Annual ReportYear ended March 31, 2002

NIF

Ventures

Co

LtdA

nnualReport

2002

NIF Ventures, a member of Daiwa Securities Group mainly engaged in venture capital investment,

provides equity financing and a broad array of other services to assist venture companies in

maximizing their corporate value as they boldly meet the challenge of the future. In addition, NIF

Ventures provides investment opportunities to corporate and individual investors through the

investment enterprise partnerships it manages.

NIF Ventures has amassed a wealth of experience in global perspectives and technical assessments in

the 20 years since its founding, and the company has readily available integrated supports of the

Daiwa Securities Group. Not satisfied to rest on our laurels, NIF Ventures is committed to enhancing

these advantages in the years to come.

“Ever Forward,” our guiding precept, expresses our mission of advancing ever forward with start-ups

as they fulfill significant roles in the success of Japan’s industrial restructuring.

This annual report contains forward-looking statements related to management’s projections about future business conditions.Actual business conditions may differ significantly from management’s expectations and accordingly affect our sales andprofitability. Actual results may differ as a result of factors over which we have no control, including unexpected changes incompetitive and economic conditions, government regulations, technology and other factors.

Forward-Looking Statements

Contents1

2

3

6

10

14

30

31

32

Financial Highlights

To Our Shareholders

Interview with the President

Our Competitive Edge

Management’s Discussion and Analysis

Consolidated Financial Statements

Report of Independent Public Accountants

Board of Directors and Corporate Auditors

Corporate Data, History, and Shareholder Information

Profile

The mission of NIF Ventures Co., Ltd. is to contribute to the global New Economy through its private equity business.

Corporate Mission

1. Focus on the private equity business

2. Invest globally and build a worldwide network

3. Take a hands-on approach to spur growth in portfolio companies

Management Policies

“Ever Forward”

1. Boldly rise to the challenge of innovation

2. Practice true venture capitalism

Maxims for Employees

1

2001 2002 2001 2002 2001 2002 2001 2002

20,586

17,226

4,970

3,313

2,668

3,264

125,101

112,847

24,746

33,865

Shareholders’ equity and total assets(Millions of Yen)

Net income(Millions of Yen)

Operating profit(Millions of Yen)

Total net sales(Millions of Yen)

Total assets

Shareholders’ equity

0

5,000

10,000

15,000

20,000

25,000

30,000

0

1,000

2,000

3,000

4,000

5,000

6,000

0

1,000

2,000

3,000

4,000

5,000

6,000

0

25,000

50,000

75,000

100,000

125,000

150,000

Financial HighlightsNIF Ventures Co., Ltd. and Consolidated Subsidiaries

Years Ended March 31, 2002 and 2001

17,2269,3497,8773,3133,264

112,84733,865

129,51970,29359,22624,91024,541

848,474254,624

Year ended March 31:Total net sales ........................................................................

Total cost of sales...................................................................

Gross profit ............................................................................

Operating profit .....................................................................

Net income............................................................................

As of March 31:Total assets ............................................................................

Shareholders’ equity...............................................................

20,58610,52110,0654,9702,668

125,10124,746

Millions of YenThousands of U.S. Dollars

2002 2001 2002

12,304.401,000

117,182.72

162

¥

¥

¥

92.517.52

881.07

—

$

$

$

Per share data:Net income* ..........................................................................

Cash dividends applicable to the year.....................................

Shareholders’ equity* .............................................................

Other data:Number of employees** .........................................................

11,374.777,500

93,736.82

149

Yen U.S. Dollars

¥

¥

¥

Notes : 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Dollar amounts represent translations at the rate of ¥133=U.S.$1, the rate prevailing onMarch 31, 2002.

2. Net income and shareholders’ equity per share were computed based on the average number of shares outstanding during the year.3. NIF Ventures Co., Ltd. (formerly Daiwa Finance Co. Ltd.) merged with Nippon Investment & Finance Co. Ltd. on April 1, 2000 and a summary of NIF Ventures Co.,

Ltd. and its consolidated subsidiaries for the years ended March 31, 2002 and 2001, is presented.*. On August 1, 2001, NIF Ventures Co., Ltd. made a stock split at the ratio of 10 shares of stock (with par value of ¥5,000) for each share of stock (with par value of

¥50,000) held. The amounts per share for 2001 were computed based on the effect of the stock split on the beginning balance of the stock. And per share data of2001 is adjusted retroactively by dilution to reflect the stock split.

**. Figures are the sum of NIF Ventures Co., Ltd. and its consolidated subsidiaries.

11.8 14.3

6.0 3.7

12.8 13.7

8.1

96/3 97/3 98/3 99/3 00/3 01/3 02/3

8.5

8.4

15.0

8.2

9.0 9.4

8.1

20.3

22.721.0

11.9

21.823.1

16.2

Investment balance as of March 31, 2002Balance: ¥79.6 billionNumber of companies: 717

Japan

Overseas¥30.3 billion38.1%164 companies

Japan¥49.3 billion61.9%553 companies

Overseas

Annual investments(Billions of Yen)

0

5

10

15

20

25

2

To Our Shareholders

NIF Ventures Co., Ltd. listed its stock on the JASDAQ

market on March 12, 2002. As we celebrate this

milestone, I would like to extend our heartfelt gratitude

to our shareholders and all the persons who have

supported us over the past two decades.

Since our inauguration in 1982, we have been

specializing in the private investment business. In April

2000, Nippon Investment & Finance Co. Ltd., and

Daiwa Finance Co. Ltd. merged and changed the name

to NIF Ventures Co., Ltd. Our JASDAQ listing is another

step forward, an opportunity to expand our business

further.

Looking ahead, we will continue making our

contribution to energize the Japanese economy and

develop the global economy, by investing in and

incubating venture companies while fulfilling our

responsibilities as a publicly listed company.

Shin-ichi Horii, President & CEO

IT related (computers, telecommunications, electronics)

Services

Finance

Consumables

Machinery, autos

Materials, chemistry

Biotechnology, health, medical care

Other

Japan

Asia

North America

Europe, other

Investments and investment balance by industry in FY2001

Investments and investment balanceby region in FY2001

Annualinvestments

¥16.2 billion

Investmentbalance

¥79.6 billion

Annualinvestments

¥16.2 billion

Investmentbalance

¥79.6 billion

68.2%13.1%

0.7%1.3%2.9%0.0%

4.5%

9.3%

49.9%

7.7%

30.6%

11.8%

44.9%

13.2%5.1%

9.4%

8.9%

5.2%

4.7%8.6%

61.9%16.0%

17.0%

5.1%

3

Interview with the President

What was your goal in making the initialpublic offering?

Making a public stock offering means disclosingthe details of a company’s operations: in effect,“my company” becomes “your company.” Our

foremost objective was to secure the trust of investors,in Japan and abroad, by attaining a higher level oftransparency. Becoming publicly listed also helpsbuild our credibility with the venture companies inwhich we invest, smoothing the way for investing inpromising companies and providing post-investmentsupport.

The private investment business may be alittle unfamiliar to the ordinary investor.Can you give us an outline of your business?

In general, our business consists of investing inpromising venture companies and providinghands-on support to nurture them to the point

of making their initial public offering (IPO), afterwhich we sell our shares in the company and take ourprofits.

Of the 1,413 companies in which we haveinvested over the past twenty years, about 30 percenthave successfully completed their IPOs. Forcompanies that we judge may face difficulties inreaching the IPO stage, we provide early phasesupport so that they can achieve that goal quickly,while at the same time our Business DevelopmentDepartment, M&A and Corporate Investment andother specialized teams will seek other means forrecovering the funds we have invested.

Fully aware that profit depends on the purchaseprice, we are thorough in practicing due diligenceand especially prudent in considering the costs ofinvestment upon making investment decisions. Theresults of such efforts have been rewarding. Not oneof our Investment Enterprise Partnerships—includingthose established in 1989, when Japan was at theheight of the bubble economy—has failed to recoupits principal, a sterling track record for which we aregiven high marks by investors.

I would also emphasize that we follow a clearlydefined, well thought out set of rules for makinginvestments, whether by our Investment EnterprisePartnerships through which we invest funds raisedfrom individuals, companies and financial institutions,or by directly investing our own funds.

How did NIF perform last year?

In fiscal 2001 (from April 1, 2001 to March 31,2002), our new equity investments totaledapproximately ¥16.2 billion, including ¥10.6

billion in Investment Enterprise Partnerships and ¥5.6billion in investments of our own funds. By the end ofthe fiscal year, our investment balance was ¥79.6billion, of which ¥49.3 billion was invested in Japanand ¥30.3 billion overseas. A total of 24 NIF-backedcompanies—16 in Japan and 8 overseas—made IPOsduring the year, bringing the cumulative total to 425.During the year, we also organized InvestmentEnterprise Partnerships totaling ¥22.5 billion; raisingthe cumulative total of such partnerships to ¥171.8billion as of the end of the fiscal year.

Q

A

Q

AQ

A

Aggregate IPOsNIF-Backed companies: 1,413NIF-Backed IPOs: 425Approximately 30% of all portfolio companies have completed an IPO.

Hands-on approach

IPOs 425 Japan 323/Overseas 102

As of March 31, 2002

Non-IPOs 988 Japan 743/Overseas 245

A rise in early-stage investmentsRatio of early-stage investments to total number of investments(Domestic companies)

58.2%17.9%

9.0%

14.9%18.8%

20.3%FY1996 FY2001

12.3%

48.6% under 5 years

5-under 10 years

10-under 15 years

15 years or more

Seed Start-up Early stage Expansion stage Later stage IPO

Provide initial investment Send director to sit on board

Supporting company’s incorporation Assisting formulation of business plans Formulation of financial policy Development of sales channels

Provide additional investment

Formulation of management system Assisting expansion of alliance partners

Our territory Securitiescompany’s

territory

Corporate value

4

What is your outlook on the venturecapital business? What are NIF’s plans for fiscal 2002?

While the Japanese economy remains mired ina prolonged slump, there are growingexpectations for the role played by venture

backed companies. The government has neverthelessnot supported this in the past, not laying sufficientpolicy groundwork for systematically supporting suchnew and promising enterprises. Now, however, wehave an environment that encourages entrepreneurshipas a way of creating new employment. For example,the Partnership Act for Venture Capital Investment of1998 made it easier for pension funds to invest inlimited partnerships. The Law to Facilitate NewBusinesses also underwent a revision in 2000, andJapan now has plans to create 1,000 start-upcompanies by spinning off technologies developed onuniversity campuses.

