Daiwa Securities Group

Sustainability Report 2002

About This Report
A sustainability report is a report concerning the systems established by a company to address its corporate activities fromthree mutually interdependent perspectives—economic, social and environmental—and the results thereof. Following
the agreement reached at the World Summit held in Rio de Janeiro, Brazil, in 1992 to shift "from growth to sustainability to ensure the continued existence of the human race," the word sustainability has rapidly attained universal recognition. The expression "sustainable development" as used here refers to development that can meet the needs of the present
without compromising the ability of future generations to meet their own needs. This is based on the recognition that"economic growth is possible only within the capacity of the global environment." Furthermore, given problems such as
the widening gap between the world's rich and poor, the sustainable development concept also includes social aspects
such as human rights and the eradication of poverty and can be understood as an economy designed to achieve balance
between the environment and society.
In this report we focus on activities such as corporate governance; compliance (ethics and the observance of laws and regulations); response to customers, shareholders, investors and employees; environmental considerations; and conduct as acorporate citizen that represent the Daiwa Securities Group's efforts regarding sustainability.
In the writing of this report we have made reference to the Global Reporting Initiative (GRI) guidelines,1 the international guidelines for sustainability reports.
• Target readers: While we have written this report primarily for our customers, shareholders and employees, we believe
the information described herein will be of interest to a wide range of the Daiwa Securities Group's stakeholders,
including client firms, NPOs (nonprofit organizations), citizens living near Daiwa Securities branch offices throughout
Japan, and educational institutions.
• Scope of the report: Basically, the report covers the nine principal companies that comprise the Daiwa Securities
Group.2 But this does not imply that information of all nine companies is covered exhaustively; relevant information isdisclosed according to the relevance of the activity of each company.
• Reporting period: Quantitative data are basically data for FY 2001 (April 2001 – March 2002). Because this report isthe Daiwa Securities Group's first sustainability report, however, to the extent necessary, we also provide data for activities before FY 2001 and for certain activities begun in FY 2002.
1

The June 2000 version and a rough draft of the new guidelines issued in April 2002 were used as reference material for the GRI guidelines. For more
specific information, please refer to the GRI website at http://www.globalreporting.org.

2

The nine main companies that form the Daiwa Securities Group are Daiwa Securities Group Inc., Daiwa Securities, Daiwa Securities SMBC, Daiwa
Asset Management, Daiwa Institute of Research, Daiwa SB Investments, Daiwa Securities Business Center, Daiwa Property and NIF Ventures.

Daiwa Securities Group Inc. Selected as Component of DJSI World for 4th Straight Year
Daiwa Securities Group Inc. has been selected afresh for inclusion in the Dow Jones Sustainability
World Indexes (DJSI World) in 2002.
DJSI World is a sustainability index (stock index) devised by Dow Jones Indexes (of the UnitedStates), which calculates and publishes stock indexes, and SAM Sustainability Group (ofSwitzerland), which keeps track of corporate sustainability. As of April 2002, 34 financial institutions around the world manage investment trust funds and other financial instruments, amounting to approximately $1.9 billion, benchmarked against the DJSI World.
The selection of DJSI World components is based on an in-depth and exhaustive questionnaire survey employing sustainability criteria that incorporate environmental and social responsibility as wellas financial performance records. Three hundred and ten organizations across the world have beenchosen to comprise the DJSI World for 2002. Daiwa Securities Group Inc. has remained on the
DJSI World list since the index was launched in 1999.
(For details, please refer to http://www.sustainability-indexes.com.)

Contents

The babies in the photographs on the cover, which were published in a recent issue of the Group's in-house magazine, arethe children of our employees. We believe that the focus on sustainable development, for our communities and the Daiwa
Securities Group, means seeking ways to hand down a rich,rewarding society to these children's generation.

To Our Stakeholders

2

Management Vision and Sustainability

8

The Evolution of the Daiwa Securities Group

10

Profile of Daiwa Securities Group Companies

12

Corporate Governance

14

Information Disclosure

16Compliance18

Toward Greater Customer Satisfaction

22

Daiwa People

26

As a Corporate Citizen anda Member of the Community

30

Environmental Performance

32

Third-Party Opinion

35

1

To Our Stakeholders
In May of this year, with the support and assistance of our many stakeholders,
including our customers, shareholders, investors and employees, the Daiwa
Securities Group was able to celebrate the 100th anniversary of the Company's
founding. These first 100 years reveal a history of always challenging the possible.
What we may be proud of, however, is not the many years that have passed, but our
spirit of accepting challenges, a spirit that is neither content with tradition nor
bound by a conventional sense of values. Because of this spirit, over the years the
Daiwa Securities Group has been able to develop its business and achieve strong
operating results.
Today, however, the domestic and international environment surrounding our business is entering an unprecedented period of change. To give but one example, anemphasis by management on sustainability is becoming increasingly more important. For a company to continually develop and enhance its value, it is important
for that company not only to value those stakeholders who are its customers, shareholders, investors and employees; but also, as a corporate citizen, to establish harmony and coexistence with other stakeholders—such as our communities and our
global environment. The message is now clear: management of those companies
who focus on only short-term earnings, neglecting the needs of various stakeholders,will face serious problems. On the other hand, firms that consider and try to incorporate the needs of various stakeholders into management strategy in a harmonious
manner will be able to achieve sustainable growth by earning greater trust from society and the markets. As an example, with regard to our earth's worsening environmental problems, incorporating a responsible concern for the environment into
management has become an indispensable issue, even for nonmanufacturing firms.
I assumed the office of president of the former Daiwa Securities in October 1997.
Since that time, every executive and employee of our Group, including myself, has
deeply pondered what we must do to be a firm that is trusted and needed by ourcustomers and communities and to execute every possible measure to attain thisend. Based on such thinking, we have decided to make a commitment to practice
our ideas in the actual management of our business. For example, in addition to
being the first company in our industry in Japan to adopt a holding company structure, we also drafted our Medium-Term Management Plan and released this outside
the Group as well as introducing corporate brand management aimed at establishing the Daiwa Securities Group brand. Our objective in drafting this latest report isto report to our stakeholders on the current status and future issues concerning the
Daiwa Securities Group's commitment to manage its activities to emphasize sustainability and to improve transparency and accountability.
Since the start of the Japanese Big Bang in 1996 and with the exposure in the following year of scandals at many firms, including the Daiwa Securities Group, thesecurities industry has been in the grip of a major revolution. To respond to thedemands of this revolution, the Daiwa Securities Group must make major changes
to its traditional mechanisms and seek to construct a new business model for its

2

securities businesses, while simultaneously reviewing the optimal factors for conducting its business as a corporate citizen, including the building of corporate
ethics, and revamping the compliance system, our attitudes toward our customers,
our response to our employees, our community affairs activities, and our efforts to
help save our environment. In the process of writing this report, the Daiwa
Securities Group was able to again recognize, with regard to these points, its current
situation and what it has been able to accomplish so far, where its efforts have been
insufficient, and what it must do to improve in the future. Taking this into consideration, we will continue our efforts with renewed vigor by setting concrete objectives and implementing specific action plans. We will report our progress in these
efforts to you each year in the form of a Sustainability Report.
We have positioned the publication of this report as the starting point for sustained
development of the Daiwa Securities Group over the next 100 years, building on
help from our wide-ranging stakeholders. Your opinions and criticisms of thisreport and the activities of the Daiwa Securities Group will be reflected in our
future management policies and will constitute one of our most valuable resources
for fulfilling our commitment to report on the Group's activities to all of our stakeholders. We will be pleased to receive your unreserved opinions and comments.
August 2002

Yoshinari Hara
President and CEO, Daiwa Securities Group Inc.

3

This report has been
prepared mainly
focusing on important stakeholders of
the Daiwa Securities
Group—our customers, shareholders,investors, employees,
local communities
and the environment.

Message to our customers
At the Daiwa Securities Group, we've
declared our belief that continually
increasing customer trust and satisfaction is an important management issue.
We have implemented a variety ofmeasures to promote this goal.
The customers of the Daiwa Securities
Group include individuals and corporations whose goal is asset management,
and corporate customers whose principal objective is capital procurement. In
1999 we split the former Daiwa
Securities into Daiwa Securities Co.
Ltd., which conducts our retail securities business, and Daiwa Securities SB
Capital Markets Co. Ltd. (currently
Daiwa Securities SMBC), which manages our wholesale securities business.
At the same time, we adopted a groupmanagement approach based on a holding company structure. Our primaryreason for these changes was to build
organizations that place top priority on
the benefits to their respective customers. In 2000 we launched ourGroup-wide Corporate Branding
Project, and in March 2001 we publicly
released our Brand Statement to clearlystate our promise to our customers.
Based upon this statement, we have initiated a variety of activities designed toincrease customer satisfaction.1
To become a more reliable partner, wehave established a compliance systemcorresponding to the specific businessof each Group company. Furthermore,
we have incorporated compliance into
our employee performance evaluations
and have also implemented a compliance training program to instill thorough compliance awareness in every
employee and fulfill our duty to explain
to customers every aspect of their investment.2 Finally, we have also put into
place a sufficient organization for managing customer information and theassets consigned from our customers.3

4

In 2001 we established a new Customer
Satisfaction (CS) Promotion Department at
Daiwa Securities and introduced a
Customer Support Hotline as a window
where customers can give us their honest opinions directly. At Daiwa
Securities we regard our customers'
requests and complaints as a valuable
management resource for improving
customer satisfaction. In addition, following the introduction of a state-ofthe-art Customer RelationshipManagement (CRM) system at all
Daiwa Securities branch offices inMarch 2002, we can now offer the optimal financial products and services toeach customer based on his or her situation. With regard to consultation services for our customers, in October 2001
we put into place a system to open all
Daiwa Securities branches on Saturdays
to better assist customers who cannot
come to an office on weekdays andthose who wish to take more time for
consultation on asset management.3
At the Daiwa Securities Group, we arealso aggressively engaged in new product development. During FY 2001, thetop-selling product at Daiwa Securities
SMBC was the Enman-Sai bond, aproduct pioneered by that company.
We believe the reason for the EnmanSai bond's success is product featuresthat accurately address customers' needs.4

For details, please refer to Management Vision
and Sustainability, p. 8 – 9.

2

For details, please refer to Compliance, p.18 –21, Toward Greater Customer Satisfaction,
p. 23 and Daiwa People, p. 28.

3

For details, please refer to Toward Greater
Customer Satisfaction, p. 22 – 24.

4

For details, please refer to Toward Greater
Customer Satisfaction, p. 24 – 25

5

Annual reports may be viewed and ordered on
the Daiwa Securities Group's IR website. For
details, please refer to Information Disclosure,p. 16.

In the past the Daiwa Securities Group
disclosed information focusing on its
business activities chiefly through its
annual reports.5 In publicly issuing thisreport, our goal is to highlight our commitment regarding activities from various social and environmental perspectives that we believe are indispensable tosustained improvement in shareholder
value.6
Since the Daiwa Securities Group
moved to group management under aholding company structure in 1999,7
Daiwa Securities Group Inc., which is
the listed holding company, has devoted its efforts to strengthening corporate
governance and information disclosure.
Specifically, we are pursuing the creation of an internal control system
predicated on the proper functioning ofcorporate governance, beginning withthe establishment of the Advisory Board

By continually building upon theGroup's efforts, we will keep improving
customer trust in the Daiwa Securities
Group and fulfilling our Brand
Statement.

Graph 1
Pie chart covering 2 years showing change in shareholding ratio by type of shareholder
End-March 1999

Foreign Investors
17.9%
Other
Corporate 11.1%
Investors

1

Message to our shareholders and investors

Daiwa Asset Management Co. Ltd. wasthe first Japanese company in its business to offer electronic delivery ofinvestment trust prospectuses to customers and is also actively using its
company website to disseminate information on investment details. Our
efforts toward promotion of customer
satisfaction are evident in a higher position in analyst rankings at Daiwa
Institute of Research Ltd., while Daiwa
SB Investments Ltd. has achieved positive evaluations in pension investmentcompany rankings. Finally, Daiwa
Securities Business Center Co., Ltd. wasthe first Japanese company to receive
ISO 9001 certification in the securities
back-office support business.4

Other 0.6%

End-March 2002

Other 0.8%

Individual
Investors
15.9%

Individual
Investors
18.7%

Foreign Investors
29.3%(Banks 6.9%)(Banks 19.4%)(Other Financial
Institutions
15.6%)(Trust Accounts
16.8%)

Other
Corporate
Investors 7.0%

Financial Institutions 51.8%

6"Shareholder value" can be regarded as thetotal of a sustained rise in stock price, dividends, and treasury stock purchases and sales
that are realized through various firm activities.

7

For details, please refer to Management Vision
and Sustainability, p. 8 – 9.

(OtherFinancial
Institutions
11.3%)(Trust Accounts
28.8%)

Financial Institutions 47.0%

5and the Remuneration Committee,
which include external members, andthe appointment of an External
Director.8 At the same time, to disclose
information to all shareholders andinvestors fairly and in a timely mannerand to encourage appropriate communications, we have continuously
expanded our financial, public relations
and IR functions. Specifically, we are
expanding our IR website, centered on
the release of quarterly operating
results, holding company briefings bothwithin and outside the Group, andholding telephone conferences on thedays we announce the Group operating
results.9
Against this backdrop of enhancementin our IR functions, the shareholder
composition and shareholding ratio of
Daiwa Securities Group Inc. havechanged dramatically since 1998 (seeGraph 1, previous page). As the crossshareholding structure between firmsthat was centered on Japanese banks has
crumbled, the percentage of shares held
by foreign and institutional investors
managing primarily pensions (mainly
trust accounts) has greatly expanded.
On the other hand, the percentage ofshares held by individual shareholders
continued to decline for three years.

