680

71,6552

2

18

Tools, furniture and fixtures

2,302

2,433

21,436

Land

3,063

3,130

28,522

105

57

978

13,167

13,302

122,609(6,193)(6,267)(57,668)

6,974

7,035

64,941

4,455

4,116

41,484

1,397,824

2,701,594

13,016,333

Deferred tax assets (note 9)

450

4,704

4,190

Deferred tax assets for land revaluation (note 6)

―

9

―

Other investments and other assets

9,695

749

90,279Allowance for doubtful receivables

(51)

(87)

(475)

1,407,918

2,706,969

13,110,327￥ 9,229,974￥ 10,062,163$ 85,948,170

Collateral money for securities borrowed (note 15)
Other current assets
Allowance for doubtful receivables
Total current assets
Property, plant and equipment:
Buildings and structures
Machinery, equipment and vehicles

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.

16

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 17

FINANCIAL SECTION

Thousands of
U.S. dollars(note 2)
2005

Millions of yen

Liabilities and Stockholders’ Equity

2005

Current liabilities:
Call money (notes 7 and 15)
Bills sold (notes 7 and 15)
Short-term borrowings (note 7)
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)
Other current liabilities (note 7)
Total current liabilities￥

Non-current liabilities:
Long-term borrowings (note 7)
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 152,195,000 shares;
issued and outstanding 99,704,000 sharesin 2005 and 2004
Additional paid-in capital (note 10)
Retained earnings (note 11)
Gain (loss) on revaluation of land (note 6)
Net unrealized gain (loss) on other securities (note 4)
Treasury stock
Total stockholders’ equity

1,410,200
2,135,100
959,820
172,000
26,6982,962
2,328,595
1,386,620
423,565
241,473
9,087,033

2004￥

1,428,400
2,461,600
1,223,820
210,000
82,2652,283
2,009,415
1,100,666
671,511752,974
9,942,934$

13,131,576
19,881,739
8,937,704
1,601,639
248,608
27,582
21,683,537
12,912,003
3,944,175
2,248,561
84,617,124

2,500
225
103
4,153
9,623
16,604

−
135
−
4,214
679
5,028

23,2802,095
959
38,67289,608
154,614

9,103,637

9,947,962

84,771,738

10,00010,00093,1195,182
107,473
151
3,784
(253)
126,337

5,182
101,927(13)(2,698)(197)
114,201

48,2541,000,773
1,406
35,236(2,356)
1,176,432

9,229,974￥ 10,062,163

Commitments and contingencies (note 16)￥

Total liabilities and stockholders’ equity

17$

85,948,170

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 18

CONSOLIDATED STATEMENTS OF INCOME
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries for the years ended March 31, 2005 and 2004
Thousands of
U.S. dollars(note 2)
2005

Millions of yen
2005￥

Operating revenues
Operating expenses

2004

￥

36,145
16,42919,716
9,567
10,149Operating profit

General and administrative expenses (note 12)
Operating income

30,897
16,483
14,414
8,419
5,995

$

336,577
152,984
183,593
89,087
94,506

Other income (deductions):
16
54
(4)
(778)
234
(166)
(644)
9,505
4,023
(37)
3,986
5,519

Interest income
Dividend income
Interest expenses
Equity in earnings (losses) of affiliates
Gain on sale of investments in securities (note 4)
Other, net
Income before income taxes
Income taxes (note 9)
Current
Deferred
Net income
￥

194
99
(5)
152
336
70
846
6,841
3,265
(426)
2,839
4,002

￥
yen

2005

$

149
503
(37)
(7,245)2,179(1,546)(5,997)88,50937,462(345)
37,11751,392

U.S. dollars(note 2)
2005

2004

Per share of common stock (note 1(m)):

￥Net income – basic
Cash dividends applicable to the year

54.08
7.00

￥

$

38.76
7.00

0.50
0.07

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries for the years ended March 31, 2005 and 2004
Thousands of
U.S. dollars(note 2)
2005

Millions of yen
2005

Common stock (note 10):
Balance at beginning of year
Balance at end of year￥

Additional paid-in capital (note 10):
Balance at beginning of year
Balance at end of year2004

