SMBC Nikko Bank (Luxembourg) S.A. Disclosure Report 1

SMBC Nikko Bank (Luxembourg) S.A. Disclosure Report 1 covering the period from April 1, 2010 to March 31, 2011 under Basel II, Pillar 3 pursuant to Annex XII of pean Union Directive 2006/48/EC, as amended (hereinafter referred to as the Pillar 3 disclosure report ). The purpose of the Pillar 3 disclosure report is to provide information on the implementation at SMBC Nikko Bank (Luxembourg) S.A. (formerly Nikko Bank (Luxembourg) S.A.) (hereafter the Bank ) of the Basel II framework and risk assessment processes in accordance with the Pillar 3 requirements and in accordance with part XIX disclosure by credit institutions of the CSSF circular 06/273, as amended (the CSSF Circular ). The Bank is a Luxembourg based company incorporated under Luxembourg laws subject to supervision of the Commission de Surveillance du Secteur Financier ( CSSF ). The Bank is a wholly-owned subsidiary of SMBC Nikko Securities Inc., Tokyo (formerly Nikko Cordial Securities Inc.) the Parent Company. On March 17, 2011, an extraordinary general meeting of shareholders of Nikko Bank (Luxembourg) S.A. was held and a resolution to change the Bank s legal name from Nikko Bank (Luxembourg) S.A. to SMBC Nikko Bank (Luxembourg) S.A. was approved, such change of name having become effective on April 1, 2011. This name change came within the scope of, and sealed, the integration of the Bank within Sumitomo Mitsui Banking Corporation, Tokyo ( SMBC ) group, which occurred on October 1, 2009. Within SMBC group, the Bank s core business of fund administration and custody services continues to play a key role in the group s Japanese offshore investment fund product offering. A decision was taken by the Parent Company on March 28, 2011 to increase the corporate capital of the Bank by EUR 49,999,776. This capital injection was duly approved at an extraordinary general meeting of shareholders of the Bank held on April 27, 2011. A second decision proposed by the Board of Directors to allocate the Bank s profit for the financial year ended March 31, 2011 into the free reserves was approved during the Bank s general meeting of shareholders held on July 25, 2011. This increase in the free reserves amounted to EUR 10,349,472.53. For additional information on the Bank s results, please refer to the annual financial statements available on the Bank s website: www.smbcnikko-lu.com. 1 Disclaimer: Certain statements contained herein may be partial information and involve a certain degree of risk and uncertainty that could cause actual results or performance to differ materially from those expressed or implied in such statements. Actual results or performance may differ materially from those contained in such statements due to general economic conditions, market conditions, changes in laws and regulations, general competitive factors and other factors not specified here SMBC Nikko Bank (Luxembourg) S.A. 9A, rue Robert Stümper / L-2557 Luxembourg P.O. Box 14 / L-2010 Luxembourg Tel : +352-442828-1 Fax. +352-442-828-221 Swift : nikolull R.C.S. Luxembourg B11809 VAT LU11168074 Supervised by the Luxembourg Regulator - Commission de Surveillance du Secteur Financier www.cssf.lu

1. Solvency ratio The solvency ratio of the Bank as at March 31, 2011 is 19.62% and the solvency ratio Tier 1 is 19.55%. Solvency ratio 31.03.2011 Total eligible own funds 54,058,656 Original own funds Tier 1 53,874,583 Original own funds Tier 2 184,073 Total capital requirement 22,042,846 Solvency ratio Solvency ratio 19.62% Solvency ratio Tier 1 19.55% 2. Eligible own funds The eligible own funds before any deductions include: Capital Tier 1: subscribed capital, reserves (profit brought forward included) and valuation differences of the eligible own funds Capital Upper Tier 2: valuation differences related to the prudential filters on valuation differences on available-for-sale equity instruments. Deductions are: * Participations in financial institutions in which the Bank owns more than 20% of the voting rights or capital; * Intangibles assets; and * Deferred tax assets that can be used within 2 years. Participations are: *100% of SMBC Nikko Investment Fund Management Company S.A. (formerly Total Alpha Investment Fund Management Company S.A.) Total eligible own funds 31.03.2011 Original own funds before deductions 56,832,270 Tier 1 55,678,394 Tier 2 (Upper tier 2) 1,153,876 Tier 2 (Lower tier 2) 0 Deductions from own funds -2,773,614 Participations in financial institutions -1,939,607 Other deductions -834,007 Total eligible own funds 54,058,656 Excess (+) / Shortfall (-) 32,015,810 Page 2 of 8