Graph 2.1
Responsiveness to shareholders

We recognize that pursuing innovations
that will make Daiwa more appealing toindividual investors is an important
issue. During FY 2001 we held company briefings for individual shareholders
and investors in major cities throughout
Japan. Further, telephone conference
calls held following the release of ouroperating results are also open to individuals. In addition, beginning with the
General Meeting of Shareholders inJune 2002, we introduced a systemenabling shareholders to exercise theirvoting rights via the Internet as a meansof improving individual shareholder
convenience.9
In the autumn of 2001, we mailed asurvey questionnaire to all of ourdomestic shareholders and received
replies from approximately 25,000 ofthem. Only 10.4% of our shareholders
indicated dissatisfaction when it cameto the item "responsiveness to shareholders" (see Graph 2.1). Shareholders
also told us that what they as shareholders would like Daiwa to do is increase
dividends, show greater appreciation
toward shareholders and purchase treasury stock (see Graph 2.2). We have listened earnestly to these comments andare doing our best to improve the levelof shareholder and investor satisfaction.

Graph 2.2
Requests to the Company as a shareholder(multiple responses possible)
(%)
60.0
60

Satisfied
9.2%
No Reply 19.9%

50
40
30

Not Satisfied
10.4%

31.7

20
Average 60.5%
10

11.0
4.8

This report introduces the activities
required for sustainable development of
the Daiwa Securities Group and construction of our corporate brand. These
activities will be the fount of every
employee's ability to imagine and execute ideas. For the Group, which operates in the financial services industry,
employees are the source of our competitive edge and are important stakeholders who support the sustainabilityof the Group. The pride and satisfaction felt by each employee toward his or
her work are indispensable for improving the quality of our products andservices as well as customer satisfaction.
The branding activities the Daiwa
Securities Group is now undertaking
provide a focal point for sharing theGroup's sense of values among all
employees and creating a corporate culture filled with confidence and conviction in one's work.
At the Daiwa Securities Group, we are
aggressively promoting internal communications as a means for employees
to share ideas. For example, in March
2002 we installed an Intranet system at
all Daiwa Securities branches, which weare using as an important infrastructure
for communications. In September
2001, we began "Letter from YoshinariHara," which goes out from President
and CEO Hara to all Group employees
nearly every week, as a vehicle for communications between top management
and employees. Employees can sendquestions and comments directly tohim by responding to these e-mails.
With the employee's consent, some ofthese questions and answers are shownon the Intranet. During FY 2001,"Letter from Yoshinari Hara" was distributed 20 times and generated anaverage of 10 opinions and questions oneach occasion.

2.9

0
er
th
O
um
m
ini
m
ce k
du o cR e st
t
i
y
ur
un
as
re
et
as
rch
Pu ck
r
sto
te
ea
gr tion ers
ow cia ld
Sh re ehoprs
ap sha
nd
of
de
ivi
ed
as
re
Inc

6

Message to our employees

For information on the personnel system, please refer to the Daiwa People
section (p.26 – 29). The Daiwa
Securities Group is pursuing the application of diverse talents. For example,
although the percentage of female
career-track and regional career-trackemployees is still low for the entire
Group, it is steadily increasing. By
adding performance-based results topersonnel evaluations and simultaneously incorporating factors such ascompliance, we are working to create afair employee evaluation system. We arealso taking steps to enhance training
systems for nurturing employee growth
and actively encouraging employees toparticipate in training programs. With
regard to the workplace environment,
we are working to create a more
employee-friendly environment throughideas such as a designated smoking areasystem.

Message concerning society and the environment
Businesses have an obligation to society
to achieve compliance that observeslaws, various regulations and other rules
generally respected in the community.
Consequently, compliance is a criticallyimportant activity to ensure that the
Daiwa Securities Group does not betraythe trust of its stakeholders, beginningwith its customers.10
It is also important to actively contributeto local communities as a business group.
At the Daiwa Securities Group, we aremaking a social contribution through support for volunteer activities and NGOs
and through educational programs andpolicy proposal activities that take advantage of Daiwa's financial and economic
expertise in the Group's main business.11

8

For details, please refer to Corporate
Governance, p. 14 – 15.

9

For details, please refer to Information
Disclosure, p. 16 – 17.

10 For details, please refer to Compliance,
p. 18 – 21, Toward Greater Customer
Satisfaction, p. 23, and Daiwa People, p. 28.
11 For details, please refer to As a Corporate
Citizen and a Member of the Community,
p. 30 – 31.

On the other hand, given the nature of
the finance business, awareness of thelink between our business and its environmental impact has been weak at the
Daiwa Securities Group. Upon compiling environmental performance datasuch as electricity consumption, service
water consumption, and waste disposal,
we have realized that our environmental
burden is substantial. Even with regard
to paper usage, we learned that thequantity of paper required for the large
quantities of prospectuses and computer forms used to record securities transactions was far beyond the level we had
imagined.
We discovered, on the other hand, thatin many instances individuals responsible for purchasing at the Group compa-

nies were independently taking a"green" approach to purchasing. 12
Furthermore, opportunities for employees to be directly involved with environmental issues from a business perspective also began to appear through theplanning and sales of the "Mrs. Green"
eco-fund. The awareness began growingthat the environment is not someone
else's problem, but is also related to us
and at the same time provides a business opportunity for the Daiwa
Securities Group. While developmentof an environmental management system for the entire Group is a futureissue, we are pursuing activities fromthe standpoint of those close at hand,such as energy conservation and reduction in the quantity of paper used.13

12 “Green purchasing” refers to making
choices when selecting and buying
products and services that will place assmall a burden as possible on theenvironment. In April 2001 Japan enacted a
Green Purchasing Law (Law Concerning thePromotion of Procurement of Eco-Friendly
Goods and Services by the State and Other
Entities) that places a green purchasing
obligation on institutions, including
agencies of the central and local
governments, and requests that local publicorganizations, private companies andcitizens also seek to practice green
purchasing.
13 For details, please refer to Environmental
Performance, p. 32 – 34.

7

Management Vision
and Sustainability
Daiwa Securities Group Corporate
Principles
Customer trust
We stand on the trust of our customers. Prudently putting customer interests first and achieving a high standard of professional competence, we
intend to become Japan's most appealing securities group at home andabroad.

Human values
People are the source of our competence. We highly value creative initiative by the individual, we cherish the challenging spirit and appreciate
the capability and contributions of the individual.

Total compliance
We can be proud and prosper only when we achieve total compliance andgain the trust of our customers, our market and of our world society. We
will maintain high standards of professional ethics and a fair code of conduct, thereby contributing to the development of our society.

Sound profit
Our fundamental objective is to enhance shareholder value throughsound business operations. We will offer valuable services to our customers and earn adequate rewards for distribution to our shareholders.

Brand Statement
We the Daiwa Securities Group are committed to acting as
our clients' best partner and promoting their financial wellbeing. In order to achieve this, we shall redefine currently
accepted best practice drawing on the following three corevalues.

We Shall Provide Products andServices that Exceed Expectations
It is important that we apply detailed knowledge of customer
needs, innovation in our internal processes and a strong customer focus to provide solutions that routinely exceed customer expectations.

We Shall Bring the Full Strength of
the Group to Bear
Newspaper advertisement for
the Daiwa Securities Group's
100th anniversary

Cooperation among Group companies sweeping aside traditional corporate barriers, a flexible approach to business andswift decision making will enable us to offer comprehensive
financial services precisely geared to meeting our customers’
financial goals.

The new Daiwa and its
Corporate Principles
In March 1998, the former Daiwa
Securities (now Daiwa Securities Group
Inc.) introduced a set of Corporate
Principles founded on four pillars: customer trust, human values, total compliance and sound profit. A year earlier
in 1997, Daiwa Securities and certain
executives and employees were charged
with violations of Japan's Securities andExchange Law and Commercial Codebecause of acts such as illegal payoffs tosokaiyacorporate
racketeers.
Immediately following this incident, a
new management team led by YoshinariHara, who assumed office as the newpresident (currently President and CEO
of Daiwa Securities Group Inc.), sought
to instill in all executives and employees
a greater awareness of corporate ethics
and the obligation to observe the law.
In addition, by restructuring the internal control system as an organization,
the Corporate Principles creating themoral framework for the new Daiwa
were enacted as evidence of Daiwa's
determination to fulfill the social mission of the securities business.
This was also a time when Japan's
financial system was swept into a periodof immense change initiated by Japan's
Big Bang. With the goal of building a
new business model that would enable
us to survive the rough seas of financial
deregulation, in April 1999 the company was separated into Daiwa Securities
Co. Ltd. and Daiwa Securities SB
Capital Markets Co. Ltd. (currently
Daiwa Securities SMBC) and simultaneously shifted to a holding company
management structure—the first among
Japan's listed companies. The objectiveof this substantial reworking of the
management structure was to thoroughly pursue customer-focused management by establishing separate companies capable of meeting the respective
needs of individual investors and corporate clients. In this regard Daiwa determined that as the Daiwa Securities

We Shall Continually Challenge theLimits of Financial Best Practice
Exploitation of our substantial store of professional knowledge and a pro-active approach to team building will enable
us to remain pioneers in our marketplace.

81

For details, please refer to the Corporate
Branding Project website(http://www.branding.daiwa.co.jp/).
Please note that this website is only available
in Japanese.

Group, "group management" under aholding company would be the optimal
management organization for maximizing corporate value, managing risk andpromoting communications with various stakeholders.

Corporate Branding
Project
Today the mission of the securities
industry is to become a reliable partner
for customer asset management andsmooth procurement of funds in financial markets that are being transformedby globalization and deregulation. With
this in mind, at Daiwa we are keenly
aware that the most critical issues weface are to focus the Daiwa Securities
Group's strengths and capabilities andearn our customers' trust. To establish
the core values that bind the Daiwa
Securities Group and to instill these
within and outside the Group companies, in August 2000 we began the
Corporate Branding Project encompassing the main companies in the Group.
Beginning with questionnaire surveys
conducted at the Group companies aswell as at outside firms, we examined
the brand concept in discussions among
managers and employees. In March
2001 we publicly announced our Brand

Corporate brand management
and sustainability

Statement, which clearly states Daiwa's
promise to its customers.1
As the second stage of the Branding
Project, in FY 2001 we undertook
activities designed to instill the Group's
core values in every executive andemployee. All directors and managers
participated in a Group cross-training
program (conducted 16 times during
FY 2001), with approximately 500 participants and with Group President and
CEO Hara himself serving as a lecturer.
Management also engaged in thoroughdiscussions with employees throughout
the Group. One such effort was theManagement Caravan, which enabledmanagers and employees to engage infrank discussions (conducted at every
Daiwa Securities branch during FY
2001). A tremendous amount of energy
and enthusiasm was devoted to sharing
the issues facing the Daiwa Securities
Group. In addition, to convey theGroup brand to other firms outside of
the Group, the Group also conducted arange of communications activities
through various media.
Building our corporate brand is not
something we will accomplish
overnight. Particularly for securities

Customers
Customer satisfaction

Corporate Principles
Customer trust
Human values
Total complianceSound profit

Employees

Shareholders/Investors

Workplace of which
employees can be proud

Enhanced shareholder value

Management Based on
Sustainability

Management Focusedon the Establishmentof Corporate Brand
•
•
•

•

Consistency of corporate
mission and action
Pursuit of customers’ trustand satisfaction
A beneficial cycle of customer
satisfaction and employee
satisfaction••

Corporate governance,
disclosure
Development and operationof internal control systems
Contribution toward society
and the environment as acorporate citizen

Society
Harmony between society,the environment andbusiness operations

firms, whose short-term operating
results may be quickly affected by market fluctuations, a sustained, cumulative
effort will be necessary to establish asound financial position as a trusted,long-term asset management partner.
Consequently, we have positioned our
corporate branding activity as a reformthat will ensure that the Daiwa
Securities Group fulfills the necessaryrole for society and its customers,
achieves its mission as a financial institution, and as a result, generates longterm, stable and appropriate earnings.
Furthermore, in January 2002 theGroup Management Meeting (now the
Executive Committee) decided to createa Sustainability Report that would give
specific form to the brand activities andserve as a topic for promoting reform of
attitudes and outlooks within theGroup companies. This report is theresult.

Brand and sustainability
For Daiwa to establish the corporate
brand it seeks, it is essential that wemanage our companies in a way thatenhances value for all of the stakeholders related to the Group, including customers, shareholders, employees andsociety at large. This approach is consistent with the concept of sustainable
management, which duly gives consideration to business from the dual perspectives of society and the environment. We believe that by managing ourbusiness from the viewpoint of sustainability, consideration of the global environment and social stakeholders such as
people in the community will also
become an important issue and will belinked to the establishment of a corporate brand with the broadest significance.
In May 2002, the Daiwa Securities
Group celebrated the 100th anniversaryof its founding. It is our conviction thatto develop further as a group, reviewing
the appropriate conduct of our corporate activities from the perspective ofsustainability will have a direct causal
relationship with improvement in ourcompetitive power as a firm.
9The Evolution of the Daiwa Securities Group (Since 1997)

Products/
Services• Commenced the "Daiwa CashManagement Program AccountService" (October)• Commenced automatic operations
service through "Daiwa MRF"
(October)