10,00010,000￥10,00010,000$93,11993,119

5,182
5,182

5,182
5,182

48,254
48,254

101,927
−
1,004
(698)
(115)
(164)
5,519
−
107,473

99,494
309
−
(713)
(77)
−
4,002
(1,088)
101,927

949,129−
9,349(6,500)(1,070)(1,527)51,392−
1,000,773

151

(13)

1,406

Net unrealized gain (loss) on other securities
at end of year(note 4)

3,784(2,698)35,236

Treasury stock at end of year

(253)

(197)

(2,356)￥ 126,337￥ 114,201$ 1,176,432

Retained earnings(note 11):
Balance at beginning of year
Increase resulting from the merger of an affiliate and its subsidiary

Increase resulting from an affiliate newly accounted for by the equity method
Cash dividends
Bonuses to directors and corporate auditors
Deduction of revaluation of land
Net income
Retirement of treasury stock
Balance at end of year
Gain (loss) on revaluation of land at end of year

Total stockholders’ equity at end of year
See accompanying notes to consolidated financial statements.

18

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 19

FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries for the years ended March 31, 2005 and 2004
Millions of yen
2005

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
Gains (losses) relating to short-term investments andinvestments in securities
Allowance for doubtful receivables
Increase (decrease) in liabilities for retirement andseverance benefits
Interest and dividend income
Interest expenses
Equity in (earnings) losses of affiliates
Increase in short-term loans receivable(Increase) decrease in call loans
Increase in collateral money for securities borrowed
Increase (decrease) in call money
Increase (decrease) in bills soldIncrease (decrease) in borrowings
Decrease in payables under repurchase agreements
Increase (decrease) in commercial paper
Increase in collateral money received for securities lent
Increase (decrease) in collateral money received for loantransactions
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
Net cash provided by operating activities
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 provided by (used in) investing activities￥$

88,50913,856(10,495)

376
(61)

278
188

3,501
(568)

(15,396)
1,544
778(47,743)
197,000(192,381)(18,200)(326,500)(261,500)(55,568)(38,000)
319,181(15,294)(13,851)
1,340
(152)
(1,834,571)(33,000)(1,056,633)
509,900
2,164,100
549,000(164,372)
124,900
1,115,954
27,361(143,365)
14,3777,245(444,576)
1,834,435(1,791,424)(169,476)(3,040,320)(2,435,050)(517,441)(353,850)
2,972,167(142,416)(12,190,039)
12,778,649(95,196)
51,516
16,382(1,470)(3,344)63,084(7,202,043)
5,774,180
26,666(149)
13,479(1,317)(2,061)
9,952(113,511,863)
118,992,914(886,451)
479,709
152,547(13,688)(31,139)
587,429

(226)
659
(732)
(1,680)227(1,752)

(373)
4,827
(669)
(273)
32
3,544

(2,104)6,136(6,816)(15,644)
2,114(16,314)

(698)
–
(45)
(743)

(713)
(1,088)–(1,801)(6,500)–(419)(6,919)60,58935,367

11,69523,672564,196329,332

￥

19

6,841
840
2,925

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

￥

1,488
(1,127)

Cash flows from financing activities:
Dividends paid to stockholders
Purchase of common stock for retirement
Other, net
Net cash used in financing activities

See accompanying notes to consolidated financial statements.

9,505

2004

Thousands of
U.S. dollars(note 2)
2005

95,956￥35,367$

893,528

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(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 Securities and Exchange Law and its
related accounting regulations, and in conformity withaccounting principles and practices generally accepted inJapan, which may differ in some material respects fromaccounting principles and practices generally accepted incountries and jurisdictions other than Japan.
In preparing the accompanying consolidated
financial statements, certain reclassifications have been
made in the financial statements issued domestically inJapan in order to present them in a form which is morefamiliar to readers outside Japan. In addition, the notes
to the consolidated 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(3 subsidiaries for 2005 and 2004).
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 excess of cost over the underlying net assets atthe dates of investments in subsidiaries is being amortizedover 5 years.