3. Eligible own funds requirements The schedule below provides the own funds requirement to cover the credit risk, market risk and operational risk as at March 31, 2011. Approaches applied to calculate the own funds requirements are the following: * Credit risk: standardised approach. * Market risk: standardised approach. * Operational risk: basic indicator approach. Regarding the credit risk, the capital requirements are assigned by exposure classes as defined in the CSSF Circular (part VII, points 110-117), namely: * central governments and central banks; * institutions; * corporates; * Retail exposures; * Equity exposures; * Securitisation exposures as described in part X of the CSSF Circular; and * Other non credit-obligation assets. Requirements as regards capital adequacy 31.03.2011 Credit risk 19,330,776 central governments and central banks 0 institutions 15,170,388 corporates 3,751,512 Retail exposure 1,235 Exposure in the form of equities 37,440 Other exposure 370,201 Market risk 59 Position risk, Foreign exchange risk and commodity risk 59 Operational risk 2,712,011 Total 22,042,846 The Bank owns 12 shares of a private company. These shares were automatically distributed by this company. 4. Counterparty / Credit risk Exposure to the Bank s counterparties (for interbank lending and foreign exchange transactions) is subject to the Bank s limits. These limits are reviewed and, if necessary, updated at least annually by the Bank s Board of Directors, including counterparty limits for deposits and foreign exchange transactions. Interbank credit lines are monitored on a daily basis and a quarterly utilization list is submitted to the Parent Company. Credit exposure to banks is governed by the limits approved by the Bank s Board of Directors and reviewed on a regular basis by the Risk Management department of the Parent Company. These limits are monitored on a daily basis by the Quality and Risk Control department of the Bank, which immediately reports any breach to the Bank s Management Committee. As of March 28, 2011, the Parent Company changed its own capital investment policy for overseas offices and, as a result, the Bank s current credit and counterparty risk procedure needs to be modified. The Bank furthermore restricts its exposure to credit risk losses by entering into master netting arrangements with counterparties with which it undertakes significant volumes of transactions. Master netting arrangements do not generally result in offset of balance sheet assets and liabilities as transactions are Page 3 of 8

usually settled on a gross basis. However, the credit risk associated with the settlements of forward foreign exchange contracts is reduced by a master netting agreement to the extent that if an event of default occurs with respect to a counterparty, all transactions covered by the master netting agreement with said counterparty are terminated and settled on a net basis. The Bank s overall exposures are driven by its daily financial operations and fluctuate substantially from time to time. At the request of the Bank, the CSSF approved the full exemption of risks taken on its ultimate parent company, SMBC, and its subsidiary Sumitomo Mitsui Banking Corporation pe Limited in relation to the large exposure limits, in accordance with part XVI, point 24 of the CSSF Circular. Prudential capital adequacy requirements were assessed to be sufficient in the financial year ended March 31, 2011 and no further capital was required under the Internal Capital Adequacy Assessment Process ( ICAAP ). 4.1. Interest rates and foreign exchange contracts The schedule below displays as at March 31, 2011 the level of credit exposure on forward foreign exchange contracts in terms of risk-equivalent amount calculated in accordance with the CSSF Circular. Counterparty credit risk Foreign exchange contracts Exposure value / Residual maturity breakdown 31.03.2011 Less than 3 months 93,600,717 More than 3 months and less than 1 year 0 Total 93,600,717 As at March 31, 2011, the notional amount of the forward foreign exchange contracts was 905,574,097. In addition, the Bank does not apply any credit risk mitigation techniques on the forward foreign exchange contracts. 5. Credit risk and dilution risk The exposures reported in the tables hereafter are the exposures at default, namely the exposure in case of counterparty default as defined by the CSSF Circular for the various financial products as at March 31, 2011. 5.1. Geographic distribution of the exposures The table below shows the risk concentration arising from the exposures by geographic location as at March 31, 2011. Exposure by exposure classes and geographic areas Expressed in central governments and Luxembourg pean Union (Excluding Luxembourg) North America Japan Oceania (Australi a//new Zealand) Others central banks 13,001,879 5,257,655 0 0 0 0 18,259,534 institutions 152,996,044 591,705,138 666,136 22,417,30 4 133,107, 364 28,034,300 928,926,286 corporates 110,883 0 0 1,043 0 46,744,532 46,856,458 Retail exposure 5,659 14,919 0 0 0 0 20,578 Exposure in the form of shares 0 37,440 0 0 0 0 37,440 Other exposure 5,074,518 0 0 0 0 0 5,074,518 Total 171,188,983 597,015,152 666,136 22,418,34 7 Total 133,107, 364 74,778,832 999,174,814 Page 4 of 8

