DAIWA. Daiwa Capital Markets America Inc. (A Wholly Owned Subsidiary of Daiwa Capital Markets America Holdings Inc.) A s O f M A r c h 3 1

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1 DAIWA Daiwa Capital Markets America Inc. (A Wholly Owned Subsidiary of Daiwa Capital Markets America Holdings Inc.) A s O f M A r c h (With Report of Independent Registered Public Accounting Firm Thereon) Member of all Major U.S. Securities and Commodities Exchanges

2 KPMG LLP 345ParkAvenue NewYork,NY10154 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholder Daiwa Capital Markets America Inc.: We have audited the accompanying statement of financial condition of Daiwa Capital Markets America Inc. (a wholly owned subsidiary of Daiwa Capital MarketsAmerica Holdings Inc.) (the Company)asofMarch31,2011.Thisstatementoffinancialconditionistheresponsibilityofthe Company smanagement.ourresponsibilityistoexpressanopiniononthisstatementoffinancial conditionbasedonouraudit. We conducted our audit in accordance with auditing standards generally accepted in the United StatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudittoobtain reasonable assurance about whether the statement of financial condition is free of material misstatement.anauditincludesconsiderationofinternalcontroloverfinancialreportingasabasis fordesigningauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeof expressing an opinion on the effectiveness of the Company s internal control over financial reporting.accordingly,weexpressnosuchopinion.anauditincludesexamining,onatestbasis, evidencesupportingtheamountsanddisclosuresinthestatementoffinancialcondition,assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of financial condition presentation. We believe that our audit providesareasonablebasisforouropinion. Inouropinion,thestatementoffinancialconditionreferredtoabovepresentfairly,inallmaterial respects,thefinancialpositionofdaiwacapitalmarketsamericainc.asofmarch31,2011,in conformitywithu.s.generallyacceptedaccountingprinciples. May26,2011 KPMGLLPisaDelawarelimitedliabilitypartnership, theu.s.memberfirmofkpmginternationalcooperative ( KPMGInternational ),aswissentity.

3 DAIWA CAPITAL MARKETS AMERICA INC. (AWhollyOwnedSubsidiaryof DaiwaCapitalMarketsAmericaHoldingsInc.) STATEMENT of FINANCIAL CoNDITIoN MARCh 31, 2011 (Inthousands,exceptsharedata) ASSETS Cashandcashequivalents $124,527 Cashsegregatedforregulatorypurposes 209,824 Securitiespurchasedunderagreementstoresell 22,205,575 Financialinstrumentsowned,atfairvalue 9,563,542 Securitiesborrowed5,283,630 Securitiesreceivedascollateral447,693 Receivablefrombrokers,dealers,andclearingorganizations438,192 Receivablefromaffiliates22,121 Receivablefromcustomers 15,361 Officefurniture,equipment,andleaseholdimprovements,atcost, lessaccumulateddepreciationandamortizationof$30,62412,044 Exchangememberships,atcost(fairvalue,$5,981) 1,228 Goodwill 27,331 Otherassets 227,432 Total assets$38,578,500 LIABILITIES AND SToCKhoLDER S EquITy LIABILITIES: Securitiessoldunderagreementstorepurchase$27,802,002 Financialinstrumentssold,butnotyetpurchased,atfairvalue5,579,807 Securitiesloaned3,179,322 Obligationtoreturnsecuritiesreceivedascollateral 447,693 Payabletobrokers,dealers,andclearingorganizations 366,196 Loanspayable 187,762 Payabletocustomers64,237 PayabletoParentandaffiliates62,881 Accountspayableandaccruedliabilities 258,216 37,948,116 CoMMITMENTS, CoNTINGENCIES, AND GuARANTEES: Subordinatedborrowings200,000 SToCKhoLDER S EquITy: Commonstock,noparvalue,statedvalue$25,000pershare.Authorized 6,640shares;issuedandoutstanding4,000shares 100,000 Additionalpaid-incapital 229,402 Retainedearnings 100,982 Total stockholder s equity430,384 Total liabilities and stockholder s equity$38,578,500 Theaccompanyingnotesareanintegralpartofthisstatementoffinancialcondition.