Personnel
Management

Corporate
Citizenship10• Securities industry's first "ACM"(Automatic Certificate [Securities
Transaction] Machine) established(October)• Daiwa Securities Group Inc., (the"Company") first pure holding
company for a listed company,
established (April)• Group's retail division, "Daiwa
Securities," and wholesale division,"Daiwa Securities SB CapitalMarkets" (currently Daiwa
Securities SMBC), spun off (April)• Daiwa SB Investments Ltd. established (April)• Executive Officer System implemented at the Company andGroup companies (April)• Advisory Board established at theCompany (April)• Group Management Meeting (currently Executive Committee) established at the Company (June)• Corporate Ethics Department
established at the Company(September)• Group Medium-Term Management
Plan (through the end of March
2003) announced (March)• System of Group Executive Officers
at the Company introduced (April)• Remuneration Committee, an advisory panel that looks at executive
remuneration, established (June)• First company information session
aimed at individual investors held
(August)• Corporate Branding Project
launched (October)• Group's annual report receives
highest award in "NIKKEI Annual
Report Awards" (December)• New commission system introduced at Daiwa Securities following
total deregulation of securities commissions (October)• Daiwa Securities Three Service
Packages introduced (July)• Daiwa Securities' "Asset Plus"
method, which allows customers tomake one-time payments of stock
commissions, introduced (October)• Daiwa Securities Business Center
Co., Ltd. acquires ISO 9001 certification (November)• Stock option plan implemented(March)• As part of reforms to personnel system, salary increases and promotions based on seniority abolished(April)• Daiwa Management Academy established with the aim being to develop management personnel for the
future (May)• Daiwa Elder System, which allowed
the reemployment of experienced
persons up to the age of 65, introduced (June)• Incentive warrants issued to directors and regular employees ofGroup companies (August)• Corporate Community Affairs
Department established at theCompany (July)• Daiwa Securities Group Inc.'s
shares selected to be included in the"Dow Jones Sustainability World
Indexes" (September)• Fundraising activities conducted toaid relief efforts for volcanic eruption on Miyakejima, heavy rains inTokai region, and earthquake inwestern part of Tottori Prefecture(November)• “Forest Giants” program thatengages in preservation activities for
giant trees supported (December –)19 9 719 9 819 9 9200 0Management,
Governance,
Disclosure,Compliance• Group discloses that payoffs weremade to corporate racketeers• Old management resigns and new
management led by President Hara
begins work (October)• Duration of administrative penalty
from corporate racketeering incident (December to April of the following year)• Purchase of treasury stock is conducted for the first time
(December)• Business Improvement Report submitted as a result of the corporate
racketeering incident (January)• Suggestion box system (system thatallows employees to directly propose ideas to the President) introduced (January)• Corporate Principles established(March)• Medium-Term Management Plan
(through the end of March 2001)
announced (March)• IR Section established (June)• First independent corporate auditors greeted by the company (June)• Holding Company structureannounced, and strategic partnership with Sumitomo Bank (currently Sumitomo Mitsui Banking
Corporation) established (July)• New career tracks, such as specialist
positions and regional-specific positions, established as part of Group'sreforms to personnel system(February)

A Brief History of the Daiwa Securities Group
1902 – Commenced operations as Fujimoto Bill Broker in Osaka
1943 – Fujimoto Securities merged with Nippon Trust Bank to establish Daiwa Securities Co. Ltd.
1970 – Listed on the First Section of the Tokyo Stock Exchange, the Osaka Securities Exchange and the Nagoya
Stock Exchange
1999 – Established Daiwa Securities Group Inc. to move to group management system
2002 – Celebrated the 100th anniversary of establishment
Daiwa Securities Group’s full-fledged efforts toward sustainability began in 1997, immediately before the current
group management system was launched.

200 1• Daiwa Securities Customer Satisfaction (CS) Promotion Department established (April)• Industry's first electronic issuance of investment prospectuses to clients started through
NeTrade, the Daiwa Asset Management's online transaction service (April)• Eco-fund called "Global Eco Growth Fund (Mrs. Green)" established by Daiwa SB
Investments (June)• Saturday operation of all branches started by Daiwa Securities (October)• Daiwa SB Investments ranked No. 1 in the overall evaluations of asset management ability
by R&I (November)• Customer support hotline established by Daiwa Securities (November)• Satellite broadcasting of "Daiwa Satellite TV" begins transmission to general public(December)• Group Management Training Program that shares Group’s sense of values with all directors
and general managers implemented (July – March of following year)• Internship program for college students begun (August)• Series of lectures called "Daiwa Leadership Program" begun as screening and developmenttraining program for mid-level employees (November)• "Japan 401k," a defined contribution pension plan system, introduced (December)• Daiwa Institute of Research published two reports called "Urgent Proposals for
Revitalization of the Japanese Economy" and "Urgent Proposals Concerning the Share
Purchase Organization Plan" (January – March)• Comprehensive alliance formed with Hitotsubashi University's Graduate School ofInternational Corporate Strategy with aim being to form cooperative relationship between
industry and academia in areas of finance and management (May)• Special sponsorship role taken for "Fenice Opera Performance in Japan" (Gran Teatro La
Fenice: La Tournee Giappone) (June – July)• Series of lectures at Keio University entitled "Corporate Governance in the Securities
Market" begun (September)• As part of relief efforts, Group directors and employees, Daiwa Securities Group Inc. andDaiwa Securities of America donated a total of US$1 million to families of victims of
September 11th attacks (October)• NIF Ventures Co., Ltd. listed on JASDAQ Market (March)• Daiwa Securities Group celebrates 100th anniversary (May)• Online voting system introduced by the Company (June)• First external board member of the Company appointed (June)• Term of office for the Company's board members is shortened from two years to one year
(June)• Margin transaction services via Internet commenced by Daiwa Securities (January)• Handling of individual-defined contribution pensions plans begins (March)• Regional index funds, such as the "Shizuoka Benchmark Fund," launched by Daiwa AssetManagement (March – September)• Branch network of Daiwa Securities in Tokyo Metropolitan Area reorganized into a satellite
branch structure (June)

200 2• "Brand Statement," which defines the Group's core values, released to public (March)• Daiwa Securities, Daiwa Securities SMBC and Daiwa Asset Management publicly
announce their "Customer Solicitation Policy" (March)• "Letter from Yoshinari Hara," an e-mail newsletter from President Hara to employees,
begins transmission (September)• Two-way evaluation system for superiors and subordinates introduced at the Company andother related departments also included in evaluation system to establish an all-directional
evaluation system (January)• Daiwa Securities introduced an online training system that utilizes the Intranet (April)• In addition to study-abroad program for MBA candidates, domestic study program newly
established (July)• Joint industry and academia lecture conducted with Tohoku Fukushi University (March)• Comprehensive alliance to conduct joint research on areas relating to financial engineering
formed with Kyoto University's Graduate Division (March)• "Marc Chagall Art Exhibition" sponsored as part of the Group's 100th anniversary celebration (April – December)• 540 employees, related family and previous staff members participated in the cleanup activities for Kujukurihama Beach in Chiba Prefecture (June)• Global Warming Action Program submitted to Tokyo Metropolitan Government (June)

11

Daiwa Securities Group consolidated financial data1(periods ended March 1998 to 2002)
Operating revenues total(Billions of Yen)
800

Profile of
Daiwa Securities
Group Companies

600

400

200

0
1998

1999

2000

2001

2002

2000

2001

2002

2000

2001

2002

Operating income (loss)(Billions of Yen)
250

Sustained Economic Development

200

Activation of Individual Financial Assets

Corporate Restructuring

150
100
50
0

Retail Securities
Daiwa Securities

Distribution/
Underwriting

Nationwde Network
Call Center
Internet

Wholesale Securities
Daiwa Securities SMBC

-50
-100

Underwriting/Product Composition
Equity/Bond Market

1998

1999

Net income (loss)(Billions of Yen)

120
90

Daiwa Asset Management, Daiwa SB Investments

60
30
0

Daiwa Institute of Research

-30
-60
-90
-120

Daiwa Securities Business Center, Daiwa Property-150

NIF Ventures

1998

1999

Total shareholders' equity(Billions of Yen)
800

Daiwa Securities Group Inc.

600

400

The Daiwa Securities Group consists of Daiwa Securities Group Inc.,
which is solely a holding company, and separate Group companies todevelop securities-related businesses. By creating an independent management system for each business sector, beginning with Daiwa
Securities Co. Ltd. in the retail securities business and Daiwa Securities
SMBC Co. Ltd. in the wholesale securities business, the Daiwa Securities
Group seeks to achieve rapid decision making and provide highly specialized services.

200

0
1998

1999

2000

2001

2002

1999

2000

2001

2002

Total assets(Billions of Yen)
10,000

8,000

6,000

At the same time, however, the Group companies are closely interconnected through the mutual provision of products and services, as wellas information. For individual customers, for example, the Group offers
Daiwa Securities Group products and services, including stocks, bonds,
investment trusts and investment information through the branch
offices of Daiwa Securities Co. Ltd.

4,000

2,000

0
1998

1

The scope of consolidation and of application of the equity
method for the results from the period ending March 2000
has been changed in accordance with the Daiwa Securities
Group’s transfer to a holding company structure.

2

Based on the Uniform Accounting Standards of Securities
Companies amended in September 2001, we have also
revised all figures for fiscal periods ended March 2001 andearlier to the same basis.

12

Main Domestic Group Companies
Daiwa Securities Group Inc.

Daiwa Securities Co. Ltd.

Daiwa Securities SMBC Co. Ltd.

Address: 6-4 Otemachi 2-chome,
Chiyoda-ku, Tokyo 100-8101

Address: 6-4 Otemachi 2-chome,
Chiyoda-ku, Tokyo 100-8101

Address: 3-5 Yaesu 1-chome, Chuo-ku,
Tokyo 103-8289

Business: The Group's holding company, which governs and controls the business of each Group company. Stock
Exchange Listings: Tokyo, Osaka,
Nagoya, London, Paris, Frankfurt andBrussels.

Business: Retail securities company,
100% owned by Daiwa Securities Group
Inc. Operates through three distinct
channels: branch offices (126 nationwide
as of August 2002), Call Center and theInternet.

Business: 60%-owned joint venture
between Daiwa Securities Group Inc.
and the Sumitomo Mitsui Banking
Corporation, which operates in wholesale securities markets in Japan and overseas.

Daiwa Asset Management Co. Ltd.
(DAM)

Daiwa Institute of Research Ltd.
(DIR)

Daiwa SB Investments Ltd.

Address: 10-5 Nihonbashi Kayabacho
2-chome, Chuo-ku, Tokyo 103-0025

Address: Daiwa-Soken Building 15-6
Fuyuki, Koto-ku, Tokyo 135-8460

Business: One of the main asset management companies within the Daiwa
Securities Group, which acts as theGroup's development arm for investment trusts. The company is the secondlargest Japanese asset manager.

Business: Provides research, consulting
services and systems development to the
Daiwa Securities Group and externalclients.

Daiwa Securities Business Center
Co., Ltd. (DSC)

The Daiwa Property Co., Ltd.

Address: 3-2 Toyo 2-chome, Koto-ku,
Tokyo 135-0016
Business: Provides securities back-officesupport to the Daiwa Securities Group
as well as temporary staff for securitiesrelated businesses. The company is certified under the internationally recognized
ISO 9001 standard.

Address: 1-9 Nihonbashi Kayabacho
1-chome, Chuo-ku, Tokyo 103-8219
Business: Holds and rents out the Daiwa
Securities Group's office premises andother properties.
*In September 2002 the company took over the
management of properties used for the Daiwa
Securities Group's core business from The Daiwa
Real Estate Co., Ltd.

Address: 7-9 Nihonbashi 2-chome,
Chuo-ku, Tokyo 103-0027
Business: The center for asset-management business for both the Daiwa
Securities Group and the Sumitomo
Mitsui Banking Corporation. An alliancewith the U.S. investment management
firm T. Rowe Price was entered into following the company's formation in 1999.

NIF Ventures Co., Ltd.
(NIF)
Address: 2-1 Kyobashi 1-chome,
Chuo-ku, Tokyo 104-0031
Business: Invests both its own capitaland that of investment partnerships indomestic and overseas private equity
companies. The company was listed on
the JASDAQ market in March 2002.

Main Group Companies - summary data (year ended March 2002)(Millions of Yen)
Daiwa
Securities
Group Inc.

Daiwa
Securities

Daiwa
Securities
SMBC

Daiwa AssetManagement

Daiwa
Institute of
ResearchDaiwa SB
Investments

Daiwa
Securities
Business
CenterOperating revenues

54,793

127,541

109,481

42,47671,809

6,904

9,635

31,187

8,845

Ordinary income

42,400(11,028)

13,231

5,156

5,542

672

1,490

4,822

3,336

Group holdings—

100.0%

60.0%

100.0%

96.4%

44.0%

100.0%

92.1%

79.2%

Daiwa RealNIF
Estate*Ventures* In September 2002, The Daiwa Real Estate Co., Ltd. transferred its business unit which engages in the management of properties used for the Daiwa Securities Group’s core business into afully owned subsidiary, The Daiwa Property Co., Ltd. After completion of sales of its remaining assets, The Daiwa Real Estate Co., Ltd. is to be liquidated.

13

Corporate
GovernanceTo enhance the competitiveness and corporate value of the Daiwa
Securities Group, it is essential that we prepare a Group-wide system that will provide the optimal balance between each company's
independence and synergies and that will enable us to provide themost appropriate services as an integrated group.
Daiwa Securities Group Inc. decides the management strategy ofthe entire Group and evaluates whether the business of each Group
company is being properly managed. In addition, the Group mustsatisfy its obligations to disclose information to its various stakeholders and explain the activities of the entire Group. To ensure
these obligations are met, we have created a corporate governancesystem.
The Daiwa Securities Group's corporate governance system is composed mainly of the Board of Directors and the Board of Statutory
Auditors as the Group management supervisory system, a hierarchy of meetings as the Group management activity execution
mechanism, and various advisory boards.

General Meeting of Shareholders• Beginning with the annual General Meeting of

Shareholders in June 2002, a system that allows
shareholders to vote their shares over theInternet was instituted.

Board of Directors• The General Meeting of Shareholders in June 2002
adopted the following two key changes:(1) Mr. Tetsuro Kawakami (counsel of Sumitomo
Electric Industries, Ltd.) was elected External
Director.
(2) The tenure of each Director now expires after
one year instead of two as previously.

Corporate Governance System (as at end-June 2002)

Board of Statutory Auditors• Overseeing the legality of the Board of Directors'
execution as well as ensuring adequate disclosure
to shareholders and creditors.

Advisory Board• The members, 1 all appointed from outside theGroup, offer the CEO recommendations and advice
based on their long-accumulated experience andknowledge in their respective fields.

Remuneration Committee• The members,2 all except the CEO appointed fromoutside the Group, are mandated to increase transparency as to how Directors' and Executive
Officers' remuneration and fees are determined,
and to consider appropriate levels thereof.

Executive Committee• The Executive Officers, including Group companies'
Presidents doubling as Group Executive Officers,
consider essential strategies covering the wholeGroup and coordinate executive steps to overcome
structural problems of importance across Group
units.

Daiwa Securities Group Inc.
General Meeting of Shareholders
Board of
Statutory Auditors

Board of Directors
External Director

Advisory Board

Directors serving
concurrently as
Executive Officers

CEO
Head of Group Affairs

Remuneration
Committee

Other Directors
Corporate Planning,
PR/IR, IT, Finances,
Personnel Management

Executive Committee
Group Executive Officers
Serving Concurrently as Group Companies' Presidents

Other arrangements for liaison within
Group• Regularly organized setups include GroupManagers' Meeting, Group IT Strategy Meeting,Group Human Resource Meeting, Group PR/IR
Meeting.