In 2001, annual investment by venture capitalcompanies in Japan totaled an estimated ¥300 billion.I estimate that figure will reach ¥1 trillion five yearsfrom now. To meet that demand, this fiscal year we atNIF plan to organize Investment EnterprisePartnerships that exceed the previous fiscal year interms of the amount invested. Globally, venturecapital investments are expected to expand in theUnited States, the world leader in the area of high-

tech venture companies. Europe has thus far lagged inthat respect, but we are beginning to see promisingdevelopments in the area of biotechnology, and areplanning to concentrate some resources there.

Please elaborate on the “hands-onapproach” in your management policies.

Start-ups, in the first five years following theirfounding, are what we call “early-stagecompanies.” Fiscal 1996, NIF was investing

18.8% of its funds in such early-stage companies. Byfiscal 2001, that proportion had risen to 58.2%. Thischange was brought about largely as a result of arapid increase in the number of entrepreneurs in thefast-growing IT related fields and the establishment ofemerging markets to provide equity financing forthem.

For an early-stage company to reach the IPO stage,it needs not only a solid core technology but also thefull set of managerial skills—sales, accounting andfinancial planning. That is where we can help. Wehave honed our hands-on approach to help investeecompanies’ growth, to support and encourage theirmanagement to develop those companies into morerobust businesses in every respect. Our supportstructure for such fledgling companies makeseffective, comprehensive use of the business networkswe have built up in Japan and abroad, as well as theextensive network of the Daiwa Securities Group. Oursupport may include sending a director to sit on theventure company’s board to guide its management,and having our Technical Advisors provideengineering direction.

Q

A

Q

A

0

20

40

60

80

100

0

2,000

4,000

6,000

8,000

10,000

Investment EnterprisePartnerships organized each year

IT related (computers, telecommunications, electronics)

Services

Consumables

Biotechnology, health, medical care

Other

0

5

10

15

20

25

Source: VEC and NVCA reports

Growing investment in IT and biotechnologyAnnual investments by industry

REFERENCE: Comparative figureVenture capital companies’annual investments in Japan and the United States

Billions of U.S. DollarsBillions of Yen Billions of Yen

96 97 98 99 00 01

9.614.4

19.2

52.5

99.6

36.5

164.4 242.7 200.4 115.7 230.1 281.5

00/3 01/3 02/3

19.7

22.6 22.5

United States

Japan

68.2%

13.1%

4.5%2.9%

11.3%22.3%

12.1%FY1996 FY2001

¥ 22.7 billion ¥ 16.2 billion

20.0%1.7%

43.9%

5

Interview with the President

Investing venture capital, especially inearly-stage companies, is accompanied byits risks. How do you approach the task ofrisk management?

We employ a systematic, structured approachto risk management. In assessing a company asa candidate for investment, we first evaluate the

quality of its management and their business plan. Wethen scrutinize the company’s finances. Ourprocedures include research and screening by ourTechnical Advisors, who bring expert knowledge tobear in evaluating and analyzing the company’stechnologies. We also have an external auditorconduct a short review. Only when a prospectiveinvestment clears all those hurdles does it come to ourInvestment Committee for deliberation and, ifappropriate, approval.

Nor does the process stop there: our investmentmanager and the investment planning and investmentgeneral affairs groups—both in Japan and abroad—constantly monitor the state of the company in thepost-investment phase. Moreover, our hands-onapproach of providing support and guidance tomanagement enables us to spot potential problemsearly on and act swiftly to correct them.

Is your focus exclusively on the IT field?

In fiscal 2001, we invested 68% of our funds inIT related companies in Japan and othercountries. At the end of the year, IT related

companies accounted for 45% of our investmentbalance. The concept of the IT field is extremely

broad—it includes telecommunications hardware,software and semiconductors and other electronicdevices—and we thus expect it will continue to be themain focus of our investments.

We are also increasingly emphasizingbiotechnology and medical care, which at presentaccount for only about 5% of our investment balance.That proportion will undoubtedly grow, since many ofthe venture companies emerging from Japaneseuniversities are in areas related to biotechnology.

To conclude, please share with us yourinsights on the significance of venturecapital investments.

Japan currently finds itself in the midst of a“scrap and build” phase of industrial structuralreform—scrapping is liquidating the past, while

building is setting a brave course for the future.Venture companies play a key role in the buildingeffort, and venture capitalinvestments that supportthem are gaining inimportance. At NIF, we aredriven by a sense ofmission: we believe that byproviding an essential partof the funding on whichindustries grow, we cancontribute to the creation ofa global new economythrough our private equitybusiness.

Q

A

Q

A

Q

A

6

NIF Ventures pursues private investment businessconsisting of identifying venture companies and othersthat have yet to make an IPO but have the potential fordoing so. We conduct research on a company and buy itsstock, thereby providing the venture capital it needs, andoffer the support and nurturing to raise the company’svalue so that we can make a profit, mainly through sellingour shareholding either at the time or after the companymakes its IPO. Should the opportunity arise for sellingthose shares advantageously before the company reachesthe IPO stage, we may also sell and take our profit at thatpoint.

Our venture capital investments can be divided intotwo groups based on the source of funding—one in whichwe invest our own funds, and another in which we investfunds provided by Investment Enterprise Partnerships inwhich we take the initiative in soliciting funds from otherinvestors.

By establishing and managing Investment EnterprisePartnerships, NIF also earns administrative fees andsuccess fees—a defined proportion of the capital gain, aswell as commissions for undertaking certain operationsrelated to the management of the Investment EnterprisePartnerships, which consist mainly of accounting andcustody of securities.

The Investment Group at our headquarters and our branchoffices in Japan are responsible for investing in Japanesecompanies. They may discover companies forprospective investment on their own initiative, take theircues from introductions provided by other companieswith which we maintain strong business relationships, orbe approached by venture companies themselves. TheInvestment Group is in charge of the entire process thatincludes identifying a possible investment target,conducting open-ended interviews for gatheringinformation, carrying out due diligence, presenting theinvestment opportunity to the Investment Committee andfollowing up after an investment is made.

We are witnessing the emergence of a growingnumber of venture companies with innovative, creativebusiness models, while the risks associated with investingin them are becoming more diverse and complex. Earlyon in its history, NIF introduced a Technical AdvisorSystem consisting of experts such as engineers andresearchers to evaluate IT- and biotechnology-relatedtechnologies, which has continued to broaden anddeepen its capabilities. Furthermore, we have made it a

The NIF Business Model

Stock markets

Domestic and overseas venture companies

Domesticand overseas

investors

NIF Ventures Co., Ltd.

Investment business Financial business

Investment enterprise partnership

IPO, Share exchange, M&A, etc.

Investments

Investments

Capital gainsCapital gains

Management Funds

Funds

Success feesAdministrative fees

Distributions

Distributions

Our Competitive Edge

The Investment Processand Systems for Evaluationand Research

7

compulsory requirement that the Research & ScreeningDepartment undertake risk assessment and an externalauditor provide a short review before a decision is madeon whether to invest in a company.

This thorough process is also applied to prospectiveinvestments overseas, which are handled by theInternational Investment Department, the InternationalAdministration Department and our overseas offices. Wesecure the cooperation of overseas local auditing firms incarrying out due diligence.

In September 1998, NIF Ventures established a technicaladvisor system to handle technical assessments ofinvestment proposals involving IT related companies.Initially consisting of three IT experts—all of whom had priorexperience working in R&D or new business developmentat leading electronics makers— the team has sinceexpanded to ten, comprising seven advisors specializing inIT and three in biotechnology. Technical Advisors fulfill thefollowing roles in the three stages of investment.

Finding : Technical Advisors provide lectures andadvice to the investment staff. This is a major advantage ofhaving an in-house team of experts. Daily exchange helps

investment staff acquire knowledge and skills, whichenhances their ability to evaluate companies.

Due diligence : Technical Advisors conduct technicalassessments of prospective investee companies. Suchassessments are not limited to the review of documentsbut are carried out from various angles. Their first courseof action is to visit the company, because interviews withthe management and on-site examination of developmentunits, manufacturing processes and products are essentialin concluding the technical assessment. If necessary, theywill also conduct additional research on the candidatecompany’s clients and alliance partners, and contactvarious research institutions, as well as compile andanalyze technological information, academic papers andpatent information gathered from both domestic andforeign sources. Through these activities, businessprospects for the technology possessed by the candidatecompany are ascertained.

Following investment: Technical Advisors take ahands-on approach in their post-investment follow-up.They provide investment staff with lectures on technicalobjectives to be cleared by investee companies indeveloping their business, and support investeecompanies by offering introductions to appropriatepersonnel at major companies to expand their marketingchannels and conduct market research.

As we have seen, Technical Advisors are an integral partof the investment activities carried out by NIF Ventures.

Decision making process Analysis and research system

Finding potential portfolio companies

Obtaining business plan and various materials

Investment policy making

Due diligence

Discussed by investment committee

Approval

Evaluation and analysisInvestment Planning & Research Department :

Technical Advisors

Short reviewsAuditors

Risk assessmentResearch & Screening Department

Activities of Technical Advisors

8

To discover venture companies that are promisinginvestment targets, we not only utilize our own investmentstaff, but seek advice from the network of humanresources we have built over the years.

In our two decades of involvement in venture capitalinvestment, we have built our own unique businessnetwork comprising over 1,400 companies in which wehave invested, investors participating in our InvestmentEnterprise Partnerships and corporate allies in Japan andabroad. The Daiwa Securities Group is also a powerfulpartner which offers various avenues for collaboration. Inaddition, we have provided entrepreneurial expertise tostart-ups emerging from universities through an academic-industrial alliance fund launched in 1998. Thiscollaborative academic and industrial network enables usto invest from the start-up phase in new ventures based ontechnologies developed in university laboratories—a typeof venture we expect will show dramatic growth in future.

These extensive business networks are a powerful tool

in NIF’s quest for promising venture companies. Ournetworks are also a valuable resource not only when weevaluate and analyze the candidates we have identified,but also in the post-investment phase when we providethe hands-on support necessary for them to thrive.

Since its founding, NIF has taken a global perspective inactively pursuing its investment activities. While most ofthe overseas companies in which we have invested havebeen in Asia (largely in Taiwan) and the United States, weanticipate expanding our investments in venturecompanies in Europe.

