INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders Tokyu Construction Co., Ltd. We have audited the consolidated balance sheets of Tokyu Construction Co., Ltd. and consolidated subsidiaries at 31st March, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended, all expressed in yen. Our audits were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such tests of the accounting records and other auditing procedures as we considered necessary in the circumstances. In our opinion, the consolidated financial statements referred to above, expressed in yen, present fairly the financial position of Tokyu Construction Co., Ltd. and consolidated subsidiaries at 31st March, 2002 and 2001, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles and practices generally accepted in Japan consistently applied during the periods. As described in Note 1 to the consolidated financial statements, Tokyu Construction Co., Ltd. and consolidated subsidiaries adopted new accounting standards for employees' retirement and severance benefits, financial instruments and translation of foreign currency transactions effective 1st April, 2000 in the preparation of their consolidated financial statements. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended 31st March, 2002 are presented solely for convenience of the reader. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2 to the consolidated financial statements.

Shin Nihon & Co.

Tokyo, Japan 24th June, 2002

See Note 1 to the consolidated financial statements which explains the basis of preparing the consolidated financial statements of Tokyu Construction Co., Ltd. under Japanese accounting principles and practices.

Consolidated Statements of Operations Years ended 31st March, 2001 and 2002

Consolidated Statements of Shareholders' Equity Years ended 31st March, 2001 and 2002

Consolidated Statements of Cash Flows Years ended 31st March, 2001 and 2002

(1) Summary of Significant Accounting Policies

(a)

Ownership On 25th February, 2000, the Board of Directors of Tokyu Construction Co., Ltd. (the "Company”) approved a private placement of both 367,082,516 shares of common stock at �82 ($0.67) per share and 161,291,000 shares of deferred stock at �155 ($1.27) per share for placement on 22nd March, 2000. Effective from 23rd March, 2000, 67.33% of the Company's shares are owned by Tokyu Corporation (the "Parent Company"). On 27th February, 2002, the Board of Directors of the Company approved a private placement of both 185,000,000 shares of common stock at �58 ($0.47) per share and 338,709,000 shares of deferred stock at �116 ($0.95) per share for placement on 26th March, 2002. Effective from 27th March, 2002, 78.32% of the Company's shares are owned by Parent Company.

(b)

Basis of Presentation of Financial Statements The accompanying consolidated financial statements have been prepared from the accounts maintained by the Company in accordance with the provisions set forth in the Japanese Commercial Code and in conformity with accounting principles and practices generally accepted in Japan, which may differ in some material respects from accounting principles and practices generally accepted in countries and jurisdictions other than Japan. Certain items presented in the original consolidated financial statements have been reclassified for presentation solely for convenience of readers outside Japan. In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information.

(c)

Cash Equivalents The consolidated financial statements include the accounts of the Company and its subsidiaries (together, the "Companies"). All significant intercompany accounts, intercompany transactions and unrealized profits have been eliminated in consolidation. Investments in all affiliates are accounted for by the equity method. From the fiscal year ended 31st March, 2000, because of an amendment to the Japanese accounting standards, subsidiaries or affiliates are judged based on substantial control by the Company not the percentage of shares owned. Also, that amendment requires the Company to state all assets and liabilities of consolidated at fair value at the dates of acquisition of subsidiaries.

(d)

Consolidation Policy The consolidated financial statements include the accounts of the Company and its subsidiaries (together, the "Companies"). All significant intercompany accounts, intercompany transactions and unrealized profits have been eliminated in consolidation. Investments in all affiliates are accounted for by the equity method. From the fiscal year ended 31st March, 2000, because of an amendment to the Japanese accounting standards, subsidiaries or affiliates are judged based on substantial control by the Company not the percentage of shares owned. Also, that amendment requires the Company to state all assets and liabilities of consolidated at fair value at the dates of acquisition of subsidiaries.