14

Group Companies

Corporate governance andinternal control system
For a corporate governance system tofunction properly, a company must firstprepare an internal control system thatwill enable management to exercise adequate control over the firm's organization. As used here, the expression"internal control" is a generic expression that normally refers to compliance(ethics and observance of laws and regulations) and risk management. A variety
of other disclosure items described inthis report also fall within the purview
of internal control. In other words, we
believe that creating a system to properly undertake all activities, not merely
those activities that are directly related
to the Group's principal business of
securities, is indispensable to the sustainable development of the Daiwa
Securities Group.

Advisory Board

has been insufficient in some instances. In
the future, the Daiwa Securities Groupwill work to create and maintain an internal control system that emphasizes theimportance of each sector from the standpoint of sustainability that values harmony between society, the environment andthe conduct of our business.

Please refer to the figure below outlining the internal control system of the
Daiwa Securities Group.

Corporate Governance and Internal Control
Internal Control Reinforces Corporate GovernanceWith regard to the management of sectors
such as the environment, however, which
until now have not been regarded as very
closely related to the main businesses ofeach Group company, internal control

Daiwa Securities GroupThe cross-Group framework of internal control is being established in such areas asdisclosure, corporate ethics, employment/labor, environmentalism and contribution to society.

Internal Control Specific to Group Company Operation

1

Advisory Board:

Daiwa Securities

2

Remuneration Committee:
Koichi Uno, CPA, Tax Accountant
Ichiro Kawamoto, Attorney-at-Law, SeniorPartner, Kawamoto & Miura
Yukio Yanagida, Attorney-at-Law, SeniorPartner, Yanagida & Nomura
Yoshinari Hara, President and CEO, Daiwa
Securities Group Inc.

’

The nucleus of the Group’

Daiwa Securities SMBC

Glen S. Fukushima, President and CEO,
Cadence Design Systems, (Japan) B.V.
Hirotaka Takeuchi, Dean, Hitotsubashi
University Graduate School of International
Corporate Strategy’
personal information.

Kazuo Inamori, Founder and Chairman
Emeritus, Kyocera Corporation
Jiro Ushio, Chairman and CEO, USHIO INC.

investors’

credit risk and liquidity risk. For details, please refer to “
2002 Annual Report.

” in theDaiwa Asset Management
Daiwa SB Investments

The providers of asset management services bear fiduciary responsibilities to thecustomers, who are beneficiaries in their management of investment trust and otherassets. They emphasize appropriate investment/management rules and procedures.

Daiwa Institute of
Research

The supplier of research, consulting and system development services. Emphasizes thevalue added and the fairness required of a provider of information services, as well as
control of system development/management of operations risk.

Daiwa Securities
Business Center

The provider of securities back-office services offers an important infrastructure thatallows brokerage customers to feel secure participating in transactions. Emphasizes
managing and enhancing the quality and accuracy of back-office processing work.

Daiwa Property

This unit, which is engaged in the maintenance and management of real estate such as
branch premises that are used for the operations of each Group company, focuses onproviding a secure office environment in accordance with related laws andregulations.

NIF Ventures

The provider of venture capital services, invests its own funds and funds raised frominvestors via investment partnerships. To ensure fairness among investment entities,
the Company allocates investments based upon allocation rules it has enacted.

15

Information
Disclosure
The Daiwa Securities Group Investor
Relations Website(http://www.ir.daiwa.co.jp/)
Discloses IR information in the form of press releases, summaries of recent operating results, company briefing materials
and graphics, etc. Requests for materials and inquiries fromshareholders and investors are accepted.

Disclosure of financial statements stipulated by Japan's Commercial Code(Japanese only)(http://www.daiwa.co.jp/ir/kessan/)Daiwa Internet TV (Japanese only)(http://www3.stream.co.jp/web/daiwa/)
The Daiwa Securities Group's video and audio site. In addition
to securities-related information for investors, this site also provides IR information such as meetings at which the financial
results are reported and company briefings.

Mailing service for annual reports,business reports, social contribution
reports and other materials

In July 1998, the former Daiwa
Securities (now Daiwa Securities Group
Inc.) established an Investor
Relations (IR) section as part of the
Corporate Planning Department. Until
setting up this section, Daiwa relied
mainly on the mass-media for external
distribution of information. Based uponits experience during the financial crisis
in 1997 when a succession of major
financial institutions went bankrupt,
however, Daiwa has become intensely
aware of the need to actively disclose
information to the markets.
The Daiwa Securities Group discloses
its operating results on a quarterly basis.
Daiwa's IR activities also follow thisquarterly cycle. In addition to releasing
information on quarterly performanceon the IR website, Daiwa Securities
Group Inc. holds telephone conference
calls for analysts and institutional
investors. Because the securities industry tends to exhibit broad swings inoperating results in each period, however, the Daiwa Securities Group does not
publicly issue earnings estimates.

(ir-section@dsgi.daiwa.co.jp)
Individuals who wish to receive reports may request the materials from the IR website or apply by e-mail.

Daiwa Securities Co. Ltd. and Daiwa
Securities SMBC Disclosure Magazine(Japanese only)
Securities firms are obliged under the Securities and Exchange
Law to disclose information. Individuals may view this information at the head offices and branch offices of both companies,
or on their websites.

In its IR activities, Daiwa places greatemphasis on timely and fair information disclosure and on equal communication with all investors. Beginningwith material facts such as the financial
statements, copies of press releases are
published on Daiwa's IR website at thesame time as they are issued to news
organizations. Moreover, to eliminate
to the extent possible any difference inIR website
16

Ranked second in the Nikkei
Business "First Annual IR Site
Rankings" (November 26, 2001
issue)

information provided to institutional
investors and private investors, Daiwa
also archives the materials and graphics
used for briefings conducted for analysts and institutional investors on its
IR website. Furthermore, since the endof the third quarter in FY 2001, Daiwa
has also opened to individuals (on dedicated conference lines) the telephone
conferences held on days when Daiwa
releases its operating results. 1 (Morethan 200 individual investors participated in the conference call when
Daiwa released its FY 2001 operating
results.) For overseas investors, Daiwa
has set up an English-language IR website with content that is nearly identicalto the information on its Japanese-language website and tries hard to eliminate any language-based discrepancies
in the information released.
The Daiwa Securities Group believes
that sharing information and maintaining good communications with a broad
range of stakeholders is an indispensable1

The procedure for participating in the telephone conferences is available on the
Company's website for 2 – 3 weeks prior torelease dates, such as those for announcing
operating results.

2

Sendai, Kanazawa, Kobe, Fukuoka, Niigata,Omiya, Yokohama and Kyoto.

3

For details, please refer to To Our
Stakeholders, p. 6.

1999

An IR presentation meeting mainly aimed at analysts and supervisors of financial institutions.

component of corporate governance.
After deciding in January 2002 to publish a Sustainability Report (this document), Daiwa consolidated its IR
Department and Public Relations
Department in April 2002 and createda new entity, the Corporate
Communications Department, tasked
with disseminating information.

changing the page size to A4 to make it easier to view and understand and devising
additions to the descriptive contents.
Finally, in prior years Daiwa expressed its
appreciation to shareholders only by offering
them calendars. In FY 2002 we also added a
Tax Reader and a Shareholder Appreciation
Gift Catalog (for domestic shareholders
only).

Communications activities
for individual shareholders
and investors

Beginning with the General Meeting of
Shareholders held in June 2002, we introduced a system to enable domestic shareholders to exercise their voting rights via theInternet, a change that was made possible byrevisions to Japan's Commercial Code,mainly for the purpose of increasing convenience for individual shareholders.
Altogether, 606 domestic shareholders took
advantage of this innovation. Another measure that enabled shareholders who wereunable to attend the General Meeting of the
Shareholders held in Tokyo to follow theproceeding of the meeting was to broadcast
the meeting's activities by live satellite relay
to locations in Osaka and Nagoya.

During FY 2001, Daiwa conducted two
company briefings in Tokyo that targetedindividual shareholders and investors andalso held such briefings in eight other cities2
throughout Japan. Approximately 1,500
individuals participated in these presentations.
Another action taken by Daiwa was a questionnaire survey mailed out to all Daiwa
domestic shareholders in the autumn of2001 and that enabled management toobtain much valuable feedback.3 The
Group used these opinions when creating its
FY 2001 Business Report (Japanese only),

2000

2001

2002

Commended for excellence for three consecutive years in the "NIKKEI Annual Report Awards," receiving the Grand Prize in 2000.
17

ComplianceGroup-wide compliance
Establishment of compliance (ethics
and observance of laws and regulations)is an important management issue thatis indispensable for the sustainable
development of the Daiwa Securities
Group. Not only must we observe thelaws and various regulations related to
our key businesses, such as the securities
business, but also we must abide by thespirit of the rules, including other laws
and regulations, and be sincere in our
relationships with all stakeholders.

Table 1: Departments at each Group Company responsible for compliance (as of March 31, 2002)
Daiwa Securities Group Inc.

Corporate Ethics Department
Legal Department

Daiwa Securities Co. Ltd.

Compliance Department
Full-Time Compliance Officers Assigned to Branches
Inspections Department

Daiwa Securities SMBC Co. Ltd.

Legal and Compliance Department

Daiwa Asset Management Co. Ltd.

Legal and Compliance Department

Daiwa Institute of Research Ltd.

Compliance and Audit Department

Daiwa SB Investments Ltd.

Compliance Department

Daiwa Securities Business Center Co., Ltd.

Quality Control Department

The Daiwa Property Co., Ltd.

Corporate Planning Department

NIF Ventures Co., Ltd.

Internal Audit Department

Research Compliance Department

Legal Group
The total number of compliance staff in the departments indicated in the table above is approximately 220.

1

For details, please refer to the January 23,
1998 press release issued by the former
Daiwa Securities Co. Ltd., entitled Reform ofBusiness Activities, which is available on the
IR website (http://www.ir.daiwa.co.jp/
japanese/). Please note that this press releaseis only available in Japanese.

2

For details of each Company's compliancesystem, please refer to the disclosure booklet
that is available on each Company's website(Japanese version only). The URL for Daiwa
Securities Co. Ltd. is
http://www.daiwa.co.jp/Corp/index-s.html(for a booklet explaining business and asset
conditions), and the URL for Daiwa Securities
SMBC Co. Ltd. is http://www.daiwa.co.jp/
daiwasmbc/CorpPlan/Pdf/smbcinfo.pdf.

Table 2: Summary of the Code of Ethics
Daiwa Securities Group Companies have established the following set of rules regarding the actions of directors and employees:• Directors and employees shall closely manage and retain information learned during operational activities.
• In a situation in which there is uncertainty over the legality or validity of any business operation, directors and employees have a responsibility to refer the case to
the appropriate authorities or outside specialists.
• Directors and employees are prohibited from receiving any form of economic gain,such as cash rewards and excessive after-hours business entertainment that are considered outside the socially accepted norm.
• Directors and employees shall proactively communicate and cooperate with bothinternal and external inspectors.
• Directors and employees shall proactively promote and engage in activities that
benefit society and environmental preservation.
• Directors and employees are prohibited from engaging in any form of abuse or
harassment such as racial discrimination or sexual harassment.

18

For this purpose each Group company
has established various rules and regulations appropriate for the nature of its
business. Further, departments responsible for compliance (see Table 1) havebeen assigned and a compliance system
put in place. In addition, Daiwa
Securities Group Inc. and each Group
company will conduct sufficient compliance training and thoroughly addresscompliance issues. This will include theenactment of a Code of Ethics (seeTable 2) as the rules for conduct byofficers, managers and employees, fromthe standpoint of establishing corporate
ethics on a strong basis.
Moreover, we recognize the need forcontinual improvement in the future inareas such as the scope of the laws andvarious regulations covering complianceissues and the frequency with which thestatus of compliance is checked.

Elimination of antisocial
elements
Following the scandal involving payoffs
to sokaiya corporate racketeers in 1997,
the former Daiwa Securities took steps
to broaden and strengthen its compliance system, including changes such asappointing internal control officers,
establishing a General Affairs
Management Office (as it was called atthat time) for the purpose of insulating
the Company and employees from antisocial elements, including sokaiya, andimplementing various policies to reform
its General Meeting of Shareholders.1
With the separation into operatingcompanies and the move to a holding
company structure in April 1999, mostof the General Affairs Management
Office's functions were taken over by
the Corporate Ethics Department within Daiwa Securities Group Inc., andcontrols to eliminate antisocial elements
throughout the entire Group were
implemented. To prevent either direct
or indirect payoffs to antisocial elements, the Daiwa Securities Group
continuously conducts a number ofactivities at each Group company, suchas controlling suppliers or payees foroffice supplies, subscription magazinesand various expenses; checking transaction counterparts and various contracts;

distributing manuals to employees andproviding training designed to prevent
problems.

Brokerage firms
At Daiwa Securities, which principally
provides securities products and services
for individual customers, and at Daiwa
Securities SMBC, which is engaged in
the investment banking business for
institutional investors and corporate
customers, directors and employees are
required to observe related laws andordinances centered around the
Securities and Exchange Law and various regulations prescribed by the Japan
Securities Dealers Association or securities exchanges, as well as laws such as
the Law on Sales of Financial Products.
In addition, both companies have beenasked by the Financial Services Agency
to establish an adequate compliance system formalized in a securities inspection
manual.2
Among the specific items to beobserved, for stocks, bonds and othersecurities that are used for transactions,the companies have established measures such as audits intended to prevent
all unfair transactions and control insider information, beginning with checks
into whether proper price formation is
being maintained. The companies also
check and give directions to ensure that
customer solicitation activities areappropriate. (Please refer to the Daiwa
Securities Solicitation Policy at right.)
Daiwa Securities publishes aCompliance Book on the Company's
Intranet explaining the items required
to achieve compliance and which each
employee must observe, and provides
appropriate online training for employees.