Overseas companies have accounted for a growingproportion of our investments in recent years, in both theamount invested and the number of companies selectedfor our portfolio. During the fiscal year that ended inMarch 2002, we invested ¥8.1 billion in overseascompanies, representing 50.1% of our total annualinvestments. At the end of that fiscal year, our investment

Global Network

Daiwa SecuritiesGroup

Domestic 128 officesOverseas 19 offices

Global network

Subsidiaries, Joint ventures, Alliance partners, etc.

Partners

Corporations, Financial institutions,

Individuals

Joint VCAlliance VC

Business partnersIncubation enterprisesHuman resources firms

Auditing firms, etc.

NIF-backedcompanies

Aggregate 1,413 companiesIPOs 425 companies

Universities

Academic industrial collaboration fund

NETW

OR

KThe NIF Finding Network

9

Our Competitive Edge

balance overseas had reached ¥30.3 billion, or 38.1% ofour total balance (including investments made throughInvestment Enterprise Partnerships). Our portfolio hasincluded a total of 347 overseas companies, accountingfor 24.5% of all the companies in which we have investedover the years. Of those 347, about 30% have made it tothe IPO stage, the same proportion as the Japanesecompanies in which we have invested.

It was our global network that enabled us to expandour investment activities overseas. The first step inbuilding that network came in 1987, when we establisheda venture capital corporation in Taiwan with adevelopment bank owned by the Taiwanese government.Since then, we have established overseas offices as part ofour effort at building a global network that includes manyventure companies, other venture capital companies anduniversities.

We have been flexible and sensitive to local conditionsin finding the ideal format for building our network ineach country or region. In some situations we haveestablished an overseas office or a joint venture toprospect for promising investment opportunities. In others,

we have formed business alliances with local venturecapital companies to jointly identify businessopportunities and invest in them.

We are particularly active in network building andinvestment in Europe, and plan to step up our presencethere. In recognition of our investment activities in Britain,we were selected in 2001 as one of the ten foundingmembers of the University of Cambridge EntrepreneurshipCenter.

Looking ahead, we will continue to extend ournetwork, which holds the key to expanding ourinvestment activities on a global scale.

Quester Capital Management Limited

Amadeus Capital Partners Limited

University of Cambridge Entrepreneurship Center

NW Brown

Merlin Biosciences

SIPAREX Group

GIMV n.v.

Evergreen Canada-Israel Investments Limited

Europe

IT related99.8%

IT related50.3%

IT related82.2%

Asia North America

Partech International Co., Ltd.

NIF Ventures USA, Inc.

Hotung Investment Holdings Limited

UK

FRANCE

BELGIUM

ISRAEL

USA

USA & FRANCE

TAIWAN

Hotung International Co., Ltd.

NIF Management Singapore Pte. Ltd.SINGAPORE

Overseas officesJoint venturesAlliance partners

Annualinvestments¥1.2 billion

Annualinvestments¥5.0 billion

Investmentbalance¥12.7 billion

Investmentbalance¥13.5 billion

Annualinvestments¥1.9 billion

Investmentbalance¥3.2 billion

Other49.7%

Other 0.2%

Other17.8%

Note: The percentages given for IT related companies are the ratio of the investments in them to the investment balance.

2Management’s Discussion and Analysis

10

Performance

2001 2002 2001 2002

581 565

12,637

12,446

20,586

17,226

4,631

2,6292,737

1,586

Net sales by category(Millions of Yen)

Net income margin

Revenues from operational investment securities

Investment management fees

Interest income from loans

Other

13.0%

19.0%

2001 2002

Return on average shareholders’ equity

14.6%

11.1%

0

5,000

10,000

15,000

20,000

25,000

30,000

0

5

10

15

20

25

30

0

5

10

15

20

25

30

1Business EnvironmentDuring fiscal year 2001 (from April 1, 2001 to March 31,2002), difficult conditions continued for Japan’s economy.Contributing factors were a domestic downturn centering onthe IT industry, slower growth in the United States, and therepercussions of the terrorist attacks of September 11, 2001.

Although the U.S. economy began to recover towards theend of the year and certain sectors in the Japanese economybegan to show signs of improvement, employment andincome did not rebound, and personal consumptionremained lackluster in Japan. As financial institutions stillstruggled with defective credits and as capital expenditurescontinued to falter, there was little evidence of recovery in theJapanese economy.

Under such circumstances, in fiscal year 2001 a total of147 companies launched their IPOs in the three domesticemerging markets of JASDAQ, TSE Mothers and NasdaqJapan. While slightly less than the 156 IPOs of the previousyear, the figure nevertheless represented firmness in light ofthe deterioration witnessed in Japan’s economy andsecondary markets.

With regard to investment activities, under currentconditions where the collapse of the IT bubble broughtinvestment prices down to attractive levels, NIF Venturesexercised due diligence to make selective investments inventure companies with high growth potential.

The creation of new venture companies is essential for therevival of the Japanese economy. Given its currentundeveloped state, Japan’s venture capital market can beexpected to develop dramatically in the years to come.

Investment BusinessInvestment ServiceAs a result of the due diligence exercised by NIF Ventures, thedirect investments of NIF Ventures and its consolidatedsubsidiaries declined 43.7% to ¥5,586 million in the fiscalyear. Investments carried out through investment funds whereNIF Ventures or consolidated subsidiaries make independentinvestment decisions (hereafter referred to as partnershipinvestments) contracted 18.9% to ¥10,679 million. Totalannual investments consequently decreased 29.5% to¥16,265 million, and cumulative investments totaled¥253,771 million as of March 31, 2002.

The investment balance decreased 3.2% to ¥79,632million as of March 31, 2002. Of this total, the balance ofdirect investments fell 13.6% to ¥37,155 million. (Thebalance of operational investment securities decreased 7.5%to ¥50,680 million, the sum of direct investments of ¥37,155million, equity interest in investment funds of ¥8,441 million,and unrealized gains of ¥5,084 million as of the end of thefiscal year.) The balance of partnership investments grew8.1% to ¥42,477 million. The total investment balancecomprising investments of ¥35,754 million in the computer,communications, and electronics sectors (up 16.3%), ¥10,508million in the service sector (down 3.4%), and ¥7,477 millionin the consumer goods sector (down 15.6%). By geographicregion, the total investment balance consisted of investmentsof ¥49,283 million in Japan (up 0.6%), ¥13,566 million in theUnited States (up 40.7%), ¥12,724 million in Asia (down39.9%), and ¥4,059 million in Europe and other regions (up64.3%).

A total of 24 investee companies were taken public in the

11

3Operating Results

2001 2002

Shareholders’ equity ratio

19.8%

30.0%

2001 2002

Net income per share(Yen)

11,374.77

12,304.40

2001 2002

Shareholders’ equity per share(Yen)

93,736.82

117,182.72

0

5

10

15

20

25

30

0

2,500

5,000

7,500

10,000

12,500

15,000

0

25,000

50,000

75,000

100,000

125,000

150,000

fiscal year (16 domestic companies and 8 overseascompanies). This brought the cumulative number ofcompanies taken public to 425 as of March 31, 2002.

Management Service of Investment Enterprise PartnershipsManagement and Administration of Investment FundsIn fiscal 2001, five new investment funds where NIF Venturesor consolidated subsidiaries make independent investmentdecisions were established. They were Investment EnterprisePartnership “NIF H Fund No.1,” Investment EnterprisePartnership “NIF21-ONE (2-A),” Investment EnterprisePartnership “NIF21-ONE (2-B),” Venture Capital InvestmentLimited Partnership “Akita Activation Fund No.1,” andVenture Capital Investment Limited Partnership “NIF Japan-USA-Europe Bridge Fund.” The aggregate paid-in amount ofnew investment funds came to ¥22,500 million in the fiscalyear, which was 0.4% less than the previous fiscal year. Thisbrought the cumulative number of funds established since thefounding of NIF Ventures to 42 as of March 31, 2002, withaggregate paid-in amount of ¥170,945 million. Of this total,35 funds are currently under management, with aggregatepaid-in amount of ¥149,445 million. Seven funds withaggregate paid-in amount of ¥21,500 million were liquidatedin past years, and no funds were liquidated in the fiscal year.

NIF Ventures or consolidated subsidiaries also establishedinvestment funds that they independently manage or jointlymanage with other companies (combined paid-in capital of¥500 million). As a result, the cumulative number of suchfunds came to 12 as of March 31, 2002, with aggregate paid-in capital of ¥14,081 million. Of this total, five funds arecurrently under management with paid-in capital of ¥5,271million. Seven funds were liquidated in past years, withcombined paid-in capital of ¥8,810 million.

Management fees from Investment Enterprise Partnershipsdecreased 43.2% to ¥2,629 million, and success fees weredown 96.3% to ¥85 million.

Financing BusinessFinancingGuided by a decision to divest its financing business, NIFVentures continued its efforts to recover outstanding debtclaims. This resulted in operational loans of ¥20,145 millionas of March 31, 2002, a decrease of ¥6,723 million at the endof fiscal 2001, and the balance of defective credits contracted¥6,305 million to ¥18,904 million after setting aside anallowance of ¥10,279 million for defective credits. With thedecrease in loan assets, interest from operational loans fell¥1,151 million to ¥1,586 million.

Net salesConsolidated net sales decreased 16.3% to ¥17,226 million,consolidated cost of sales decreased 11.1% to ¥9,349 millionand selling, general and administrative expenses decreased10.4% to ¥4,564 million. Consequently, operating profitdecreased 33.3% to ¥3,313 million.

Revenues from operational investment securities decreased1.5% to ¥12,446 million, which included proceeds from salesof securities (¥11,831 million in 2002 and ¥11,970 in 2001)and dividend and interest income (¥615 million in 2002 and¥667 million in 2001). Investment management feesdecreased 43.2% to ¥2,629 million, which includedadministrative fees (¥2,544 million in 2002 and ¥2,331

Note : In August 2001, NIF Ventures implemented a stock split, in which one share with a par value of ¥50,000 was split into10 shares with a par value of ¥5,000 each. Accordingly, shareholders’ equity per share (earnings per share) as of March 31,2001 was arrived at by converting shares with a ¥50,000 par value into those with a par value of ¥5,000 in the calculation.

