hyundai securities co., ltd. | fy2003 annual report

HYUNDAI SECURITIES CO., LTD. | FY2003 Annual Report

#34-4, Youido-dong, Youngdungpo-ku, Seoul, Korea, 150-735

Tel: 82-2-768-0114, 82-2-783-6511 | Fax: 82-2-783-7946

http://www.yourfirst.co.kr

3HYUNDAI SECURITIES | FY2003 ANNUAL REPORT2 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT

Reborn as a clean company

and totally free from past

uncertainties, Hyundai Securities will put

customers before anything else with our ‘YouFirst’ spirit and

emerge as a leader of the Korean financial industry amid the ever-

changing business environment.

Table of Contents

02 | P h i l o s o p h y

04 | Company Profile

05 | Financial Highlights

06 | Message from the CEO

08 | Review of operations

19 | Financial Section

56 | Board of Directors

57 | Organization Chart

58 | Shareholder’s Information

Reborn as a clean company

and totally free from past

uncertainties, Hyundai Securities will put

customers before anything else with our ‘YouFirst’ spirit and

emerge as a leader of the Korean financial industry amid the ever-

changing business environment.


Operating Income

For the years ended March 31, 2004

(in millions of Won)

Won (In millions) U.S dollars (In thousands)

FY2003 FY2002 FY2003 FY2002

FY2001 FY2002 FY2003

127,288 -46,751 134,834

Net Income (in millions of Won)

FY2001 FY2002 FY2003

4,493 -58,614 -198,167

Shareholder’s Equity(in millions of Won)

FY2001 FY2002 FY2003

1,305,189 1,177,249 1,145,264

Assets ￦ 2,596,200 ￦ 3,281,172 $ 2,250,520 $ 2,844,288

Liabilities 1,450,936 2,103,922 1,257,746 1,823,788

Shareholders’ equity 1,145,264 1,177,249 992,774 1,020,500

Revenues 654,353 689,437 567,227 597,640

(Commission received) 353,586 405,350 306,506 351,378

Expenses 519,519 736,188 450,346 638,166

(SG&A) 342,982 378,634 297,314 328,219

Operating income 134,834 -46,751 116,881 -40,526

Ordinary income -158,271 -74,146 -137,197 -64,273

Income before tax -158,271 -75,173 -137,197 -65,163

Net income -198,167 -58,614 -171,781 -50,810

All Won amounts are expressed in U.S. Dollars at US$1: ￦1,153.6, the basic rate in effect on March 31, 2004.

Founded as Kookil Securities in 1962, the Company went public in 1975. Following the

Hyundai Group’s investment in the company in 1977, the name was changed to Hyundai Securities in 1986.

The “Buy Korea” Fund launched in 1999 made a significant contribution to the overall recovery of the

Korean economy, which had suffered a drastic downturn following the financial crisis that hit the nation

toward the end of 1997. On the back of the incredible dynamism of the “Buy Korea” Fund, the Company’s

balance of beneficiary certificates surpassed ￦30 trillion in 2000. In fiscal year 2003, the Company laid the

groundwork for a fresh start as a clean company by eliminating all problems related to Hyundai Investment

& Securities and others. As of the end of March 2004, Hyundai Securities operated the largest branch

network in the domestic industry, with 135 branches (including six sub-branches) in Korea, three overseas

subsidiaries, one overseas branch and one representative office. As a leader in the Korean securities

industry for the past 42 years, Hyundai Securities will continue to make efforts to

develop the securities industry while seeking toenhance shareholder value and boost clientreturns.

Company Profile Financial Highlights


To our shareholders and other investors,

As well, net loss for the term exceeded loss before tax due to the increase in income tax

expense as a result of reductions in deferred income tax assets pursuant to the recommendation of the accounting

firm.

I regard the large amount of losses posted in FY2003 as a matter of deep and sincere regret,

as this unfortunate outcome precluded the payment of dividends to our shareholders and resulted in the

underestimation of our stock below its intrinsic value.

There is a silver lining, however, as we have now wiped the slate clean following the elimination

of all uncertainties related to HIS, thus clearing hurdles that have hampered our corporate progress as stated above.

In light of the bright prospects for turning a substantial profit in FY2004, all members of the Company are united in

laying the groundwork for a world-class securities company based on the following objectives and with the

confidence gained from surmounting the obstacles of the past.

First, we will push ahead to invigorate sales, particularly for new businesses such as

discretionary wrap accounts and OTC derivatives, for which we obtained official approval after fulfilling our financial

responsibilities related to HIS. With the introduction of the discretionary wrap account, we are launching a company-

wide campaign to gather client assets and plans to strengthen the link between wholesale and retail operations.

Second, we will carry out profit-oriented operations with the aim of boosting our growth

potential. Alongside efforts to reduce costs and enhance operational efficiency, we are planning to open new

branches in developing areas and new satellite cities.

Third, drastic steps will be taken to revitalize the overall atmosphere of the Company and raise

employee morale on a fundamental and lasting basis.

Finally, with transparent management firmly established, Hyundai Securities seeks to enhance

its corporate image as a clean company and improve shareholder value in the process. We recently participated in

IR road-shows throughout major cities in the U.S., Asia and Europe. We will continue to focus on upgrading the

corporate image through preemptive and active IR activities, for both foreign and domestic institutional investors,

analysts, and individual investors.

Please continue to support and take interest in Hyundai Securities, so that we may swiftly

regain our rightful position as a leader in the industry. Thank you.

Sincerely,

First of all, I would like to thank you wholeheartedly for your support and interest in Hyundai

Securities Co., Ltd.

In FY2003, the business environment for Korean securities companies worsened due to the

expanded presence of foreign competitors in the domestic market and the flight of Korean investors, although stock

prices in Korea skylocketed amid the worldwide economic recovery. For us, FY2003 was a particularly significant

year, as we could embark on a fresh start and clear away all lingering uncertainties related to Hyundai Investment &

Securities (HIS).

The Company posted robust operating income of ￦134.8 billion despite various challenges.

Nevertheless, our loss before tax and net loss reached ￦158.3 billion and ￦198.2 billion due to the large amount of

extraordinary losses (￦274.3 billion) we were obliged to shoulder in the course of fulfilling our financial

responsibilities concerning HIS and managing the removal of potential losses.

Looking at the details of extraordinary losses, the Company chose to bear an HIS-related

burden of ￦205.1 billion as part of its efforts to gain approval for an advance into new businesses, although we

posted a profit of ￦64.5 billion following a rise in the value of Hynix and Hyundai Elevator stocks. In addition, as part

of a decisive measure toward becoming a clean company we have reflected ￦61.7 billion loss in stocks from

venture firms and invested companies.

Kim Ji Wan President & CEO

Message from the CEO

R e v i e w o f O p e r a t i o n s


Steady revenue sources backedby the launches of new business such as OTC derivatives,

discretionary wrap accounts, and ship investment fund.

Private Client

The Company is engaged in a wide spectrum of retail operations such as stock, futures and options

brokerage, asset management services, and financial product services centered around branch offices.

In FY2003, the nation’s composite stock price index rose by 66.4% from 529 points to 880 points,

buoyed by the positive impact of the recovery of the global and U.S. economies, rise in exports to China, and hike in foreign

direct investment. However, the market share of the five leading securities firms (in terms of retail business) dropped by

6.0% year-on-year to 33.8% amid rapid encroachment by foreign firms and competition from smaller or online companies in

line with discounted commission rates. Thus, the performance results of the Company’s branch offices fell slightly.

The company’s stock brokerage amount in FY2003 stood at ￦117,084 billion, a ￦3,059 billion drop from the previous year,

with the market share falling to 6.77% from 7.09% in FY2002. The futures brokerage amount totaled ￦53,448 billion, a

￦1,286 billion increase year-on-year, with the market share tumbling modestly to 0.98% from 1.19% in FY2002. The

options brokerage amount decreased by ￦2,527 billion year-on-year to ￦9, 622 billion, with the market share falling to

3.06% from 4.35% in FY2002.

As of the end of May 2004 the number of branches stood at 135, including six sub-branches and one cyber branch,

constituting the largest branch network in the industry. In FY2004, the Company plans to continue to enhance the

operational efficiency of its branches through transfers, closures and consolidation as well as the opening of new outlets in

cities with untapped potential.

In FY2004, the Company’s operating strategies will be focused on all-out sales by every employee, the establishment of

competitive brokerage and SFA systems, the continued growth of clients’ assets and number of clients, profit maximization,

and diversification of income sources, with the objective of becoming the top firm in the industry in all sectors. The

Company will also do its best to stay in the leading market position by strengthening businesses linked to the primary

market, enhancing the level of education for employees related to products and sales, and continuing to enhance overall

fund soundness.

“Sherpa,” a sales support system

In May 2004, Hyundai Securities launched Sherpa, a support system for the automated management of sales activities and

function of efficient customer management. This system was developed to help the Company enhance its business

competitiveness by transforming sales employees into knowledge-based agents instead of simple brokers through the

efficient classification of diverse information. This system also helps branch-level sales employees with the automated

management of sales activities, provision of systematized information on sales opportunities, provision of comprehensive

customer information, suggestions for sales objectives and performance management, and improvement in sales

processes.

The Company will continue to develop specialized systems for specific users to address changes in the operational

environment, and pursue a win-win strategy of enhancing customer value and the Company’s profit margin.

The Cyber Analyst

The Cyber Analyst, the first of its kind in the industry, is an investment consultant that provides information and advice to

investors via online messaging programs or text-based cell phone messages. Started four years ago with the mandate of

providing one-on-one service to cyber customers, the system now reaches 4,200+ clients a day. The Company is seeking

to expand the use of the system, including the provision of advice on stock trading and educational sessions designed to

help clients mitigate risks.

Asset Management

Asset Management Division is comprised of Asset Management Business Planning Team, Asset

Management Business Support Team and Wrap Operation Team. Main functions of these teams are as

follows:

Asset Management Business Planning Team

Asset Management Business Planning Team is doing its best to lay the solid basis to make the Company the most reliable

financial business in the industry by faithfully carrying out the asset management business and stepping up the customer

service. The team is chiefly engaged in provision of support for the retail business and promotion for increasing assets in

addition to planning, development and management of new products.

At present, our effort is made to expand the scope of the asset management business into a variety of sectors, such as

bonds, discretionary wrap account, ELS and insurance instead of concentrating on funds as in the past. In discretionary

wrap account recently introduced on to the market, we are maintaining the top position in the market through aggressive

sales. We also plan to garner good results from ELS that will be introduced on to the market soon through well-arranged

support for business.

We will strive to play a central role to make Hyundai Securities a leader in the industry with efforts to adopt good-quality

financial asset products, provide systematic business support and organizational management, and strengthening customer

relationships in addition to coping with changes in the financial environment.

Asset Management Business Support Team

Comprised of three sections, i.e. Operation & Management Section, Compliance Section and Financial Market Survey

Section, Asset Management Business Support Team carries out general management of customer assets through selection

of proper products, performance management, checking the market trends and transactions in small-amount bonds.

We are focusing our efforts on helping customers increase their assets with an overhauled organization and system for total

asset management amid the advent of an era of limitless competitions with the passage of the Indirectly Invested Asset

Operation Act. As well, we are making preparations for a second take-off of a new dimension as the Company that used to

be on the top of the industry and set examples for others to follow.

Wrap Operation Team

As a group of people specializing in design, operation and management of securities portfolios tailored to meet customers’

specific needs based on the discretionary wrap account contracts, Wrap Operation Team provides customers with the

comprehensive asset management service for their stocks, bonds and derivatives.

Encouraging customers to positively take part in the design and operation of securities portfolios related to their account, we

will continue to pour efforts into development of products suited to customers’ various needs, enhancement of the risk

management capability and training talented employees as experts in stocks, bonds, futures and options, all in an effort to

maximize customers’ assets.


Review of Operations

IB

Backed by strong operating capabilities and accumulated know-how, the IB division provides diversified

services ranging from M&A to project and corporate financing to meet the various needs of our clients.

Corporate Finance Team

The Corporate Finance Team seeks profit-oriented operations in existing businesses related to corporate bonds, special

bonds, M&A and rights offering, and also aggressively promotes new business areas such as financial consulting,

structured bond sales, etc.

- In the business of corporate bond issuance, the team carries out client-centered relations with the aim of generating profit

through the provision of various financial consulting services, in the expectation that corporate investment will increase

dramatically in line with the recovery of the economy.

- The lion’s share of the team’s M&A business will be comprised of so-called “big deals,” which refers to the sale of the

equity stakes held by KDIC and KAMCO in financial institutions and businesses in the process of workout. These deals

relate particularly to the brisk climate for M&As, mainly with those companies in the process of court receivership and small-

sized corporations registered on KOSDAQ.

- In FY2003, the market for rights offerings totaled ￦1,925.6 billion, of which the Company's portion accounted for ￦142.6

billion. The team boasts the largest branch network in the nation with expert personnel experienced in large-scale rights

offerings.

IPO Team

The Company’s IPO team has accumulated extensive experience by carrying out IPOs for 58 companies since 1999. Most

of the team’s working-level staff has experience in more than five IPO cases over more than three years.

As many as seven issues (ReignCom, Neowiz, P & Tel, Youeal Electronics, Fine DNC, Kooksoondang and LG Micron) for

which the Company acted as the lead manager have joined the Star Index (comprised of 30 leading companies on

KOSDAQ), vaulting the Company to the top position in the industry. Neowiz recorded the highest IPO price in the nation’s

IPO history, estimated at 350 times face value. ReignCom recorded the highest IPO price in 2003, equal to 94 times face

value and won the Investment Bank Grand Prize from MoneyToday as the best deal in the KOSDAQ sector in 2003.

The Company is committed to locating well-performing businesses by having experts analyze promising businesses, in

addition to carrying out financial activities for well-performing local manufacturers and encouraging large-sized businesses

to list on the stock exchange. The Company will also do its best to fulfill its role as the top lead manager with thorough

analysis and footwork, maintaining cooperative relations with the relevant businesses.

ABS Team

The ABS Team carries out the task of lead manager in the issuance of ABS, a structural financial instrument. Assets eligible

for ABS include receivables, leased assets, bonds already issued or expected to be issued in the future, real estate and

others. The team organizes an optimal financial structure after selecting the most suitable opportunity for each client. The

team plans to offer diverse investment opportunities in the retail business sector by promoting businesses related to

marketable securities, such as ship investment fund, indirect investment products (real estate funds, etc.) and structured

bonds, as well as by developing special products for branches in tandem with the passage of the Indirect Asset Operation

Business Act.