(c) Cash and Cash Equivalents
For the purpose of the statements of cash flows, theCompany considers all highly liquid investments withinsignificant 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
Under the Accounting Standards for Financial Instruments,
securities are classified into four categories – “trading
securities”, “held-to-maturity securities”, “investments inaffiliates” and “other securities”. Securities classified as“trading securities” are stated at fair value and unrealized
gains or losses are recorded in the consolidated statement ofincome. Securities classified as “held-to-maturity securities”
are stated at amortized cost. Securities classified as “othersecurities” with fair value are stated at fair value andunrealized gains or losses, net of related taxes, are excluded
from earnings and recorded in a separate component ofstockholders’ equity. Realized gains or losses on the othersecurities are determined by the moving average method.
Bond securities classified as “other securities” for which fairvalue is not available are stated at the amortized cost.
Equity securities classified as “other securities” for which fairvalue is not available are stated at the moving-average cost.
(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 by the declining-balance method
based on the estimated useful lives.
The estimated useful lives are as follows:
Buildings and structures 3–50 years(g) Intangible Assets
Intangible assets are carried at cost less amortization.
Software development expenses are deferred andamortized by the straight-line method over estimateduseful lives (5 years). Intangible assets other thansoftware are deferred and amortized by the straight-line
method at rates based on the estimated useful lives of therespective assets.
(h) Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided at an

20

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 21

FINANCIAL SECTION

deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income inthe 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 isrecognized in income in the period that includes theenactment date.
(l) Appropriation of Retained Earnings
Under the Commercial Code of Japan, the appropriationof retained earnings with respect to a given financial
period is made by the resolution of stockholders at a
general meeting to be held subsequent to the close of suchfinancial period. The accounts for that period do not,therefore, reflect such appropriation. (See note 11)(m) Data per Common Share
Net income per share is computed on the basis of theweighted average number of shares of common stock
outstanding during the respective years. (See note 13)
Cash dividends per share are computed based on
dividends actually paid during the year. (See note 11)(n) Reclassifications
Certain reclassifications have been made to the prior years’
consolidated financial statements to conform to thepresentation used as of and for the year ended March 31,
2005.

amount of uncollectible receivables based on historicalloss ratios and an amount that takes into consideration
the possibility of specific liabilities.
(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 based on
the present value of the projected future retirement andseverance benefits attributable to employee services
rendered by the end of the year, less amounts funded
under contributory and noncontributory pension plans.
(j) Leases
Finance leases, except for those where the legal title of theunderlying property is transferred from the lessor to thelessee 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 forunder 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,(2) FINANCIAL STATEMENT TRANSLATIONThe consolidated financial statements are expressed in Japanese yen. However, solely for the convenience of the reader, theconsolidated financial statements as of and for the year ended March 31, 2005 have been translated into United States
dollars at the rate of ¥107.39=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market on March 31,
2005. 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, 2005 and 2004 are as follows:
Thousands of
U.S. dollars
2005

Millions of yen
2005

Cash
Time deposits that have maturities of over three months when acquired
Cash and cash equivalents￥

95,956―￥ 95,956

2004￥

35,369(2)￥ 35,367$$

893,528―
893,528(4) SHORT-TERM INVESTMENTS AND INVESTMENTS IN SECURITIES(a) Trading securities
Balance sheet amount and net unrealized loss which are charged to income of trading securities as of March 31, 2005 are¥9,999 million ($93,109 thousand) and ¥1 million ($9 thousand), respectively.

21

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 22(b) Held-to-maturity securities
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity securities as ofMarch 31, 2005 and 2004 are summarized as follows:
March 31, 2005
Government bond securities
Corporate bond securities
OthersBalance sheet amountMillions of yen
Gross unrealized gain
Gross unrealized loss

￥

15
100
―
115

￥

15
502
―
517

￥

￥

March 31, 2004
Government bond securities
Corporate bond securities
Others￥￥March 31, 2005
Government bond securities
Corporate bond securities
Others

￥

￥

―
―
―
―
―
2
―
2

￥

―
―
―
―

￥

―
―
―
―

￥

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

$

$

$

140
931
―
1,071

$

―
―
―
―

$

$

―
―
―
―

Fair value

￥

￥
￥

￥

15
100
―
115
15
504
―
519
Fair value

$

$

140
931
―
1,071

Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities with fair value
as of March 31, 2005 and 2004 are summarized as follows:
Acquisition cost

March 31, 2005
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
OthersOther securities
March 31, 2004
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
OthersOther securities