12

4Financial Position

6Basic Policy forthe Distribution of Profit

Note : * . In August 2001, NIF Ventures implemented a stock split, in which one share

with a par value of ¥50,000 was split into 10 shares with a par value of¥5,000 each. Accordingly, shareholders’ equity per share (earnings per share)as of March 31, 2001 was arrived at by converting shares with a ¥50,000 parvalue into those with a par value of ¥5,000 in the calculation.

5Cash Flows

million in 2001) and success fees (¥85 million in 2002 and¥2,300 million in 2001).

Interest income from loans decreased 42.0% to ¥1,586million, mainly due to decrease in loans. Other net salesdecreased 2.8% to ¥565 million, which mainly consisted oflease revenues.

Cost of salesCost of operational investment securities decreased 1.7% to¥8,016 million, which included cost of securities sold (¥6,295million in 2002 and ¥5,181 million in 2001), devaluation lossof securities (¥916 million in 2002 and ¥2,205 million in2001) and provision for possible investment losses (¥805million in 2002 and ¥767 million in 2001).

Interest expenses for operational assets decreased 43.9% to¥1,178 million, due to decrease in short-term borrowings andrepayments of long-term borrowings. Other cost of salesdecreased 41.9% to ¥155 million, which mainly consisted ofdepreciation for lease assets.

Selling, general and administrative expensesSelling, general and administrative expenses decreased 10.4%to ¥4,564 million, mainly due to decrease in the payment ofcommissions for overseas alliance companies.

Other expensesOther expenses decreased 97.2% to ¥47 million, mainly dueto decrease in loss on disposal of defective credits (¥129million in 2002 and ¥1,698 million in 2001).

Investments of ¥5,586 million were made in the fiscal year.Sales of operational investment securities and theirreclassification caused the balance of such securities todecline by a corresponding amount. The principal reason forthis decrease of ¥4,117 million was the reclassification of theequity interest in Hotung Investment Holdings Limited, aleading Taiwanese venture capital firm with which NIFVentures has established a business alliance, from operationalinvestment securities to investment securities. Consequently,operational investment securities decreased 9.0% to ¥48,758million.

For the same reason, investment securities increased80.4% to ¥10,769 million.

As a result of efforts to recover outstanding debt claims,operational loans decreased 25% to ¥20,145 million.

As a result of efforts to recover outstanding debt claims,operational loans decreased 25% to ¥20,145 million anddefective credits decreased 25% to ¥18,904 million aftermaking necessary allowance for defective credits,respectively.

Short-term and long-term interest-bearing debt was paid down¥20,190 million with the proceeds of a stock offering andwith funds made available though the recovery of loansreceivable and defective credits.

Total shareholders’ equity increased ¥9,119 million,consisting of ¥6,580 million raised through a public stockoffering accompanying the listing of shares on March 12, 2002and an increase of ¥3,049 million in retained earnings. As aresult, shareholders’ equity per share improved to ¥117,182from ¥93,736 (after adjustment*), and the ratio of shareholders’equity to total assets improved to 30.0% from 19.8%.

Net cash provided by operational activities amounted to¥16,192 million, compared with ¥68,693 million in 2001.This was primarily due to efforts to recover operational loansand to sell defective credits. Net cash used in investingactivities was ¥2,157 million, compared with ¥2,507 millionin 2001. This was primarily due to the purchase of investmentsecurities.

Net cash used in financing activities totaled ¥13,835million, compared with ¥74,549 million in 2001. This wasprimarily the outcome of efforts to strengthen the financialposition, consisting of expenditures of ¥20,190 million to paydown interest-bearing debt and the raising of ¥6,531 millionthrough a public offering.

The basic policy of NIF Ventures is to build a profitablebusiness structure and to regularly pay a dividend of anappropriate amount. At the same time, given thecharacteristics of the investment business, NIF Ventures viewsan adequate level of retained earnings as necessary for futurebusiness development.

Management’s Discussion and Analysis

13

7Primary ManagementObjectives 8NIF-The Year in Progress

Ongoing Activities in Fiscal Year 2002(year ending March 31, 2003)

(1) Bolstering our “hands-on” capabilityAs we increasingly invest in venture companies in their early-stages, the ability to provide post-investment managementsupport has gained in importance. We will bolster our humanresources in terms of both quantity and quality to offersubstantial hands-on capabilities.

(2) Improving our investment fund businessWe will respond to investors needs by establishing funds withthe appeal of an alternative investment product, and willendeavor to offer high returns by investing in promisingcompanies.

(3) Pursuing a global perspective in our investmentsIn the ongoing globalization of the economy, businesses withpromising growth prospects are characteristically transcendingborders. We intend to further pursue “Investment based onglobal perspective and local due diligence”—a principle wehave upheld since our founding — to differentiate ourselvesfrom the competition.

(4) Promoting our buyout businessBuyout investment, which forms part of the private equitybusiness, presents a major business opportunity against thebackdrop of “scrap and build” activities currently beingundertaken to revive the Japanese economy, and we willaggressively seize such opportunities.

(5) Promoting the liquidation of “living-dead” assetsWe will make efficient use of capital by disposing of stockholdings in companies with little chance of an immediate IPOand taking measures for revitalization, and by promoting thecollection of loans receivable.

(6) Enhancing and cultivating human resourcesWe will undertake measures to bolster our human resourcesin terms of both quality and quantity, to produce individualscapable of realizing these objectives.

To develop and expand our business, we plan to recruitindividuals with expertise and excellent track records inparticular fields, in addition to training our existing staff tohigher levels of proficiency in our business.

Investment ActivitiesConditions remain challenging, caused by a deterioration inthe global economy and stagnant stock markets. The trend ofselective investment in venture companies has become evenmore pronounced, enabling venture capital companies to takethe initiative in investment activities. During fiscal year 2002,NIF has taken steps to exceed the previous year’s performancein terms of the amount invested.

In fiscal 2002, NIF intends to focus its investment activitieson Japan and Europe in terms of region, and biotechnology,healthcare and medical businesses in terms of sector. Inparticular, NIF foresees increased investment opportunities inthe Japanese market, based on government plans forincubating venture companies on university campuses andgrowing MBO (Management Buyout) activity by establishedcorporations. Needless to say, NIF remains committed to itslongstanding stance of making investment decisions based onthorough due diligence.

NIF reorganized its structure to support its investmentactivities, establishing an Investment Planning & ResearchDepartment. Its investment support system has been bolsteredby the creation of this team, which not only will undertakeinformation gathering and analysis related to investmentactivities, but also conduct market research aimed atdiscovering promising targets for investment.

Investment Enterprise PartnershipsDuring the First Quarter, the “Venture Capital InvestmentLimited Partnership NIF Global Fund” was launched on June6, 2002, with paid-in amount totaling ¥11 billion. Startingwith this “NIF Global Fund,” NIF plans to procure funding infiscal 2002 that exceeds levels attained in the previous year.

Investor Relations ActivitiesApril 26, 2002, marked the first announcement of annualfinancial results for NIF since its March 12, 2002, listing onthe JASDAQ market. This was followed by its first GeneralShareholders Meeting after the listing on June 27, 2002. NIFproduced an annual report that provides a concise overviewon the status of its operations for the benefit of shareholders.

14

CONSOLIDATED BALANCE SHEETSNIF Ventures Co., Ltd. and Consolidated Subsidiaries

See accompanying notes.

3,112

48,758

2,100

20,145

0

5,474

(40)

79,549

2,083

138

10,769

18,904

1,404

112,847

¥

¥

23,398

366,602

15,789

151,466

0

41,158

(300)

598,113

15,662

1,038

80,970

142,135

10,556

848,474

$

$

Assets:

Current assets

Cash and cash equivalents ...............................................

Operational investment securities (Notes 3 and 5) ............

Operational investment funds ..........................................

Operational loans ............................................................

Deferred tax assets (Note 12) ...........................................

Other current assets (Note 6)............................................

Less: Allowance for doubtful accounts .............................

Total current assets .........................................................

Property and equipment (Note 7).........................................

Intangible assets..................................................................

Investment securities (Notes 4 and 5)...................................

Defective credits (net of allowance of

¥10,279 million ($77,286 thousand)

in 2002 and ¥17,225 million in 2001)..............................

Other investments and other assets (Note 8) ........................

2,870

53,570

1,440

26,868

—

4,420

(51)

89,117

2,821

146

5,971

25,209

1,837

125,101

As of March 31, 2002 and 2001

Millions of YenThousands of U.S. Dollars

(Note 1)

2002 2001 2002

¥

¥

15

51,800

11,072

25

1,632

173

722

65,424

12,719

0

269

—

570

11,267

13,914

6,371

2,242

71

(0)

33,865

112,847

¥

¥

389,474

83,248

188

12,271

1,301

5,428

491,910

95,632

0

2,023

—

4,285

84,714

104,617

47,902

16,857

534

(0)

254,624

848,474

$

$

Liabilities:

Current liabilities

Short-term borrowings (Note 9) ........................................

Long-term borrowings due within one year (Note 9) .........

Income taxes payable ......................................................

Deferred tax liabilities (Note 12) ......................................

Accrued bonuses .............................................................

Accrued expenses and other liabilities..............................

Total current liabilities ....................................................

Long-term borrowings (Note 9)............................................

Deferred tax liabilities (Note 12)..........................................

Retirement benefits (Note 10) ..............................................

Multiemployers’ pension plan (Note 10) ..............................

Other long-term liabilities ...................................................

Shareholders’ equity (Note 14):

Common stockAuthorized — 1,056,000 sharesIssued — 289,000 shares (26,400 shares in 2001) ............

Additional paid-in capital....................................................

Retained earnings ...............................................................

Net unrealized gain on securities, net of tax effect ...............

Foreign currency translation adjustment ..............................

Treasury stock, at cost .........................................................

Total shareholders’ equity ..................................................

64,100

8,870

76

1,828

197

841

75,912

22,811

224

186

448

774

8,292

10,309

3,322

2,827

(4)

(0)

24,746

125,101

Millions of YenThousands of U.S. Dollars

(Note 1)

2002 2001 2002

¥

¥

16

CONSOLIDATED STATEMENTS OF INCOMENIF Ventures Co., Ltd. and Consolidated Subsidiaries

12,446

2,629

1,586

565

17,226

8,016

1,178

155

9,349

7,877

4,564

3,313

(47)

3,266

53

(54)

3

2

3,264

¥

¥

93,579

19,767

11,925

4,248

129,519

60,271

8,857

1,165

70,293

59,226

34,316

24,910

(354)

24,556

398

(406)

23

15

24,541

$

$

Net sales:

Revenues from operational investment securities (Note 3) ....