Institutional Business

The Domestic Institutional Sales Division consists of three teams: the Institutional Sales Team, Financial

Product Sales Team and OTC Derivative Sales Team. The main duties and composition of each team

are as follows:

Institutional Sales Team

The Institutional Sales Team is engaged in brokerage services for stocks, futures and options for institutional investors,

including investment trust companies, banks, insurance companies and asset management companies.

The team aims to become the leading firm in the securities industry with first-rate human resources and unparalleled,

cutting-edge systems. At the time of KT’s privatization in May 2002, in particular, the team played a leading role by handling

52% of the stocks assigned to institutional investors and participating in the exchange of treasury stocks between KT and

SKT, as well as in treasury stock transactions related to the privatization of KT&G. As well, in FY2003, the team focused its

efforts on positive marketing activities and the attraction of new clients through the in-house development of STAS,

specializing in arbitrage trading in futures and options as well as program trading, in addition to the computerization of the

payment business based on FIX systems, establishment of a client database and adoption of more efficient performance

management.

Financial Product Sales Team

The Financial Product Sales Team is engaged in the sale of BCs, mutual funds, wrap accounts, ELS, etc., to government

institutions, including the Ministry of Labor and the Ministry of Information and Communication, in addition to institutional

investors and well-performing corporations, with the aim of contributing to more efficient fund management for clients

through specialized consulting and systematic analysis based on current economic conditions and future prospects.

OTC Derivative Sales Team

The OTC Derivative Sales Team offers services for the transaction and brokerage of over-the-counter derivatives based on

underlying assets such as stocks, bonds and foreign currencies, geared toward institutional investors including investment

trust companies, banks, insurance companies and asset management companies, as well as businesses and individuals.

The team’s main business areas are the creation of new financial products, such as the design and issuance of structured

products like ELS or warrants, and the provision of customized solutions for institutions and businesses.

The team aims to contribute to the Company’s growth as an investment bank by enhancing its capability to design related

products and carry out risk management, train experts, and help enhance the Company’s competitiveness and profitability

by concentrating on the corporate banking and asset management businesses.

International Business

Brokerage

Hyundai employs many of the industry’s most successful securities brokers. Our brokers have earned

their success and industry respect through hard work dedicated to customer satisfaction. In addition to

providing accurate market information based on our research center’s in-depth data, our brokers make it a point to visit

clients together with our market analysts and present them with the latest investment information and date.

Also as a leading brokerage firm in Korea, we have recently established an online trading system designed mainly for

foreign investors, and are in the process of promoting this powerful and advanced platform to the foreign institutional

investors around the world.

Financial products

Financial products division provides institutional investors with various services related with financial products. Main

products are foreign currency denominated fixed income, equities listed in foreign markets, overseas funds, NPLs (Non

performing Liabilities) and derivatives. Also, we are trying to find latest financial products for clients. We have continued to

service and promote investment opportunities in above products for both local and foreign investors.

Underwriting

When it comes to selection of international underwriters, actual underwriting and sale, we are one of the most experienced

securities firms in Korea. During 2003, we have attained satisfactory results in lead managing a number of Equity-linked

notes issuance. In 2002, the Asset, a Hong Kong-based monthly journal, named Hyundai Securities as Asia’s best lead

manager in the privatization area, in recognition of our successful privatization of Korea Tobacco & Ginseng Corp.

Administration

Business Planning belongs to the International Admin. Team, which also handles risk management.

The team provides the International Business Division with business support in terms of income analysis, CRM and so on.

The team also has a risk management unit exclusively dedicated to managing, monitoring and reporting all risk types

occurring in our business operations.

Tokyo Branch

Since its inception in August 1997, Tokyo branch has been providing Japanese institutional investors with equity and fixed income

brokerage, corporate banking and asset management services. The Tokyo subsidiary is particularly strong in bond trading. The

only Korean securities company active in bond brokerage services in Japan, the Tokyo branch has been enhancing profitability

through continued and progressive marketing. By acting as a link between institutional investors in both countries, the branch plans

to grow into a fully-localized, full-fledged securities firm in Japan.

Shanghai Rep. Office

Opened in 1998, the Shanghai Office of Hyundai Securities specialized in overseas initial public offerings for local blue-chip

companies. This office also helps local enterprises to get listed on the China B share market or the Hong Kong Stock Exchange.

Since the second half of 2003, this office has operated a research site (www.investchina.co.kr) specializing in Chinese securities

and economy. The primary function of this web site includes economic and market analysis and research services, including

monthly & daily investment reports, for Korean investors interested in the Chinese market, as well as advisory services on doing

business in China. In March 2001, this office established an IT firm to develop online trading systems. In line with China’s ongoing

financial reform and market opening, the office is pursuing the creation of a leading online trading system for China. As well, the

office is involved in sale of assets by state owned Chinese enterprises. The opening of Korea’s first securities foothold in China’s

hub of commerce reflects Hyundai Securities’ commitment to serving its client on the business front.

FY2003 FY2002 YoY

6 , 8 4 1 . 2 7 , 9 3 5 . 8 - 1 3 . 8 %

( 0 . 4 0 % ) ( 0 . 4 7 % ) - 0 . 0 7 % p

5 , 5 3 9 . 9 1 2 , 0 5 2 . 5 - 5 4 . 0 %

( 0 . 1 0 % ) ( 0 . 2 7 % ) - 0 . 1 7 % p

1 2 7 . 9 1 3 5 . 2 - 5 . 4 %

( 0 . 0 4 % ) ( 0 . 0 5 % ) - 0 . 0 1 % p

S t o c k

( M / S )

F u t u r e s

( M / S )

O p t i o n s

( M / S )

(Unit: Billions of Won, %)

FY2003 FY2002 YoY

3 , 6 8 0 . 2 3 , 9 2 9 . 3 - 6 . 3 %

( 2 . 2 0 % ) ( 2 . 4 2 % ) - 0 . 2 2 % p

B C s

( M / S )

(Unit: Billions of Won, %)



Hyundai Securities (Europe) Ltd.

The London-based subsidiary provides European companies, as well as Europe-based Korean companies, with various financial

services including equity and fixed-income brokerage, underwriting and issuance of equity-linked products, and consulting on

mergers and acquisitions. System trading capabilities will further add to the rage of value added services offered to clients. With a

cleaner balance sheet, the subsidiary plans to make aggressive inroads into East European markets by strengthening its corporate

finance and system trading services. The subsidiary plans to bolster its issuance business by working closely with the parent

company.

Hyundai Securities (America) Inc.

Established in 1996, Hyundai Securities (America) Inc. is predominantly involved in underwriting, dealing and brokering Korean

stocks and bonds. This New York subsidiary also provides corporate financial services, including corporate consultation and

securities underwriting. In addition to serving Korean blue-chip corporations, the U.S. subsidiary is working with leading Korean

venture firms for NASDAQ listing and providing a wide variety of financial services to U.S. institutional investors interested in

Korean companies. In close cooperation with the parent company’s research center, the subsidiary holds investor meetings t offer

first-rate information on Korean markets and investment opportunities.

Hyundai Securities (Asia) Ltd.

Hyundai Securities (Asia) Ltd., made its presence in Asian financial market since 1989, is primarily involved in equity and fixed

income brokerage as well as in corporate finance. Having strong clientele network, mainly focusing on Hong Kong, Singapore, and

Taiwan, the Hong Kong office plays vital role of introducing and advising global investors for both listed and unlisted Korean

companies. The Hong Kong office intends to work closely with Shanghai office for future Greater China business in overseas initial

public offerings operation.

“Staffed by the most qualifiedpeople in the industry”Aims at the maximization of profits by making rational decisions.



Back Offices

IT

The division is in charge of the operation of the Company’s host computer system and its server,

development of transaction systems, accounting information systems, management information systems and risk

management systems, online media such as Mobile, ARS and CTI, back-office systems including client ledger

management, network management and security control, and the management of PCs and peripheral equipment.

In FY2003, the division pushed ahead with diverse strategies under its three leading objectives: stable operation of

systems, maximization of efficiency for computer-related services, and prompt provision of services for users.

The division was selected as one of the best in the industry in several online system competitiveness evaluations as a result

of its concentrated investment in HTS (Home Trading System) and WTS (Web Trading System) over the years.

The division also contributes to the Company’s operational capability with the development of the Sherpa system, which

was designed for the real-time analysis of information on clients, assets, investment consulting and performance records

and schedule management.

In FY2004, the division will do its best to establish a highly efficient, low-cost system, provide total user satisfaction, and

reach the top in the industry in terms of IT competitiveness.

Research Center

Launched in July 1999, the Company’s Research Center adopts a global standard in securities-related research activities,

publishing all reports in both Korean and English.

The Quantitative Analysis Team of the Company is staffed by the most qualified people in the industry, and has established

a first-rate research database based on the philosophy that “research not supported by solid data is not worth publishing.”

Thus, the Company has made accurate market forecasts an average of two months in advance, with market data based on

consistent details and statistics related to issues, industries and market models.

The average 300-page Hyundai Earnings Guide has been published both in Korean and English since early 2000, and has

become the best investors’ guide in the industry, with easy-to-find information concerning quarterly and annual performance

results and the prospects for 200-plus leading titles. It is testament to the ability and integrity of the Company’s research

team.

In addition, the Research Center has compiled a research database of 6,000 publications produced since September 1999

and developed an Internet-based HRC Report System, thereby sharing research resources with all employees since April

2002 through You First Plus, the Company’s computerized operation system. This information is also available to clients in

real-time through the HTS (Home Trading System) and the Company’s homepage. With its expandability and diverse

information services for wholesale and retail marketing, the HRC Report System is expected to improve the accessibility to

and application of research materials.

The Company’s representative products in FY2004, i.e., the HR30 (Hyundai Research Model Portfolio) and One-to-One

Portfolio, are fully supported by the team’s expert research efforts, with a focus on discretionary wrap accounts and OTC

derivatives.

The Research Center aims to make its research activities sales-oriented as a way to contribute to both the wholesale and

retail marketing of the Company. The Company’s overseas marketing is carried out with the aid of top management from

the nation’s leading businesses, and is particularly welcomed by prospective investors. Various seminars held by the

Company featuring experts on major issues have also been praised for having made a substantial contribution to the

institutional business sector by satisfying the specific needs of domestic corporate clients. Even in the retail business

sector, in which the Company boasts the best branch network in the nation, efforts are being made to train sales employees

as specialists in their fields on the back of a system to share high-end research information, thus fully utilizing the Research

Center. These are all the results of united efforts to set clear-cut objectives for the work conducted by the Research Center.

Compliance System

Compliance Organization and its main duties

The Compliance Officer is part of an independent body under the direct control of the President & CEO.

The Compliance department and Legal Affairs department assist the Compliance Officer, and for efficient monitoring,

Compliance Managers are assigned to every department and branch office.

The Compliance Officer’s main duties are:

•Monitoring, inspecting and improving the operation of the internal control system

•Evaluating everyday affairs from a compliance perspective

•Checking the propriety of steps taken for client protection

•Providing assistance and consultation to the Board of Directors, top management and related departments

•Cooperating and coordinating with supervisory authorities and auditing organizations

The Compliance department, an assistant organization to the Compliance Officer, monitors the operation of the internal

control system and general operation of the Company under the Compliance Officer’s direction. The Legal Affairs

department provides legal advice for the Company and handles disputes with clients.

The Compliance Managers, entrusted with some of the Compliance Officer’s duties, inspect the compliance services of

each department and branch office. A compliance watcher at each regional headquarters checks the status of compliance

thereat and reports on findings to the Compliance Office once a month.

The Compliance Committee has been established under the control of the Compliance Officer to provide advice concerning

compliance and the internal control system, as well as the method for establishing compliance-related policies and plans

and dealing with major issues and disputes.

In addition, the whistle-blower center within the Compliance Office gathers information on compliance and internal control

and protects whistle-blowers according to internal regulations. At the same time, the STR (suspect transaction report)

system has been introduced to prevent money laundering and the transaction of illegal assets using the Company as a

channel. The Compliance Officer is also the suspected transaction reporter. (In 2003, the Company was awarded the

Excellent Anti-Money Laundering Company Prize by the Ministry of Finance and Economy.)

Risk Management

In setting its risk management goals, Hyundai Securities aims at the maximization of profits by making rational decisions on

risks. The Company intends to depend on hedging as a viable safeguard against excessive or unmanageable risks, but will

pursue moderate risk-taking if profits fail to meet posted targets due to excessively safe investment.



In 2000, the Company launched the Risk Management Team as an independent organization and simultaneously oversaw

the formation of the Risk Management Committee, a deliberation and decision-making body that meets at least once a

month.

Hyundai Securities has adopted strict principles for clear delineation among the front, middle and back offices to ensure that

each office adheres to its inherent function, while maintaining checks and balances with other corporate units.

The Company maintains stringent procedures for the designation, allocation and management of risk limits in compliance

with relevant regulations. Under “RiskWatch,” a comprehensive watchdog computerized system introduced in 2001 to

monitor risk levels, the Company is doing its best for market control and management, while aiming to minimize credit and

liquidity risks from a broader perspective.

For market risk management, we monitor risk limits on a daily basis through our integrated computerized risk management

system, with a focus on monetary limits, sensitivity, VaR limits and monthly loss limits. In regard to credit risk management,

each day we keep a close eye on the exposure and amount of each group and individual company based on its credit

rating. We also carry out liquidity risk management through the maximum liquidity gap and maturity liquidity gap, in addition

to comprehensively reporting on output from the risk management computer system to the top levels of management on a

daily basis, and making it possible to check risk management status through the Company’s MIS (management information

system).

Board of Directors

Risk Management Organization

Risk Management Committee

Risk Management Team

Front Office Back Office

Foundation to re-start as a clean company

in line with the elimination of potential losses and uncertainties

stemming from responsibilities as a major shareholder of Hyundai

Investment & Securities.

MANAGEMENT’S DISCUSSION & ANALYSIS _ 20


2. Operations

Brokerage

In FY2003, the Company’s stock brokerage amounts posted ￦129.7 trillion with a 7.5% market share. This relatively

anemic performance was chiefly due to the higher market share of online securities firms and foreign brokerages and the

decrease in the share of individual investors.

Looking at futures and options brokerages, they posted ￦66.8 trillion and ￦10.6 trillion, respectively, with market share

decreasing 0.5%p and 1.2%p year-on-year.

1. Overview

Hyundai Securities is ready to start anew as a clean company by fulfilling our responsibility as a major shareholder of

Hyundai Investment & Securities (HIS) and writing off potential losses related to equity stakes in venture start-ups. The

company posted operating income of ￦134.8 billion in FY2003, but incurred losses before tax of W158.3bn due to

extraordinary losses related to the financial responsibility to HIS and others.