￥

−

￥

2,841
29
−
15
5,756

￥

2,543
2
−
−
2,545

￥

2,470

￥

−

￥

2,032
130
−
9
4,641

￥

11,87865−−
11,943

3,298,061
242,137−43￥ 3,543,860

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

Balance sheet amount$

26,734$$26,455270−
140
53,5992,871

2,448,136
5,776
−
66
￥ 2,455,157
￥

1,149

3,307,907
242,072−34￥ 3,551,162$

10,97922,796,685
53,785−615$ 22,862,064

22

Balance sheet amount

￥

￥

1,179

Acquisition cost

March 31, 2005
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
OthersOther securities

Millions of yen
Gross unrealized gain
Gross unrealized loss

$

−

$

23,68019−−
23,699￥4,050

2,448,434
5,803
−
81
￥ 2,458,368
￥

3,619

37,713

22,799,460
54,037−754$ 22,891,964

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 23

FINANCIAL SECTION

It is not practicable to estimate the fair value of securities as of March 31, 2005 and 2004 described bellow because of lackof market price and difficulty in estimating fair value
2005

2004

Thousands of
U.S. dollars
2005

￥ 624

￥ 634

$ 5,811

Millions of yen

Unlisted equity securities

Projected future redemption of other securities with maturities and held-to-maturity securities as of March 31, 2005 aresummarized as follows :Bond securities:
Government bond securities
Corporate bond securities
OthersBond securities:
Government bond securities
Corporate bond securities
OthersDue within one year

Millions of yen
Due after one year
Due after five years
through five years
through ten years

Due after ten years￥ 1,072,295￥1,062,947￥ 160,933￥ 152,274

3,600−￥ 1,075,895−−￥1,062,947

2,304−￥ 163,237−−￥ 152,274

Due within one year

Thousands of U.S. dollars
Due after one year
Due after five years
through five years
through ten years

Due after ten years$ 9,985,054$ 9,898,007$ 1,498,585$ 1,417,953

33,523−$10,018,577−−$ 9,898,007

21,454−$ 1,520,039−−$ 1,417,953

For the years ended March 31, 2005 and 2004, proceeds from sale of other securities are ¥9,784,248 million ($91,109,489
thousand) and ¥3,919,247 million, the gross realized gains are ¥4,969 million ($46,271 thousand) and ¥2,070 million, andthe gross realized losses are ¥3,825 million ($35,618 thousand) and ¥3,302 million, respectively.

(5) INVESTMENTS IN AFFILIATES
The aggregate carrying amount of investments in affiliates as of March 31, 2005 and 2004 are ¥14,613 million ($136,074
thousand) and ¥14,172 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 in a
separate component of stockholders’ equity net of related taxes, and the related deferred tax liabilities are reported inliabilities as deferred tax liabilities for land revaluation.
The book value of the land of ¥626 million before the revaluation was revaluated at ¥880 million at March 31, 2002.
The value of the land at March 31, 2005 decreased by ¥201 million ($1,872 thousand) in comparison with the book valueof the land after the revaluation.

23

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 24(7) SHORT-TERM DEBT
The composition of short-term debt and the weighted average interest rate on short-term debt as of March 31, 2005 and2004 are as follows:
Millions of yen

March 31, 2005
Short-term borrowings
Long-term borrowings
Call money
Bills soldCommercial paper
Payables under repurchase agreements
Other

￥

Weighted average rate

8,937,704
23,28013,131,576
19,881,739
1,601,639
248,608
19,685$ 43,844,231

0.085%
0.162
0.013
0.001
0.026
0.001
1.375

$

959,8202,500
1,410,200
2,135,100
172,000
26,698
2,114￥ 4,708,432

March 31, 2004
Short-term borrowings
Call money
Bills soldCommercial paper
Payables under repurchase agreements
Other