Investment management fees (Note 11) ...............................

Interest income from loans ..................................................

Other..................................................................................

Total net sales (Note 15)......................................................

Cost of sales:

Cost of operational investment securities (Note 3)................

Interest expenses for operational assets................................

Other..................................................................................

Total cost of sales ...............................................................

Gross profit .........................................................................

Selling, general and administrative expenses (Note 17)...........

Operating profit (Note 15) ...................................................

Other income (expenses) (Note 18) ........................................

Income before income taxes ..................................................

Income taxes (Note 12):

Current ...............................................................................

Refunds from income taxes .................................................

Deferred .............................................................................

Net income............................................................................

12,637

4,631

2,737

581

20,586

8,153

2,101

267

10,521

10,065

5,095

4,970

(1,689)

3,281

176

—

437

613

2,668

For the years ended March 31, 2002 and 2001

Millions of YenThousands of U.S. Dollars

(Note 1)

2002 2001 2002

¥

¥

12,304.40

1,000

¥ 92.51

7.52

$

Per share data:

Net income (Notes 2 and 14) ..............................................

Cash dividends applicable to the year .................................

11,374.77

7,500

YenU.S. Dollars

(Note 1)

2002 2001 2002

¥

See accompanying notes.

17

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYNIF Ventures Co., Ltd. and Consolidated Subsidiaries

—

(0)

(0)

(0)

(0)

¥

¥

—

(4)

(4)

75

71

¥

¥

—

2,827

2,827

(585)

2,242

¥

¥

(22,085)

2,668

663

22,076

3,322

3,264

(176)

(39)

6,371

¥

¥

25,449

3,186

(22,076)

3,750

10,309

3,605

13,914

¥

¥

1,365

3,177

3,750

8,292

2,975

11,267

¥

¥

7,700

15,700

3,000

26,400

237,600

25,000

289,000

Balance at March 31, 2000 ...............

Net income ...................................

Increase due to merger (Note 14) ...

Reversal of additional paid-in

capital (Note 14) ........................

Issuance of stock (Note 14) ............

Net unrealized gain on securities,

net of tax effect ..........................

Foreign currency translation

adjustment .................................

Change in treasury stock................

Balance at March 31, 2001 ...............

Net income ...................................

Stock split (Note 14) ......................

Issuance of stock (Note 14) ............

Cash dividends ..............................

Directors’ bonuses.........................

Net unrealized gain on securities,

net of tax effect ..........................

Foreign currency translation

adjustment .................................

Change in treasury stock................

Balance at March 31, 2002 ...............

For the years ended March 31, 2002 and 2001

Millions of Yen

Number ofshares of

common stockCommon

stockAdditional

paid-in capital

Retainedearnings(deficit)

Net unrealizedgain on

securities, netof tax effect

Foreigncurrency

translationadjustment

Treasurystock, at cost

(0)

(0)

(0)

$

$

(30)

564

534

$

$

21,255

(4,398)

16,857

$

$

24,977

24,541

(1,323)

(293)

47,902

$

$

77,511

27,106

104,617

$

$

62,346

22,368

84,714

$

$

Balance at March 31, 2001 ................................

Net income.....................................................

Issuance of stock (Note 14) .............................

Cash dividends ...............................................

Directors’ bonuses ..........................................

Net unrealized gain on securities,

net of tax effect............................................

Foreign currency translation adjustment ..........

Change in treasury stock .................................

Balance at March 31, 2002 ................................

Thousands of U.S. Dollars (Note 1)

Common stock

Additionalpaid-in capital

Retainedearnings

Net unrealizedgain on

securities, netof tax effect

Foreigncurrency

translationadjustment

Treasurystock, at cost

See accompanying notes.

18

CONSOLIDATED STATEMENTS OF CASH FLOWSNIF Ventures Co., Ltd. and Consolidated Subsidiaries

3,266

224(11)695(24)83

(448)(2,384)1,373

(5)406

(299)—

(27)39

63613,585

(39)2,401

(1,428)(106)

(1,745)12,92616,192

(42)38

(3,527)1,117

257(2,157)

(12,300)1,000

(8,890)—

(176)6,531

(0)(13,835)

42

2422,870

—3,112

¥

¥

24,556

1,684(83)

5,225(180)624

(3,368)(17,925)10,323

(38)3,053

(2,248)—

(203)293

4,782102,143

(293)18,053

(10,737)(797)

(13,120)97,188

121,744

(316)286

(26,519)8,3991,932

(16,218)

(92,481)7,519

(66,843)—

(1,323)49,105

(0)(104,023)

316

1,81921,579

—23,398

$

$

Cash flows from operating activities:Income before income taxes ....................................................

Adjustments to reconcile net income to net cash provided by operating activities:Depreciation ........................................................................

Decrease in allowance for doubtful accounts ........................

Increase in allowance for possible investment losses .............

Decrease in accrued bonuses ...............................................

Increase in retirement benefits ..............................................

Decrease in multiemployers’ pension plan ............................

Interest and dividend income................................................

Interest expenses ..................................................................

Equity in net gains on investments of a non-consolidated subsidiary and an affiliated company.................................

Valuation losses of investment securities ...............................

Gain (loss) on sales of investment securities ..........................

Gain on sales of treasury stock..............................................

Gain (loss) on disposal and sales related to fixed assets .........

Valuation losses related to fixed assets ..................................

Decrease in operational investment securities .......................

Decrease in operational loans and defective credits ..............

Directors’ bonuses paid ........................................................

Interest and dividends received.............................................

Interest paid .........................................................................

Income taxes paid ................................................................

Other ...................................................................................

Total adjustments.....................................................................

Net cash provided by operating activities ...................................

Cash flows from investing activities:Payments for purchases of property and equipment ..................

Proceeds from sales of property and equipment ........................

Payments for purchases of investment securities .......................

Proceeds from sales and maturity of investment securities.........

Other ......................................................................................

Net cash used in investing activities............................................

Cash flows from financing activities:Decrease in short-term borrowings, net ....................................

Proceeds from long-term borrowings ........................................

Repayments of long-term borrowings .......................................

Payments for redemption of mortgage-backed securities ...........

Cash dividends paid ................................................................

Proceeds from issuance of stock (Note 14)................................

Other ......................................................................................

Net cash used in financing activities ...........................................

Effect of exchange rate changes on cash and cash equivalents ....

Net change in cash and cash equivalents ....................................

Cash and cash equivalents at beginning of year...........................

Change in cash and cash equivalents due to merger (Note 14) ....

Cash and cash equivalents at end of year ....................................

3,281

292(82)

657(1)

60—

(3,487)2,335

(1)164(120)

(57)2737

39763,982

—3,655(2,516)

(307)377

65,41268,693

(124)566

(5,673)2,392

332(2,507)

(41,510)17,497(15,253)(42,823)

—7,472

68(74,549)

36

(8,327)5,6805,5172,870

For the years ended March 31, 2002 and 2001

Millions of YenThousands of U.S. Dollars

(Note 1)

2002 2001 2002

¥

¥

See accompanying notes.

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNIF Ventures Co., Ltd. and Consolidated Subsidiaries

NIF Ventures Co., Ltd. (the “Company”, formerly DaiwaFinance Co. Ltd.) is a consolidated subsidiary of DaiwaSecurities Group Inc. As of March 31, 2002, DaiwaSecurities Group Inc. holds 79.2% of the Company, directlyand indirectly. On April 1, 2000, the Company mergedwith Nippon Investment & Finance Co. Ltd. and changed itsname to NIF Ventures Co., Ltd. The Company’s corebusiness is venture capital investments.

The Company and its consolidated domestic subsidiarymaintain their official accounting records in Japanese yenand in accordance with the provisions set forth in theJapanese Commercial Code and accounting principles andpractices generally accepted in Japan (“Japanese GAAP”).The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generallyaccepted accounting principles and practices prevailing inthe respective countries of domicile. Certain accountingprinciples and practices generally accepted in Japan aredifferent from International Accounting Standards andstandards in other countries in certain respects as toapplication and disclosure requirements. Accordingly, theaccompanying financial statements are intended for use bythose who are informed about Japanese accountingprinciples and practices.

The accompanying financial statements have beenrestructured and translated into English (with someexpanded descriptions and the inclusion of statements ofshareholders’ equity) from the consolidated financialstatements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local FinanceBureau of the Ministry of Finance as required by theSecurities and Exchange Law. Some supplementaryinformation included in the statutory Japanese languageconsolidated financial statements, but not required for fairpresentation, is not presented in the accompanying financialstatements.

The translations of the Japanese yen amounts into U.S.dollars are included solely for the convenience of thereader, using the prevailing exchange rate at March 31,2002, which was ¥133 to U.S. $1. The conveniencetranslations should not be construed as representations thatthe Japanese yen amounts have been, could have been, orcould in the future be, converted into U.S. dollars at this orany other rate of exchange.

ConsolidationThe consolidated financial statements include the accounts

of the Company and its four significant subsidiaries (onedomestic subsidiary and three overseas subsidiaries) whichare controlled by the Company through substantialownership of more than 50% of the voting rights or throughownership of high percentage of the voting rights and theexistence of certain conditions evidencing control by theCompany of the decision-making body of such companies.

Investments in one unconsolidated subsidiary and oneaffiliated company over which the Company has the abilityto exercise significant influence in operation and financialpolicies of the investees are accounted for by the equitymethod.

Cash and cash equivalentsCash and cash equivalents includes cash on hand, readily-available deposits, and short-term investments with originalmaturities of not exceeding three months, which are highlyliquid and virtually risk-free with respect to change of value.

SecuritiesThe Company and its consolidated domestic subsidiaryclassify all the securities they hold (the operationalinvestment securities and the investment securities) asavailable-for-sale securities, except for investments insubsidiaries and affiliated companies.

The available-for-sale securities with market value arestated at market value on the year-end date, and netunrealized gain and loss on the securities are reported, netof applicable income taxes, as a separate component of theshareholders’ equity. Realized gains and losses on sale ofsuch securities are computed using moving-average cost.

Securities that do not have market value are stated atmoving-average cost.

The operational investment securities represent shares andbonds which are expected to go public in the future andhave been successful in going public. There are twomethods of investments, direct method and indirect method.As for the direct method, the Company invests directly tothe private companies. As for the indirect method, theCompany invests through investment partnerships to theprivate companies. Allowance for possible investmentlosses of operational investment securities is provided inamounts determined by management, considering actualconditions of investee companies.