Daiwa Securities Co. Ltd.
Solicitation Policy
Transactions with Peace of Mind
(As of August 31, 2002 )Through the key words “For the Customer,” atDaiwa Securities we shall seek to understandeach customer’s needs quickly, offer the best
proposal for each customer and strive to provide
services that will satisfy each customer, and conclude transactions that will give each customer
peace of mind.
1. We shall observe all laws and regulations, andseek to build a relationship of trust with eachcustomer.
2. We shall engage in appropriate investment
solicitations and continually increase ourknowledge of laws and various regulations
and our business.
3. We shall prepare customer records, seek tounderstand each customer’s intentions andactual situation, and market products that areappropriate to each customer.
4. When entering a transaction, we shall try to
explain the details and risks of the product ina manner that is easy for each customer tounderstand.
5. To create transactions that are in accordancewith each customer’s wishes, we shall prepare
our three services—Daiwa Consulting, Daiwa
Call and Daiwa Net.
6. When making solicitations by telephone andwhen visiting customers, we shall try to do so
at a time that is suitable for the customer.
7. If you have any concerns regarding any transaction, please contact the department or
branch administering the transaction or the
Customer Support Hotline (Tel: 81-3-36655111, Japanese only).

ordinance or regulation or Company
guidelines and rules internally after conducting an investigation into the facts.
As of the end of August 2002, the company was investigating the facts concerning violations in several cases.

At Daiwa Securities SMBC, complianceefforts are centered on the Compliance
Officers, who give directions to eachdepartment, office and branch. (Pleaserefer to the following page for details on
Daiwa Securities SMBC's Compliance
System.)Furthermore, the Company handles
employees who have violated a law,

19

Daiwa Securities SMBC's Compliance System

Board of Directors

Board of Statutory
Auditors

Audit<Members>

Legal & Compliance Committee

Executive Committee

President and
Deputy President
Directors
Divisional Officers
Corporate Auditors
Lawyers of Legal &Compliance Department<Chairman>

President
Subcommittee

Reporting ofmajor issues
Guidance

Overall policy for internal
administration and detailed
assignment, proposal,
reporting and others.

Chief Internal Administration Supervisor
Reporting of major issues

Progress report

Assistant Internal
Administration Supervisor<Legal & Compliance Department>
Planning Section

Overseas Compliance Section

Legal & General Manager ofCompliance Dept.

Establishing legal
guidance measuresfor entire company

Compliance Section <Compliance Officer>

Legal guidance foroverseas offices, monitoringof compliance system
and investigations
1st & 2nd Investigations Sections
Planning, proposing
and implementing
investigations andimprovement guidance•Legal opinions and guidance on business execution and dealing withcompliance incidents and acceptable business conduct•Pricing checks, monitoring of transactions

Prior consultations

Compliance guidance

Monitoring

Internal investigations

All departments and branches<First assessment of legal issues>

Sales Managers and Internal Administration Supervisors
Internal Administrators

Prior consultation

First check

Sales and Corporate Officers

20

Asset managementcompanies
Daiwa Asset Management Ltd. andDaiwa SB Investments Ltd., which
manage customers' assets, operate withthe care required of them as experts.
Both companies have the duty to takecare and act as a good manager when
executing their business and observe theduty to act in good faith, avoiding conduct that is contrary to the interests of
their beneficiaries.
As an asset management company,
Daiwa Asset Management has adopted
compliance as one of its most importantmanagement issues. To implement
meaningful compliance practices, wehave codified our basic attitude regarding compliance in the Basic
Compliance Policy. To achieve thegoals set out in this policy we havedrafted a Compliance Program as apractical guide. Together with theimplementation of the individual practices defined, we conduct regular compliance checks. We also regularly hold aCompliance Council Meeting chairedby the company president, at which
managers report on compliance status
and discuss important compliance matters. Finally, by providing in-house education for employees through periodic
compliance training, we promote meas-

ures that will raise awareness of laws
and regulations.
Daiwa SB Investments has compiled its
basic principles of conduct as an investment management company into a
Compliance Manual. It seeks to establish internal controls through a basic
program of observance of laws and regulations. Moreover, the Company not
only complies with laws and regulations
for practicing fiduciary responsibility,
but has also declared “cultivating astrong sense of ethics” as a corporate
goal, and is working to establish a system of corporate ethics to be applied
globally as an asset management company.

Analysts
To ensure their organizational independence, analysts who provide information to customers in support of theirinvestment decisions work under the
direction of the Daiwa Institute of
Research, a company that is separate
from both the brokerage firm Daiwa
Securities and Daiwa Securities SMBC.
In addition, the Daiwa Securities
Group is in the process of carrying out
a number of unique measures, such as
establishing a Research ComplianceDepartment at the Daiwa Institute of
Research in FY 2001, and strengthen-ing systems for checking the impartiality and objectivity of investment-decision information from analysts.

Venture capital
As venture capitalists, the employees of
NIF Ventures Co., Ltd. must be completely impartial. In addition to originating its own investment proposals,
the Company has made the consistent
management of all activities—from due
diligence (thorough examination of
proposals) to explanations of proposals
to the Investment Committee, tohands-on management (support, company growth) following an investment—the foundation of its operations.
Moreover, NIF has established the general principle that when a firm in which
NIF has invested goes public, the selection of a lead-manager securities company shall also be left to the discretionof the managers of that company.

Copyrights and patents
At the Daiwa Securities Group, we haveestablished rules for the management ofintellectual property rights (patents,
new practical application proposals,
ideas, trademarks, copyrights) and work
to protect the Group's own intellectual
property as well as to prevent violationsof intellectual-property rights belonging
to other parties (other companies). Forprotection of its own intellectual property rights, the Group has formulated
policies and guidelines concerning its
intellectual property and conducts
research of the legal system and promotion of applications. Of these, controlof business model patents, trademarks
and copyrights forms the core of
Daiwa's activities. By recommending
business model patent applications,
Daiwa not only defends its existing
business but also gives consideration to
improving its drive to develop new
businesses and new services.

Status of administrative
penalties, etc.
Since the former Daiwa Securities wasforced to halt part of its business in1997 following the payoff scandal mentioned earlier, 3 as of the end of July
2002 there have been no instances inwhich a securities company or asset
management company belonging to the
Daiwa Securities Group has been subject to an administrative penalty fromsupervisory authorities.

3

For details, please refer to the press release
issued on December 18, 1997 by the former Daiwa Securities Co. Ltd. under theheading "Administrative Sanction to theCompany," which can be read on the
Company's IR website.
(http://www.ir.daiwa.co.jp/japanese/)21

Toward Greater
Customer Satisfaction

Drawing on past experience, since 1997 the Daiwa Securities Group has
been studying what can be done to further improve the level of customer satisfaction. As a result, the Group used separation of the operating entities and movement to a holding company structure in 2001 as
an opportunity to draft its Brand Statement expressed as a promise to
its customers,1 under the corporate slogan, "Setting the Standard."
Today the Daiwa Securities Group is engaged in a broad range of activities to improve customer satisfaction, including new service introductions.

Corporate slogan"Setting the Standard."
Our corporate slogan expresses the strong will of the Daiwa Securities Group tocontinue providing new financial services for the 21st century that go beyond
customer expectations, company and business boundaries, and present-day
standards where common sense equals standards.

22

Daiwa Securities Co. Ltd.
Customer Satisfaction (CS)
Promotion Department andCustomer Support Hotline2
In April 2001, Daiwa Securities established a new CS Promotion
Department. At Daiwa Securities, mostservices and contact with customers
have conventionally been handled bysales staff members. However, we determined that expanding our communications with customers by creating anorganization and systems that will
enable us to promote customer satisfaction across the entire company is indispensable. At the CS Promotion
Department, we have begun by creating
employee awareness through training
and channels such as CS Message, ourin-house publication.
As a result of the First Branding
Questionnaire Survey we conducted in
September 2001, which we sent to5,000 Daiwa Securities customers(1,444 individuals responded) and to all
6,200 branch office employees, welearned that when it came to after-sales
service from sales staff and dominanceof services compared to other companies, we still cannot say that our customers' level of satisfaction is sufficient.
We will continue this research into thelevel of satisfaction as a benchmark for
CS improvements by performing thesurvey again in FY 2002.
After receiving the results of the abovementioned questionnaire survey, Daiwa
securities established a Customer
Support Hotline in the CS Promotion
Department in November 2001. The
system previously in place for receiving
customer requests and complaints was
unable to disseminate information
throughout the entire company. By
regarding the opinions received by the
Customer Support Hotline as a valuable
management resource, however, it has
become possible to create a system toeffectively use such information internally. Specifically, by exchanging concrete examples and problem-solving
measures and introducing these to managers and employees at all of Daiwa

Securities' branches each week as the
Customer Support Hotline News, theoffice is fulfilling a valuable role for CS
improvement.
During the three-month period fromJanuary to March 2002, the Customer
Support Hotline received 1,109 telephone calls, of which 184 (excluding
repeat calls on the same issue) were customer complaints. As of July 2002, 44of these 184 customers had closed their
Daiwa accounts. On the other hand,nearly the identical number of individuals—40 customers—placed additional
assets with Daiwa Securities for management. The issue facing Daiwa is to
respond appropriately to customers'
requests and complaints in a mannerthat will increase the number of customers who continue using Daiwa
Securities. For example, in FY 2001, we
reviewed the Call Center's automatedvoice instructions and revised the integrated transaction application form.
In addition, the CS Promotion
Department has adopted a best practicesystem that publicly recognizes andhonors the branch that contributed
most to brand building. Through thissystem, awareness about customer satisfaction activities are shared throughout
the entire company.
Introduction of the CRM system:
Accurately capturing customers'
needs
The financial products handled by
Daiwa Securities include a variety of
securities, such as stocks, bonds, investment trusts and insurance, which covera broad range from low-risk to high-risk
products and from products with comparatively simple design to those whose
design is exceedingly complex.

1

For details, please refer to Management Vision
and Sustainability, p. 8 – 9, and the Corporate
Branding Project website (http://www.
branding.daiwa.co.jp/).
Please note that this website is only available inJapanese.

2

Daiwa Securities' Customer Support Hotline
Tel: 81-3-3665-5111 (Japanese only)

Accordingly, we believe that to be atrusted securities company, it isabsolutely indispensable that we carefully consider customers' needs and investment experience when recommending
products to them. Nevertheless, becauseof the complaints received from customers, we also understand that we stillmust improve our effort to fulfill our
duty to explain products and services
until we achieve the customer's understanding and consent.
As one measure to address these issues,in March 2002 we introduced a stateof-the-art CRM system from Japan
Siebel Co., Ltd. on the Intranet
installed at every Daiwa Securities
branch. The system makes it possible
for any person in the branch to accesscustomer information, transaction history and also a history of explanations
that have been given to the customer inthe past. It also makes it possible torespond adequately to consumer needs.
Currently Daiwa Securities is accumulating a base of information at all
branch offices so that the CRM system
can function effectively.
Employee performance evaluation
system and compliance forcustomers
Daiwa Securities' business consists ofbuilding mutual trust with customers
and providing consultations on asset
management. For performance evaluations of sales employees, including
branch managers, the amount of assets
received from customers is an important item. Response toward complianceissues also carries a large weight in such
evaluations.
To instill greater consideration andknowledge regarding compliance, in
2002 Daiwa Securities began conducting legal- and compliance-knowledge
training using the Company's Intranet
to promote compliance training in
addition to the group training provided
in the past.

Daiwa Securities branchManagement of customer information
Daiwa Securities is devoting all of its
capabilities to strengthening information security, including customer information. Not only does Daiwa closely
control all electronic customer information at the headquarters and branch
offices, Call Center and Daiwa Direct(Internet), it also classifies all written
customer information such as documents into three ranks according to thelevel of importance and attaches a serial
number to control significant documents.
Once the legal storage period for significant documents has ended, Daiwa
Securities shreds all documents and further processes them by dissolving theshredded materials under the watch ofattending employees.
Management of assets depositedby customers
Daiwa Securities retains the marketablesecurities and cash deposited by customers as customer assets, using safe
and certain procedures based on legal
ordinances such as the Securities andExchange Law. For example, stock certificates received from customers are
stored at the Japan Securities
Depository Center, Inc., and cash isdeposited with a trust bank as customer
discretionary monies. In all instances,
customer assets are segregated from
Daiwa Securities' own assets. Daiwa
Securities regards the thoroughness of
its separate safekeeping to be a vitally
important activity for building thehighest degree of mutual trust with customers. Furthermore, Daiwa obtains
reports from an independent third party
certifying that client assets are being
maintained in accordance with the law
and in an appropriate manner.

23

Daiwa Securities Call Center

Providing information tocustomers
The basis of securities transaction services is the provision of timely, accurate
information to a broad range of customers. In addition to disseminating
information through sales staff and theCompany's website, the Daiwa
Securities Group makes information
available through a variety of media
such as Daiwa Internet TV; Daiwa
Market Scope, which is jointly managedwith Nihon Keizai Shimbun, Inc.; andDaiwa Satellite TV (SKY PerfecTV!,
channel 766).3
Providing services that address
customers' needs

once each month Daiwa sponsors a
Saturday seminar. This approach is
popular with our customers because it
enables us to address the needs of customers who cannot come to an office
on weekdays and customers who wish
to take time when discussing their asset
management needs.
Expansion of margin trading services
In response to customer requests,
Daiwa Securities began margin trading
services in November 2001 as a new,specialized service for customers of
Daiwa Call and Daiwa Net. In addition, in July 2002 Daiwa lowered theinitial deposit required for using themargin trading service from ¥3.0 million to ¥1.0 million.

Daiwa Satellite TV studioties companies released by the Nikkei
Kinyu Shimbun on January 4, 2002,
the Daiwa Securities Group earned thenumber two spot for the second consecutive year. This status reflects thestrong, positive evaluations received
from corporate customers by Daiwa
Securities SMBC, the principal memberof the Daiwa Securities Group coveredby this ranking. In addition, in a survey
conducted by a well-known consulting
company in the United States, Daiwa
Securities SMBC was ranked number
one in customer satisfaction in multiple
sectors, particularly the bond and derivatives sectors. Daiwa Securities SMBC
also earned first place in the domestic
corporate straight bond league tables for
FY 2001.