Thousands of U.S. dollars

Millions of yen

Weighted average rate

￥ 1,223,820

0.057%
0.011
0.009
0.018
0.001
1.375

1,428,400
2,461,600
210,000
82,2653,297￥ 5,409,382(8) RETIREMENT AND SEVERANCE BENEFITSThe Company and its consolidated subsidiaries have defined benefit retirement and pension plans, which consist ofunfunded retirement and severance plans that provide for lump-sum payment of benefits, tax qualified noncontributory
pension plans and contributory benefit plans provided under the Welfare Pension Insurance Law of Japan. The welfare
pension plan consisted of two tiers, the substitution portion of Japanese Welfare Pension Insurance and the corporate
portion which was established as an industry-wide multi-employer noncontributory plan. The Company was a member ofthe welfare pension plan administrated by the Japan Securities Dealers Employees Pension Fund, and on March 25, 2005,
the Fund obtained the approval for its liquidation from the Minister of Health, Labour and Welfare.
Consolidated subsidiaries are members of industry-wide multi-employer noncontributory plans administrated by
Zenkoku Joho Service Sangyo Kosei Nenkin Kikin (JJK: the Japan Information Service Industry Welfare Pension Fund),etc. The plan assets of such welfare pension funds cannot be specifically allocated to the individual participants nor to thesubstitution and corporate portions. However, based on the subsidiaries’ proportion of the contribution to the aggregate
pension contributions, the plan assets amounts at March 31, 2005 are estimated to be ¥778 million ($7,245 thousand).
The funded status of the pension plans as of March 31, 2005 and 2004 is outlined as follows:
Thousands of
U.S. dollars
2005

Millions of yen
2005

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

￥

￥

24

(7,832)
3,327(4,505)
1,178(3,327)59(3,386)

2004

￥

￥

(7,688)3,086(4,602)
1,186(3,416)55(3,471)$(72,930)
30,980(41,950)
10,969(30,981)549$ (31,530)

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 25

FINANCIAL SECTION

Net periodic pension cost for the years ended March 31, 2005 and 2004 consists of the following components:
Thousands of
U.S. dollars
2005

Millions of yen
2005

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of unrecognized prior service cost
Net periodic pension cost

￥

￥

258
154
(54)
168
(142)
384

2004

￥

254
176
(46)
163
―
547

￥

$

$

2,402
1,434
(503)
1,564
(1,322)
3,576

Significant assumptions of pension plans used to determine these amounts in fiscal 2005 and 2004 are as follows:

Periodic allocation method for projected benefit
Discount rate
Expected rate of return on plan assets
Period for amortization of unrecognized prior service cost
Period for amortization of unrecognized actuarial loss

2005

2004

Straight-line
Mainly 2.0%
Mainly 2.0%
*See below note
Mainly 15 years

Straight-line
Mainly 2.0%
Mainly 2.0%―
Mainly 15 years

Note: *Amortized in the year in which they were generated

Directors and corporate auditors are not covered by the plans described above. For such persons, the Company and it’scertain subsidiaries have unfunded defined benefit pension plans. Under the plans, directors and corporate auditors areentitled to lump-sum payments based on the current rate of pay and length of service when they leave the Company. The
Company provides for the amount of the vested benefits to which directors and corporate auditors are entitled if they wereto retire or sever immediately at the balance sheet dates. As of March 31, 2005 and 2004, the liabilities for retirement andseverance benefits related to the plans were ¥767 million ($7,142 thousand) and ¥743million, 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 2005 and 42.1% in 2004.
Amendments to Japanese tax regulations were enacted on March 31, 2003. As a result of these amendments, the normal
income tax rate is to be reduced from approximately 42.1% to 40.7% effective from the Company’s fiscal year beginning
April 1, 2004.
A reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before income taxes andminority interests for the year ended March 31, 2004 was follows:
2004

Statutory tax rate
Equity in gains of affiliates
Expenses not deductible for tax purposes
Income not credited for tax purposes
Effect of change in the tax rate
Tax credit for information technology investment
Other
Effective tax rate

42.1%
(0.9)
0.2
(0.3)
0.6
(0.4)
0.2
41.5%

The reconciliation for the year ended March 31, 2005 is not subject to disclosure as the difference between the rates is lessthan 5%.