Property and equipmentProperty and equipment are stated at cost less accumulateddepreciation. For the Company and its consolidateddomestic subsidiary, depreciation is computed generally by

For the years ended March 31, 2002 and 2001

1. Basis of Consolidated Financial Statements

2. Significant Accounting Policies

20

the declining-balance method, while the straight-linemethod is applied to the lease assets and to the buildings(excluding associated equipment and facilities) acquiredafter April 1, 1998. The useful lives for depreciation aregenerally stipulated by Corporation Tax Law, while theuseful lives of the lease assets are their lease period, andthose of the buildings (excluding associated equipment andfacilities) acquired before March 31, 1998 are as stipulatedby the Corporation Tax Law prior to the 1998 amendments.For consolidated overseas subsidiaries, the straight-linemethod is used, based on local accounting standards.

Intangible assetsIntangible assets are stated at cost less accumulatedamortization, computed by the straight-line method.

Allowance for doubtful accountsAllowance for doubtful accounts of the Company and itsconsolidated domestic subsidiary are provided on theestimated historical deterioration rate for normal loans, andthe allowance specifically assessed for defective credits.Consolidated overseas subsidiaries provide specificallyassessed amounts.

BonusesThe Company and its consolidated domestic subsidiaryfollow the Japanese practice of paying bonuses toemployees in June and December. Accrued employees’bonuses represent liabilities estimated as of the balancesheet date. Bonuses to directors, which are subject toapproval at the shareholders’ meeting, are accounted for asan appropriation of retained earnings.

Retirement benefitsThe Company provides an unfunded plan to its employeesin return for services rendered each year, where the amountto be contributed to the individual employees’ account isdefined rather than the amount of retirement benefits theemployee is to receive. Under this unfunded plan,retirement benefits are accumulated on an annual basis bycontribution of the Company and earn a guaranteedhypothetical return at the rate of which the Companypredetermines each year.

The Company introduced defined contribution pension planin December 2001.

The Company was a member of an industry-wide non-contributory welfare pension plan administered bySecurities Companies’ Welfare Pension Fund, in conjunctionwith the contributory governmental welfare pension plan.

On September 29, 2001 the Company withdrew from thisnon-contributory welfare pension plan.

The Company also has an unfunded retirement benefits fordirectors and statutory auditors, and provides the 100% ofthe amount which the Company would have to pay basedon the internal regulations if all the members resigned at thebalance sheet date.

Income taxesDeferred tax assets and liabilities are recorded for theexpected future tax consequences of temporary differencesbetween the financial reporting and the tax bases of theassets and liabilities. Deferred income taxes are measuredbased on currently enacted tax laws to the extent they areexpected to be realized.

Investments in the investment partnershipsAs for investments in the investment partnerships, theirassets, liabilities, profits and losses are recorded in theCompany’s financial statements in proportion to theCompany’s holding on the basis of the investmentpartnerships’ financial statements. Investments in theinvestment partnerships whose financial statements are notavailable are included in “Operational investment funds” incurrent assets.

Interest expensesInterest expenses are divided into those associated withoperational assets and the others, based on the averagedasset balances. Those associated with operational assets areincluded in “Cost of sales” and the others are included in“Other expenses”.

Translation of foreign currency assets or liabilities intoJapanese yenThe Company and its consolidated domestic subsidiarytranslate assets and liabilities in foreign currencies into yenat year-end exchange rate. Financial statements of foreignsubsidiaries are translated into yen on the basis of the year-end rates for assets and liabilities except that retainedearnings are translated at historical rates. Income andexpenses are translated at the average rates for the years.The resulting differences are reported as translationadjustment in shareholders’ equity.

Derivative financial instrumentsThe Company uses the derivative financial instruments tomanage its exposure to interest rate fluctuation risks onborrowings, and not for trading nor speculative purposes.All the derivative transactions used by the Company qualify

21

for hedge accounting because of high correlation andeffectiveness between the hedging instruments and thehedged items. The valuation gains or losses on derivativesare deferred until the maturity of the hedged transactions.

Per share dataNet income per share is computed based on the weightedaverage number of shares, less treasury stock, outstandingduring each year. In addition, although stock split of ratio 1to 10 was performed on August 1, 2001, net income pershare for 2002 and 2001 were computed as it had beenperformed at April 1, 2000.

Diluted net income is not presented since securities withdilutive effect have not been issued. Cash dividends pershare are stated for the period to which they are attributable.

Operational investment securities as of March 31, 2002 and2001, consisted of the following:

Information of net sales and cost of sales related tooperational investment securities are shown below:

Investment securities as of March 31, 2002 and 2001,consisted of the following:

Stock of affiliated companies of ¥205 million ($1,541thousand) and ¥210 million as of March 31, 2002 and 2001,respectively, are included in the above table.

Bond of an affiliated company of ¥20 million ($151thousand) and ¥20 million as of March 31, 2002 and 2001,respectively, are included in the above table.

Acquisition cost and market value of operational investmentsecurities and investment securities with market value as ofMarch 31, 2002 and 2001, consisted of the following:

Revenues from operational investment securities:Proceeds from sales of securities.................................

Dividend and interest income....

Total .....................................

Cost of operational investment securities:Cost of securities sold................

Devaluation loss of securities ....

Provision for possible investment losses ....................

Total .....................................

¥ 11,831615

¥ 12,446

¥ 6,295916

805¥ 8,016

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 11,970667

¥ 12,637

¥ 5,1812,205

767¥ 8,153

$ 88,9554,624

$ 93,579

$ 47,3316,887

6,053$ 60,271

Stock ........................................

Bond.........................................

Other ........................................

Total .....................................

¥ 9,42730

1,312¥ 10,769

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 5,57930

362¥ 5,971

$ 70,879226

9,865$ 80,970

March 31, 2002:Operational investment

securities:Stock .............................

Investment securities:Stock .............................

Bond .............................

Other ............................

Total ..........................

March 31, 2001:Operational investment

securities:Stock .............................

Investment securities:Stock .............................

Bond .............................

Other ............................

Total ..........................

¥ 4,561

¥ 53202

¥ 534

¥ 6,170

¥ 9490

—¥ 949

¥ 7,104

¥ 9,28410

1,502¥ 10,796

¥ 14,117

¥ 4,23110

500¥ 4,741

Acquisitioncost

Unrealizedgains

Unrealizedlosses

Market value

Millions of Yen

¥ (680)

¥ (1,563)—

(192)¥ (1,755)

¥ (2,107)

¥ (278)—

(138)¥ (416)

¥ 10,985

¥ 8,25310

1,312¥ 9,575

¥ 18,180

¥ 4,90210

362¥ 5,274

Stock ..........................................

Bond ..........................................

Other..........................................

Less: Allowance for possible investment losses ......................

Total .....................................

¥ 43,2083,3034,169

(1,922)¥ 48,758

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 48,3863,1453,266

(1,227)¥ 53,570

$ 324,87224,83531,346

(14,451)$ 366,602

4. Investment Securities

3. Operational Investment Securities

5. Market Value Information of Securities

22

Securities without market value as of March 31, 2002 and2001, consisted of the following:

The amounts of non-listed stock of investment securities inthe above table excluded the stock of non-consolidatedsubsidiaries and affiliated companies, were ¥205 million($1,541 thousand) and ¥210 million as of March 31, 2002and 2001, respectively.

Securities owned by the Company except for investmentsin subsidiaries and affiliated companies were classified asavailable-for-sale securities. Those securities held forventure capital investments, one of main business purposesof the Company, were reported as “Operational investmentsecurities”, and the other securities held for long-terminvestments were reported as “Investment securities”. In thecurrent year, the Company reclassified one marketableequity security (¥2,958 million [$22,241 thousand]) andfour non-marketable equity securities in the total amount of¥343 million ($2,579 thousand) in “Operational investment

securities” into “Investment securities”, since the purpose ofholding these securities changed from venture capitalinvestments to long-term investments at the timing ofstrengthening of business alliance.

Proceeds from sales of operational investment securities forthe years ended March 31, 2002 and 2001, are shownbelow:

Other current assets as of March 31, 2002 and 2001,consisted of the following:

6. Other Current Assets

Operational investment securities:Proceed from sales of securities.............................

Gross realized gains ..................

Gross realized losses .................

Investment securities:Proceed from sales of securities.............................

Gross realized gains ..................

Gross realized losses .................

¥ 11,8316,724

(1,205)

1,098304

(5)

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 11,9708,105(1,408)

550128

(8)

$ 88,95550,556(9,060)

8,2562,286

(38)

Share of cash and deposits of investment partnerships .............

Share of securities of investment partnerships .............

Others .........................................

Total ........................................

¥ 1,819

2,833822

¥ 5,474

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 779

2,5831,058

¥ 4,420

$ 13,677

21,3016,180

$ 41,158

March 31, 2002:Operational investment securities:Stock .............................

Investment securities:Stock .............................

Bond .............................

Other ............................

Total ..........................

$ 34,293

$ 4,0000

15$ 4,015

$ 53,414

$ 69,80475

11,294$ 81,173

Acquisitioncost

Unrealizedgains

Unrealizedlosses

Market value

Thousands of U.S. Dollars

$ (5,113)

$ (11,752)—

(1,444)$ (13,196)

$ 82,594

$ 62,05275

9,865$ 71,992

Operational investment securities:Non-listed stock (excluding over-the-counter stock)............

Non-listed domestic and foreign bonds ..........................

Other........................................

Total .....................................

Investment securities:Non-listed stock (excluding over-the-counter stock)............

Non-listed domestic and foreign bonds ..........................

Total .....................................

¥ 32,223

3,3034,169

¥ 39,695

¥ 969

20¥ 989

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 30,206

3,1453,266

¥ 36,617

¥ 467

20¥ 487

$ 242,278

24,83531,346

$ 298,459

$ 7,286

151$ 7,437

23

Property and equipment as of March 31, 2002 and 2001,consisted of the following:

Other investments and other assets as of March 31, 2002and 2001, consisted of the following:

Short-term borrowings from banks are mainly overdraftmaturing within three months. The average annual interestrates applicable to the short-term borrowings as of March31, 2002 and 2001 were 0.81% and 0.97%, respectively.

The average annual interest rates applicable to the long-term borrowings as of March 31, 2002 and 2001 were2.07% and 2.19%, respectively.