4 DAIWA CAPITAL MARKETS AMERICA INC. (AWhollyOwnedSubsidiaryof DaiwaCapitalMarketsAmericaHoldingsInc.) NoTES To STATEMENT of FINANCIAL CoNDITIoN MARCh 31, 2011 (1) organization DaiwaCapitalMarketsAmericaInc.(theCompany)isawhollyownedsubsidiaryofDaiwa Capital Markets America Holdings Inc. (the Parent). The Parent is a wholly owned subsidiary of Daiwa Securities Capital Markets Co. Ltd. (DSCM), which operates as a registeredjapanesesecuritiesfirmandclearstransactionsforthecompanyinjapan. The Company is registered as a broker-dealer with the Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA) and various exchanges. The Company is registered as a futures commission merchant(fcm)withthecommodityfuturestradingcommission(cftc),isamember of the National Futures Association (NFA), and is a clearing member of principal commodityexchangesintheunitedstates.thecompany sactivitiesincludebrokerage, trading of various securities primarily in U.S. and Japanese markets, and investment banking.thecompanyisalsoaprimarydealerinu.s.governmentandagencysecurities. On November 19, 2010, the Company acquired the US based global convertible bond businessofkbcgroupnvaspartofdscm spurchaseofthekbcgroupnv sglobal convertible bond andasian equity derivatives business lines.the Company paid total considerationofapproximately$140million,consistingofapproximately$27millionfor goodwill, $3 million for software, and acquired net trading positions of approximately $110 million. The purchase was funded by a capital contribution from the Parent. Approximately30peoplejoinedtheCompanyaspartoftheacquisition.Thisnewbusiness willprovideprimaryandsecondarymarketservicesforinstitutionalinvestorsandissuers inconvertiblebonds. (2) SuMMARy of SIGNIFICANT ACCouNTING PoLICIES (a) Basis of Presentation The Company s statement of financial condition is prepared in accordance with U.S. generallyacceptedaccountingprinciplesandprevailingindustrypractice,bothofwhich require management to make estimates and assumptions that may affect the amounts reportedinthestatementoffinancialconditionandaccompanyingnotes.theseestimates andtheunderlyingassumptionsaffecttheamountsofassetsandliabilitiesreported,and disclosuresaboutcontingentassetsandliabilities.suchestimates,includingthefairvalue offinancialinstruments,valuationofdeferredtaxassets,andlitigationreserves,are,by theirnature,basedonjudgmentandavailableinformationand,therefore,mayvaryfrom actualresults.managementevaluatesitsestimatesandassumptionsonanongoingbasis usinghistoricalexperienceandotherfactors,includingthecurrenteconomicenvironment, whichmanagementbelievestobereasonableunderthecircumstances.thecompany adjusts such estimates and assumptions when facts and circumstances dictate. Managementdoesnotbelievethatactualresultswilldiffermateriallyfromtheseestimates. (b) Cash and Cash Equivalents Cashandcashequivalentsrepresentscashheldinbanks. (c) Collateralized Financing Transactions Securities purchased under agreements to resell (reverse repurchase agreements or resale agreements) and securities sold under agreements to repurchase (repurchase agreements) are collateralized financing transactions.the agreements provide that the transferor will receive substantially the same securities in return at the maturity of the agreement and that the transferor will obtain from the transferee sufficient cash or collateral to purchase such securities during the term of the agreement. These transactionsarecarriedattheircontractpriceplusaccruedinterest.reverserepurchase agreementsandrepurchaseagreementswiththesamecounterpartyandsamematurity arepresentednetinthestatementoffinancialconditionwhenthetermsoftheagreements permitnettingunderu.s.generallyacceptedaccountingprinciples. Securities borrowed and loaned result from transactions with other broker-dealers or financialinstitutionsandarerecordedattheamountofcashcollateraladvancedorreceived. Securities borrowed transactions require the Company to deposit cash with the lender. SecuritiesloanedtransactionsrequiretheborrowertodepositcashwiththeCompany.