FY2003 FY2002 YoY

8 6 4 . 4 8 4 7 . 0 2 . 0 %

1 2 9 . 7 1 3 3 . 2 - 2 . 6 %

7 . 5 % 7 . 9 % - 0 . 4 % p

6 6 . 8 7 5 . 4 - 1 1 . 4 %

1 . 2 % 1 . 7 % - 0 . 5 % p

1 0 . 6 1 2 . 9 - 1 8 . 1 %

3 . 4 % 4 . 6 % - 1 . 2 % p

S t o c k s Market turnover

Hyundai Securities

Market share

F u t u r e s Hyundai Securities

Market share

O p t i o n s Hyundai Securities

Market share

Financial Section 1 | Management’s Discussion & Analysis

(Unit: Trillions of Won)

FY2003 FY2002 YoY

3 , 5 8 6 . 5 6 , 6 3 8 . 6 - 4 6 %

1 , 3 2 9 . 1 2 , 0 7 5 . 5 - 3 6 %

2 , 0 0 4 . 1 2 , 7 5 3 . 8 - 2 7 %

1 1 0 . 7 6 9 . 2 6 0 %

1 4 2 . 6 1 , 7 4 0 . 1 - 9 2 %

T o t a l

Corporate bonds

Special debt securities

I P O

Rights offering

(Unit: Billions of Won)

Underwriting

In FY2003, the Company’s underwriting operations posted ￦3.6 trillion, a 46% decrease year-on-year. This slump was due

to the shrunken market, the retraction of the ABS market following the crisis over credit card firms, and the absence of a

large-sized deal like the privatization of KT in the preceding year. Out of the entire picture, the performance result of IPO

stood at ￦110.7 billion, a 60% increase from the preceding year. The robustness in this business was largely due to the

successful listing of ReignCom and NICE on the stock exchange.

Beneficiary Certificates

At the end of March 2004, beneficiary certificates(BC) market posted ￦163 trillion, a similar level to the corresponding

period of the preceding year, having surmounted the credit card debt shock of FY2003. During the same period, the

Company’s balance of beneficiary certificates stood at ￦6.3 trillion, a ￦0.5 trillion decrease from the corresponding period

of the preceding year. By product, bond-type BCs stood at ￦4.6 trillion, accounting for 73% of the total balance, with MMFs

standing at ￦1.9 trillion.

* Special debt securities include ABS, bonds by credit card companies and capital companies.

FY2003 FY2002 YoY

654.4 689.4 -5%

519.5 736.2 -29%

(343.0) (378.6) -9%

134.8 -46.8 Turnaround

10.5 9.9 6%

303.6 37.3 714%

-158.3 -74.1 -

-158.3 -75.2 -

-198.2 -58.6 -

-274.3 -149.7 -

116.0 74.5 56%

Operating revenues

Operating expenses

(SG&A Expenses)

Operating income

Non-operating revenues

Non-operating expenses

Ordinary income

Income before tax (A)

Net income

Extraordinary accounts (B)

Income before tax, excluding extraordinary accounts (A-B)


3. Profit analysis

In FY2003, the Company’s operating revenues stood at ￦654.4 billion, a 5% drop year on year.

Operating income stood at ￦134.8 billion, turning around from the loss of ￦46.8 billion in FY 2002. However, the Company

suffered ordinary losses of ￦158.3 billion due to extraordinary losses related to the financial responsibility to HIS and write-

off of investment securities. However, excluding the extraordinary losses, the company recorded income before tax of

￦116.0 billion.

Net loss amounted to ￦198.2 billion, which exceeds losses before tax due to higher income tax in line with the decline of

deferred income tax assets as recommended by our accounting firm.

(in trillions of Won)

FY2003 FY2002

6.3 6.8

4.6

0.90.60.1

4.3

1.0

1.40.1

Equity-type

Mutual Fund

Hybrid-type

Bond-type



Commissions

Revenues from commissions in FY2003 stood at ￦353.6 billion, a 13% decrease from ￦405.3 billion in FY 2002. By item,

brokerage commission decreased by 4% year-on-year. Underwriting commission plummeted by 61% due to the absence of

a large-scale deal like the privatization of KT in the preceding year, and contraction of the primary market. Fees on

beneficiary certificates stood at ￦24.9 billion, a 44% decrease year-on-year, because of the drop in the balance of BC.

Proprietary Tradings

Profit from trading securities stood at ￦82.7 billion won, soaring upward by ￦186.2 billion from the loss of ￦103.5 billion in

the preceding year. The profit was chiefly due to ￦14.5 billion in gains from valuation of the stocks of Hyundai Elevator, and

￦50 billion in gains from valuation of the Hynix stocks acquired through a debt-to-equity swap in the unsold BC account.

SG&A Expenses

In FY2003, the Company’s SG&A expenses stood at ￦343.0 billion, a 9% decrease year-on-year. In detail, credit loss

expenses increased drastically from the preceding year due to NPLs and lawsuits. Computer system operation expense

and advertising, etc. dropped sharply compared to the preceding year, and personnel expenses inched downward by 1%

year-on-year due to the decreased number of staff following the early retirements of 61 employees carried out in October

2003.

4. Financials

As of the end of March 2004, assets stand at ￦2.6 trillion, with total liabilities coming to ￦1.5 trillion and shareholders’

equity to ￦1.1 trillion. Shareholders’ equity increased from ￦536.0 billion to ￦696.8 billion as a result of a capital increase

with consideration in February 2004. Net capital ratio stands at 470%, a 9%p drop year-on-year.

FY2003 FY2002 YoY

A s s e t s 2 , 5 9 6 . 2 3 , 2 8 1 . 2 - 2 1 %

D e p o s i t s 1 , 2 3 7 . 2 1 , 3 2 3 . 1 - 6 %

Trading securities 4 0 0 . 2 6 7 4 . 5 - 4 1 %

Fixed assets 6 5 9 . 4 7 8 8 . 3 - 1 6 %

L i a b i l i t i e s 1 , 4 5 0 . 9 2 , 1 0 3 . 9 - 3 1 %

D e p o s i t s 1 , 0 4 7 . 0 1 , 4 0 4 . 3 - 2 5 %

B o r r o w i n g s 2 8 3 . 5 6 2 5 . 3 - 5 5 %

Shareholders’ equity 1 , 1 4 5 . 3 1 , 1 7 7 . 2 - 3 %

Share capital 6 9 6 . 8 5 3 6 . 0 3 0 %

Net capital ratio 4 7 0 % 4 7 9 % - 9 %


Net capital ratio

Borrowings

As of the end of March 2004, total borrowings stand at ￦283.5 billion won, comprised of ￦240 billion worth of subordinated

debenture and ￦43.5 billion worth of RPs. The Company enjoys a solid financial structure with net borrowings of ￦131.9

billion after considering cash equivalents of ￦151.6 billion. It is also noteworthy that funding costs dropped from about 8%

to 7.5% with the upgrading of the Company’s credit rating from BBB- to BBB at the time of issuance of subordinated

debenture in March 2004.

FY2003 FY2002

Others

BC

Futures/Options

Stock

Underwriting

Personnel expenses

Computer system operation

Adversiting

Depreciation

Credit loss expenses

Others

81%(288.0)

71%(285.9)6%(23.2)

9%(36.8)

8%(32.8)

11%(44.1)

1%(5.1)

4%(12.7)

7%(24.9)

1%(4.1)

(in billions of Won)

(%, in billions of Won)

FY2003 FY2002

343 379

77

20

332713

172

102

1045

3117

175

(%)

FY2001 FY2002 FY2003

468% 479% 470%

FY2003 FY2002 YoY

Short-term borrowings - 2 1 9 . 7 -

Call money - 1 8 0 . 0 -

R P 4 3 . 5 3 5 . 6 2 2 %

Subordinated debenture 2 4 0 . 0 1 9 0 . 0 2 6 %

Borrowings subtotal (A) 2 8 3 . 5 6 2 5 . 3 - 5 5 %

Cash and bank deposits / call loans (B) 1 5 1 . 6 3 6 1 . 3 - 5 8 %

Net borrowings (A-B) 1 3 1 . 9 2 6 4 . 0 - 5 0 %




5. Special Notes

End of HIS financial responsibility

Hyundai Securities fulfilled its obligation as a large shareholder of Hyundai Investment & Securities (HIS) by paying an

additional W300 million to the Bond Repayment Fund of the Korea Deposit Insurance Corporation in early FY2004.

Accordingly, the company has paid a total of W205.4 billion for HIS (in closing FY2003, the company paid W205.1 billion).

Following the execution of economic responsibility concerning HIS, the Company obtained official approval for the futures

business in February 2004 followed by the authorization and approval for discreationary wrap account and OTC derivatives

in May and June, respectively. The Company has made preparations for these new businesses and is planning to focus all-

out professional capability on them. With the execution of financial responsibility concerning HIS, all uncertainties over HIS

have been removed and the Company’s credit rating has been enhanced, thus resulting in a drop in funding costs.

Extraordinary Losses

In FY2003, the Company posted ￦274.3 billion in extraordinary loss due to the burden of financial responsibility for HIS,

loss related to lawsuits, and recognition of loss from trading and investment securities, despite the gain on valuation of the

Hynix Shares subject to debt-equity swap and Hyundai Elevator stocks.

Unsold BCs

By the end of March 2004, unsold BCs were reduced by ￦294 billion to reach ￦139.7 billion(except Hynix Shares), thus

falling substantially from the ￦433.7 billion posted at the end of March 2003 thanks to the Company’s continued efforts.

Non-performing assets stood at ￦16.5 billion, accounting for 12% of the total for a 76% decrease year-on-year.

Most of the non-performing assets are shares of Hyundai Petrochemical, Hyundai Engineering & Construction, and SK

Global, which seem to be redeemable in the long run. As such, Hyundai Securities is unlikely to suffer additional losses.

Report of Independent Auditors _ 26

Non-consolidated Financial StatementsNon-consolidated Balance Sheets _ 29

Non-consolidated of Income Statements _ 31

Non-consolidated Statements of Disposition of Accumulated Deficit _ 33

Non-consolidated Statements of Cash Flows _ 34

Notes to Financial Statements _ 36

Board of Directors & Managing Directors _ 56

Organization Chart _ 57

Shareholder’s Information _ 58


Report of Independent Auditors

To the Board of Directors and Shareholders of

Hyundai Securities Co., Ltd.

We have audited the accompanying non-consolidated

balance sheet of Hyundai Securit ies Co., Ltd. (the

“Company”) as of March 31, 2004, and the related non-

consol idated statements of income, disposit ion of

accumulated deficit and cash flows for the year then ended,

expressed in Korean Won. These financial statements are

the responsibility of the Company’s management. Our

responsibility is to express an opinion on these financial

statements based on our audit. The financial statements of

the Company as of and for the year ended March 31, 2003

were audited by another auditor whose report dated April

16, 2003, expressed an unqualified opinion on those

statements. The Company’s financial statements previously

reported did not reflect the adjustments explained in Note

23 to the financial statements. The Company’s financial

statements as of and for the year ended March 31, 2003,

presented herein for comparative purposes, were restated

to reflect this adjustment.

We conducted our audit in conformity with audit ing

standards generally accepted in the Republic of Korea.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles

used and significant estimates made by management, as

well as evaluating the overal l f inancial statement

presentat ion. We bel ieve that our audit provide a

reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements as

of and for the year ended March 31, 2004 referred to above

present fairly, in all material respects, the financial position

of Hyundai Securities Co., Ltd. as of March 31, 2004, and

the results of its operations, the changes in its accumulated

deficit and its cash flows for the year then ended in

conformity with accounting principles generally accepted in

the Republic of Korea.

Without qualifying our opinion, we draw your attention to the

following matters.

As discussed in Note 15 to the non-consolidated financial

statements, the Company got a license to deal in Stock

Index Futures from Financial Supervisory Commission on

February 7, 2004, on condi t ion that the Company

discharges economic responsible burden as a large

shareholder of Hyundai Investment & Securities Co., Ltd.

designated ailing financial institution. The Company

voluntarily made a contribution, which amount to ￦205,100

million calculated by Financial Supervisory Commission

according to the Economic Responsible Burden Standards

for Ailing Financial Institutions, to the redemption fund of

Deposit Insurance Fund Bonds. For the year ended March

31, 2004, ￦205,100 million was recorded as non-operating

expenses. As of March 31, 2004, the above burden charge

may vary with the result of due diligence to the Hyundai

Investment & Securities Co., Ltd. The accompanying

financial statements do not reflect any uncertainties as the

ultimate result cannot presently be estimated.


statements, the Company holds beneficiary certificates

which include ￦138,649 million of the guaranteed bonds

issued by potentially ail ing companies including the

Daewoo group of companies as of March 31, 2004. The

above beneficiary certificates were valued at the price,

which were announced by the investment trust

management companies. Subsequently, the Company

additionally amortized beneficiary certificates of potentially

ailing companies. In this regard, the Company classified

those benef ic iary cert i f icates as current assets in

accordance with the Financial Accounting Standards of the

Republ ic of Korea. As of March 31, 2004, the real

recoverable amounts and a withdrawal point of time about

the above beneficiary certificates may be influenced by

Korean economic situation. The accompanying financial

statements do not reflect any uncertainties as the ultimate

result cannot presently be estimated.


statements, the Company brokered the sell-off of stocks

issued by Hyundai Investment & Securities Co., Ltd.(HIS)

from Hynix Semiconductor Inc. (HYNIX) to Canadian

Imperial Bank of Commerce (“CIBC”) on June 4, 1997. In

this regard, Hyundai Heavy Industries Co., Ltd. (HHI)

entered into an agreement that CIBC had put options on the

above stocks based on the memorandum provided by the

Company and HYNIX. Pursuant to the agreement, HHI

bought 13,000,000 shares issued by HIS at the price of

US$220 million July 24, 2000, as CIBC exercised its put

option. With regard to compensation for the above trade,

HHI filed a suit against the Company and HYNIX etc.. With

regard to the above litigation, the Seoul District Court gave

a decision that the Company, in solidarity with HYNIX, had

to compensate ￦171,822 million to HHI. on January 25,

2002. Therefore, the Company paid ￦97,256 million on

April 17, 2002 and recorded as a loss. The Company

appealed against the decision of the Seoul District Court on

February 15, 2002 and this case is still pending in the court.