Long-term borrowings as of March 31, 2002 and 2001,consisted of the following:

The aggregate annual maturities of long-term borrowingswere as follows:

The retirement benefits for employees as of March 31, 2002and 2001, consisted of the following:

Retirement benefits expenses for the years ended March 31,2002 and 2001, were as follows:

2003.......................................................

2004.......................................................

2005.......................................................

2006.......................................................

2007.......................................................

Total ...................................................

¥ 11,07210,239

4212,000

59¥ 23,791

Millions of Yen Thousands of U.S. DollarsYear ending March 31

$ 83,24876,9853,165

15,038444

$ 178,880

Project benefits obligation...........

Less: plan assets ..........................

Less: prepaid pension expenses ...

Retirement benefits ...................

¥ 369(213)

—¥ 156

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 300(229)

1¥ 72

$ 2,774(1,601)

—$ 1,173

Service costs ...............................

Contribution to a welfare pension plan .............................

Contribution to a defined contribution plan ......................

Retirement benefits expenses.....

¥ 83

15

8¥ 106

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 89

26

—¥ 115

$ 624

113

60$ 797

Guaranteed by Daiwa Securities Group Inc. ................................

Unsecured ..................................

Total .......................................

¥ 3,60020,191

¥ 23,791

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 3,60028,081

¥ 31,681

$ 27,068151,812

$ 178,880

7. Property and Equipment

8. Other Investments and Other Assets

9. Short-term Borrowings and Long-term Borrowings

Cost:Land .........................................

Building and structures..............

Other........................................

Less: Accumulated depreciation ..

Total .......................................

¥ 1,512615

1,9734,100

(2,017)¥ 2,083

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 2,092596

1,9854,673

(1,852)¥ 2,821

$ 11,3684,624

14,83530,827

(15,165)$ 15,662

Long-term loans to employees .....

Investments in commodity funds...

Long-term guarantee deposits ......

Long-term prepaid expenses ........

Others ........................................

Less: Allowance for doubtful accounts .....................

Total .......................................

¥ 19215716

6539

(91)¥ 1,404

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 20490744

5629

(51)¥ 1,837

$ 1431,6175,383

454,052

(684)$ 10,556

10. Retirement Benefits and Multiemployers’ Pension Plan

24

The retirement benefits for directors and statutory auditors of¥113 million ($850 thousand) and ¥114 million wereincluded in “Retirement benefits” in the accompanyingconsolidated balance sheets as of March 31, 2002 and2001, respectively.

On September 29, 2001, the Company withdrew from thenon-contributory welfare pension plan. The reversal ofmultiemployers’ pension plan, which is a deduction ofactual obligation on withdrawal from the SecuritiesCompanies’ Welfare Pension Fund from the provision formultiemployers’ pension plan, was reported as other incomein the consolidated statements of income for the year endedMarch 31, 2002 (See Note 18).

Investment management fees earned for the years endedMarch 31, 2002 and 2001, were as follows:

The normal effective statutory income tax rate in Japanarising out of the aggregation of corporate, enterprise andinhabitants taxes was approximately 42% for 2002 and2001. The income tax rates for the overseas subsidiaries arebased on the rates of the countries in which they operate.

Details of deferred tax assets and liabilities as of March31, 2002 and 2001, were as follows:

Reconciliation of the difference between the normaleffective statutory income tax rate and the effective incometax rate reflected in the accompanying consolidatedstatements of income for the years ended March 31, 2002and 2001, were as follows:

Normal effective statutory tax rate ............

(adjustments)Valuation allowance for deferred income tax assets .................................

Expenses permanently not deductible from taxable income.............................

Differences in tax rates between the Company and its foreign consolidated subsidiaries ......................

Revenues permanently not included in taxable income.....................................

Other, net ..............................................

The effective income tax rate....................

42.1%

(42.9)

0.8

(0.2)

—0.30.1%

2002 2001

42.1%

(24.0)

1.1

(1.1)

(0.1)0.7

18.7%

12. Income Taxes

Deferred tax assets:Net operating losses ..................

Allowance for possible investment losses ....................

Accrued bonuses.......................

Multiemployers’ pension plan ...

Allowance for doubtful accounts ...................

Retirement benefits ...................

Valuation losses of land ............

Other........................................

Gross deferred tax assets ...........

Less: valuation allowance..........

Total deferred tax assets ........

Deferred tax liabilities:Net unrealized gain (loss) on securities............................

Other........................................

Total deferred tax liabilities ...

Net deferred tax liabilities .....

¥ 6,186

80843—

89795

246114

8,389(8,382)

7

1,62712

1,639¥ 1,632

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 8,623

51635

188

—69

246120

9,797(9,797)

—

2,0511

2,052¥ 2,052

$ 46,511

6,075323

—

6,744714

1,850857

63,074(63,022)

52

12,23390

12,323$ 12,271

11. Investment Management Fees

Administrative fees......................

Success fees ................................

Total .......................................

¥ 2,54485

¥ 2,629

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 2,3312,300

¥ 4,631

$ 19,128639

$ 19,767

25

13. The Company’s Transactions with Related PartiesSignificant transactions with Daiwa Securities Group Inc.,our parent, for the years ended March 31, 2002 and 2001,were as follows:

As for the short-term borrowings, transaction amountstotaled for ¥36,600 million and its average balance for theyear ended March 31, 2001 was ¥3,370 million.

When the Company merged with Nippon Investment &Finance Co. Ltd. on April 1, 2000, common stock,additional paid-in capital and retained earnings increasedby ¥3,177 million, ¥3,186 million and ¥663 million,respectively. The Company issued 15,700 shares ofcommon stock (par value of ¥50,000), and allocated toshareholders of Nippon Investment & Finance Co. Ltd. asregistered on March 31, 2000, at the ratio of one share ofcommon stock of the Company (par value of ¥50,000) for500 shares of common stock of Nippon Investment &Finance Co. Ltd. (par value of ¥500).

The Company reversed additional paid-in capital in theamount of ¥22,076 million and offset accumulated deficitpursuant to the approval of the shareholders’ meeting heldon June 27, 2000.

On March 23, 2001, the Company issued 3,000 shares ofcommon stock in the form of stock allocation to a third-party and allocated all to Daiwa Securities Group Inc.Consequently, common stock and additional paid-in capitalboth increased by ¥3,750 million.

The Company was authorized to issue 1,056 thousandshares of common stock on approval of the shareholders’meeting held on June 26, 2001.

Stock split of ratio 1 to 10 was performed on August 1,2001, and the number of shares of common stock increasedby 237,600.

On March 12, 2002, the Company issued 25,000 shares ofcommon stock in the form of public offering when theCompany’s shares were registered for trading on JASDAQ,the Japanese over-the-counter market. Common stock andadditional paid-in capital increased by ¥2,975 million($22,368 thousand) and ¥3,605 million ($27,106 thousand),respectively.

14. Shareholders’ Equity

Guarantee of the Company’s bank borrowings..........................

Short-term borrowings ...................

Interest expenses for borrowings....

¥ 3,600——

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 3,60036,600

34

$ 27,068——

26

Business segmentBusiness segment information for the years ended March 31, 2002 and 2001, were as follows:

Notes: 1. Business segments are defined for internal management purposes.Investment ....Investments in venture business of domestic and foreign companies, and establishment, operation and

management of assets of investment partnerships etc.Finance ........Loan, leasing and other financial business etc.

2. Corporate assets, not identifiable to each segment, in “Elimination or corporate” column as of March 31, 2002 and2001, amounted to ¥2,513 million ($18,895 thousand) and ¥2,298, respectively, which mainly consisted of cash andcash deposits of the Company.

3. For the year ended March 31, 2001, the Company and its consolidated domestic subsidiary adopted “TheAccounting Standards for Financial Instruments.” Consequently, operating expenses in investment decreased by¥1,166 million, while operating profits increased by the same amount.

15. Segment Information

Year ended March 31, 2002:Sales:Sales to outside customers..................

Inter-segment .....................................

Total ................................................

Operating expenses ...........................

Operating profits................................

At March 31, 2002:Assets ..................................................

Depreciation......................................

Capital expenditures ..........................

Year ended March 31, 2001:Sales:Sales to outside customers..................

Inter-segment .....................................

Total ................................................

Operating expenses ...........................

Operating profits................................

At March 31, 2001:Assets ..................................................

Depreciation......................................

Capital expenditures ..........................

¥ 15,438—

15,43812,788

¥ 2,650

¥ 70,61310165

¥ 17,497—

17,49713,532

¥ 3,965

¥ 68,86489

174

¥ 1,788—

1,7881,125

¥ 663

¥ 39,72112326

¥ 3,089—

3,0892,084

¥ 1,005

¥ 53,939203740

¥ 17,226—

17,22613,913

¥ 3,313

¥ 110,334224

91

¥ 20,586—

20,58615,616

¥ 4,970

¥ 122,803292914

¥ ————

¥ —

¥ 2,513——

¥ ————

¥ —

¥ 2,298——

¥ 17,226—

17,22613,913

¥ 3,313

¥ 112,84722491

¥ 20,586—

20,58615,616

¥ 4,970

¥ 125,101292914

Investment Finance Total Elimination or corporate Consolidated

Millions of Yen

Year ended March 31, 2002:Sales:Sales to outside customers..................

Inter-segment .....................................

Total ................................................

Operating expenses ...........................

Operating profits................................

At March 31, 2002:Assets ..................................................

Depreciation......................................

Capital expenditures ..........................

$ 116,075—

116,07596,150

$ 19,925

$ 530,925759489

$ 13,444—

13,4448,459

$ 4,985

$ 298,654925195

$ 129,519—

129,519104,609

$ 24,910

$ 829,5791,684

684

$ ————

$ —

$ 18,895——

$ 129,519—

129,519104,609

$ 24,910

$ 848,4741,684

684

Investment Finance Total Elimination or corporate Consolidated

Thousands of U.S. Dollars

27

Geographic segmentSince sales and assets in Japan exceeded 90% of total sales and assets of all geographic segments respectively for the yearsended March 31, 2002 and 2001, geographic segment information is not presented.

Overseas salesOverseas sales for the years ended March 31, 2002 and 2001, were as follows:

Notes: 1. Segmentation by geographic area is based on geographical proximity.(1) Asia......................Taiwan, Hong Kong and Singapore etc.(2) America................USA(3) Europe & Other ....United Kingdom, France and Israel etc.