5 (d) Financial Instruments Financial instruments owned and financial instruments sold, but not yet purchased are recordedatfairvalueinaccordancewithfinancialaccountingstandardsboard(fasb) AccountingStandardCodification(ASC)820, Fair Value Measurements and Disclosures. Principaltransactionsinregular-waytradesarerecordedonatrade-datebasis. Amountsreceivableandpayableforregular-waysecuritiestransactionsthathavenot yet reached their contractual settlement date are recorded net on the statement of financialcondition. (e) office Furniture, Equipment, and Leasehold Improvements Officefurnitureandequipmentaredepreciatedonastraight-linebasisovertheirestimated usefullives.leaseholdimprovementsareamortizedoverthelesseroftheirusefullivesor thetermoftherelatedlease. (f) Income Taxes Incometaxesareaccountedforundertheassetandliabilitymethod.Deferredtaxassets andliabilitiesarerecognizedforthefuturetaxconsequencesattributabletodifferences betweenthefinancialstatementcarryingamountsofexistingassetsandliabilitiesandtheir respectivetaxbases,aswellastheestimatedfuturetaxconsequencesattributabletonet operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measuredusingenactedtaxratesexpectedtobeappliedtotaxableincomeintheyears inwhichthosetemporarydifferencesareexpectedtoberecoveredorsettled.theeffect ondeferredtaxassetsandliabilitiesofachangeintaxratesisrecognizedinincomeinthe periodthatincludestheenactmentdate. The Company s results of operations are included in the consolidated federal and combinedstateandlocalincometaxreturnsfiledbytheparent.inaccordancewiththetax sharingagreement,theparentallocatestothecompanyitsproportionateshareofthe consolidatedfederalandcombinedstateandlocaltaxliabilitiesonaseparate-company basis. With the adoption of ASC , Accounting for Uncertainty in Income Taxes, the Companyrecognizestheeffectofincometaxpositionsonlyifthosepositionsaremore likelythannotofbeingsustained.recognizedincometaxpositionsaremeasuredatthe largestamountthatisgreaterthan50%likelyofbeingrealized.changesinrecognitionor measurementarereflectedintheperiodinwhichthechangeinjudgmentoccurs. (g) Goodwill Goodwill is the excess of purchase price over the fair value of net identifiable assets acquired.goodwillisnotamortized,butisreviewedforimpairmentannually,orwhenever eventsorcircumstancesgiverisetolossesthatwouldmakeitmorelikelythannotthata reduction of fair value of the reporting unit below its carrying amount has occurred. Determining whether an impairment has occurred requires valuation of the respective reporting unit, which is estimated using a discounted cash flow method. Goodwill was recordedonthepurchaseoftheconvertiblebondbusinessofkbconnovember19,2010. FortheyearendedMarch31,2011,therewerenoimpairmentchargesrecordedasno indicatorsofimpairmentoccurred. (h) Recent Accounting Pronouncements InJanuary2010,theFASBissuedAccountingStandardUpdate(ASU)No , Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements. ASU No provides amended disclosure requirements related to fair value measurements. Certain of these disclosure requirements were effectiveforthecompanybeginningonjanuary1,2010,whileothersareeffectivefor financial statements issued for reporting periods beginning after December 15, Sincetheseamendedprinciplesrequireonlyadditionaldisclosuresconcerningfairvalue measurements, the adoption did not and will not affect the Company s basic financial statements. (3) CASh SEGREGATED FoR REGuLAToRy PuRPoSES Cashof$6,824,000issegregatedinaccordancewiththeCommodityExchangeAct.This balancerepresentsfundsdepositedbycustomersandfundsaccruingtocustomersasa resultoftradesorcontracts. Cashof$203,000,000issegregatedinspecialreservebankaccountsfortheexclusive benefitofcustomersunderrule15c3-3ofthesecuritiesexchangeact. (4) SECuRITIES PuRChASED AND SoLD under AGREEMENTS To RESELL AND REPuRChASE Securitiespurchasedandsoldunderagreementstoresellandrepurchaseareaccounted forascollateralizedfinancingtransactionsandarerecordedatcontractpriceplusaccrued interest. It is the policy of the Company to obtain possession of collateral with market