25

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 26

Significant components of deferred tax assets and liabilities at March 31, 2005 and 2004 are as follows:
Thousands of
U.S. dollars
2005

Millions of yen
2005

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
Net unrealized loss on other securities
Other

￥

￥

228
245
1,233
312
529
1,035
226
3,808

￥

(182)
(2,343)(44)(2,569)
1,239

Deferred tax liabilities:
Gain on evaluation of subsidiaries’ assets
Net unrealized gain on other securities
Other
Net deferred tax assets

2004

￥

￥

214
262
1,231
302
389
4,597
206
7,201

￥

(182)
(1,625)(43)(1,850)
5,351

$

$

2,123
2,281
11,482
2,905
4,926
9,638
2,104
35,459$(1,695)(21,817)(410)(23,922)
11,537

Net deferred tax assets and liabilities as of March 31, 2005 and 2004 are reflected in the accompanying consolidatedbalance sheets under the following captions:Thousands of
U.S. dollars
2005

Millions of yen
2005￥

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

1,014
450
(225)

2004

￥

782
4,704
(135)

$

9,442
4,190
(2,095)(10) COMMON STOCK
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to be designated as statedcommon stock account although a company in Japan may, by resolution of its Board of Directors, account for an amountnot exceeding 50% of the issue price of new shares as additional paid-in capital. On October 1, 2001, the Commercial
Code of Japan was amended to eliminate the provision of common stock par value resulting in all common stock being
recorded with no par value.

(11) RETAINED EARNINGS AND DIVIDENDS
The Commercial Code of Japan provides that an amount equal to at least 10% of appropriations paid in cash should beappropriated as a legal reserve until an aggregated amount of such reserve and additional paid-in capital equal 25% ofcommon stock. Either additional paid-in capital or the legal reserve may be available for dividends by resolution of thestockholders to the extent that the amount of total additional paid-in capital and legal reserve exceeds 25% of statedcommon stock. Balances of the legal reserve are included in retained earnings in the accompanying consolidated balance
sheets.

26

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 27

FINANCIAL SECTION

The amount available for dividends is based on the amount recorded in the Company's non-consolidated books ofaccount in accordance with the Commercial Code of Japan.
In accordance with the Commercial Code of Japan, proposed appropriations of retained earnings have not beenreflected in the financial statements at the end of each fiscal year. The proposed appropriation of retained earnings at March
31, 2005 of cash dividends of ¥14 ($0.13) per common share aggregating ¥1,395 million ($12,990 thousand) wasapproved at the Company’s general meeting of stockholders held on June 28, 2005.

(12) GENERAL AND ADMINISTRATIVE EXPENSES
Significant components of general and administrative expenses are as follows:
Thousands of
U.S. dollars
2005

Millions of yen
2005

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

￥

￥

2004

3,187
323
203
1,265
1,476

￥

￥

3,046
505
173
1,156
824

$

$

29,677
3,008
1,890
11,77913,744(13) NET INCOME PER SHARE INFORMATIONThe reconciliation of the numbers and the amounts used in the basic net income per share computations for the years ended
March 31, 2005 and 2004 are as follows:
Thousands of
U.S. dollars
2005

Millions of yen
2005

Net income
Net income not applicable to common stockholders:
Directors’ and corporate auditors’ bonuses
Net income applicable to common stockholders

2004

￥

5,519

￥

4,002

$

51,392

￥

(172)
5,347

￥

(115)
3,887

$

(1,602)
49,790

Number of shares(Thousands)
2005
2004

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

27

98,867100,274ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 28(14) LEASES
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, 2005 and 2004 are as follows:(a) Lessee(i) Acquisition cost, accumulated depreciation and net book value of leased assets, if they had been capitalized:
Thousands of
U.S. dollars
2005

Millions of yen
2005

Furniture and fixtures:
Acquisition cost
Accumulated depreciation
Net book value

￥
￥

2004

358
(222)
136

￥
￥

492
(265)
227

$

3,333
(2,067)$ 1,266(ii) Lease expense and future minimum lease payments including interest expense:
Thousands of
U.S. dollars
2005

Millions of yen
2005

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

2004

￥

109

￥

120

$

1,015

￥

83
53
136

￥

108
119
227

$

773
493
1,266

￥

￥

$

(b) Lessor(i) Acquisition cost, accumulated depreciation and net book value of leasing assets:
Millions of yen
2005
Furniture and fixtures Others

Acquisition cost
Accumulated depreciation
Net carrying amount

￥

216
(151)
￥
65

71
(34)
37

Total

2004
Furniture and fixtures Others

Total

77
(23)
54

419
(239)
180

287
(185)
102

￥ 342

(216)
￥ 126

Thousands of U.S. dollars
2005
Furniture and fixtures Others
Total$ 2,011(1,406)$ 605