The accompanying financial statements do not reflect any

uncertainties as the ultimate result cannot presently be

estimated.


statements, the Company made a contract that the

Company bought the Class A Note (par value :

US$50,000,000) issued by Seneca Funding I, for cash of

US$7,500,000 and on credit of US$42,500,000 with Paine

Webber-US in place of Tong Yang Investment Bank

(“TYIB”) on May 13, 1999. In connection with this contract,

Paine Webber-US required a collateral, and TYIB gave

bond with warrant(par value : US$10,000,000) issued by

Korea Data Systems Co., Ltd.(“KDS Securities”) to the

Company as a collateral, and the Company gave this bond

with warrant to Paine Webber-US as a collateral. On

November 30, 2000, Paine Webber-US required the

Company to repay borrowings and the Company required

TYIB to repay borrowings. But TYIB denied borrowings, and

the Company gave Paine Webber-US US$10,000,000

instead of TYIB and received KDS Securities. In this regard,

the Company has f i led a sui t against TYIB for an

uncollected amount, and TYIB has filed a suit against the

Company for compensation. On February 10, 2004, Seoul

High Court gave a decision that the Company make over

KDS Securities and pay ￦10,075 million to TYIB, and the

Company’s claim was rejected. On February 16, 2004, the

Company made a provisional payment which amount up to

￦13,958 million, and on March 4, 2004, the Company gave

the converted KDS Securities to TYIB. On February 26,

2004, the Company brought a final appeal to Supreme

Court and this case is stil l pending in the court. The

Company recorded the provisional payment of ￦1 3 , 9 5 8

mill ion as non-operating expenses and provided an

allowance for other account receivables which amount up to

US$10 million (￦12,952 million). Moreover, TYIB filed an

additional suit against the Company for the loss caused by

provisional seizure of KDS Securities on March 17, 2003,

Financial Section 2 | Report of Independent Auditors

Samil Pricewaterhouse CoopersKukje Center Building 191 Hangangro 2 ga,

Yongsanku Seoul 140-702, KOREA

(Yongsan P.O. Box 266, 140-600)


Financial Section 2 | Report of Independent Auditors Financial Section 2 | Non-Consolidated Financial Statements

and TYIB extended the amount of the claim. This case is

still pending in the court. The Company recorded ￦8 , 2 9 8

million as non-operating expense for the claim amount and

interests, as of March 31, 2004. The accompanying

financial statements do not reflect any uncertainties as the



statements, as of March 31, 2004, the Company holds

trading securities which include ￦1,530 million (acquisition

cost : ￦2,353 million) of corporate bonds issued by LG

Card Co., Ltd. and ￦18,681 million of corporate bonds

issued by other credit card companies and capital

companies. As of March 31, 2004, the credi t card

companies and capital companies are experiencing

financial difficulties and the corporate bonds issued by the

above companies are suffering from liquidity problem. The

accompanying financial statements do not reflect any

uncertainties as the ultimate result cannot presently be

estimated.


statements, during the year ended March 31, 2004, the

Company’s revenues and expenses from related parties are

￦80 million and ￦14,054 million, respectively. The related

receivables and payables as of March 31, 2004 are ￦1,353

million and ￦2,415 million, respectively.

The amounts expressed in U.S. dollars, provided solely for

the convenience of the reader, have been translated on the

basis set forth in Note 3 to the accompanying financial

statements.

Accounting principles and auditing standards and their

appl icat ion in pract ice vary among countr ies. The

accompanying non-consolidated financial statements are

not intended to present the financial position, results of

operations and cash flows in conformity with accounting

principles and practices generally accepted in countries and

jurisdictions other than the Republic of Korea. In addition,

the procedures and practices used in the Republic of Korea

to audit such financial statements may differ from those

general ly accepted and applied in other countr ies.

Accordingly, this report and the accompanying non-

consolidated financial statements are for use by those who

are knowledgeable about Korean accounting principles or

auditing standards and their application in practice.

This report is effective as of April 23, 2004, the audit report date. Certain subsequent events or circumstances, which may occur between the audit

report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes

thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to

reflect the impact of such subsequent events or circumstances, if any.

Seoul, Korea

April 23, 2004

U.S dollars(Note 3)

Won(In millions) (In thousands)

2004 2003 2004 2003

Non-consolidated Balance Sheets

March 31, 2004 and 2003

ASSETS

Current assets:

Cash and cash equivalents (Note 4) ￦ 150,441 ￦ 257,460 $ 130,410 $ 223,180

Short-term financial instruments (Note 4) 1,150 7,939 997 6,882

Deposits segregated under regulation (Note 4) 1,237,174 1,323,108 1,072,447 1,146,938

Trading securities (Note 5) 400,245 674,502 346,953 584,693

Options purchased 194 499 168 433

Loans, net (Note 2) 81,974 125,021 71,059 108,375

Accounts receivable, net (Note 2) 47,309 54,869 41,010 47,563

Accrued revenue, net (Note 2) 10,174 14,547 8,820 12,610

Advanced payments 4,622 16,259 4,007 14,094

Prepaid expenses 104 997 90 864

Prepaid income tax 3,420 17,624 2,965 15,277

Other 23 12 18 10

Total current assets 1,936,830 2,492,837 1,678,944 2,160,919

Available-for-sale securities (Note 6) 61,415 116,162 53,238 100,695

Equity-method investments (Note 7) 48,497 57,240 42,040 49,619

Long-term financial instruments (Note 4) 37 39 32 34

Long-term loans (Note 2) 47,833 23,160 41,464 20,076

Guarantee deposits 92,707 109,296 80,363 94,743

Troubled loans, net (Notes 2 and 8) 12,282 28,129 10,647 24,384

Collective fund for default loss (Note 4) 9,222 8,322 7,994 7,214

Property and equipment, net (Note 9) 213,216 228,152 184,827 197,774

Intangible assets (Note 10) 9,670 13,982 8,383 12,120

Deferred income tax assets (Note 20) 145,702 185,792 126,302 161,054

Other 18,789 18,060 16,286 15,656

Total assets ￦ 2,596,200 ￦ 3,281,171 $ 2,250,520 $ 2,844,288


Financial Section 2 | Non-Consolidated Financial Statements

U.S dollars(Note 3)


2004 2003 2004 2003

Non-consolidated Balance Sheets (Continued)

March 31, 2004 and 2003

The accompanying notes are an integral part of these non-consolidated financial statements.

Liabilities and Shareholders' Equity

Current Liabilities

Short-term borrowings (Note 11) ￦ - ￦ 399,700 $ - $ 346,481

Securities sold under repurchase agreements (Note 5) 43,475 35,564 37,686 30,829

Deposits from customers (Note 12) 1,047,021 1,404,285 907,612 1,217,307

Other accounts payable 49,242 19,444 42,685 16,854

Options sold 310 533 268 462

Accrued expenses 16,664 14,333 14,445 12,425

Guarantee deposits received 17,466 16,742 15,140 14,513

Current maturities of subordinated debentures (Note 13) 189,987 - 164,691 -

Others 14,568 13,443 12,630 11,652

Total current liabilities 1,378,733 1,904,044 1,195,157 1,650,523

Accured severance benefits (Note 14) 22,317 10,004 19,345 8,672

Subordinated debentures (Note 13) 49,885 189,873 43,243 164,592

Others 1 1 1 1

Total liabilities 1,450,936 2,103,922 1,257,746 1,823,788

Commitments and contingencies (Note 15)

Shareholders’ equity

Capital stock (Notes 1 and 16)

Common stock 696,767 535,975 603,994 464,611

Capital surplus (Note 16)

Additional paid-in capital 590,901 591,771 512,224 512,978

Other Additional capital 49,595 49,595 42,991 42,992

Retained earnings (accumulated deficit) (Note 17) (152,600) 45,566 (132,282) 39,499

(Net loss of ￦198,167 million in 2004

and ￦58,614 million in 2003)

Capital adjustments

Treasury stock (Note 19) (16,119) (13,047) (13,973) (11,310)

Overseas operation translation credit 3,060 2,694 2,653 2,335

Unrealized gain on valuation

of available-for-sale securities (Note 6) 5,509 525 4,775 455

Unrealized loss on valuation

of available-for-sale securities (Note 6) (32,423) (40,591) (28,106) (35,186)

Unrealized gain on valuation

of equity-method investments (Note 7) 574 4,761 498 4,126

Total shareholders’ equity 1,145,264 1,177,249 992,774 1,020,500

Total liabilities and shareholders’ equity ￦ 2,596,200 ￦ 3,281,171 $ 2,250,520 $ 2,844,288

U.S dollars(Note 3)


2004 2003 2004 2003

Non-consolidated of Income Statements

For the years ended March 31, 2004 and 2003

Operating revenues

Commission income (Note 22) ￦ 353,586 ￦ 405,350 $ 306,506 $ 351,378

Interest income 45,164 98,320 39,151 85,229

Gain on sales of trading securities 35,692 49,729 30,940 43,108

Gain on valuation of trading securities (Note 23) 114,737 10,758 99,460 9,326

Gain on valuation of deposits segregated under regulation 55,499 12,819 48,109 11,112

Gain on derivatives transaction (Note 15) 40,965 93,266 35,511 80,848

Others 8,710 19,195 7,550 16,639

654,353 689,437 567,227 597,640

Operating expenses

Commission expense 23,177 34,835 20,091 30,197

Interest expense 44,763 65,506 38,803 56,784

Loss on sales of trading securities 41,834 110,738 36,264 95,993

Loss on valuation of trading securities 31,581 61,562 27,376 53,365

Loss on derivatives transaction (Note 15) 35,181 84,914 30,497 73,608

General and administrative expenses (Notes 9,10,22 and 25) 342,983 378,633 297,315 328,219

519,519 736,188 450,346 638,166

Operating income(loss) 134,834 (46,751) 116,881 (40,526)

Non-operating income

Office rental income (Note 22) 2,424 1,758 2,101 1,524

Gain on foreign currency transaction 11 131 10 114

Gain on foreign currency translation - 55 - 48

Gain on disposal of available-for-sale securities 5,331 1,514 4,621 1,312

Gain on disposal of property, and equipment 1,519 523 1,317 453

Others 1,216 5,930 1,054 5,140

10,501 9,911 9,103 8,591

Non-operating expenses

Loss on foreign currency transaction 150 253 130 219

Loss on foreign currency translation (Note 2) 45 162 39 140

Loss on disposal of available-for-sale securities 20,541 9 17,806 8

Loss on impairment of available-for-sale securities (Note 6) 42,187 12,406 36,570 10,754

Loss on valuation of equity-method investments (Note 7) 4,556 1,169 3,950 1,013

Loss on valuation of investment in Market Stabilization Fund - 9,661 - 8,375

Loss on disposal of property, and equipment 467 1,974 405 1,711

Economic responsible burden charge as a large shareholder 205,100 - 177,791 -

Others 30,560 11,672 26,490 10,118

303,606 37,306 263,181 32,338

33HYUNDAI SECURITIES | FY2003 ANNUAL REPORT32 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT 33HYUNDAI SECURITIES | FY2003 ANNUAL REPORT32 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT


U.S dollars(Note 3)


2004 2003 2004 2003

Non-consolidated of Income Statements (Continued)




Ordinary loss (158,271) (74,146) (137,197) (64,273)

Extraordinary loss - 1,027 - 890

Net loss before income taxes (158,271) (75,173) (137,197) (65,163)

Income tax expense(benefit) (Notes 20 and 23) 39,896 (16,559) 34,584 (14,353)

Net loss ￦ (198,167) ￦ (58,614) $ (171,781) $ (50,810)

Ordinary loss per share (Notes 21 and 23)

(in Korean Won and U.S. dollars) ￦ 1,842 ￦ 542 $ 1.60 $ 0.47

Loss per share (Notes 21 and 23)

(in Korean Won and U.S. dollars) ￦ 1,842 ￦ 549 $ 1.60 $ 0.48

U.S dollars(Note 3)


2004 2003 2004 2003

Non-consolidated Statements of Disposition of Accumulated Deficit

Date of Disposition : May 28, 2004 and May 30, 2003

For the years ended March 31, 2004 and 2003, respectively

Accumulated deficit before disposition

Undisposed accumulated deficit carried over

from the prior year ￦ (13,574) ￦ - $ (11,767) $ -

Prior period error corrections - (14,705) - (12,747)

Net loss (198,167) (58,614) (171,781) (50,810)

(211,741) (73,319) (183,548) (63,557)

Disposition

Reserve for losses on securities transactions 13,719 13,719 11,892 11,892

Voluntary reserves 39,992 46,026 34,668 39,898

Legal reserve 5,430 - 4,707 -

Other surplus capital 49,595 - 42,991 -

Additional paid-in capital 103,005 - 89,290 -

211,741 59,745 183,548 51,790

Undisposed accumulated deficit

carried forward to the subsequent year ￦ - ￦ (13,574) $ - $ (11,767)

35HYUNDAI SECURITIES | FY2003 ANNUAL REPORT34 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT 35HYUNDAI SECURITIES | FY2003 ANNUAL REPORT34 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT 35HYUNDAI SECURITIES | FY2003 ANNUAL REPORT34 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT


U.S dollars(Note 3)


2004 2003 2004 2003

Non-consolidated Statements of Cash Flows



Cash flows from operating activities

Net loss ￦ (198,167) ￦ (58,614) $ (171,781) $ (50,810)

Adjustments to reconcile net income

to net cash provided by (used in) operating activities

Loss(gain) on valuation of trading securities, net (83,156) 50,804 (72,084) 44,039

Gain on valuation of options, net (148) (28) (129) (24)

Provision for severance benefits 19,829 12,281 17,189 10,646

Depreciation and amortization 40,705 53,277 35,285 46,183

Bad debt expenses, net 20,347 (725) 17,638 (628)

Loss(gain) on disposal of available-for-sale securities, net 15,210 (1,505) 13,185 (1,304)

Impairment losses on available-for-sale securities 42,187 12,406 36,570 10,754

Loss on valuation of equity-method investments 4,556 1,169 3,950 1,013

Loss on valuation of investment in Market Stabilization Fund - 9,661 - 8,375

Loss(gain) on disposal of property, plant and equipment, net (1,052) 1,451 (912) 1,258

Interest income (167) (3,005) (145) (2,605)

Others, net (52,935) 107 (45,887) 92

(192,791) 77,279 (167,121) 66,989

Changes in operating assets and liabilities

Deposits segregated under regulation 141,618 477,592 122,762 414,001

Trading securities 353,206 (206,892) 306,177 (179,345)

Options purchased 275 (755) 239 (654)

Accounts receivable 5,942 58,719 5,151 50,901

Accrued revenue 4,428 25,046 3,839 21,711

Advanced payments 11,636 (9,303) 10,087 (8,064)

Prepaid expenses 893 (441) 774 (382)

Prepaid income tax 14,204 (17,624) 12,313 (15,277)

Collective fund for default loss - (1,015) - (880)

Deferred income tax assets 40,089 (17,699) 34,751 (15,342)

Deposits from customers (357,264) (445,987) (309,695) (386,605)

Options sold (45) 816 (39) 707

Other accounts payable 12,812 710 11,107 615

Accrued expenses 2,331 (2,774) 2,021 (2,405)