6 values equal to or in excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additionalcollateralwhenappropriate.asofmarch31,2011,thecompanyhasaccepted securitieswithmarketvaluesofapproximately$32,246,313,000underresaleagreements and pledged securities with market values of approximately $37,748,289,000 under repurchase agreements, prior to the application of ASC , Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements. The securities pledged are made up of securities received from resale agreements, borrow transactions, and from proprietary securities. Reverse repurchase agreements and repurchase agreements are reported net by counterparty when permitted under ASC AtMarch31,2011,theCompany sassetsandliabilitieswerenetted byapproximately$9,834,839,000asaresultoftheapplicationofasc AsofMarch31,2011,theCompanyhastherighttosellorrepledgesubstantiallyallofthe securitiesithasreceivedunderitsresaleagreements.ofthisamount,substantiallyall wererepledgedasofmarch31,2011.theserepledgedsecuritieshavebeenusedinthe normalcourseofbusiness. (5) SECuRITIES BoRRoWED AND SECuRITIES LoANED Securities borrowed and securities loaned transactions are reported as collateralized financing transactions and are recorded at the amount of cash or securities collateral advanced or received by the Company. Securities borrowed transactions require the Companytodepositcashorsecuritieswiththelender.Withrespecttosecuritiesloaned, thecompanyreceivescollateralintheformofcashorsecuritiesinanamountgenerally inexcessofthemarketvalueofsecuritiesloaned.intransactionswherethecompanyacts asalenderinasecuritieslendingagreementandreceivessecuritiesthatcanbepledged or sold as collateral, it recognizes an asset on the statement of financial condition, representingthesecuritiesreceived,andaliabilityforthesameamount,representingthe obligationtoreturnthesesecurities.thecompanymonitorsthemarketvalueofsecurities borrowedandloanedonadailybasis,withadditionalcollateralobtainedorrefundedas necessary.asofmarch31,2011,thecompanyhasreceivedsecuritieswithamarketvalue of approximately $5,672,042,000 related to its securities borrowed transactions and pledgedapproximately$3,621,925,000relatedtoitssecuritiesloanedtransactions. AsofMarch31,2011,theCompanyhastherighttosellorrepledgesubstantiallyallofthe securities it has received under its securities borrowed transactions. The Company repledged substantially all of these securities as of March 31, 2011.These repledged securitieshavebeenusedinthenormalcourseofbusiness. (6) RECEIvABLE FRoM AND PAyABLE To BRoKERS, DEALERS, AND CLEARING organizations AtMarch31,2011,amountsreceivablefromandpayabletobrokers,dealers,andclearing organizationsconsistedofthefollowing(inthousands): Receivable from brokers, dealers, and clearing organizations: Securitiesfailedtodeliver $126,128 Clearingbroker 288,636 Clearingorganizations12,427 Other11,001 $438,192 Payable to brokers, dealers, and clearing organizations: Netpayablefortradespendingsettlement $280,682 Securitiesfailedtoreceive 67,402 Clearingorganizations13,902 Other4,210 $366,196

7 (7) FINANCIAL INSTRuMENTS owned AND FINANCIAL INSTRuMENTS SoLD, BuT NoT yet PuRChASED, AT FAIR value AtMarch31,2011,financialinstrumentsownedandfinancialinstrumentssold,butnotyet purchased,atfairvalueconsistedofthefollowing(inthousands): Financial instruments owned, at fair value: U.S.governmentandagencyobligations $8,756,922 U.S.governmentagencymortgage-backedobligations431,465 Convertiblebonds 338,148 Equities35,113 Forwardcontracts 1,090 Other 804 $9,563,542 Financial instruments sold, but not yet purchased, at fair value: U.S.governmentandagencyobligations$5,208,960 Equities 293,375 Convertiblebonds 76,893 Forwardcontracts 569 Other 10 $5,579,807 TheCompany scounterpartiestoitscollateralizedfinancingtransactionshavetherightby contractorcustomtosellorrepledgethecompany spledgedproprietarysecurities.asof March31,2011,theCompanyhaspledgedapproximately$8,687,845,000ofproprietary financial instruments owned related to the Company s collateralized financing transactions. FAIR value MEASuREMENTS ASC820definesfairvalue,establishesaframeworkformeasuringfairvalueusingathree level hierarchy for fair value measurements based upon the market observability and reliabilityofinputsusedtovalueassetsandliabilities,andrequiresenhanceddisclosures aboutfairvaluemeasurements.asc820doesnotdictatewhenfairvaluesshouldbethe