The major part of the exposures is concentrated in pe (77%), Japan (2%) and Australia/New Zealand (13%). Country ratings are reviewed regularly. Any downgrade below the allowed ratings is immediately reported to the Bank s Management Committee by the Quality and Risk Control department. The country risk policy is defined by the Board of Directors of the Bank with respect to risk ratings applicable to countries in which the counterparty, sub-custodian and/or prime brokers (debtor) and its final parent company are located. The country must be rated by a recognized rating agency and rated within investment grades not lower than triple B- by Standard & Poor s and Fitch or not lower than Baa3 by Moody s. 5.2. Distribution by economical sector The exposures by economical sector are as follows: Economical areas Exposures 31.03.2011 Banks 936,706,548 Corporates 46,856,458 Mortgage and funding insurance 5,221,617 Government agencies 5,257,655 Natural persons 20,578 Communications 37,440 Others 5,074,518 Total 999,174,814 The banking sector represents more than 93% of the total exposure. The exposures to banks are subject to counterparty limits approved by the Bank s Board of Directors and monitored by the Quality and Risk Control department. The counterparty credit risks as described under paragraph 4 are subject to the following rating conditions: The counterparties must be rated by (at least) one recognized rating agency and rated within investment grade not lower than BBB- by Standard & Poors and Fitch or not lower than Baa3 by Moody s. Furthermore, it is required by said credit policy to consider in each of the following cases the lowest rating a) of the ratings applicable to the counterparty and to its parent company (for counterparties); and b) of the ratings applicable to the country in which the counterparty is located and the country of its parent company (for countries). Ratings are monitored on a daily basis and any downgrade is immediately reported to the Bank s Management Committee, which reviews the limits accordingly with immediate effect. Exceptions are allowed by the Board of Directors on a case by case basis and in consultation with the Risk Management department of the Parent Company. Retail exposures are assigned a weight of 75% as they meet the CSSF Circular conditions. They relate to individual persons, have similar characteristics and the total amount of the exposure does not exceed 1 million. corporates are assigned a 100% risk weight as these corporates are unrated. Other exposures weighted at 100% are mainly tangible assets, prepayments and accrued income. The Bank places its cash with SMBC, the Bank s ultimate parent company, and with certain other third party banks with credit quality rating not lower than investment grade. A daily report of credit ratings and counterparty limits is reviewed by the Quality and Risk Control department and any downgrade is immediately escalated to the Management Committee which reviews the counterparty limits accordingly with immediate effect. Credit risk exposure to non-bank counterparties (investment funds and the Bank s employees) is mitigated by the existence of set rules. For the majority of investment funds, the lending is limited to a percentage laid down in the investment fund s prospectus/offering memorandum which in any case does not exceed 10% of Page 5 of 8

the investment fund s total net assets and may only be done on a temporary basis. Such lending is checked daily by the Quality and Risk Control department. For lending short term personal loans to the Bank s employees, the total outstanding loan amount at any time represents not more than the concerned employee s net salary of 2 months. Prudential capital adequacy requirements were assessed to be sufficient in the financial year ended March 31, 2011 and no further capital was required under ICAAP. 5.3. Distribution by residual maturity The table below analyses the exposures in terms of maturity groups, based on their residual maturities as at March 31, 2011: Exposure by exposure classes / residual maturity Less than 3 months Between 3 months and 1 year Between 1 year and 5 years Between 5 years and 10 years No maturity central governments and central banks 13,001,879 0 5,257,655 0 0 18,259,534 institutions 918,322,491 0 10,582,796 0 20,999 928,926,286 corporates 46,397,643 0 0 0 458,815 46,856,458 Retail exposure 2,245 16,110 2,223 0 0 20,578 Exposure in the form of equities 0 0 0 0 37,440 37,440 Other exposure 84,191 2,772,380 1,079,757 0 1,138,190 5,074,518 Total 977,808,449 2,788,490 16,922,431 0 1,655,444 999,174,814 The exposures with a residual maturity of less than 3 months represent 98% of the total exposure. 94% of exposures with residual maturity of less than 3 months are exposures to financial institutions. 5.4. Distribution by exposure classes and credit quality step Standard & Poors and Moody s have been chosen as nominated External Credit Assessment Institutions (ECAI) to calculate the risk-weighted amounts of the exposure to central banks and institutions. The Bank complies with the mapping established by the CSSF in annex 1 to the CSSF Circular for the associations of the external ratings of each nominated ECAI and Export Credit Agency (ECA) with the credit quality step prescribed in part VII thereof. Retail exposures are assigned a weight of 75% as they meet the CSSF Circular conditions. They relate to natural persons, have similar characteristics and the total amount of the exposure does not exceed 1 million. corporates are assigned a 100% risk weight as these corporates are unrated. Other exposures weighted at 100% are mainly tangible assets, prepayment and accrued income. Total Exposure by exposure classes / ECAI central governments and central banks institutions corporates Retail exposure Exposure in the form of equities Other exposure Moody's / Standard & Poors Moody's / Standard & Poors Not applicable Not applicable Not applicable Not applicable Page 6 of 8