Payment of severance benefits (6,180) (3,356) (5,358) (2,909)

Severance insurance plan deposits (1,336) (6,947) (1,158) (6,023)

Others, net 1,116 (127,678) 965 (110,676)

223,725 (277,588) 193,936 (240,627)

Net cash provided by (used in) operating activities 30,934 (200,309) 26,815 (173,638)

U.S dollars(Note 3)


2004 2003 2004 2003

Non-consolidated Statements of Cash Flows (continued)


Cash flows from investing activities

Decrease in short-term financial instruments ￦ 27,089 ￦ - $ 23,482 $ -

Increase in short-term financial instruments (20,300) (6,789) (17,597) (5,885)

Decrease in loans 505,544 9,907,227 438,231 8,588,096

Increase in loans (462,766) (10,005,961) (401,150) (8,673,683)

Decrease in available-for-sale securities 52,782 22,960 45,754 19,903

Increase in available-for-sale securities (20,847) (6,329) (18,071) (5,486)

Decrease in long-term financial instruments 3 6 2 5

Decrease in long-term loans 8,103 7,484 7,024 6,488

Increase in long-term loans (33,094) (1,093) (28,688) (947)

Decrease in guarantee deposits 38,059 44,081 32,992 38,212

Increase in guarantee deposits (21,490) (43,581) (18,628) (37,778)

Disposal of property and equipment 357 347 310 301

Aquisition of property and equipment (23,452) (28,051) (20,329) (24,316)

Decrease in troubled loans 7,562 14,837 6,555 12,861

Increase in troubled loans (7,957) (2,140) (6,897) (1,855)

Increase in collective fund for default loss (900) - (780) -

Increase in intangible assets (2,947) (3,522) (2,555) (3,053)

Other 528 5,785 457 5,012

Net cash provided by (used in) investing activities 46,274 (94,739) 40,112 (82,125)

Cash flows from financing activities

Issuance of common stock 159,923 - 138,629 -

Increase in short-term borrowings - 169,578 - 146,999

Decrease in short-term borrowings (399,700) (30,000) (346,480) (26,006)

Increase in securities sold under repurchase agreements 7,911 35,000 6,858 30,340

Increase in guarantee deposits received 4,430 - 3,840 -

Decrease in guarantee deposits received (3,706) - (3,213) -

Increase in subordinated bonds 49,885 189,873 43,243 164,592

Decrease in subordinated bonds - (279,870) - (242,606)

Acquisition of treasury stock (3,072) (7,275) (2,663) (6,306)

Payment of dividends - (37,408) - (32,427)

Net cash provided by (used in) financing activities (184,329) 39,898 (159,786) 34,586

Increase in oversea operation translation credit 102 - 89 -

Net decrease in cash and cash equivalents (107,019) (255,150) (92,770) (221,177)

Cash and cash equivalents beginning of year (Notes 4 and 24) 257,460 512,610 223,180 444,357

Cash and cash equivalents end of year (Notes 4 and 24) ￦ 150,441 ￦ 257,460 $ 130,410 $ 223,180


Financial Section 2 | Notes to Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements

March 31, 2004 and 2003

Accounting EstimatesThe preparation of the financial statements requires management to make estimates and assumptions that affect amounts reportedtherein. Although these estimates are based on management’s best knowledge of current events and actions that the Companymay undertake in the future, actual results may be different from those estimates.

Revenue RecognitionThe Company recognizes commissions and trading gains and losses on the contract date.

Cash, Cash Equivalents and Short-term Financial InstrumentsCash and cash equivalents include cash on hand and in bank accounts, with original maturities of three months or less.Investments which are readily convertible into cash within four to twelve months of purchase are classified in the balance sheet asshort-term financial instruments. The cost of these investments approximates their fair value.

Marketable Securities and InvestmentsThe Company accounts for equity and debt securities under the provision of SKAS No.8 “Investments in Securities”. This statementrequires investments in equity and debt securities to be classified into one of three categories: trading, available-for-sale and held-to-maturity.

Securities are initially carried at cost, including incidental expenses, with cost being determined using the moving average method.Debt securities, which the Company has the intent and ability to hold to maturity, are generally carried at cost, adjusted for theamortization of discounts or premiums. Premiums and discounts on debt securities are amortized over the term of the debt usingthe effective interest method. Trading and available-for-sale securities are carried at fair value, except for non-marketablesecurities, classified as available-for-sale securities, which are carried at cost. Non-marketable debt securities are carried at a valueusing the present value of future cash flows, discounted at a reasonable interest rate determined considering the credit ratingsprovided by independent credit rating agencies.

Unrealized valuation gains or losses on trading securities are charged to operations and those resulting from available-for-salesecurities are charged to capital adjustment, the accumulated amount of which shall be charged to operations when the relatedsecurities are sold, or when an impairment loss on the securities is recognized. Impairment losses are recognized in the statementof income when the recoverable amounts are less than the acquisition cost of securities or adjusted cost of debt securities for theamortization of discounts or premiums.

Investments in equity securities of companies, over which the Company exercises a significant control or influence(controlledinvestees), are recorded using the equity method of accounting. Under the equity method, the Company records changes in itsproportionate ownership of the book value of the investee in current operations, as capital adjustments or as adjustments toretained earnings, depending on the nature of the underlying change in the book value of the investee. The Company discontinuesthe equity method of accounting for investments in equity method investees when the Company’s share of the accumulated lossesof the investees equals the costs of the investments and until the subsequent cumulative changes in its proportionate net income ofthe investees equals its cumulative proportionate net losses not recognized during the periods when the equity method wassuspended. There has been no difference between the acquisition costs and the Company’s proportionate share of the net bookvalue of the equity method investees. Also, there has been no unrealized profit in 2004 and 2003, arising from transactionsbetween the Company and the equity method investees to be eliminated in equity method accounting. Foreign currency financialstatements of equity method investees are translated into Korean Won using the basic exchange rates in effect as of the balancesheet date for assets and liabilities, and annual average exchange rates for income and expenses. Any resulting translation gain orloss is included in the capital adjustment account, a component of shareholders’ equity.

Accounting for DerivativesThe Company recorded assets and liabilities related to derivatives in the accompanying balance sheet and stated them at marketvalue.

Allowance for Doubtful AccountsThe Company provides an allowance for doubtful accounts based on the aggregate estimated collectibility of amount receivable.

The RSSB prescribed by the Korean Securities and Exchange Act provides guidelines for calculating the allowance for doubtfulaccounts. These guidelines are meant to represent the minimum level of allowances that securities firms should maintain. Theseguidelines require that all loans and receivables should be classified based on a number of factors including the financial position ofthe debtors, the repayment history, the Company’s past relationship and dealings with the debtors and the value of any securityinterest. In accordance with these guidelines, loans and receivables have been classified as of March 31, 2004 as normal,precautionary, substandard, doubtful or estimated loss.Loans and receivables as of March 31, 2004 and 2003 by risk classification and percentages of loss applied in order to determine

1. The CompanyHyundai Securities Co., Ltd. (the “Company”) was incorporated on June 1, 1962 under the name of Kookil Securities Co., Ltd., andwas organized pursuant to the laws of the Republic of Korea. The Company changed its name to Hyundai Securities Co., Ltd. onJune 5, 1986. In 1975, the Company’s shares were listed on the Korean Stock Exchange and as of March 31, 2004, all issued andoutstanding shares are publicly traded.In accordance with its articles of incorporation, the Company is authorized to issue up to 300,000,000 shares of common stock(parvalue: 5,000). As of March 31, 2004, 139,353,423 shares of common stock were issued and outstanding.

In accordance with its articles of incorporation, the Company is authorized to issue up to ￦500 billion of convertible bonds and￦500 billion of debentures with stock purchase options. No convertible bonds and debentures with stock purchase options havebeen issued as of March 31, 2004.

In accordance with its articles of incorporation, the Company may grant stock purchase options to its employees and directors up to15% of the total issued and outstanding shares through a resolution of the shareholders. No stock purchase options have beenissued as of March 31, 2004.

The Company is required to maintain a Capital Adequacy Ratio (“CAR”) of more than 100% pursuant to the Regulation onSupervision of Securities Business (“RSSB”) prescribed by the Korean Securities and Exchange Act. A CAR is a ratio of netoperating capital to total risks exposed, which include market risk, counter party risk, fundamental risk, credit concentration risk andrisk adjustments.

2. Summary of Significant Accounting PoliciesThe significant accounting policies followed by the Company in the preparation of its non-consolidated financial statements aresummarized below:

Basis of Financial Statement Presentation The Company maintains its accounting records in Korean Won and prepares statutory financial statements in the Korean languagein conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied bythe Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conformwith generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use bythose who are informed about Korean accounting principles and practices. The accompanying non-consolidated financialstatements have been condensed, restructured and translated into English from the Korean language non-consolidated financialstatements. Certain information attached to the Korean language non-consolidated financial statements, but not required for a fairpresentation of the Company’s financial position, results of operations or cash flows, is not presented in the accompanying non-consolidated financial statements.

Application of the Statements of Korean Financial Accounting Standards The Korea Accounting Standards Board (“KASB”) has published a series of Statements of Korea Accounting Standards (“SKAS”),which will gradually replace the existing financial accounting standards established by the Korean Financial and Supervisory Board.SKFAS No. 2 through No. 9 became effective for the Company on January 1, 2003, and the Company has adopted thesestatements in its financial statements for the year ended March 31, 2004. The changes in accounting policies from the year endedMarch 31, 2004 are summarized below.

Change of Disposition of Accumulated DeficitIn accordance with SKAS No. 6, “Events occurring after the Balance Sheet date”, the Company has not reflected proposeddisposition of accumulated deficit in the balance sheets.

Reclassification of SecuritiesIn accordance with SKAS No. 8, “Investments in Securities”, the Company changed its accounting principles for securities.

The balance sheet as of March 31, 2003 and the related statements of income and cash flows for the year then ended wererestated in accordance with SKAS No. 2 through No. 9.



the allowance for doubtful accounts are as follows :

(*) The amounts include ￦8,636 million and ￦15,351 million of the difference between the book value and the present value of restructured loans as

of March 31, 2004 and 2003, respectively.

Discount on Present ValueThe Company recorded the difference between the previous book value and the present value discounted at effective interest rateof troubled loans restructured by a reorganization plan approved by the court or agreed to by creditors as a discount on presentvalue account. A discount on present value is amortized over the reorganized maturity periods using the effective interest ratemethod.

Property and Equipment and Related DepreciationProperty and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful livesof the assets, as follows:

Maintenance and repairsRoutine maintenance and repairs are charged to expense as incurred. Expenditures, which enhance the value or extend the usefullife of the related assets, are capitalized.

Intangible Assets and Related AmortizationIntangible assets are stated at cost, net of accumulated amortization. Amortization is computed using the straight-line method overthe estimated useful lives of 4 years.

Securities Sold under Repurchase Agreements Securities sold under repurchase agreements are stated at their sales price as liability.

Foreign Currency Translation Monetary assets denominated in foreign currencies are translated into Korean won at the basic rates in effect at the balance sheetdate (in the case of U.S.Dollars, US$1 to ￦1,153.6) and resulting exchange losses and gains are recognized in the currentoperation.

As of March 31, 2004, monetary assets and liabilities dominated in foreign currencies and related gains and losses on foreigncurrency translation for the year ended March 31, 2004 are as follows:

Accrued Severance Benefits Employees and directors with more than one years of service are entitled to receive a lump-sum payment upon termination of theiremployment, based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent theamount which would be payable assuming all eligible employees and directors were to terminate their employment as of thebalance sheet date.

The severance benefits are funded through a severance insurance deposit for payment of severance benefits, and the account isdeducted from accrued severance benefit liabilities. The beneficiaries of the severance insurance deposit are the Company’semployees.

In accordance with the National Pension Act, a certain portion of accrued severance benefits was contributed to the NationalPension Fund and deducted from accrued severance benefits.

Reserve for Losses on Securities TransactionsIn accordance with the revised Korean Securities and Exchange Act as of January 26, 2002, the Company reverses the reserve forlosses on securities transactions equally over 3 year periods from the year ended March 31, 2002. The reversed amounts will beadded to the unappropriated retained earnings.

Discounts and Premium on DebenturesDiscounts and premium on debentures are amortized over the redemption period of the related debenture using the effectiveinterest method. Amortization of discount or premium on debentures is recorded as interest expense.

Treasury StockTreasury stock is stated at cost. Gain on disposal of treasury stock is charged to capital surplus. Loss on disposal of treasury stockis first offsetted against gain on disposal of treasury stock, if any, and the remainder is charged to capital adjustment, a componentof shareholders’ equity.

Income tax expenseThe company recognizes deferred income taxes for anticipated future tax consequences resulting from temporary differencesbetween amounts reported for financial reporting and income tax purposes. Deferred tax assets and liabilities are computed onsuch temporary differences by applying enacted statutory tax rates applicable to the years when such differences are expected toreverse. Deferred tax assets are recognized when it is more likely than not that such deferred tax assets will be realized. The totalincome tax provision includes the current tax expense under applicable tax regulations and the change in the balance of deferredtax assets and liabilities during the year.

Translation of foreign currency financial statements of the overseas branchThe overseas branch maintains its books of account in the currency of the country where the branch is located. Therefore, intranslating the foreign currency financial statements of the overseas branch into Korean Won, assets and liabilities are translated atthe exchange rate as of the balance sheet date and income and expenses are translated at the average rates for the reportingperiods. Translation gains or losses arising from such translation of the foreign currency financial statements of the overseas branch arerecorded as an overseas operation translation credit or debit which is added to or deducted from stockholder’ equity.

Earnings Per Share Earnings per share are computed based on earnings available to common shareholders, using the weighted average number ofcommon shares outstanding during the period.

3. United States Dollar AmountsThe Company operates primarily in Korean Won and its accounting records are maintained in Korean Won. The U.S. Dollaramounts, provided herein, represent supplementary information, solely for the convenience of the reader. All Won amounts areexpressed in U.S. Dollars at US$1:￦1,153.6, the basic rate in effect on March 31, 2004. Such presentation is not in accordancewith accounting principles generally accepted in either the Republic of Korea or the United States, and should not be construed asa representation that the Won amounts shown could be readily converted, realized or settled in U.S. Dollars at this or any otherrate.

The 2003 U.S. Dollar amounts, which were previously expressed at US$1:￦1,252.9, the rate in effect on March 31, 2003, havebeen restated to reflect the exchange rate in effect on March 31, 2004.

(*) Foreign currencies consist of several foreign currencies and is translated with U.S. dollars amount using the exchange rate at the balance sheet

date.