basis to account for a financial asset or liability, nor does it prescribe which valuation technique should be used. Rather,ASC 820 requires an entity to choose appropriate valuation techniques based upon market conditions, and the availability, reliability, and observabilityofvaluationinputs. (a) Fair value hierarchy Thefairvaluehierarchygivesthehighestprioritytounadjustedquotedpricesinactive marketsforidenticalassetsorliabilities(level1)andthelowestprioritytounobservable inputs(level3).iftheinputsusedtomeasureanassetoraliabilityfalltodifferentlevels withinthehierarchy,theclassificationoftheentireassetorliabilitywillbebasedonthe lowestlevelinputthatissignificanttotheoverallfairvaluemeasurementoftheassetor liability. The Company categorizes assets and liabilities based on the inputs to the valuationtechniquesusedtomeasurefairvalueasfollows: Level1:Unadjustedquotedpricesforidenticalassetsorliabilitiesinanactivemarket that the Company has the ability to access at the measurement date. Level 1 measurements include most U.S. government and government agency securities, equitysecurities,andexchange-tradedderivatives. Level2:Quotedpricesinmarketsthatarenotactive,quotedpricesforsimilarassets orliabilities,inputsotherthanquotedmarketpricesfortheassetorliabilitythatare observable either directly or indirectly for substantially the full term, and inputs to valuationtechniquesthatarederivedprincipallyfromorcorroboratedbyobservable market data through correlation or other statistical means for substantially the full termoftheassetorliability.level2measurementsmayincludeu.s.government agencysecurities,u.s.governmentagencymortgage-backedobligations,corporate bonds,andconvertiblebonds. Level3: Inputstothepricingorvaluationtechniquesthataresignificanttotheoverall fairvaluemeasurementoftheassetorliabilityareunobservable.level3inputsare estimatesorassumptionsthatmanagementexpectsmarketparticipantswouldusein determining the fair value of the asset or liability. In determining the appropriate measurement levels, the Company would perform analyses on the assets and liabilities subject toasc 820 at the end of each reporting period. Changes in the observabilityofsignificantvaluationinputsduringthereportingperiodmayresultina reclassification of certain assets and liabilities within the fair value hierarchy. At March 31,2011,theCompanydidnotholdanyLevel3assetsorliabilities.

8 ThefollowingtablesummarizestheCompany sfairvaluehierarchyforthoseassetsand liabilitiesmeasuredatfairvalueatmarch31,2011(inthousands): Fair value Measurement Level 1 Level 2 Level 3 Total Assets: U.S.governmentandagency obligations $8,756,922$ $ $8,756,922 U.S.governmentagency mortgage-backedobligations 431, ,465 Convertiblebonds 338, ,148 Equities35,113 35,113 Forwardcontracts 1,090 1,090 Other Financialinstrumentsowned, atfairvalue$8,792,839$770,703$ $9,563,542 Liabilities: U.S.governmentandagency obligations $5,208,960$ $ $5,208,960 Equities293, ,375 Convertiblebonds 76,893 76,893 Forwardcontracts Other Financialinstrumentssold, butnotyetpurchased, atfairvalue$5,502,345$77,462$ $5,579,807 TherewerenosignificanttransfersbetweenLevel1andLevel2ofthefairvaluehierarchy duringtheperiodendedmarch31,2011. (b) valuation Techniques for Major Assets and Liabilities Debt and Equity Securities Whereavailable,debtandequitysecuritiesarevaluedbasedonquotedmarketprices.If aquotedmarketpricefortheidenticalsecurityisnotavailable,thesecurityisvaluedbased onquotesfromsimilarsecuritieswherepossible.thefairvaluemeasurementsforlevel2 U.S. government agency mortgage-backed obligations and convertible bonds are validated by inputs obtained from independent pricing sources taking into account differences in the characteristics and the performance of the underlying collateral.the Companywilldeterminewhetheradjustmentstotheobservableinputsarenecessaryas aresultofinvestigationsandinquiriesaboutthereasonablenessoftheinputsusedand themethodologiesemployedbytheindependentpricingsources. Derivatives Exchange-tradedderivativesarevaluedusingquotedprices.OTCderivatives,suchas forwardcontracts,arevaluedusingamodels-basedapproach.valuationmodelscalculate thepresentvalueofexpectedfuturecashflows.allinputsintothecalculationofthefair