6. Market risk information The own funds requirement for the market risk is calculated in accordance with the standardised method principles. As shown in the table below, the Bank has no trading book position and is not involved in short sales as at March 31, 2011. The portfolio of the Bank is mainly represented by long-term investments in debt securities (mainly fixed income securities issued by private companies established in zone A and rated AAA by S&P and Fitch or Aaa by Moody s) for interest yield purpose. The market risk arises from foreign exchange positions which are subject to an internal limit of 1,500,000 U.S. dollars, the respect of which is monitored on a daily basis. In this regard, the management s policy is to minimize significant foreign exchange exposures. Market risk - own funds requirement 31.03.2011 Own funds requirements - Trade debts instruments 0 Own funds requirements Equities 0 Own funds requirements - Foreign exchange 58.09 Own funds requirements - Commodities 0 7. Operational risk The basic indicator approach is applied to calculate the capital requirement for operational risk, which, as at March 31, 2011, amounted to 2,712,011. The level of the Bank s residual operational risk is managed by operating policies, procedures and controls set by the Management Committee and implemented by the various departments of the Bank. The Compliance Officer and the Quality and Risk Control department issue on a quarterly basis a Risk Assessment Matrix (RAM) report which includes identification and measurement of the risks associated with key business processes and ensuring that controls are in place to manage risks. The RAM report also includes remediation of any weakness identified. As defined in the CSSF Circular, part XV, the calculation of the basic indicator is based on the arithmetic average over three years of the sum on the net interest income and net non-interest income and is based on the accounting figures from the financial reporting based on IAS standards (FINREP). 8. Interest rate risk exposures on positions not included in the trading book The Bank applies the CSSF circular 08/338 regarding the implementation of a stress test in order to assess the interest rate risk arising from non-trading book activities. The purpose of the stress test on interest rate is to assess a variation of the economic value of the wealth assuming an increase or a decrease by 200 points of all interest rates. The stress-test scenario is applied internally on a monthly basis and is transmitted to the CSSF on a semiannual basis. Page 7 of 8

The results of the stress tests done during the financial year ended March 31, 2011 are as follows: Period Scenario Result Impact on the capital requirement April 2010 + 2% 266,282.44 6,926-2% -210,454.99-7,427 May 2010 + 2% 476,175.71 14,566-2% -478,150.48-15,095 June 2010 + 2% 539,062.11 16,824-2% -562,366.61-18,299 July 2010 + 2% 130,027.41-16,354-2% -962,831.65-48,783 August 2010 + 2% 605,693.95 14,809-2% -561,186.52-14,851 September 2010 + 2% 737,341.20 17,889-2% -691,129.86-19,375 October 2010 + 2% 904,707.90 21,753-2% -701,085.48-18,668 November 2010 + 2% 980,324.02 23,863-2% -883,606.82-24,117 December 2010 + 2% 1,053,094.74 21,269-2% -863,274.08-18,391 January 2011 + 2% 351,080.68 13,556-2% -43,353.39-8,796 February 2011 + 2% 502,740.64 19,538-2% -186,293.73-13,294 March 2011 + 2% 610,484.24 19,778-2% -297,185.72-17,018 9. Concentration Risk The concentration risk refers to the losses the Bank could suffer from a group of exposures or activities, whose intrinsic (essential) value depends on a common set of risk factors, such as concentration of the debt portfolio on a few clients or groups of connected clients; concentration of market activities on several specific products; or concentration of the Bank s business on a limited number of clients. The main part of the concentration risk is managed within the credit risk category. Relatively tight credit limits ensure adequate diversification of borrowing banks. Regarding the concentration of the Bank s business on a limited number of clients, a detailed analysis by client of the interest commissions and funds administration / custodian bank commissions received is performed every quarter by the Bank Accounting department. 10. Impaired and Past Due Assets and Provisions A financial asset is past due when a counterparty has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount. At the Bank, the risk of past due or impaired exposures is considered minimal. In principle, specific provisions would be made against loans and advances when, in the opinion of the Management Committee, recovery in full is doubtful. A general provision would be made to cover bad debts that were not separately identified at the balance sheet date, but were known to be present in client receivables. Specific and general statistical provisions would be deducted from loans and advances. Loans and advances and suspended interest would be written off in part or in whole when there would be no realistic prospect of recovery. Page 8 of 8