Three Service Packages
In July 2000, Daiwa Securities beganoffering its Three Service Packages. The
Three Service Packages meet customers'
diverse needs by allowing the transaction channel customers can use, theproducts and services handled and thecommissions applied to differ according
to the selected package. Customers canselect from the three service packages—
Daiwa Consulting, which offers face-toface services at a local office; Daiwa
Call, which offers Call Center transactions; and Daiwa Net, which offers
Internet transactions—according totheir own investment preference.
What's more, customers may alsochange the service package used to suit
their own needs. This service is unique
to Daiwa Securities, where we want toincrease the level of customer satisfaction by creating systems that can
respond to every customer need.
Saturday business hours
Under the catchphrase "Make
Saturdays Your Consultation Day,"
Daiwa Securities has offered Saturday
office hours at every Daiwa Securities
branch office since October 2001. In
addition to providing investment consultations with customers at the offices,24

Investment clubs
Investment clubs, which are clubs
formed by close friends and acquaintances at offices, schools and other locations, are groups that make securities
investments by pooling the group members' capital. Investment clubs first
appeared in the United States, where
numerous clubs have been establishedsince the 1940s. Several tens of thousands of clubs are said to be currently
active. Since backing the establishmentof the first investment club in Japan in
1996 for the purpose of supporting andnurturing individual private investors,
over the years Daiwa Securities has supported the establishment of 140 clubs.
These clubs account for 70 percent of
all domestic investment clubs currently
active. In addition to distributing a
guidebook at its branch offices throughout Japan that explains how to establish
an investment club, Daiwa Securities
also provides assistance in other ways,
such as dispatching Company employees to clubs as lecturers.

Daiwa Securities SMBC Co.
Ltd.
In the "Financial Institution Popularity
Rankings," an overall ranking of securi-

The Company's biggest hit product in
FY 2001 was the Enman-Sai bond, a
type of guaranteed-principal structured
bond developed and sold by Daiwa
Securities SMBC. While the productname Enman-Sai bond stems from thefact that these securities are yen-denominated and the principal is guaranteed atmaturity (or at redemption before
maturity), it simultaneously denotes ourdesire to develop and sustain a harmonious relationship with investors.
Behind this successful product was theactivity of a new product development
team, organized across division lines inorder to accurately understand our customers' latest needs. The development
process used by this team received acommendation as a "best practice"
within the Daiwa Securities Group.

Daiwa Asset Management
Co. Ltd. (DAM)
To increase the trust that beneficiaries
have in Daiwa Asset Management andto improve fund performance, efforts
are being made to improve theCompany's operational structure andrisk management system. Furthermore,
DAM is strengthening the system thatprovides information and support forthe sales company that sells the funds
DAM manages. Through this system,
the Company is aiming to improve thequality and increase the quantity of
information and explanations that isprovided to clients who invest in thefund via the sales company.
Daiwa Asset Management conducts
direct sales of funds via the Internet andits call center, and was the industry
forerunner in achieving electronic delivery of fund prospectuses over theInternet. Not only has this increased
customer convenience, but it has also
had the added benefit of reducing thequantity of paper used. In other areas aswell, DAM is aggressively pursuingways to provide information to customers, such as preparing investment
reports and making the weekly andmonthly reports describing the securities included in its funds available ontheCompany's
website(http://www.daiwa-am.co.jp/; only
available in Japanese).
Daiwa Asset Management is also focusing on developing various financial
products that meet the needs ofinvestors. In April 2002, DAM established and began managing the
Shizuoka Benchmark Fund. This fundis a local Shizuoka community-based
assistance fund that seeks to invest infirms whose headquarters are located in
Shizuoka Prefecture and firms thatmove into Shizuoka Prefecture and create new employment (including public
corporations), for the purpose of
enabling the prefecture's inhabitants toeasily participate in the promotion of
local industries. The Company also set
up the Ibaraki Benchmark Fund andKanagawa Support Fund in July and
September 2002, respectively, based on
the same concept. Daiwa AssetManagement is currently applying for abusiness model patent on these funds as"regional index" funds.

3

More detailed information regarding the information sent to customers can be obtained at
http://www.daiwa.jp/ (only available in Japanese).

4

CMM is a model developed by the Software
Engineering Institute at Carnegie Mellon University
under consignment from the U.S. Department of
Defense.

Daiwa Institute of
Research Ltd.
Daiwa Institute of Research, which proclaims "improving customer satisfaction" as its management policy, isengaged in a variety of efforts to provide high-quality solutions, encompassing research, consulting and systems,
for a wide range of needs.
Improved performance in analysts'
rankings
In the "14th Annual Analysts
Popularity Survey" conducted by the
Nihon Keizai Shimbun Inc. andannounced on March 25, 2002, Daiwa
Institute of Research ranked fourth inthe overall evaluations and third in thecompany research analysts division.
Compared with the prior year, theCompany moved up in the overall
rankings and jumped from eighth to
third place in the analyst rankings
despite having made no major changes
in the research team's lineup. This
reflects the strong positive assessmentsof DIR's abilities in areas such as providing customer-oriented investment
information.
Computer system-based quality
improvements
In its computer systems as well, Daiwa
Institute of Research is devoting efforts
to strengthening various quality assurance systems through the use of CMM(Capability Maturity Model),4 withthe goal of further improving the levelof customer satisfaction.

Daiwa SB Investments Ltd.
Daiwa SB Investments was ranked
number one in the overall evaluationsof asset management capabilities(including trusts and life insurance) inthe "2001 Investment Trust
Institutional Pension Client Evaluation
Survey" conducted by Ratings &Investment Information, Inc. (R&I).
This was the seventh time the survey,
which studies corporate pension
schemes (1,802 companies with
employee pension funds and 2,182
companies with tax qualified pension
plans), had been conducted. In terms ofscope, the survey is the largest in thenation. For these reasons, the survey has

become an important tool for pension
plan people who are looking for a new
pension plan manager. There are several
reasons why we think Daiwa SB
Investments received such high praise in
the survey. The first could be because of
the synergies created as a result of themerger between two investment advisory companies that operate in two different industries (banking and securities).
The second could be because theCompany firmly maintains a consistentinvestment philosophy and style that isbased on the value management ofdomestic stocks. Another reason could
be because the Company has established a management system andprocess in response to the trust placedin it by our customers.
With regard to strengthening of investment activities, Daiwa SB Investments
has always made efforts toward theestablishment of corporate governanceand, on that account, development ofstrong capital markets. This is achieved
through the exercise of voting rights inline with rational screening standards
and internal Company guidelines fromthe viewpoint of the responsibilities of atrustee.

Daiwa Securities BusinessCenter Co., Ltd. (DSC)
The Daiwa Securities Business Center
provides securities back-office support
to Group companies such as Daiwa
Securities and Daiwa Securities SMBC,
as well as securities firms outside theGroup. In November 2000, theCompany was the first in Japan toacquire international standard ISO
9001 certification concerning quality
systems as a securities back-office service provider for its service division for
securities firms outside the Group. By
building on know-how that earned it
the ISO certification, the Company istaking steps to improve and enhance its
quality control and quality assurance
systems, introduce this quality management system into all business activities,
and strengthen measures to enable customers of securities companies to conduct their transactions without worry
and with a sense of security.
25

Daiwa People

Employment andequal opportunity
Types of employment
The employees of the Daiwa
Securities Group are broadly classified
into employees, securities advisers andtemporary employees, as shown in thetable below, mainly according to theiremployment contract period. In addition, each Group company hires
employees in occupational categories
such as career-track employment, specialized employment and secretarial,
depending upon the characteristics of
its business.

The Daiwa Securities Group has declared "valuing human resources" tobe one of the pillars of the Group's corporate principles. The employeesof each of the Group's companies are important stakeholders who support the sustainability of the Daiwa Securities Group. Of course, Daiwa
promotes the observance of all employment-related laws, regulations
and rules. For the Daiwa Securities Group, a key member of the financial
services industry, individuals are the source of our competitive edge.
Our emphasis on employees' pride and satisfaction in their work (ES) is
indispensable for improving the quality of our products and services
and for customer satisfaction.
Based on this thinking, we have made equal opportunity, fair andimpartial employee evaluations and compensation, and provision of
education and training opportunities the foundations of the Group's
human resources management.

Female employees
The Daiwa Securities Group actively
provides positions for women. As of
March 2002, the Group had 937
women employed in career-track andregional career-track employment1 programs. In addition, the Group also
employs approximately 200 Telephone
Service Representatives (TSRs) at theCall Center who provide an essential
service channel for Daiwa Securities.
The majority of TSRs are women, andalmost half of the supervisors and assis-

Domestic employee composition of the Daiwa Securities Group1 (as of March 31, 2002)
Employees

6,656

116

(Career-track employment)4(6,073)(–)(Management)(2,951)

(–)

3,559

988

Male

FemaleTotal

Securities advisors2(Career-track employment)4

(937)

(–)

(Management)

(36)

(–)

10,215

1,104

Temporary employees3

1,367

1: Total number based on consolidated domestic Group companies. In addition to the employees shown in this table, Daiwa had 1,268 overseas employees and 25 temporary overseas
employees as of March 31, 2002.
2: "Securities advisers" are employees engaged in sales at Daiwa Securities on the basis of a one-year employment contract.
3: "Temporary employees" are employees working a second job or part-time; the numbers shown are the average numbers of temporary employees during the year. Temporary employees
are primarily women, although some men are also included in this category.
4: Includes regional career-track employees and specialized employees.

26

A TSR at the Daiwa Securities Call Centertant supervisors (30 in total) who are in
charge of the TSRs are also women.
Nevertheless, out of 2,987 individuals
in management positions at the Daiwa
Securities Group, only 36 are women(as of March 31, 2002), so the issue of
appointing greater numbers of women
to management positions remains. The
reason for this is that in the past there
were only a small number of women
employed in any career-track employment program. However, the group has
been making full-fledged efforts toemploy more women in the regional
career-track employment program since
FY 2002 (in April 2002 the group
employed 712 new university graduates
into career-track and regional careertrack employment programs, of which
361 were women). Daiwa intends tosteadily increase the number of female
managers in the future.

1

Regional career-track employment is locallyrestricted career-track employment, includingtransfers within Daiwa Securities, but without
requiring the employee to relocate.

2

Excludes Daiwa Asset Management Co. Ltd.,
where a separate employees' union has been
set up, and The Daiwa Property Co., Ltd.,
which does not have an employees' union.

Promoting employmentof physically and intellectually challenged individuals
The Daiwa Securities Group is also
aggressively promoting the employmentof physically and intellectually challenged individuals. As one example,
since FY 2000 we have continuously
provided internship opportunities at
Daiwa Securities Business Center(DSC) for students at schools for the
hearing-impaired to receive training
while working at the Company for one
week, and we have hired graduates fromschools for the hearing-impaired as
employees. As a result, not only does
Daiwa provide an opportunity for hearing-impaired individuals to demonstrate their capabilities, but also other
employees have voluntarily joined sign
language study meetings, and we continue to create a workplace environment that fosters mutual understanding
between employees. At the Daiwa
Securities Group's initiation ceremony
for new employees, DSC employees are
responsible for sign language interpretation. Through these sorts of activities,
the Daiwa Securities Group is showingthat it is committed to creating a comfortable workplace environment forpeople with disabilities.
As of March 2002, Daiwa Securities
Group Inc. as well as Daiwa Institute of
Research had separate disabled person
employment rates that were higher than
the 1.8% legally required employment
rate. However, the remainder of theGroup companies unfortunately did
not meet the legal employment raterequirement. The average disabled-person employment rate was 1.54% (144Group Management Training

people as of March 2002). The
Company cannot say that it provides
ample employment opportunities forpeople with disabilities, and therefore
we will continue our efforts to employ
more physically and intellectually challenged individuals through measures
such as participation in employment
forums for physically and intellectuallychallenged individuals and hiring activities at all Daiwa Securities branch
offices throughout Japan.

Employees’ union
Together with the shift of the Daiwa
Securities Group to group management
under a holding company structure in
April 1999, the employees' union of
Daiwa Securities (formed in 1946) was
reorganized and changed its name to
the Daiwa Securities Group Employees'
Union. Total union membership as ofthe end of March 2002 was 6,419. The
union is set up with each Group company as a branch, and a Central
Executive Committee has been createdas an organization to manage union
activities across branches.2
The Daiwa Securities Group
Employees' Union acts by giving toppriority to creating opportunities for its
members to exchange information
across the Group, and to improving theworkplace environment through worker
initiatives. In addition, the union seeks
to improve employee satisfaction andmaintain excellent labor relations
through the Group's development.
Group management negotiates with theemployees' union and exchanges opinions regarding working conditions, suchas employee compensation, the per27

formance evaluation system, working
hours and the workplace environment.
Proposals created through initiatives
such as employee opinion and attitude
surveys conducted by the employees'
union are a valuable source of information for upper management.

Personnel evaluation andcompensation
With the move to a holding company
structure in April 1999, the Daiwa
Securities Group reformed its personnel
system and abolished the compensationand promotion systems based on seniority. The Group has continually carried out improvements to its personnel
system that are designed to evaluateeach individual employee fairly and todirectly reflect the results through differences in individual compensationand the pace at which individuals arepromoted. As a mechanism to improve
the fairness of evaluations and help allof the individuals involved agree upon
the results, in January 2001, Daiwa
Securities Group Inc., Daiwa Securities,
Daiwa Securities SMBC and Daiwa
Asset Management instituted a "180-degree evaluation system" in which
managers are also evaluated by theirsubordinates. (Daiwa Securities Group
Inc. has instituted a "360-degree evaluation system," by which managers arealso evaluated by employees in otherdivisions with whom managers interact
in the course of business.)
As part of its employee evaluation
process, Daiwa is moving to establish
an evaluation system that takes into
account compliance and customer
responsiveness. With the exception of
temporary employees, Group companies include compliance-related evaluation categories in their evaluations of all
employees. Daiwa Securities is also currently examining ways to reflect customers' evaluations in employee evaluations.
The present trend in employee compensation is to reflect each individual's
evaluation in his or her monthly salary,bonus and retirement allowance, as wellas to allow compensation to vary more
broadly according to evaluations. In
light of this fact and based upon theGroup's management thinking, thetotal bonus amount paid to all employees is determined with reference to theconsolidated operating results of the
Daiwa Securities Group. The ultimate
bonus for each individual employee isdecided by allocating this total bonus
amount based on an evaluation thatconsiders the level of individual contribution to the consolidated operating
results of the Group, an evaluation ofeach division and of each individual. In
addition, Daiwa Securities SMBC alsouses a mechanism to provide a separate
bonus as a special reward to individuals
or teams that make an outstanding contribution to Company performance.