valueofforwardcontractsaretransparentandobservableinthemarket. Securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowed, securities loaned, loans payable, and subordinated borrowings are stated at their contract values. The contract value for these financial instrumentsisconsideredtoapproximatefairvalue,astheyareshort-terminnature,bear interestatcurrentmarketrates,oraresubjecttorepricing. (8) RECEIvABLE FRoM AND PAyABLE To CuSToMERS Receivable from and payable to customers primarily relate to securities and futures transactions.thesereceivablesaretypicallycollateralizedbysecurities,thevalueofwhich isnotreflectedintheaccompanyingstatementoffinancialcondition. (9) LoANS PAyABLE Loanspayableprimarilyconsistsofanopenloanof$175,000,000atarateof.51%with theparent.inaddition,thecompanyhasa$12,040,000loanatarateof0.34%payable to DSCM.The loan is denominated in yen, has a face value of 1 billion, and has a maturitydateofmay16,2011.theseloansareprimarilyusedtofinancethecompany s securitiesoperations.uponmaturity,anew 1billionloanatarateof.32%wasentered intowithdscm.

9 (10) SuBoRDINATED BoRRoWINGS AsofMarch31,2011,theCompanyhadtwosubordinatednotespayabletotheParentof $50,000,000 and $150,000,000, which are due on April 3, 2012 and May 31, 2012, respectively.bothofthenotesaretreatedasequity,asdefinedundertheuniformnet CapitalRule15c3-1oftheSecuritiesExchangeAct(Rule15c3-1).Repaymentofthenotes iscontingentuponthecompanybeingcompliantwithcertainnetcapitalrequirementsof boththesecuritiesandcommodityexchangeacts. EachofthenotesbearsinterestatratesbasedontheLondonInterBankOfferedRate (LIBOR)plus25basispoints.Theseliabilitiesaresubordinatedtotheclaimsofgeneral creditorsofthecompanyandhavebeenapprovedasregulatorycapitaland,accordingly, areincludedasnetcapitalbythecompanyincomputingnetcapitalunderrule15c3-1. (11) CoMMITMENTS, CoNTINGENCIES, AND GuARANTEES TheCompanyleasesandsubleasesofficespaceundernoncancelableleaseagreements expiringatvariousdatesthroughtheyearendingmarch31,2027.minimumrentalsunder theseleaseagreementsareapproximatelyasfollows(inthousands): occupancy leases Subleases YearendingMarch31: 2012 $ 5, , , , , Thereafter79,150 6,140 The Company is involved in litigation arising in the normal course of business. It is management sopinionthattheseactionswillnothaveamaterialadverseeffectonthe financialconditionofthecompany. Until 1999, the Company acted as clearing broker for market participants trading in emerging markets debt. Over a period of years, some market participants notified the Company of potential claims related to this business, including one with which the Company agreed to toll the statute of limitations for a limited time, and the Company notifiedothermarketparticipantsofthecompany spotentialclaimsagainstthem.noneof these notifications has resulted in a legal proceeding where claims have been made againstthecompany. Duringthisfiscalyear,theCompanywasapproachedbyanentityclaimingtohavebeen acounterpartytotransactionsenteredintobythecompanythroughthisemergingmarkets clearing business and stating that as a result the Company is indebted to it for approximately$33million.discussionswiththisentityareongoing.theamountofany resultingsettlementorlossmaynotbeestimatedwithcertainty.itistheopinionofthe Company smanagementthatthismatterwillnothaveamaterialadverseeffectonthe financialconditionofthecompanyaftertakingintoaccountrelevantreservesandother resourcesavailabletothecompany. In the normal course of business, the Company provides guarantees to securities clearinghouses and exchanges. These guarantees are generally required under the standard membership agreements, such that members are required to guarantee the performanceofothermembers.tomitigatetheseperformancerisks,theexchangesand clearinghouses often require members to deposit collateral.the Company s obligation under such guarantees could exceed the collateral amounts posted; however, it is management s opinion that the potential for the Company to be required to make paymentsundersuchguaranteesisremote. The Company had commitments to enter into forward secured financing transactions, includingcertainrepurchaseandreverserepurchaseagreements,of$1,069,139,000and $2,031,949,000,respectively,atMarch31,2011.