662 2,673(317) (1,723)
345
950(ii) Lease income, depreciation and future minimum lease payments including interest income:Millions of yen
2005

Lease income
Depreciation
Future minimum lease payments:
Within one year
Over one year

￥

92
47

￥

135
69

$

857
438

￥

62
57
119

￥

91
116
207

$

577
531
1,108

￥

28

2004

Thousands of
U.S. dollars
2005

￥

$

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 29

FINANCIAL SECTION(15) PLEDGED ASSETS
The carrying value and classification of assets owned by the Company that have been pledged to counterparties as of March
31, 2005 and 2004 are as follows:
Thousands of
U.S. dollars
2005

Millions of yen
2005

2004

￥ 1,075,295

Short-term investments
Short-term loans receivable
Securities in custody
Securities in deposit
Collateral money for securities borrowed
Investments in securities￥

819,650
120,000
523,524
175,529
1,252,428

828,561
1,186,046
305,600
298,922262,627
1,960,394$ 10,012,990

7,632,461
1,117,422
4,874,979
1,634,500
11,662,427

Assets in the above table were pledged for the followings:
Thousands of
U.S. dollars
2005

Millions of yen
2005

Call money
Bills soldPayables under repurchase agreements
Collateral money received for securities lent
Securities borrowed

￥

2004

892,000
2,135,100
26,698599,998
162,996￥

987,500
2,461,600
82,265
659,655
262,627$

8,306,174
19,881,739
248,608
5,587,094
1,517,795

In addition to the above, securities received as collateral for loans receivable amounting to ¥1,405,560 million($13,088,369 thousand) and ¥521,582 million were deposited as guarantee at March 31, 2005 and 2004, respectively.
The fair value of the securities received as collateral for bond borrowing and lending transaction with cash collateraland securities borrowed under loan for consumption agreement as of March 31, 2005 and 2004 are as follows:
2005

2004

Thousands of
U.S. dollars
2005￥ 1,281,018￥ 1,479,921$ 11,928,653

882,855
145,457

1,004,270
142,055

8,221,017
1,354,474

Millions of yen

Securities loaned
Securities pledged as collateral
Securities on hand(16) COMMITMENTS AND CONTINGENCIESAs of March 31, 2005 and 2004, undrawn amount of general loan for securities companies and customers and overdraft
loan are as follows:
Millions of yen
2005￥ 576,189

Total credit line
Drawn amount
Undrawn amount(38,937)￥ 537,252

29

2004

￥

572,280(45,335)￥ 526,945

Thousands of
U.S. dollars
2005$ 5,365,388(362,576)$ 5,002,812

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 30(17) SEGMENT INFORMATION(a) Industry segments
Operations by business group are summarized as follows:

Securities finance Data processing service

Revenues from outside customers
Inter-segment revenues
Operating expenses
Operating income (loss)
AssetsDepreciation and amortization
Capital expenditures￥

33,17817
33,19523,004￥
10,191￥ 9,227,861
1,348
2,369

￥

2,967 ￥ 36,145
114
131
3,081
36,276
3,118
26,122(37) ￥
10,154
2,152 ￥ 9,230,013
146
1,494
72
2,441

￥
￥

Securities finance Data processing service

Revenues from outside customers
Inter-segment revenues
Operating expenses
Operating income (loss)
AssetsDepreciation and amortization
Capital expenditures￥

27,52017
27,53721,503￥
6,034￥10,059,902
639
881

￥

Operating expenses
Operating income (loss)
AssetsDepreciation and amortization
Capital expenditures$

308,949
158
309,107214,210$
94,897$ 85,928,494
12,552
22,060￥￥$Millions of yen
2004
Total

3,377 ￥
30,897
119
136
3,496
31,033
3,531
25,034(35) ￥
5,999
2,288 ￥10,062,190
205
844
66
947

Securities finance Data processing service

Revenues from outside customers
Inter-segment revenues

Millions of yen
2005
Total

Millions of yen
2005
Total

27,628 $ 336,577
1,062
1,220
28,690337,797
29,034
243,244(344) $
94,553
20,039 $ 85,948,533
1,360
13,912670
22,730$$Elimination / corporate

―
(131)
(131)
(126)
(5)
(39)
(6)
(29)

￥

￥
￥

―
(136)
(136)
(132)
(4)
(27)
(4)
(5)

￥

￥
￥

36,145―36,14525,996￥
10,149￥ 9,229,974
1,488
2,412

Consolidated￥

30,897―30,897
24,902￥
5,995￥10,062,163
840
942

Elimination / corporate

$

$
$

―
(1,220)(1,220)(1,173)
(47)
(363)
(56)
(270)

(b) Geographic segments
The Company does not have any overseas subsidiaries for the years ended March 31, 2005 and 2004.