Training system
Each Group company is responsible forproviding the education and training
necessary for employees to acquire theknowledge and skills required in the
pursuit of the Company's business.
These education and training opportunities are wide-ranging, from Group
training carried out at the Training
Center to training by satellite broadcast
and assistance to help employees obtain

Principal training systems of the Daiwa Securities Group
Executive and management
education

Training by level/by responsibilities

Overseas MBA study

Domestic university
y andgraduate school study

28

Portfolio simulation
training

Training shown in red boxes is chiefly cross-Daiwa Securities Group training.
Except for group training, training is provided by means such as satellite broadcasts and Intranet.

training

Management
Program

New employee training by company
New employee cross-Group training

Executive research study

Daiwa Managementg
AcademyDaiwa Leadership
Program

New employeeytutor training

Training of individuals

Leadershiptraining

Sales
Officers

Branchadministration
section training

Compliancec training

Coachingg
training

Compliancetraining

Newly
y appointed
managers training

Deputyp
GeneralManagers

Newly
y appointedpp
branch General Manager training

GeneralManagers

General Manager
training
Performance evaluation
training

Investment banking training

Training
g forselected individualsGroup management training

Directors
and Executives

Director training
Newly appointed executive officer training

Researchstudy system

Expertise and skills training

various outside qualifications. Daiwa
Securities, for example, conducts an
online training program called"@DESK," which uses the Intranet andenables employees to study any topic
they wish at any time. Another example
is Portfolio Simulation Training at
Daiwa Asset Management, which thatcompany provides as a touchstone forappointing young employees as fundmanagers.

this program is to foster the growth oftalented individuals who will be thenext generation of Group leaders and to
improve their logical-thinking and analytical capabilities. More than 70 individuals have graduated from the fourterms held through March 2002,
including six as of the end of June 2002
who are now serving as directors or
executive officers at Group companies.

Daiwa Leadership Program
Daiwa Securities Group Inc. in particular works to broaden cross-Group training. Several representative examples ofsuch training are described below.

Cross-Group training for new
employees
Since FY 2002, training for new
career-track employees is provided for
all nine Group companies on a combined basis. In this training, newemployees study topics such as thecorporate principles and value systemof the Daiwa Securities Group, social
responsibility and corporate ethics, inaddition to acquiring knowledge ofthe business. They can also experience
voluntary activities.
Group Management Training
Group Management Training is provided to share the Group's value system.3 At each training session, proposals raised by the attendees areshared with executives and employees
via the Intranet and utilized as a valuable knowledge resource for theGroup.
Daiwa Management Academy
Since FY 2000, the Group has operated
the Daiwa Management Academy.
Intended chiefly for division, office andbranch general managers, the goal of3

The Daiwa Leadership Program has
been offered since FY 2001 with theaim of enhancing the intellectual horizons of middle management employees(one rank below persons who haveattended and passed courses at the
Daiwa Management Academy). The
Group plans for approximately 20% of
all Group middle management employees to graduate from this program overthe next two years.

Improvements to health,safety, labor and working
environment
The Daiwa Securities Group is undertaking a number of initiatives to create
an excellent workplace environment.
The Health Development Center set up
at Daiwa Securities Group Inc., forexample, employs full-time counselors
to provide counseling on employees'
physical and mental health. In addition,
many employees make use of systems
established by the Group to take time
off for maternity leave, child care andelderly care. During FY 2001, a total of
74 employees took time off for maternity leave, of whom 69 returned to work
but also took time off for child care;however, no leave was taken for elderlycare.

In addition, in FY 2001 the Group
took steps to prohibit smoking in theworkplace and establish separate smoking areas.
With regard to overtime work after
hours and on holidays, the Daiwa
Securities Group is currently implementing reforms because someinstances have occurred in which overtime exceeded the maximum working
hours established by the Group's
Agreement with the Employees' Union
Concerning Control of Overtime
Hours and Holiday Work, which isbased on Article 36 of The Labor
Standards Law. As one example, for
Daiwa Securities offices that are open
on Saturdays, the Company has made it
mandatory that offices grant compensatory holidays prior to requiring employees to work on Saturdays and is taking
steps to ensure that this rule is observedby all offices. For weekday overtime aswell, the Group is responding withmeasures such as work-efficiency
improvements to reduce overtime
hours, based on the same agreement.
Moreover, based on specific conditions,employees who take child care or elderly care leave may eliminate or limit the
number of overtime hours they work.
The prohibition against sexual harassment is explained clearly in the Group's
Employment Rules and Regulations,and the Group is promoting the elimination of all sexual harassment throughtraining and guidance. Because 9% of
all employees responded in a survey
conducted by the employees' union in
February 2002 that they feel they havebeen sexually harassed, the Group plans
to concentrate on expanding training inthis area in the future.

For details, please refer to Management
Vision and Sustainability, p. 8 – 9.

29

Community affairs
activities

As a Corporate Citizen
and a Member of theCommunity
We believe that the part of our conduct as a corporate citizen that ismost welcomed and accepted by local communities encompasses two
activities. One is community affairs activities, represented most typically by contributions and volunteer activities by employees, and theother is our influence on society through our principal business in the
securities industry.
The Daiwa Securities Group has engaged in social contribution activities for many years through institutions such as the Daiwa Securities
Health Foundation (established in 1972) and the Daiwa Securities
Foundation (established in 1994). In addition, the Daiwa AngloJapanese Foundation was established in England in 1988 as a medium
for international exchange. Furthermore, in July 1999 we set up a
Corporate Community Affairs Department within Daiwa Securities
Group Inc. to support independent volunteer work by Group employees. As a Group we are fully involved in activities that infuse the entire
Group with the spirit of volunteer effort.
Moreover, we recognize that the management resources of the Group,
such as our knowledge, know-how and information about the economy, finance and the securities business, are not merely businessresources but are also extremely useful as resources for creating a better society. The Daiwa Securities Group is actively working to contributeto society through these principal business activities.

Corporate Community Affairs Department website(Japanese only)

30"FreeStyle – Working for theCommunity 21st Century
Style," a Corporate
Community Affairs
Department pamphlet(Japanese only)

Activities to educate employees
and increase employee awarenessIn the three years since we established
the Corporate Community Affairs
Department at Daiwa Securities Group
Inc., we have laid the groundwork forvolunteer activities within the Group.
The first step was to reform employee
awareness, and since April 2001 wehave included community affairs programs as part of new employee training.
In addition to sign language classes
taught by outside teachers, lectures andconcerts, in April 2002 we incorporated
community activities such as a cleanupof the local area surrounding theTraining Center and care support at a
local old-age home, all of which haveincreased employee awareness of andinterest in volunteer activities. We also
understand that for employees to continue their involvement in social contribution activities on a volunteer basis,the understanding of their local management team is absolutely indispensable. In December 2001, therefore, we
added welfare experience lectures tomanagement training courses and now
managers themselves are offered opportunities to think about what they can
do as citizens and as Group employees
to help create a more caring society.
Besides training intended for specificemployees, in Tokyo, Osaka and Nagoya
we also offer a beginners sign language
workshop twice a month after working
hours. (The total number of participants
in FY 2001 was 410.) The first group ofindividuals among the participants to pass
the sign language certification exam has
also completed their training. Moreover,while Daiwa Securities has held its "NewYear's Economic Forum" annually eachspring in cities such as Tokyo, Osaka andNagoya, in 2002 we introduced sign language interpreters, a first in the industry.
Group employees participated as interpreters at the Tokyo and Nagoya venues.
Providing activity locations andinformation to employees
The Corporate Community Affairs
Department is introducing a variety ofcommunity affairs activities for Groupemployees. For example, for the following
emergency assistance fund-raising activities, the department also disseminatedinformation on the Group's Intranet.
2000: The volcanic eruptions on
Miyakejima(approximately¥2,600,000), the torrential rains andflooding in the Tokai region(¥1,000,000) and the western Tottori
Prefecture earthquake (¥1,000,000)
2001: The earthquake in western India(approximately ¥1,700,000) and themultiple terrorist attacks on the UnitedStates (a total of US$100,000 fromGroup directors and employees, Daiwa
Securities Group Inc. and Daiwa
America Securities Inc.)At the Daiwa Securities Group, muchattention and effort are directed toward
volunteer work that involves recycling, andthe above-mentioned programs are just a
few examples in which this approach wastaken. In addition to seeking monetarycontributions, employees use thisapproach to solicit contributions of items
such as books, CDs and videos that they
convert into cash at recycling stores anddonate to the fund-raising efforts. Using
recycling provides a mechanism that takes
into consideration environmental protection and resource conservation and thatenables everyone to easily get involved incommunity affairs activities.
Furthermore, special-purpose collection
boxes for recycling of used postage
stamps and cards have been set up at theheadquarters and branches of Daiwa
Securities since May 2000. Daiwa
donates the stamps and cards collected tovolunteer groups, which convert theminto cash to use as funds for their vital
activities. Customers are encouraged tomake use of these collection boxes whenever they visit a Daiwa branch office.

Influence on society throughDaiwa's core businesses
Social contribution that leads to
the revitalization of both financial
and capital markets
The Daiwa Securities Group is promoting industry – academia alliances that
aim to train people in specialized skills

and to conduct research that contributes to the development of bothfinancial and capital markets. The
Group hopes that these sorts of activities will help to revitalize the Japanese
economy and spread awareness about
securities.
In FY 2001, the Group formed comprehensive alliances with Hitotsubashi
University’s Graduate School ofInternational Corporate Strategy (ICS)in the areas of finance and management
and with Kyoto University’s Graduate
School of Economics in the field offinancial engineering.
In terms of ICS, the Group establisheda series of sponsored lectures, dispatched lecturers from the Company
and conducted joint research with ICS.
The Group will also begin similar activities with Kyoto University from
October 2002.
Furthermore, Hitotsubashi University
welcomed the arrival of the guru of corporate strategy theory, Michael Porterof Harvard University, as an advisor,and Daiwa Institute of Research is making a concerted effort to support thePorter Award, which is awarded tocompanies that execute superior management strategies.
In addition, the Group has establishedthe “Daiwa Securities Group Foreign
Exchange Scholarship Program,” which
presents foreign students studying at
ICS with scholarship support.
Apart from the above activities, theGroup has established or will be establishing a series of lectures at other universities including Keio University andTohoku Fukushi University. These lectures will be taught by executives fromwithin the Daiwa Securities Group.
Proposals
Daiwa Institute of Research (DIR) is
conducting research in closely monitored areas such as the direction of theJapanese economy, ideal economic policies and development of capital markets. DIR also released a special report
entitled “Proposals” that outlined theabove research. In 2001 DIR issued

papers entitled "Urgent Proposals for
Revitalization of the Japanese
Economy" (January) and "Urgent
Proposals Concerning the Share
Purchase Organization Plan" (March).
Participating in the Japanese
Association of Individual Investors(JAII)The Daiwa Securities Group supports
the activities of the Japanese Association
for Individual Investors (JAII), a special
nonprofit organization. In July 2002,
the Group participated in events such as
the 15th Annual Members Convention.
On the day of the event, various lectures on the main topic of “How
Individual Investors will Respond to the
New Era in Securities Taxation” were
given, and direct communication
between individual investors and companies occurred.

Support for culturalactivities
Sponsored performances in Japanby La Fenice Opera
The Daiwa Securities Group supported
special performances in Japan by Italy's
Teatro La Fenice during June and July
2001. Separately, on July 3 Daiwa helda special charity gala concert to support
the reconstruction of the Venice Opera
House, which was destroyed by a fire in
1996. A total of 20 individuals wereinvited to the concert, including visually challenged individuals accompanied
by guide dogs and physically challenged
wheelchair users.
Sponsored a special exhibition of
Marc Chagall as a commemorative
event of the 100th anniversary
In commemoration of the 100 th
anniversary of the Group's founding, in
May 2002 the Daiwa Securities Groupsponsored a special exhibition entitled"An Exhibition of Marc Chagall –Treasures of the Pompidou Center &the Chagall Family." A total of 210 disabled persons and people from the single-mother life support center wereinvited to come to the Tokyo exhibition.

31

Environmental
Performance

Environment-relatedsocial contribution
activities1

While relevant divisions have responded to individual environmentrelated laws and regulations, and many activities have been undertaken in which the Group has been able to focus its capabilities and make aserious effort, such as providing capital and volunteers for nature conservation, there are still issues to be addressed in the Daiwa Securities
Group's approach to the environment. Through steps such as creationof a Global Warming Action Program, which the Group submitted to theTokyo Metropolitan Government in June 2002, and efforts to collectdata on our main environmental impact, we are also pursuing the
preparation of a system for gathering environmental performance
information. Currently, we are studying the construction of a broad
environmental management system, including the need to obtain ISO
14001 certification.

Since December 2000, the Daiwa
Securities Group has been assisting"Forest Giants," a giant tree preservation program. By displaying posters andcalling on customers to join us by setting out special-purpose fund-raisingboxes at Daiwa Securities branches
throughout Japan, we've been expanding a ring of cooperation. In March
2001, we held an "Eat Ice Cream and
Preserve a Giant Tree" charity bazaar
for executives and employees at the
Daiwa Securities Headquarters Buildingthat collected donations from money
spent on ice creams purchased. In addition, an exhibition of giant tree paintings was held at the Utsunomiya andother branches. The Group also participated in "Forests: Experience the
Mystery of the Great Forests," an exhibition held at the Mitsukoshi department store in Nihonbashi, Tokyo during August 2001 in which we introduced the efforts of the Group.