Classification 2004 2003 Percentages of Loss

Normal ￦ 188,555 ￦ 120,017 over 0.5%

Precautionary 1,219 20,428 over 2%

Substandard 4,285 3,393 over 20%

Doubtful 36,025 33,836 over 75%

Estimated loss (*) 37,591 33,329 100%

￦ 267,675 ￦ 211,003

(in millions of Korea Won)

Estimated useful lives(years)

Buildings 40

Equipment 4

Other 4

AccountsForeign Currency Korean Won Translation Translation

Amount(*) Equivalent Gain Loss

Cash and cash equivalents US$ 4,397,564.95 ￦ 5,073,031 ￦ - ￦ 45,403

(in thousands of Korean Won)


4. Cash and DepositsCash and cash equivalents, financial instruments and deposits segregated under regulation as of March 31, 2004 and 2003 consistof the following:


(*) Annual interest rate was not determined at March 31, 2004, because depository will pay an interest based on their operating results.

As of March 31, 2004, long-term financial instruments are subject to withdrawal restriction to maintain checking accounts (Note 15).According to the RSSB, the Company is to deposit with the Korean Securities Finance Corporation (“KSFC”) or other banks theamount of deposits from customers for the customers’ claims. Pursuant to the Korean Securities and Exchange Act, collective fund for default loss is funded for compensating loss resulting frombreaching securities in stock exchange.

5. Trading Securities

Trading securities as of March 31, 2004 and 2003 consist of the following:

Annual interest Rate (%)

2004 2004 2003

(1) Cash and cash equivalents

Cash on hand - ￦ 3,970 ￦ 4,385

Checking accounts - 465,570 570,486

Passbook accounts in foreign currency 0.1-0.5 5,073,031 762,371

Money market funds (*) 60,000,000 6,228,504

Passbook accounts 0.1-0.5 598,304 887,746

Time deposits 5.1 43,000,000 -

Money market deposit accounts 4.0-4.3 - 80,000,000

Promissory notes 4.0-4.1 41,300,000 169,006,602

150,440,875 257,460,094

(2) Short-term financial instruments

Passbook accounts in foreign currency - - 1,789,224

Time deposits 4.7 1,150,000 6,150,000

1,150,000 7,939,224

(3) Deposits segregated under regulation

Subscription deposits 2.0 - 8,300,000

Reserve for claims of customers’ deposits(trust) (*) 1,236,271,565 1,314,142,780

Guarantee deposits for futures and options trading - 902,845 665,430

1,237,174,410 1,323,108,210

(4) Long-term financial instruments - 36,500 39,000

(5) Collective fund for default loss (*) 9,222,041 8,322,318

￦ 1,398,023,826 ￦ 1,596,868,846


2004 2003

Stocks ￦ 41,403,250 ￦ 8,715,048

Government and public bonds 160,083,129 203,206,717

Corporate bonds 3,084,754 16,698,328

Beneficiary certificates 195,472,044 417,707,527

Commercial papers 202,071 27,081,588

Bonds in foreign currency - 1,093,155

￦ 400,245,248 ￦ 674,502,363


Debt securities as of March 31, 2004 and 2003 consist of the following:

2004 2003

Par Value Acquisition Cost Fair Value Book Value Book Value

Government and public bonds ￦ 163,540,217 ￦ 158,917,696 ￦ 160,083,129 ￦ 160,083,129 ￦ 203,206,717

Corporate bonds 3,208,278 3,118,116 3,084,754 3,084,754 16,698,328

￦ 166,748,495 ￦ 162,035,812 ￦ 163,167,883 ￦ 163,167,883 ￦ 219,905,045


As of March 31, 2004 and 2003, ￦45,438,246 thousand and ￦35,625,335 thousand of the above debt securities are securedagainst securities sold under repurchase agreements.As of March 31, 2004, the Company holds beneficiary certificates which include ￦138,649 million of the guaranteed bonds issuedby potentially ailing companies, including the Daewoo group of companies. Also, the Company sold beneficiary certificates tocustomers which include ￦68,012 million of the guaranteed bonds of the above-mentioned companies. The details of theguaranteed bonds of those companies included in the beneficiary certificates held or sold by the Company are as follows:

Daewoo and Seoul SK Networks

Guarantee Insurance bonds Co., Ltd. and others Total

Held by the Company ￦ 62,381 ￦ 76,268 ￦ 138,649

Sold to customers 3,192 64,820 68,012

￦ 65,573 ￦ 141,088 ￦ 206,661

(in million of Korean Won)

The above beneficiary certificates are valued at the standard price of ￦162,469 million, which were announced by the investmenttrust management companies. Subsequently, the Company amortized beneficiary certificates of potentially ailing companies by￦23,820 million. In this regard, the Company classified those beneficiary certificates as current assets in accordance with theFinancial Accounting Standards of the Republic of Korea. Also, the Company was charged to loss which amount up to ￦16,985million regarding these beneficiary certificates sold to customers for the year ended March 31, 2004. As of March 31, 2004, the realrecoverable amounts and a withdrawal point of time regarding above guaranteed corporate bonds may be influenced by Koreaneconomy situations. The accompanying financial statements do not reflect any uncertainties as the ultimate result cannot presentlybe estimated.

As of March 31, 2004, the Company holds trading securities which include ￦1,530 million (acquisition cost : ￦2,353 million) ofcorporate bonds issued by LG Card Co., Ltd. and ￦18,681 million of corporate bonds issued by other credit card companies andcapital companies. As of March 31, 2004, the credit card companies and capital companies are experiencing financial difficultiesand the corporate bonds issued by the above companies are suffering from liquidity problem. The accompanying financialstatements do not reflect any uncertainties as the ultimate result cannot presently be estimated.During the year ended March 31, 2004, the Company recorded ￦12,901 million of interest income for trading securities.As of March 31, 2004, Government and public bonds amounting to ￦52,787 million, corporate bonds amounting to ￦1,119 millionand stocks amounting to ￦12,365 million are pledged as collateral for the contractual obligations, including derivatives contracts(Note 15).

6. Available-for-sale securities Available-for-sale securities as of March 31, 2004 and 2003 consist of the following:

2004 2003

Stocks ￦ 32,148,479 ￦ 82,011,574

Investments in partnerships 9,579,691 31,611,226

Stocks in foreign currency 1,588,025 1,724,141

Corporate bonds 1,959,270 782,466

Beneficiary certificates 139,479 -

Other 16,000,000 32,339

￦ 61,414,944 ￦ 116,161,746



During the year ended March 31, 2004, the Company recorded ￦1,599 million of interest income for available-for-sale securities.

Stocks as of March 31, 2004 and 2003 consist of the following:

During the year ended March 31, 2004, the Company recorded ￦32,507,806 thousand of loss on impairment of available-for-salesecurities, whose net asset declined significantly and are not expected to recover.The net asset values of Korea Securities Depository and NICE Pricing Services, Inc. are recorded based on the most recentavailable unaudited financial statements.

Investments in partnerships as of March 31, 2004 and 2003 consist of the following:


2004 2003

Number of Percentage of Acquisition Market or Book Book Shares Owned Ownership Cost Net Asset Value Value Value

(1) Stocks in listed companies

Hyundai Eng & Const Co., Ltd. 813,149 0.16 ￦ 36,795,027 ￦ 8,497,407 ￦8,497,407 ￦18,067,772

Korea Ratings Corporation 210,056 4.32 1,470,392 1,816,984 1,816,984 1,995,532

KP Chemical Corporation 70,000 0.07 350,000 224,700 224,700 211,237

Future Systems Corporation - - - - - 68,000

KTB network - - - - - 221,400

38,615,419 10,539,091 10,539,091 20,563,941

(2) Stocks in unlisted companies

Korea Securities Finance

Corporation 2,152,828 3.2 10,757,876 14,514,681 10,757,876 10,757,876

Hyundai Asan Corporation 4,064,520 4.2 20,322,600 4,498,240 4,498,240 8,003,054

Hyundai Futures Corporation 396,000 9.9 2,009,700 1,962,125 1,882,774 1,868,628

Best Sound Electronics 30,000 0.5 1,610,000 450,000 450,000 1,610,000

KAEL Co., Ltd. 20,511 3.8 840,000 420,000 420,000 840,000

Korea ECN Securities

Corporation 159,999 3.1 799,995 603,366 799,995 799,995

LETEK Communications Inc. 20,000 4.5 500,000 359,073 500,000 500,000

Korea Securities Depository 56,496 0.9 496,910 3,240,907 496,910 496,910

KOSDAQ Stock MKT. 82,000 2.0 410,000 2,592,538 410,000 410,000

Hyundai Unicorns 5,880 4.9 2,205,000 33,994 33,994 2,205,000

NICE Pricing Services, Inc. 40,000 4.2 200,000 42,368 200,000 200,000

Tong Yang Orion Investment

Securities Co., Ltd. 1,473,000 4.1 11,716,600 - - 11,716,600

Soosan Special Purposed Vehicles 292,508 15.0 1,462,540 - - 1,462,540

ISS Co., Ltd. 153,600 2.4 1,000,000 - - 1,000,000

INNO CRAFT Co., Ltd. 420,000 11.8 900,000 - - 900,000

Dong Woo Animation Co., Ltd. 130,000 2.1 590,000 - - 590,000

Game Vil Inc. 12,574 10.5 699,960 - - 699,960

GenoTech Corp. 100,000 2.5 500,000 - - 500,000

Peptron Co., Ltd. 10,000 4.7 500,000 - - 500,000

Contela, Inc. 47,200 6.8 2,571,500 - - 2,550,000

Korea Investment Trust

Management Co., Ltd. 484,997 0.1 5,440,600 - - -

Daehan Investment Trust

Management Co., Ltd. 660,000 0.1 8,501,668 - - -

Nbiz TECHNOLOGY Co., Ltd. 5,833 1.4 1,000,000 - - -

Gigalink Co., Ltd. 315,392 5.7 1,602,092 - - -

A.Stars Entertainment Co., Ltd. 210,000 5.6 1,500,000 - - -

The Sports Seoul 21 Co., Ltd. - - - - - 2,175,000

Lightron Fiber-Optic Devices Inc. - - - - - 500,000

Pantech Net Inc. - - - - - 1,800,000

Spectrum DVD Co., Ltd. - - - - - 1,500,000

Others 22,794,375 2,237,781 1,159,599 7,862,070

100,931,416 30,955,073 21,609,388 61,447,633

￦139,546,835 ￦ 41,494,164 ￦32,148,479 ￦82,011,574


2004 2003

Percentage of Acquisition Market or Book Book Ownership Cost Net Asset Value Value Value

The Korea Stock Exchange 3.2 ￦ 2,397,105 ￦ 19,766,180 ￦ 2,397,105 ￦ 2,397,105

Securities Market Stabilization Fund 6.1 - 5,162,043 5,162,043 17,427,499

AJoo Venture Fund I 88.2 3,000,000 144,554 144,554 3,000,000

ADLP Venture Fund I 11.1 1,000,000 81,395 81,395 1,000,000

STIC IT Venture ET Fund 9.8 1,000,000 337,022 337,022 1,000,000

Hyundai Venture Investment Fund 10.0 1,500,000 731,042 731,042 1,500,000

Muhan Internet Venture Fund 10.0 1,000,000 95,361 95,361 1,000,000

Muhan Medical Venture Fund II 10.0 1,000,000 - - 1,000,000

Muhan Kosdaq Venture Fund 20.0 2,000,000 - - 2,000,000

Other 1,200,150 631,019 631,169 1,286,622

￦ 14,097,255 ￦ 26,948,616 ￦ 9,579,691 ￦ 31,611,226

(in thousands of Korean Won, except for the percentage of ownership)

During the year ended March 31, 2004, the Company recorded ￦9,679,607 thousand of loss on impairment of available-for-salesecurities, whose net asset declined significantly and are not expected to recover.The acquisition cost of Securities Market Stabilization Fund was reduced by capital payment according to the Market StabilizationFund’s notice. As of March 31, 2004, Market Stabilization Fund is recorded with amounts equivalent to the shares held onundivided retained earnings.

Stocks in foreign currency as of March 31, 2004 and 2003 consist of the following:

2004 2003

Number of Percentage of Acquisition Market or Book Book Shares Owned Ownership Cost Net Asset Value Value Value

Nikko Mi Fund 94,367,258 1.9 ￦ 985,808 ￦ 580,973 ￦ 580,973 ￦ 725,666

Japan Opportunities - 3.9 986,017 1,007,052 1,007,052 998,475

Camsight Co., Inc. 30,000 0.0 - - - -

￦ 1,971,825 ￦ 1,588,025 ￦ 1,588,025 ￦ 1,724,141

(in thousands of Korean Won, except for the number of shares owned and percentage of ownership)

Corporate Bonds as of March 31, 2004 and 2003 consist of the following:

(**) These bonds are private offering bonds and provided an allowance for doubtful account.

2004 2003

Par Acquisition Fair Book Book Value Cost Value Value Value

Unique Co., Ltd.(**) ￦ 1,079,000 ￦ 1,079,000 ￦ 1,079,000 ￦ 1,079,000 ￦ 798,434

Hyundai Petrochemical Co., Ltd.(**) 630,000 630,000 630,000 630,000 -

Hynix Semiconductor Inc. 2,750,000 2,750,000 275,000 275,000 -

￦ 4,459,000 ￦ 4,459,000 ￦ 1,984,000 ￦ 1,984,000 ￦ 798,434

Loss : allowance for doubtful account (24,730) (15,968)

￦ 1,959,270 ￦ 782,466

(in thousands of Korean Won, except for the percentage of ownership)



2004

Number of Percentage of Acquisition Net Asset Book Shares Owned Ownership Cost Value Value

Hyundai Securities America Inc. 200 100 ￦ 20,221,399 ￦ 10,251,641 ￦ 10,251,641

Hyundai Securities ASIA Ltd. 10,000,000 100 8,918,826 19,357,385 19,357,385

Hyundai Securities Europe Ltd. 11,194,635 100 19,130,104 17,944,943 17,944,943

Hyundai Research Institute 400,000 20 2,000,000 943,470 943,470

￦ 50,270,329 ￦ 48,497,439 ￦ 48,497,439


Beneficiary certificates as of March 31, 2004 and 2003 consist of the following:

Other as of March 31, 2004 and 2003 consist of the following:

2004 2003

Acquisition Fair Book Book Cost Value Value Value

Money Market Fund ￦ 278,957 ￦ 139,479 ￦ 139,479 ￦ -


2004 2003

Acquisition Fair Book Book Cost Value Value Value

Hyundai Eng. & Const. Co., Ltd. CP ￦ 20,000,000 ￦ 16,000,000 ￦ 16,000,000 ￦ -

Kohap. Corp. CP - - - 32,339

￦ 20,000,000 ￦ 16,000,000 ￦ 16,000,000 ￦ 32,339

0 0


Maturities of Corporate Bonds and Others as of March 31, 2004 and 2003 are as follows:

2004 2003

Acquisition Fair Book Book Maturity Cost Value Value Value

1 - 5 year ￦ 24,459,000 ￦ 17,984,000 ￦ 17,984,000 ￦ 830,773

0 0 3


For the year ended March 31, 2004, changes in unrealized gains and losses on valuation of available-for-sale securities are asfollows:

7. Equity-Method Investments Equity-method investments as of March 31, 2004 and 2003 consist of the following:

Balance as of Increase by Decrease by Balance as of

March 31, 2003 Valuation Disposal March 31, 2004

Unrealized losses ￦ 40,591,077 ￦ 7,365,731 ￦ 15,533,888 ￦ 32,422,920

1 8

Unrealized gains 525,140 4,983,495 - 5,508,635


2003

Number of Percentage of Acquisition Net Asset Book Shares Owned Ownership Cost Value Value

Hyundai Securities America Inc. 200 100 ￦ 20,221,399 ￦ 12,855,013 ￦ 12,855,013

Hyundai Securities ASIA Ltd. 10,000,000 100 8,918,826 22,067,665 22,067,665

Hyundai Securities Europe Ltd. 11,194,635 100 19,130,104 21,413,589 21,413,589

Hyundai Research Institute 400,000 20 2,000,000 903,613 903,613

Hyundai Investment

& Securities Co., Ltd. 38,982,314 18.4 309,422,000 - -

￦ 359,692,329 ￦ 57,239,880 ￦ 57,239,880


Changes in equity-method investments for year ended March 31, 2004 are as follows:

(*) The equity-method of accounting is applied to the most recent available unaudited financial statements of subsidiaries.