30￥

Elimination / corporate

Notes: 1.Business segments reflect the actual business contents.
2.Major revenues of each business segment
Securities finance segment: interest income on loans, securities lending fees, etc.
Data processing service segment: service fees for computer processing, etc.
3.All of the assets are allocated to both segments.

(c) Overseas sales
Not applicable.

Consolidated

Consolidated$

336,577―
336,577
242,071$
94,506$85,948,170
13,856
22,460ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 31

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, 2005 and 2004, and related consolidated statements of income, stockholders’ equity and cash
flows for the years then ended, all expressed in Japanese yen. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these 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 made bymanagement, 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, thefinancial position of Japan Securities Finance Co., Ltd. and consolidated subsidiaries as of March 31, 2005 and 2004, andthe results 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, 2005 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 describedin Note 2 to the consolidated financial statements.

Toyo & Co.
Tokyo, Japan
June 28, 2005

See Note 1(a) to the consolidated financial statements which explains the basis of preparing the consolidated financial statements of Japan Securities Finance Co., Ltd. andconsolidated subsidiaries under Japanese accounting principles and practices.

31

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 32

OUTLINE OF THE CORPORATE GROUP

Securities Finance Business

JSF Group

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

Subsidiary

Subsidiary

JSF Information
Technohgy Co., Ltd.

Nihon Building Co., Ltd.
•Real estate ownership and leasing•Real estate trading and brokerage•Insurance agency services•Information processing services•Software development and sales•Real estate ownership and leasing

Japan
Securities
Finance Co., Ltd.

Atfiliate

Affiliate
Japan Information
Processing Service Co., Ltd.

Japan Securities Agents, Ltd.
•Securities clearing agent•Transfer agent•Securities custody•PTS services•Information processing services•Software development and sales•Information equipment sales

Affiliate

Affiliate

Nihon Kyoei
Securities Co., Ltd.

Japan Information
System Co., Ltd.
•Production of credit cards, etc.
•Information input and output services•Securities business

32

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 33

CORPORATE DATAJapan Securities Finance Co., Ltd.

Board of Directors and Corporate Auditors(As of June 28, 2005)

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

Directors
ChairmanPresident
Executive Vice President
Senior Managing Director
Managing Directors

Established
July 1927
Capital￥10 billion

Directors

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

Kunio Kojima*
Minoru Masubuchi*
Hiroshi Saito*
Hisao Harada*
Sadamu Shimomura
Yasuhisa Hashimoto
Akira Onoda
Hiroshi Nasuno
Yukitaka Yoshida
Takashi Imai **Akira Kanno **Eiichiro Okumoto **(* Representative Directors)(** Outside Directors)

Corporate Auditors

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

Munetaka Tada
Yoshiyasu Arai *Yasukuni Watanabe *Toshio Kamiyama *Stock exchange listing
Tokyo Stock Exchange, 1st Section(* Outside Corporate Auditors)

Shares outstanding
99,704,000 shares (as of March 31, 2005)
Number of shareholders
6,912 shareholders (as of March 31, 2005)
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 August, 2005)
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)33

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 34

ORGANIZATION

Planning Department

General Meetingof Shareholders

Inspection Department

Corporate Auditors,
Board of Auditors

General Affairs Department

Treasury Department

Board of Directors

Loan Department

ChairmanMargin Loan Department

Bond Trading Department

President / Executive
Vice President

Research Department

Directors in Charge

Settlement & Custody Department

Information Systems Planning Department

Sapporo Branch

Fukuoka Branch

34

ANNUAL REPORT 修正 コピー 05.9.27 6:20 PM ページ 35

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

35