2. Overseas sales are those of the Company and its subsidiaries in countries other than Japan.

Year ended March 31, 2002Overseas sales .....................................

Total sales ...........................................

% of total sales ....................................

$ 21,737—

16.8%

$ 2,534—

1.9%

$ 729—

0.6%

$ 25,000129,519

19.3%

Asia America Europe & other area Total

Thousands of U.S. Dollars

Year ended March 31, 2002Overseas sales .....................................

Total sales ...........................................

% of total sales ....................................

Year ended March 31, 2001Overseas sales .....................................

Total sales ...........................................

% of total sales ....................................

¥ 2,891—

16.8%

¥ 2,861—

13.9%

¥ 337—

1.9%

¥ 2,297—

11.1%

¥ 97—

0.6%

¥ 531—

2.6%

¥ 3,32517,22619.3%

¥ 5,68920,58627.6%

Asia America Europe & other area Total

Millions of Yen

28

Financial leases that do not transfer ownership to lessees(“non-capitalized finance leases”) are not capitalized andare accounted for in the same manner as operating leases.

Non-capitalized finance leases as of March 31, 2002 and2001, were as follows:

As lesseeAcquisition cost, accumulated depreciation and netdifference of the lease property as of March 31, 2002 and2001, were as follows:

Acquisition cost includes the imputed interest expensesportion, because of its immateriality.

Obligations as of March 31, 2002 and 2001, were asfollows:

The amount of obligations includes the imputed interestexpenses portion, because of its immateriality.

Total lease payments were ¥2 million ($15 thousand) and¥1 million, and depreciations were ¥2 million ($15thousand) and ¥1 million for the years ended March 31,2002 and 2001, respectively. Depreciation was calculatedbased on the straight-line method with zero residual value.

As lessorAcquisition cost, accumulated depreciation and netdifference of the lease property as of March 31, 2002 and2001, were as follows:

Future lease payments receivable as of March 31, 2002 and2001, were as follows:

The amount of future lease payments receivable includes theimputed interest expenses portion, because of itsimmateriality. Total lease revenues were ¥143 million($1,075 thousand) and ¥195 million, and depreciationswere ¥117 million ($880 thousand) and ¥147 million for theyears ended March 31, 2002 and 2001, respectively.

Operating leases as of March 31, 2002 and 2001, were asfollows:

As lesseeObligations as of March 31, 2002 and 2001, were asfollows:

As lessorFuture lease payments receivable as of March 31, 2002 and2001, were as follows:

16. Lease Transaction

Acquisition cost ..........................

Accumulated depreciation ..........

Difference...............................

¥ 106

¥ 4

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 108

¥ 2

$ 7545

$ 30

Due within one year ...................

Due after one year ......................

Total .......................................

¥ 22

¥ 4

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 351

¥ 36

$ 1515

$ 30

Acquisition cost ..........................

Accumulated depreciation ..........

Difference...............................

¥ 270198

¥ 72

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 836619

¥ 217

$ 2,0301,489

$ 541

Due within one year ...................

Due after one year ......................

Total .......................................

¥ 5120

¥ 71

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 17967

¥ 246

$ 384150

$ 534

Due within one year ...................

Due after one year ......................

Total .......................................

¥ 148

¥ 22

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 1320

¥ 33

$ 10560

$ 165

Due within one year ...................

Due after one year ......................

Total .......................................

¥ 2—

¥ 2

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 9—

¥ 9

$ 15—

$ 15

29

Major elements of selling, general and administrativeexpenses for the years ended March 31, 2002 and 2001,were as follows:

Details of other income (expenses) for the years endedMarch 31, 2002 and 2001, were as follows:

The following appropriations of retained earnings wereapproved at the shareholders’ meeting of the Company onJune 27, 2002:

On the same day, the shareholders’ meeting of the Companyapproved to repurchase its common stocks up to 3,000shares or ¥1,000 million ($7,519 thousand) in order toimplement flexible capital strategies.

The shareholders’ meeting of the Company also approved astock incentive plan. The plan provides for the issuance ofup to 2,100 shares in the form of options to directors andemployees. The options may be exercised during the periodfrom June 28, 2004 until June 27, 2006.

17. Selling, General and Administrative Expenses

Salaries and bonuses ...................

Bonuses accrual of accrued bonuses .......................

Provision for retirement benefits of directors ...............................

Retirement benefits expenses.......

Provision for doubtful accounts ...

Commissions ..............................

Expenses related to investment partnerships ..............................

Rent............................................

Depreciation...............................

Other..........................................

¥ 1,313

172

28106231502

386347107

1,372¥ 4,564

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 1,439

197

28115

—1,130

360313100

1,413¥ 5,095

$ 9,872

1,293

211797

1,7373,774

2,9022,609

80510,316

$ 34,316

18. Other Income (Expenses)

Gain on sales of investment securities ..................

Valuation losses of investment securities ..................

Loss on disposal of defective credits .........................

Reversal of multiemployers’pension plans (See Note 10) .......

Interest expenses ..........................

Interest income ............................

Dividend income .........................

Valuation losses related to fixed assets.................................

Provision for doubtful accounts ....

Loss on disposal and sales related to fixed assets .................

Gain on sales related to fixed assets.................................

Other, net ....................................

¥ 299

(406)

(129)

197(195)

35148

(39)(37)

(11)

3853

¥ (47)

2002

Millions of Yen Thousands of U.S. Dollars

2001 2002

¥ 120

(164)

(1,698)

—(234)

5033

(37)—

(27)

56212

¥ (1,689)

$ 2,248

(3,053)

(970)

1,481(1,466)

2631,113

(293)(278)

(83)

286398

$ (354)

19. Subsequent Events

Year-end cash dividends, ¥1,000 ($7.5) per share.......................

Bonuses to directors .............................¥ 289

20

Millions of Yen Thousands of U.S. Dollars

$ 2,173150

30

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and the Board of Directors of

NIF Ventures Co., Ltd.:

We have audited the accompanying consolidated balance sheets of NIF Ventures Co., Ltd. (a

Japanese corporation) and subsidiaries as of March 31, 2002 and 2001, and the related consolidated

statements of income, shareholders’ equity and cash flows for the years then ended, expressed in

Japanese yen. Our audits were made in accordance with generally accepted auditing standards in

Japan and, accordingly, included such tests of the accounting records and such other auditing

procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the consolidated

financial position of NIF Ventures Co., Ltd. and subsidiaries as of March 31, 2002 and 2001, and the

consolidated results of their operations and their cash flows for the years then ended in conformity

with accounting principles generally accepted in Japan (Note 1) applied on a consistent basis during

the periods.

Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements

have been translated from Japanese yen on the basis set forth in Note 1.

Tokyo, Japan

June 27, 2002

President & CEO

Deputy President

Deputy President

Senior Managing Director

Corporate Auditor

Corporate Auditor

Corporate Auditor

Corporate Auditor

Shin-ichi Horii

Hisao Yasunari

Ryonosuke Miyoshi

Jun-ichi Wakita

Mitsuo Sato

Teruhisa Yamaji

Susumu Ueda

Makoto Ogo

31

( from left ) Jun-ichi Wakita, Senior Managing Director, Hisao Yasunari, Deputy President,Shin-ichi Horii, President & CEO, Ryonosuke Miyoshi, Deputy President

Board of Directors and Corporate AuditorsAs of June 27, 2002

Corporate Data(As of March 31, 2002)

Company Name

Head Office

Establishment

Common Stock

President & CEO

Number of Employees

Business Domain

NIF Ventures Co., Ltd.

Daiwa Yaesu Building, 1-2-1, Kyobashi, Chuo-ku, Tokyo 104-0031, Japan

October 20, 1983

¥11,267 million

Shin-ichi Horii

162 (consolidated figure, as of March 31, 2002)

Private investment business and management of Investment Enterprise Partnerships businessFinancial business

History

Nippon Investment & Finance Co. Ltd. established

Daiwa Finance Co. Ltd. establishedInvestment Enterprise Partnership “NIF1” established

Hotung Venture Capital Corporation established with Chiao Tung Bank, a government-owned development bank in Taiwan

NIF Management Singapore Pte. Ltd. established in Singapore

NIF Ventures USA, Inc. established in the United StatesJoint fund with Evergreen Canada-Israel Investments Ltd., a leading venture capital firm in Israel,established

Limited Partnership “Shonan Academic Industrial Collaboration Fund” establishedJoint fund with GIMV n.v., a leading venture capital firm in Belgium, establishedBusiness alliances formed with venture capitalists throughout Europe

Changed name to NIF Ventures Co., Ltd. after merger with Nippon Investment & Finance Co. Ltd

Selected as a founding member of the University of Cambridge Entrepreneurship Center

Listed on the JASDAQ Market on March 12, 2002

1982

1983

1987

1990

1996

1999

2000

2001

2002

32

(As of March 31, 2002)

Shareholder Information

Stock Listing

JASDAQ

Code Number

8458

Authorized

1,056,000 shares

Issued and Outstanding

289,000 shares

Number of Shareholders

14,352

The Daiwa Real Estate Co., Ltd.

Daiwa Securities Group Inc.

Daiwa Residential Properties, Ltd.

Daiwa Institute of Research Ltd.

Daiwa Asset Management Co. Ltd.

Daiwa Securities SMBC Hong Kong Limited

Fuji Sogo Service, Ltd.

The Sumitomo Trust & Banking Co., Ltd.

NISSIN HEALTHCARE FOOD SERVICE CO.,LTD.

MORGAN STANLEY & CO. INTERNATIONAL LIMITED

128,160

70,265

12,300

11,010

5,800

2,114

1,400

990

850

786

Shares (%)

(44.35)

(24.31)

(4.26)

(3.81)

(2.01)

(0.73)

(0.48)

(0.34)

(0.29)

(0.27)

33

Distribution of Shares by Type of Shareholder

Individuals (14,020)97.68%

Financial institutions(57)0.40%

Foreign corporations(19)0.13%

Securities companies(3)0.02%

Other corporations(253)1.77%

Major Shareholders

Daiwa Yaesu Building,1-2-1, Kyobashi, Chuo-ku, Tokyo 104-0031, JapanTEL: +81-3-5201-1570 FAX: +81-3-5201-1518URL: http://www.nif.co.jp E-mail: overseas@nif.co.jp

Printed in Japan on recycled paper.

NIF V

entures Co., Ltd. A

nnual Report 2002