10 (12) INCoME TAxES ThesignificantcomponentsoftheCompany snetdeferredtaxassetsatmarch31,2011 areasfollows(inthousands): Deferred tax assets: Depreciation $2,095 Deferredrent 2,502 Netoperatinglosscarryforward2,368 Other611 Totalgrossdeferredtaxassets7,576 Lessvaluationallowance Netdeferredtaxassets$7,576 MajortaxingjurisdictionsfortheCompanyandtaxyearsforeachthatremainsubjectto examinationareasfollows: U.S.FederalMarch31,2008andlater NewYorkState March31,2008andlater NewYorkCity March31,2008andlater The ultimate realization of the deferred tax assets depends on the ability to generate sufficienttaxableincomeoftheappropriatecharacterinthefutureandintheappropriate taxingjurisdictions.thecompanybelievesthatitismorelikelythannotthatallofthe deferredtaxassetswillberealizedagainstfuturetaxableincomeand,assuch,hasnot recordedavaluationallowanceagainsttheseassetsatmarch31,2011. (13) RELATED PARTy TRANSACTIoNS In the normal course of business, the Company s operations may include significant transactionsconductedwithaffiliateentities.suchtransactionsaregovernedbycontractual agreements between the Company and its affiliates. The following table sets forth the Company srelatedpartyassetsandliabilitiesasofmarch31,2011(inthousands): Assets: Securitiespurchasedunderagreementstoresell $ 5,095,168 Securitiesborrowed 572,519 Financialinstrumentsowned,atfairvalue668 Receivablefrombrokers,dealers,andclearingorganizations13,108 Receivablefromaffiliates22,121 Otherassets157 Liabilities: Securitiessoldunderagreementstorepurchase $ 313,336 Securitiesloaned590,911 Payabletobrokers,dealers,andclearingorganizations15,057 Loanspayable187,040 Payabletocustomers 704 PayabletoParentandaffiliates 62,881 Accountspayableandaccruedliabilities 447 Subordinated borrowings $ 200,000 (14) RETIREMENT PLAN All local employees are eligible for participation in the Company s retirement plan (the Plan)aftersixmonthsofservice.ThePlan,establishedonJune1,1985andamendedon October1,1989,isaprofit-sharingplanqualifyingunderSection401(a)oftheInternal Revenue Code of 1986 (the Code), as amended, and includes a cash or deferred arrangement qualifying under Sections 401(k) and (m) of the Code. The Company contributes3%oftheemployees earningsasdefinedbytheplan.additionalamountsof earningscanbecontributedbymanagementatitsdiscretion. (15) off-balance-sheet MARKET RISK AND CoNCENTRATIoNS of CREDIT RISK (a) Market Risk In the normal course of its operations, the Company enters into various contractual commitmentsinvolvingforwardsettlement.theseincludefinancialfuturescontracts,options contracts,andcommitmentstobuyandsellsecuritiesandforeigncurrencies.commitments involvingfuturesettlementgiverisetomarketrisk,whichrepresentsthepotentiallossthat canbecausedbyachangeinthemarketvalueofaparticularfinancialinstrument. TheCompanymonitorsandmanagesitsmarketriskexposurebysettingmarketrisklimits andbyreviewingtheeffectivenessofeconomichedgingstrategies.thecompany spolicy istotakepossessionofsecuritiespurchasedunderagreementstoresellandsecurities borrowed and maintain these securities with its custodian. The Company monitors the marketvalueoftheassetsacquiredtoensuretheiradequacyascomparedtotheamount at which the securities will be subsequently resold, as specified in the respective