(**) The equity-method of accounting is applied to the audited financial statements of Hyundai Research Institute as of December31, 2003 for difference of balance sheet date.

8. Troubled Loans Troubled loans as of March 31, 2004 and 2003 comprise the following:

Beginning Gain(loss) on Other Ending

Balance Valuation Decrease Balance

Hyundai Securities America Inc.(*) ￦ 12,855,013 ￦ (1,628,997) ￦ (974,375) ￦ 10,251,641

Hyundai Securities ASIA Ltd. (*) 22,067,665 (996,619) (1,713,661) 19,357,385

Hyundai Securities Europe Ltd. (*) 21,413,589 (1,970,415) (1,498,231) 17,944,943

Hyundai Research Institute(**) 903,613 39,857 - 943,470

￦ 57,239,880 ￦ (4,556,174) ￦ (4,186,267) ￦ 48,497,439


2004 2003

Advance payments for the customers ￦ 53,160,472 ￦ 62,013,697

Dishonored bonds 10,801,418 12,710,534

63,961,890 74,724,231

Less : discount on present value (8,635,887) (15,350,510)

allowance for doubtful accounts (43,043,961) (31,244,606)

￦ 12,282,042 ￦ 28,129,115




As of March 31, 2004 and 2003, troubled loans, which were restructured by reorganization plans, approved by the court or agreedby creditors, comprise the following:

Date of Discount Normal Present

Approval Maturity Rate (%) Value Value Difference

Advance payments for the customers

Soosan Special Purposed Vehicles 1999. 8.20 2009.12.27 12.65 ￦ 7,711 ￦ 5,910 ￦ 1,801

Kyungnam Wool Textile Co., Ltd. 2002. 1.16 2009.12.30 11.87 3,951 2,748 1,203

Chonggu Co., Ltd. 1999. 7.13 2009.11.30 18.34 10,211 5,315 4,896

Taeil Media Co., Ltd. 1998. 9. 4 2006. 3.31 11.84 5,750 5,750 -

27,623 19,723 7,900

Dishonored bonds

Dairyung Co., Ltd. 1999. 1.16 2008.12.31 12.64 2,781 2,400 381

Samick Co., Ltd. 1999. 3.30 2008.12.31 9.0 3,521 3,166 355

6,302 5,566 736

2004 Total ￦ 33,925 ￦25,289 ￦ 8,636

2003 Total ￦ 42,654 ￦27,303 ￦ 15,351


Changes in property and equipment for the year ended March 31, 2004 are as follows:

Construction

Land Buildings Equipment Other In-Progress(*) Total

Beginning balance ￦ 84,175,700 ￦ 95,717,576 ￦ 33,627,085 ￦ 7,108,064 ￦ 7,523,961 ￦ 228,152,386

Acquisition 725,083 2,274,354 17,658,490 2,794,169 - 23,452,096

Depreciation - (2,766,398) (26,211,265) (4,468,850) - (33,446,513)

Disposal (16,000) (23,071) (187,575) (334,184) (4,383,534) (4,944,364)

Transfer 1,168,152 1,972,275 - - (3,140,427) -

Difference for foreign

currency translation - - 1,736 979 - 2,715

Ending balance ￦ 86,052,935 ￦ 97,174,736 ￦ 24,888,471 ￦ 5,100,178 ￦ - ￦ 213,216,320


9. Property and Equipment Property and equipment as of March 31, 2004 comprise the following:

2004 2003

Buildings ￦ 111,828,146 ￦ 107,614,078

Equipment 179,563,016 172,369,721

Other 29,560,516 30,194,284

320,951,678 310,178,083

Less: accumulated depreciation (193,788,293) (173,725,358)

127,163,385 136,452,725

Land 86,052,935 84,175,700

Construction-in-Progress - 7,523,961

￦ 213,216,320 ￦ 228,152,386


(*) Losses on impairment of construction in-progress, which have occurred in connection with Jung Joo-Young Stadium in Pyoung-yang, resulting from the decline in the future economic utility value below the acquisition costs amount to ￦4,383,523 thousand forthe year ended March 31, 2004.

As of March 31, 2004, depreciable assets are insured against fire and other casualty losses up to approximately ￦118,918,236thousand.

As of March 31, 2004 , the value of the Company’s land, as determined by the local government in Korea for property taxassessment purposes, are ￦80,480,217 thousand.

10. Intangible Assets Intangible assets as of March 31, 2004 comprise the following :

The amortization expense of intangible assets for the year ended March 31, 2004 is included in general and administrativeexpenses.

11. Short -Term BorrowingsShort-term borrowings as of March 31, 2004 and 2003 comprise the following:

Development costs Software Other Total

Beginning balance ￦ 10,621,897 ￦ 3,333,098 ￦ 26,813 ￦ 13,981,808

Acquisition 860,117 2,086,886 - 2,947,003

Amortization (5,687,765) (1,562,694) (8,250) (7,258,709)

Ending balance ￦ 5,794,249 ￦ 3,857,290 ￦ 18,563 ￦ 9,670,102


Annual Interest Rates (%)

2004 2004 2003

Call money - ￦ - ￦ 180,000,000

General term loans - - 20,000,000

Borrowings from Korea Securities Finance Corporation - - 129,700,000

Others - - 70,000,000

￦ - ￦ 399,700,000


12. Deposits from customersDeposits from customers as of March 31, 2004 and 2003, comprise the followings:

2004 2003

Customers’ deposits for brokerage ￦ 917,327,998 ￦ 1,185,625,478

Customers’ deposits for futures and options trading 66,931,309 74,102,829

Customers’ deposits for subscriptions - 8,250,500

Customers’ deposits for savings 41,702,347 61,707,748

Customers’ deposits for Repo 67,111 67,112

Customers’ deposits for beneficiary 19,932,057 73,003,161

Other 1,060,111 1,528,050

￦ 1,047,020,933 ￦ 1,404,284,878




13. Subordinated DebenturesSubordinated Debentures as of March 31, 2004 and 2003 comprise the following:

(*) Public offering debentures(**) Private offering, convertible debentures

The Company shall repay the debentures upon maturity, in one lump sum, but the Company shall not repay the debentures onmaturity if the CAR of the Company, as defined in RSSB, becomes less than or equal to 100% as a result of the repayment of theprincipal of the debentures. If any principal of the debentures is not paid at the scheduled maturity, 1% additional interest and initialinterest per annum shall be applied to the public offering debentures.

14. Accrued Severance BenefitsAccrued severance benefits as of March 31, 2004 consist of the following:

15. Commitments and ContingenciesThe Company has entered into the following agreements with several banks as of March 31, 2004.

(*) The maximum limit of Working Capital borrowings is limited to Deposits segregated under regulation.

Series Due date Annual Interest Rates (%) 2004 2004 2003

21th(*) 2004. 5.30 Floating rate ￦ 60,000,000 ￦ 60,000,000

22th(*) 2004. 6.24 8.3 100,000,000 100,000,000

23th(**) 2004. 7.10 8.0 30,000,000 30,000,000

24th(*) 2006. 3.31 7.5 50,000,000 -

240,000,000 190,000,000

Less: current maturities (190,000,000) -

50,000,000 190,000,000

Less: discount (114,622) (126,640)

￦ 49,885,378 ￦ 189,873,360


2004

Balance at the beginning of the year ￦ 37,747,078

Provision for severance benefits 19,828,914

Actual severance payments (10,241,509)

47,334,483

Cumulative deposits to the National Pension Fund (674,223)

Severance insurance deposits (24,343,613)

Balance at the end of the year ￦ 22,316,647


Bank Maximum Limit

Bank overdraft agreements ChoHung Bank and other bank ￦ 202,000

Working Capital borrowings Korea Securities Finance Corporation (*)

Bond Dealer borrowings Korea Securities Finance Corporation ￦ 2,000,000

Margin Finance borrowings Korea Securities Finance Corporation ￦ 265,959

Short-term Note Trading at a Discount Korea Securities Finance Corporation ￦ 410,000


As of March 31, 2004, the Company has provided four blank notes and ￦2,265,959 million of two promissory notes to Korea

Securities Finance Corporation as collateral for borrowings and contractual obligations.

The Company got a license to deal in Stock Index Futures from Financial Supervisory Commission on February 7, 2004, on

condition that the company discharges economic responsible burden as a large shareholder of Hyundai Investment & Securities

Co., Ltd. designated ailing financial institution. The Company voluntarily made a contribution, which amount to ￦205,100 million

calculated by Financial Supervisory Commission according to the Economic Responsible Burden Standards for Ailing Financial

Institutions, to the redemption fund of Deposit Insurance Fund Bonds. For the year ended March 31, 2004, ￦205,100 million was

recorded as non-operating expenses. As of March 31, 2004, the above burden charge may vary with the result of due diligence to

the Hyundai Investment & Securities Co., Ltd.. The accompanying financial statements do not reflect any uncertainties as the


The Company has been named as a defendant or a plaintiff in various legal actions arising from the normal course of business. As

of March 31, 2004, the aggregate amounts of claims as the defendant and the plaintiff amounted to approximately ￦21,845 million

in 14 cases and ￦307,671million in 30 cases, respectively, including cases mentioned below. The accompanying financial

statements do not reflect any uncertainties as the ultimate result cannot presently estimated.

The Company brokered the sell-off of stocks issued by Hyundai Investment & Securities Co., Ltd.(“HIS”) from Hynix Semiconductor

Inc. (“HYNIX”) to Canadian Imperial Bank of Commerce(“CIBC”) on June 4, 1997. In this regard, Hyundai Heavy Industries Co.,

Ltd.(“HHI”) entered into an agreement that CIBC had put options on the above stocks based on the memorandum provided by the

Company and HYNIX. Pursuant to the agreement, HHI bought 13,000,000 shares issued by HIS at the price of US$220 million on

July 24, 2000, as CIBC exercised its put option. With regard to compensation for the above trade, HHI filed a suit against the

Company and HYNIX. With regard to the above litigation, the Seoul District Court gave a decision that the Company, in solidarity

with HYNIX, had to compensate ￦171,822 million to HHI on January 25, 2002. Therefore, the Company paid ￦97,256 million on

April 17, 2002 and recorded as a loss. The Company appealed against the decision of the Seoul District Court on February 15,

2002 and this case is still pending in the court. The accompanying financial statements do not reflect any uncertainties as the


The Company made a contract that the Company bought the Class A Note (par value : US$50,000,000) issued by Seneca Funding

I, for cash of US$7,500,000 and on credit of US$42,500,000 with Paine Webber-US in place of Tong Yang Investment Bank

(“TYIB”) on May 13, 1999. In connection with this contract, Paine Webber-US required a collateral, and TYIB gave bond with

warrant (par value : US$10,000,000) issued by Korea Data Systems Co., Ltd.(“KDS Securities”) to the Company as a collateral,

and the Company gave this bond with warrant to Paine Webber-US as a collateral. On November 30, 2000, Paine Webber-US

required the Company to repay borrowings and the Company required TYIB to repay borrowings. But TYIB denied borrowings, and

the Company gave Paine Webber-US US$10,000,000 instead of TYIB and received KDS Securities. In this regard, the Company

has filed a suit against TYIB for an uncollected amount, and TYIB has filed a suit against the Company for compensation. On

September 26, 2002, Seoul District Court gave a decision that the Company make over KDS Securities to TYIB and TYIB paid the

uncollected amount of ￦5,507 million. The Company and TYIB appealed to Seoul High Court, as of November 5, 2002, and

October 30, 2002, respectively. On February 10, 2004, Seoul High Court gave a decision that the Company made over KDS

Securities and pay ￦10,075 million to TYIB, and the Company’s claim was rejected. On February 16, 2004, the Company made a

provisional payment which amount up to ￦13,958 million, and as of March 4, 2004, the Company gave the converted KDS

Securities to TYIB. On February 26, 2004, the Company brought a final appeal to Supreme Court and this case is still pending in

the court. The Company recorded the provisional payment of ￦13,958 million as non-operating expenses and provided an

allowance for other account receivables which amount up to US$10 million (￦12,952 million). Moreover, TYIB filed an additional

suit against the Company for the loss caused by provisional seizure of KDS Securities on March 17, 2003, and TYIB extended the

amount of the claim. This case is still pending in the court. The Company recorded ￦8,298 million as non-operating expense for

the claim amount and interests as of March 31, 2004. The accompanying financial statements do not reflect any uncertainties as

the ultimate result cannot presently be estimated.

The Fair Trade Commission fined the Company ￦5,457 million for the brokerage of put options agreement on HIS stocks between

HHI and CIBC. The Company filed a suit against the Fair Trade Commission but lost the lawsuit on February 3, 2004 and appealed

to Supreme Court on February 17, 2004. The lawsuit is in progress. The Company has paid ￦3,667 million except for ￦1,790

million paid for the prior year, and recorded as non-operating expenses. The accompanying financial statements do not reflect any

uncertainties as the ultimate result cannot presently be estimated.