Electricity consumption/Service water consumption
Electricity consumption

Service water consumption

FY 2000

67,292,086 kwh

101,906,846 liters

FY 2001

68,010,346 kwh

102,304,132 liters

1.07% increase

0.4% increase

Note: The scope of the survey included the following 14 buildings used by the Daiwa Securities Group: Daiwa Securities Headquarters Building; Kabutocho Building; Daiwa Securities SMBC
Headquarters Building; Eitai Daiya Building; Osaka Branch; Nagoya Branch; DAM Headquarters Building; DIR Head Office; DIR Annex; DIR Tokyo Center; DIR Kiyosumi Building*; DIR
Izumi Eitai building*; DIR Osaka Center; and DSC Headquarters Building. Figures for the amount of water use, however, exclude the two buildings marked with an asterisk.

1

32

For details, please refer to the Daiwa
Securities Group Inc.'s Corporate Community
Affairs Department website(http://www.daiwa.co.jp/group/kouken/
index-s.html; only available in Japanese) and
the Group's community affairs pamphlet
entitled "FreeStyle – Working for theCommunity 21st Century Style" (Japaneseonly).

"Forest Giants," a giant tree preservation program

Cleanup activity at Kujukurihama Beach

Although the quantity of electric power
consumption in the Group's mainbuildings was nearly level from FY2000 to FY 2001, it did increase byapproximately 1%. The main cause issupposed to have been progress in officeautomation. The Group is currently
taking steps toward energy conservation, as described below, and theGroup's policy is to enhance this effort
in the future in ways that enable theGroup to achieve more substantial
reductions.

In November 2001, approximately 50
Group employees and their families
participated in a cleanup and natureviewing walk rally held at the Shinjuku
Imperial Gardens. On another occasion, approximately 100 employees andtheir families participated in a cleanup
mountain climb (weed- and miscellaneous-brush-clearing activity) on
Mount Takao in June 2002. And in thesame month, 540 employees, family
and previous staff members joined
together to clean up Kujukurihama
Beach in Chiba Prefecture before theswimming season opened.

• At facilities such as the Daiwa
Securities Headquarters Building, we
regularly check that all unnecessary
lighting and office equipment isturned off.

Efforts to improve
environmental
performance and collectrelated data

• We turn off vending machine lights,
reduce the number of fluorescentlighting tubes and partially turn off
lights at the Daiwa Securities
Headquarters Building, Daiwa
Securities Business Center (DSC)
Headquarters Building, etc.

The effort to gather data on environmental performance (environmental
impact) is limited to certain areas suchas the Daiwa Securities Headquarters
Building. We plan to expand the scopeof this effort in the future.

• We introduce energy conservationequipment, such as devices to boil
water with residual heat from computers, at the Daiwa Institute of
Research Tokyo Center.
• At the DIR Osaka Center we installedeco-air conditioning equipment running on late-night electricity.
Although we do not fully comprehend
the current data about the environmental impact created from our logistics
operations, the Group is taking the following steps to ensure that this impact
is being reduced to the extent possible.
• We are proceeding to rationalize inhouse mail between the branches andoffices within the Group.
• We are working to reduce traffic
movement by installing a telephone
conferencing system for our mainbuildings. We expect these measures
to indirectly contribute to a reductionin the quantity of CO2 and other gas
emissions.

Quantity of waste disposal(Unit: Tons)

Waste disposal(Excluding recycled paper waste)

Recycled paper waste(Breakdown)

Municipal waste

Industrial waste

FY 2000

498.8

379.2

119.6

3,402.6

FY 2001

508.2

376.3

131.9

3,895.9

Note: Applicable scope of waste reduction efforts is as follows.
Municipal waste:

Nine buildings (Daiwa Securities Headquarters Building; Kabutocho Building; Eitai Daiya Building; Osaka Branch; DAM Headquarters Building;
DIR Head Office, DIR Annex; DIR Tokyo Center; and DIR Osaka Center)Industrial waste:
The above buildings, excluding the Kabutocho Building, the Osaka Branch and the DAM Headquarters Building
Recycled paper waste: Nine buildings, consisting of the above buildings and DSC Headquarters Building, but excluding the DAM Headquarters Building33

We have also submitted a Global
Warming Action Program for theGroup's three main offices (the Daiwa
Securities Headquarters Building, DIR
Tokyo Center and Eitai Daiya
Building) to the Tokyo Metropolitan
Government, based on environmentrelated ordinances to ensure citizens'
health and safety (December 2000,
measure revising the Tokyo
Metropolitan Environmental Pollution
Control Ordinance). Over the next
three years, we plan to reduce the quantity of greenhouse gas emissions at all
three offices by about 1.3%.
With regard to the quantity of waste
disposal, the volume of recycled paper
waste has been increasing remarkably,
while other waste has exhibited only amarginal rise. The increase in paper
waste is presumed to be the result ofgreater use of special-purpose computerand office automation (OA) forms.
DIR Tokyo Center, which handles thebulk of large-scale computer systemprocessing for the Group, used 1,122
tons of computer printout paper in FY
2000 and 1,047 tons in FY 2001.
The Daiwa Securities Group is currently undertaking the following efforts
aimed at cutting waste and reducing thevolume of paper used.
• Around 40 kg of food waste is generated per day at the employee cafeteria
in the Daiwa Securities Headquarters
Building; this is currently recycled asanimal feed by stockbreeders.
• In May 2001, Daiwa Securities carried out a survey to determine ways toreduce paper use throughout theentire company. Moreover, theSystem & Operations Planning
Department at Daiwa Securities has
been successively moving into fullscale operation of the EDW(Electronic Data Warehouse) electronic slip system since June 2001. As
a result the Company has reduced its
average monthly computer output
slips at all branches from approximately 6,000,000 pages in March
34

1998 to about 3,400,000
pages in February 2002.
• Daiwa Securities SMBC
has taken the following
steps :
- It abolished incineration
disposal of documents
and slips in August 2000
and established rules forusing such materials as
recycled resources.
- System rationalization
has been a principal objective since
February 1996. The Company isstrongly promoting a paperless system
to decrease the types of slips andquantities printed, and has set a goal
to reduce by 80% the roughly 6,000
different types of computer output
forms through the introduction of anext- generation system in 2003.
- It has been computerizing various
operations since June 2000, such as
computerization of activities for legal
affairs examinations of the Legal &Compliance Department, "ringi"
requests for decisions, personnelrelated applications, and systematizedproposal and planning documents.
- Although not an effort directly related to reducing waste disposal volume
and the quantity of paper used, as a
general rule the Company has beenusing kenaf paper for business cards
since April 2001. It has also beenusing 100% recycled paper for all OA
paper needs.
• Since February 2002, Daiwa Instituteof Research moved away from the ideathat PCs can be disposed of only bycrushing and DIR has moved to dispose of PCs by recycling whenever possible. DIR has also been computerizing
all activities to handle various types ofapplications (travel and transportation
expenses, overtime work processing,etc) via the Company's Intranet since
September 1998.

Contribution to theenvironment throughour principal business
Eco Fund: Mrs. GreenThe term "eco-fund" refers to an investment trust that invests in firms that
conduct their business by giving principal consideration to the environment or
aggressively making efforts for environmental protection and improvement.
The Global Eco Growth Fund (commonly called "Mrs. Green"), launched
in June 2001 and managed by Daiwa
SB Investments, uses the concept of"environment and growth in harmony"to select investment targets from amongfirms that are listed in the environmental rankings produced by Innovest, a
research firm that evaluates companies
from an environmental viewpoint. At
the same time, the fund also invests incompanies that provide leading environmental services or have cutting-edge
environmental technologies. Total net
assets under management in "Mrs.
Green" as of March 31, 2002, were
¥17,585 million. The fund's topranked investment selections are shownin the weekly and monthly reports published on the Daiwa SB Investments
website.22

For details, please refer to the Mrs.
Green Report from the Daiwa SB
Investments website.
(http://www.daiwasbi.co.jp/product/
mrsgreen/report.html)
Please note that this report is only
available in Japanese.

Third-Party Opinion
This report has been reviewed and critiqued from the standpoint of an NPO familiar
with sustainability reports by Mr. Toshihiko Goto, Chair of the Environmental Auditing
Research Group and Director of Global Reporting Initiative (GRI), and from the standpoint of an expert in corporate ethics by Professor Iwao Taka of Reitaku University.

Toshihiko Goto
Chair, Environmental Auditing Research Group (EARG)
Member, Board of Directors, GRI
Interest in corporate social responsibility (CSR) is high these days. The"social" in "corporate social responsibility," as it is commonly used, connotes
the environmental, as well as humanrights and labor, aspects of corporate
sustainability. The recent surfacing ofcorporate irregularities in Japan and theUnited Sates is not the only reason why
CSR has come into the limelight. A
bigger picture reveals a broad-based
movement to review the role of corporations in the current structure of society. For example, Britain and France
have already created a new Cabinetlevel position—a minister responsible
for CSR.
Against this background, the Daiwa
Securities Group has begun issuing its
sustainability report. This exercise inleadership is highly welcome, especiallyin Japan's financial-services industry,
which is said to be lagging behind theworld in this area. Creation of corporate value depends greatly upon theawareness of employees. In view of this,the first issue's choice of employees as
the stakeholder group upon which tofocus to promote a reorientation of
institutional awareness, is considered adecision appropriately made. This

report, whose producer is a financial
institution, is structured primarily tocover ethics and regulatory complianceand information disclosure, and this isconsidered appropriate since it is in
keeping with the trends growing globally.
At the same time, some areas seem to bein need of further improvement, as
indicated by the following points ofadvice I would offer for reference when
producing future issues:• An environmental management system should be established, andnumeric data should be tracked forconstant reporting.
• Understandably, social aspects tend to
be expressed in qualitative terms, butefforts should be made to express
them, as far as possible, in quantitative or numeric terms.

• Emulating the comparability of financial reporting is difficult, but heedshould be given to designing a report
to, at least, facilitate year-to-year comparisons.
Notwithstanding the above, reading thereport reveals the serious attitude adopted by the Group, from top management downward, toward sustainability
reporting. I hope that this reporting willcontribute to improving the performance of the Group as a whole and leadto an improvement in the reputation it
enjoys.

• Stated ideals must avoid ending up
being empty slogans. For this reason,for example, in a report a program toachieve an ideal should be closely
linked to a management mechanism
to implement that program.

35

Iwao Taka
Professor, Reitaku University, International School of Economics

Corporate management must be friendly to both the environment and society;otherwise, corporate growth cannot besustained. With this concern in mind,
the world’s leading companies havebegun issuing “reports on sustainable
development.” These companies havebegun committing themselves to overcoming problems of global proportions
and reporting on the progress. Thisshould be highly welcomed. The same
applause should greet the Daiwa
Securities Group, which has recently
issued its “sustainability report.”
Reading this report, I find it particularly commendable that the Daiwa
Securities Group honestly notes the
missteps it has committed previously,
scrutinizes them seriously, and articulates improvement efforts to prevent
their recurrence. Companies issuingreports on sustainable development
tend to allocate many pages to highlighting the positive or favorable aspectsof corporate behavior, such as contribution to society. In contrast, the Daiwa
Securities Group chose to note its pastmismanagement and explain its all-out
effort to regain confidence. This kind ofreporting should get high marks inJapan's society today, where the honesty
and integrity of companies is more andmore rigorously tested.
Still, at the risk of appearing to be nitpicking, I would like to point out threeareas that could be improved to guidethe preparation of future issues. First, if

36

an English-language edition of thisreport is prepared, reference should bemade to the question of why the report
does not allocate many pages to discussing subject matters of great interest
to the investors of Europe and America.
It may be necessary, for instance, tobriefly explain the fact that Japan’s society and markets are more concerned
about management’s honesty thanabout such subjects as “diversity” or“contribution to community.”
Second, again as a point to keep inmind when preparing English editions,the same words do not always convey
the same meaning or concept whenused in Japanese and in English.
“Compliance” is a term whose usage
requires extra caution. In Japan it isused to connote observance of law tothe extent that not only the letter but
also the spirit must be honored, whereas
in Europe and America, it means mere
observance of law. Therefore, anEnglish edition which claims that theGroup emphasizes compliance, while
giving a backseat to such subjects asdiversity or contribution to community,
might implant in the minds ofEuropean and American investors thewrong images of the Daiwa Securities
Group.
Third, this report articulates Daiwa
Securities' “Solicitation Policy,” but infuture issues, a further step should betaken by explaining arrangements tocontrol sales/marketing operations inaccordance with that policy. For example, the Company’s key performance
evaluation criteria for promotion ofsales staff include, along with the number and amount of contracts won, accurate descriptions of risks inherent toproducts and services, and the numberof complaints received from customers.
Future issues should note this. Shifting
the circulation of funds to increase
direct financing vis-à-vis indirect
financing is a high priority in the interest of the national economy and society.
Because of this, efforts to establish
sales/marketing rules and arrangementsthat give investors increased peace ofmind when purchasing financial products should be welcomed by every quarter of Japanese society.
I proposed three points for improvement as above, but my suggestions for
improvement are not designed todetract from the worth of this report.
Rather, I would express my exultation
at the Daiwa Securities Group's exercise
of leadership in promoting accountability to its stakeholders at this time whenmost Japanese companies have notissued a report on sustainable development.

About the Paper Used for This Report
We have used FSC Forest Certified Paper to print this report. FSC Forest Certified Paper refers to paper stock that is manufactured
using pulp from wood harvested from forests certified by the FSC (Forest Stewardship Council; headquarters: Oaxaca, Mexico), an
NGO that advocates sustainable forest management. "Sustainable forest management" refers to forest management that observes tree
harvesting limits with regard to a forest's future growth and considers the effects of tree harvesting on the natural ecosystem that surrounds the forest.
Moreover, in order to produce printed materials using FSC Forest Certified Paper, companies must also obtain Chain-of-Custody
Certification (CoC Certification) for all production, distribution and printing processing involved until the printed material is complete. This report has been produced by a paper-manufacturing company and printing company that have received CoC certification.

For further information, please contact:
Daiwa Securities Group Inc.

Investor Relations
Tel:
Fax:
E-mail:URL:
Issued:81-3-3243-3841
81-3-3242-0955
ir-section@dsgi.daiwa.co.jp
http://www.ir.daiwa.co.jp/
October 2002