11 agreements.theagreementsprovidethat,whereappropriate,thecompanymayrequire thedeliveryofadditionalcashorsecurities. TheCompanyrecordsallcontractualcommitmentsinvolvingfuturesettlementatfairvalue. Futurescontractsareexecutedonanexchangeandcashsettlementismadeonadaily basisformarketmovements.marginonfuturescontractsisincludedinreceivable/payable tobrokers,dealers,andclearingorganizations.optionsarerecordedatfairvalueinthe statementoffinancialcondition.fairvalueoftheoptionsistheunrealizedgainorlosson thecontractandisrecordedinfinancialinstrumentsownedandfinancialinstrumentssold, butnotyetpurchased. (b) Concentrations of Credit Risk CreditriskismeasuredbythelossthattheCompanywouldrecordifitscounterparties failedtoperformpursuanttothetermsofcontractualcommitments.managementofcredit riskinvolvesanumberofconsiderations,suchasthefinancialprofileofthecounterparty, specific terms and duration of the contractual agreement, market fluctuations, and the value and monitoring of collateral held, if any. The Company has established various procedures to manage credit exposure, including initial credit approval, credit limits, collateralrequirements,rightsofoffset,andcontinuousoversightandmonitoring. The Company regularly transacts business with, and owns securities issued by, a broad range of corporations, governments and agencies, and other financial institutions. The Companyalsoentersintocollateralizedfinancingagreementsinwhichitextendsshort-term credit,primarilytomajorfinancialinstitutions,includingmajoru.s.andnon-u.s.commercial banks, investment banks, and affiliates. The Company generally controls access to the collateralpledgedbythecounterparties,whichconsistslargelyofsecuritiesissuedbythe U.S.governmentoritsagencies.Thevalueandadequacyofthecollateralarecontinually monitored.consequently,managementbelievestheriskofcreditlossfromcounterparties failuretoperforminconnectionwithcollateralizedlendingactivitiesisminimal. Remaining concentrations arise principally from financial or contractual commitments involvingfuturesettlements,fixedincomesecurities,andequitysecurities.concentrations are diverse with respect to geographic locations and industries of counterparties. North AmericaandthePacificRimrepresentthelargestconcentrationsgeographically. Amongtypesofindustries,U.S.basedandinternationalfinancialinstitutionsrepresentthe largestgroupofcounterparties. Substantially all of the Company s cash and securities positions are either held as collateral by its clearing brokers and banks against various margin obligations of the Companyordepositedwithsuchclearingbrokersandbanksforsafekeepingpurposes. (16) NET CAPITAL REquIREMENTS The Company is a registered U.S. broker-dealer and FCM subject to Rule 15c3-1 and Regulation 1.17 of the Commodity ExchangeAct, which specify uniform minimum net capitalrequirements,asdefined,fortheirregistrants.thecompanyhaselectedtousethe alternativemethodofcomputingnetcapital,aspermittedbyrule15c3-1,whichrequires that the Company maintain minimum net capital, as defined, of the excess margin collectedonreverserepurchasetransactions,plusthegreatestof: a.$1,000,000; b.2%ofaggregatedebitbalancesarisingfromcustomertransactions,asdefined;or c.8%ofcustomerriskmaintenancemarginrequirementsand8%ofnoncustomerrisk maintenancemarginrequirementspursuanttothecommodityexchangeactandthe regulationsthereunder. TheCompanyisalsosubjecttotheminimumnetcapitalrequirementsofallself-regulatory organizationsofwhichitisamember.thecompanyisaclearingmemberofthechicago MercantileExchange(CME),whichrequiresallclearingmemberstomaintainminimum net capital of $5,000,000. Additionally, equity capital may not be withdrawn or cash dividendspaidiftheresultingnetcapitalwouldbelessthanthegreatestof120%ofthe greater of (a) and (c) above, or 5% of aggregate debit items.at March 31, 2011, the Company had net capital of $305,231,000 which was $303,776,000 in excess of the minimumnetcapitalrequiredunderrule15c3-1.

12 Acopyofthefirm sstatementoffinancialconditionpursuanttorule17a-5ofthesecurities ExchangeActisavailableforexaminationatourprincipalofficeat32OldSlip,NewYork, New York,andattheSECofficesinWashington,D.C.andNewYorkCity. DAIWA CAPITAL MARKETS AMERICA INC. head office 32OldSlip, NewYork,NewYork10005 Tel:(212)