For the year ended March 31, 2004, the unrealized gains and losses recognized from the valuation of derivatives contracts consistof the following:

As of March 31, 2004, the Company provided trading securities to Korea Stock Exchange as collateral for derivatives contracts(Note 5).

As of March 31, 2004, lending and borrowing securities consist of Telson Electronics Co., Ltd.’s stocks amounting to ￦2,977,134thousand and INI Steel’s stocks amounting to ￦1,440,000 thousand.

In common with certain other Asian countries, the economic environment in the Republic of Korea continues to be volatile. Inaddition, the Korean government and the private sector continue to implement structural reforms to historical business practicesincluding corporate governance. The Company may be either directly or indirectly affected by these volatile economic conditionsand the reform program described above. The accompanying financial statements reflect management’s assessment of the impactto date of the economic environment on the financial position and results of operations of the Company. Actual results may differmaterially from management’s current assessment.

16. Paid-in capital increase The Company issued 32,158,482 shares of common stock at ￦5,000 per share on February 24, 2004, by the decision of Board ofDirectors on December 26, 2003, and ￦869,488 thousand of new stock issuance costs were offset against additional paid-incapital.

17. Retained Earnings(Accumulated Deficit)Retained earnings(accumulated deficit) as of March 31, 2004 and 2003 comprise the following:

(A) The Korean Commercial Code requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10%of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment ofcash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any.

(B) In accordance with the revised Korean Securities and Exchange Act as of January 26, 2002, the Company reverses the reservefor losses on securities transactions equally over 3 year periods from the year ended March 31, 2002. The reversed amounts will beadded to the unappropriated retained earnings.

Amount of Unrealized gains

Unsettled contracts (losses) Trading purpose

Foreign currency futures ￦ 4,999,050 ￦ 114,950 Dealing

Stock index futures 116,237 (187) Dealing

Option purchased 224,052 (30,052) Dealing

Option sold 487,969 178,436 Dealing


Reference 2004 2003

Appropriated retained earnings

Legal reserve (A) ￦ 5,430,148 ￦ 5,430,148

Reserve for losses on securities transactions (B) 13,718,625 27,437,250

Voluntary reserves 39,991,979 86,017,671

59,140,752 118,885,069

Undisposed accumulated deficit (211,740,855) (73,318,605)

￦ (152,600,103) ￦ 45,566,464


18. Disposition of deficitDisposition of deficit in the last two years consist of the following:

(*) Approval date of disposition by the general shareholders’ meeting

19. Treasury StockThe Company holds 2,815,870 shares of its common stock as of March 31, 2004 and intends to sell the shares in near future.

20. Income TaxesIncome tax expense (benefit) for the years ended March 31, 2004 and 2003 are as follows:

The reconciliation of net loss before income taxes and taxable income for the years ended March 31, 2004 and 2003 are as follows :

2004. 5.28(*) 2003. 5.30(*)

Reserve for loss on securities transactions ￦ 13,718,625 ￦ 13,718,625

Voluntary reserves 39,991,979 46,025,692

Legal reserve 5,430,148 -

Other surplus capital 49,594,860 -

Additional paid-in capital 103,005,243 -

￦ 211,740,855 ￦ 59,744,317


2004 2003

Current income taxes ￦ - ￦ 1,224,139

Deferred income taxes

Change in cumulative temporary Differences (55,465,238) (17,782,954)

Change in cumulative tax deduction carryforwards 83,814,233 -

Contribution to provisions for doubtful account (68,245,000) -

Income tax expense (benefit) ￦ 39,896,005 ￦ (16,558,815)


2004 2003

Net loss before income taxes ￦ (158,270,563) ￦ (75,172,912)

Changes in permanent differences 5,841,326 19,416,714

Changes in temporary differences (152,349,792) 59,922,322

Taxable income ￦ (304,779,029) ￦ 4,166,124




21. Loss Per ShareBasic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during theyear. Basic ordinary loss per share is computed by dividing ordinary loss allocated to common stock, which is net loss allocated tocommon stock as adjusted by extraordinary gains or losses, net of related income taxes, by the weighted average number ofcommon share outstanding during the year.

Components of deferred income tax asset as of March 31, 2004 and 2003 are as follows:

Management has reassessed the estimated future taxable income and has concluded that it is almost certain that the Company willnot realize the full benefit of deferred tax assets. Accordingly, a valuation allowance amounting to ￦68,245 million has beenrecorded as of March 31, 2004.

Available tax loss carryforward as of March 31, 2004 comprise the following(in thousands of Korean Won):

2004 2003

Beginning Increase Ending Deferred Income Deferred Income balance (decrease) balance Tax Asset Tax Asset

(Liability) (Liability)

Accrued severance benefits ￦ 3,305,511 ￦ 9,238,599 ￦ 12,544,110 ￦ 3,449,630 ￦ 981,737

Allowance for doubtful accounts 9,640,239 234,487 9,874,726 2,715,550 2,863,151

Available-for-sale securities 331,542,867 (256,171,681) 75,371,186 20,727,077 98,468,232

Trading securities 135,520,336 (83,807,025) 51,713,311 14,221,160 40,249,540

Discount on Present Value 15,350,510 (6,714,623) 8,635,887 2,374,869 4,559,101

Gain on distribution of payment in kind45,955,578 (45,955,578) - - 13,648,807

Equity-method investments 13,389,270 (10,914,913) 2,474,357 680,448 3,976,613

Advertisement cost 8,576,543 (158,956) 8,417,587 2,314,836 2,547,233

Other extraordinary losses 97,257,028 - 97,257,028 26,745,683 28,885,337

Accrued revenue (5,773,812) 1,636,152 (4,137,660) (1,137,857) (1,714,822)

Responsible allotment as

large shareholders - 201,681,667 201,681,667 55,462,458 -

Other non-operating expenses - 28,936,631 28,936,631 7,957,574 -

Deposits segregated under regulation(12,819,492) 9,493,516 (3,325,976) (914,643) (3,807,389)

Collective fund for default loss (470,989) - (470,989) (129,522) (139,884)

Others (15,912,125) 151,932 (15,760,193) (4,334,054) (4,725,901)

625,561,464 (152,349,792) 473,211,672 130,133,209 185,791,755

Tax loss carryforward - 304,779,029 304,779,029 83,814,234 -

213,947,443 185,791,755

Less: Valuation allowance (68,245,000) -

￦ 145,702,443 ￦ 185,791,755


Occurring Beginning Ending Due

Date balance Increase balance Date

2004. 3.31 ￦ - ￦ 304,779,029 ￦ 304,779,029 2009. 3.31


Basic ordinary loss per share for the years ended March 31, 2004 and 2003 are calculated as follows:

(*) Computed based on the effective tax rate.

Basic loss per share for the years ended March 31, 2004 and 2003 are calculated as follows:

Diluted loss per share is not calculated since there are no diluted securities outstanding as of March 31, 2004 and 2003.

22. Transactions with Related PartiesSignificant transactions with related parties for years ended March 31, 2004 and 2003 and the related receivables and payables asof March 31, 2004 and 2003 are as follows:

23. Restatement of prior year financial statementsThe accompanying financial statements as of and for the year ended March 31,2003 have been restated to correct an error onvaluation of trading securities. The effect of the restatement was to increase net income for the year ended March 31,2003 by￦1,130,219 thousand and decrease retained earnings at the beginning of the year ended March 31,2003 by ￦1 3 , 5 7 4 , 1 8 8thousand.

2004 2003

Net loss as reported on the Statement of income ￦ 198,166,567,336 ￦ 58,614,097,554

Less: Extraordinary loss - (1,026,782,126)

Add : Income tax(*) - 304,954,291

Ordinary loss allocated to common stock 198,166,567,336 57,892,269,719

Weighted average number of common shares outstanding (in shares) 107,559,503 106,814,448

Basic loss per share ￦ 1,842 ￦ 542


2004 2003

Net loss as reported on the statement of income ￦ 198,166,567,336 ￦ 58,614,097,554

Weighted average number of common shares outstanding (in shares) 107,559,503 106,814,448

Basic loss per share ￦ 1,842 ￦ 549


Revenues Expenses Receivables Payables

Hyundai Investment & Securities Co., Ltd. ￦ 52,593 ￦ 38,599 ￦ 814,000 ￦ 2,000,000

Hyundai Information Technology Co., Ltd. - 6,881,844 - -

Hyundai Merchant Marine Co., Ltd. 27,000 7,835 - -

Hyundai Research Institute - 859,684 539,000 -

Hyundai Elevator Co., Ltd. - 61,203 - -

Hyundai Logistics Ltd. - 572,008 - -

Hyundai Asan Corporation - 317,613 - -

Hyundai Securities Europe Ltd. - 1,019,124 - 79,000

Hyundai Securities Asia Ltd. - 3,205,913 - 273,000

Hyundai Securities America Inc. - 1,090,109 - 63,000

2004 Total ￦ 79,593 ￦ 14,053,932 ￦ 1,353,000 ￦ 2,415,000

2003 Total ￦ 60,593 ￦ 13,593,080 ￦ 814,000 ￦ 1,500,000




Prior period adjustments as of and for the year ended March 31, 2003 are as follows:

Ordinary net income(loss) and net income(loss) for the years ended March 31, 2003 and 2002, which were recalculated to reflectthe above prior period adjustments, are as follows :

24. Supplemental Cash Flow InformationSignificant transactions not affecting cash flows for the year ended March 31, 2004 are as follows :

before adjustment after adjustment

Trading securities ￦ 693,811,449 ￦ 674,502,363

Deferred income tax assets 180,056,956 185,791,755

Retained earnings 59,744,317 73,318,605

Gain on valuation of trading securities 9,150,257 10,757,965

Income tax benefit 17,036,304 16,558,815

Net loss 59,744,317 58,614,098


2003 2002

Gain(loss) valuation of trading securities ￦ (10,757,965) ￦ 188,357,913

Income tax benefit (expense) (16,558,815) 11,930,942

Ordinary net income(loss) (74,146,130) 112,705,875

Net income(loss) (58,614,098) 4,492,730

Ordinary net income(loss) per share(in Korean Won) (542) 943

Net income(loss) per share(in Korean Won) (549) 42

(in thousand of Korean Won except for ordinary net income(loss) per share and net income( loss) per share)

2004

Transfer from construction in progress to other accounts ￦ 3,140,427

Current maturities of subordinated debentures 190,000,000

Decrease in unrealized loss on valuation of available-for-sale securities 8,168,157

Increase in unrealized loss on valuation of available-for-sale securities 4,983,495

Transfer from trading securities to available-for-sale securities 21,182,800

Retirement of troubled loans and others 9,183,551


25. Supplementary Information for Computation of Value AddedThe accounts and amounts needed for the computation of value added for the years ended March 31, 2004 and 2003 are asfollows:

26. Securities in CustodyAs of March 31, 2004 and 2003, the securities in custody which are owned by the customers related are as follows:

27. Subsequent eventsThe financial statements as of and for the year ended March 31, 2004 will be actually finalized by the Board of Directors’ approvalon May 4, 2004.

2004 2003

Salaries and wages ￦ 113,129,019 ￦ 128,601,880

Severance benefits 19,828,914 12,281,320

Employee fringe benefits 39,346,116 33,727,787

Rents 12,643,823 14,799,382

Depreciation 33,446,513 45,301,155

Amortization 7,258,709 7,976,040

Taxes and dues 8,134,161 17,331,268


2004 2003

Trustor securities in custody ￦ 17,178,093,340 ￦ 14,172,893,491

Saver securities in custody 163,080,805 217,710,336

Beneficiary securities in custody 6,545,782,202 6,856,979,373



Kim Ji Wan President & CEO

Kang Dae Wha Auditor

Kim Joong WoongInside Director

Noh Jeong Ik Inside Director

Jeon Jae Joong Outside Director

Shin Woo Bum Outside Director

Whang Kyung Tac Outside Director

Ryou Pyung Yeul Outside Director

Ha Seung Soo Outside Director

Noh Chi Yong Senior Managing Director

Kang Yun Jae Senior Managing Director

Lee Dae Young Managing Director

Board of Directors

Managing Directors

Organization ChartBoard of Directors & Managing Directors

58 HYUNDAI SECURITIES | FY2003 ANNUAL REPORT

Shareholder’s Information

Shareholder’s Information

Head Office

#34-4, Youido-dong, Yongdungpo-ku

Seoul, Korea, 150-735

Tel : 822-768-0114

Fax : 822-783-9746

Established

June 1, 1962

Network

135 domestics and 5 overseas

Number of Employees

2,439 (as of March 31, 2004)

Stock Issued

139,353,423(Common stock)

Shareholder’s Equity

1,145 billion Won

Major Shareholders

Hyundai Merchant Marine 12.79%

Homepage

www.youfirst.co.kr

Overseas Network

HYUNDAI SECURITIES (AMERICA) INC.

1370 Avenue of the Americas, Suite 2200,

NY, NY10019, U.S.A.

Phone: 1-212-265-2881

Fax:1-212-265-2676

HYUNDAI SECURITIES (EUROPE) LTD.

Neptune House, Triton Court

14 Finsbury Square, London, EC 2A1BR, U.K.

Phone: 44-20-7786-8601(General), 44-20-7786-8600(Dealer)

Fax: 44-20-7786-8620

HYUNDAI SECURITIES (ASIA) LTD.

Suite 3603, One Exchange Square

8 Connaught Place, Central, Hong Kong, China

Phone: 852-2869-0559

Fax: 852-2521-5215

HYUNDAI SECURITIES Tokyo Branch

6th Floor, ASK Bldg., 3-12-2, Nihonbashi, Kayaba-cho

Chuo-ku, Tokyo, 103-0025, Japan

Phone: 81-3-3661-3711

Fax: 81-3-3661-9622

HYUNDAI SECURITIES Shanghai Representative Office

Rm. 1405 North Stock Exchange

Mansion 528 Pudong Rd.,

South Shanghai, China, 200120

Phone: 86-21-6881-7007~8

Fax: 86-21-6881-7778

Investor Relations contacts

Strategic Business Planning Team / IR

#34-4, Youido-dong, Yongdungpo-ku, Seoul, Korea, 150-735

Tel : 82-2-768-0155

Fax : 82-2-783-9746

Mail : [email protected]

Information via the Internet

Internet World Wide Web users can access Hyundai Securities’s

annual Report and other financial report as well as press release

on Hyundai Securities through : http://www.youfirst.co.kr

ALL HYUNDAI SECURITIES PRODUCTS MENTIONED IN THIS PUBLICATION ARE THE PROPERTY OF HYUNDAI SECURITIES. Produed by Seoul IR Consulting, Inc.

hyundai securities co., ltd. | fy2003 annual report

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