(e)

Method of Accounting for Construction Contracts The Company and domestic subsidiaries follow the completed-contract method for most contracts, which recognizes income only when a contract is completed. Some long-term contracts which meet certain conditions where the contract price is over \10,000 million and contract period is over 24 months are accounted for based on the percentage-of-completion method. Revenues from long-term contracts of foreign subsidiaries are recorded under the percentage-of-completion method. In accordance with generally accepted accounting principles in Japan, the amount of progress billings is not deducted from the cost of contracts until completion and anticipated losses on contracts in process are not charged to income until completion.

(f)

Inventories Inventories are stated at cost, cost being determined by the identified cost method, adjusted for any substantial and permanent decline in value for land and housing and by the average method for materials and supplies.

(g)

Short-term investments and Investments Bonds held-to-maturity are amortized or accumulated to face value. "Other securities" (which means other than trading, held-to-maturity, subsidiaries and affiliates) with market value are carried at market value. The difference between acquisition cost and book value of "Other securities" is recognized in "Unrealized holding gains on securities" in the balance sheet. The cost of "Other securities" sold is principally computed based on the moving average method. Effective 1st April, 2000, financial instruments are accounted for by a method prescribed by a statement ("Accounting Standard for Financial Instruments") issued by the Business Accounting Deliberation Council of Japan (BADC) on 22nd January, 1999. The method of valuing securities and golf memberships, the method of appropriation to the reserve for doubtful accounts and the method of valuing derivative instruments were changed. As a result, income before income taxes for the year ended 31st March 2001 increased by �185 million when compared with the amounts that would have been reported if the previous methods had been applied consistently. In accordance with the new standard, the purpose of investments in securities held at the beginning of the period was reviewed. Bonds with maturities of less than 1 year included in the Bonds Held to Maturity and Other Securities accounts were reclassified into the Securities accounts in the Current Assets section. Other securities are presented as Investment Securities. As a result of the above, Securities in the Current Assets section declined �11,342 million and Investment Securities increased by the equivalent amount.

(h)

Property and Equipment Property and equipment are stated at cost. The Company and most domestic subsidiaries compute depreciation by the declining-balance method and for buildings acquired subsequent to 1st April, 1998 by the straight-line method. Foreign subsidiaries and certain domestic subsidiaries compute depreciation by the straight-line method. Rates for depreciation are based on the estimated useful lives of the assets according to their general class, type of construction, and use. Mainly, estimated useful lives are as follows: 　　Buildings and structures･････････････････････････････38 to 65 years

(i)

Income Taxes The companies record income taxes currently payable based upon the determination of taxable income. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are measured by applying currently enacted tax laws.

(j)

Accrued retirement benefits Until the year ended 31st March, 2000, accrued retirement benefits of the Company have been partly provided by a funded pension plan. The funded pension plan covers substantially all of the Company's employees. The Company made a pension of 70% of the unfunded retirement benefit liabilities. Subsidiaries have provided 40% of the vested liabilities on a voluntary retirement basis. Effective from the year ended 31st March, 2001, the Company adopted the new accounting standard for retirement benefits ("Accounting Standard for Retirement Benefits", BADC, 16th June, 1998). In accordance with this standard, the allowance for retirement benefits for employees is provided based on the estimated retirement benefit obligation and the pension assets. As a result of the adoption of this standard, accrued retirement benefit costs increased by �567 million and income before income taxes decreased by �567 million, compared to the financial results calculated using the former method. The transition difference of �18,836 million arising from the adoption of the new accounting standard is amortized over 15 years. Actuarial gains and losses are amortized by the straight-line method principally over 10 years which is within the estimated average remaining service years of employees. Furthermore, retirement and severance benefits and amounts payable for past service liabilities under the employer's tax-qualified pension plan are included in accrued retirement benefits. While the Company has no legal obligation, it is customary practice in Japan to make lump-sum payments to directors or statutory auditors upon retirement, with the approval of shareholders at the annual shareholders' meeting. According to established guidelines, the amount of such allowance is computed based upon payment factors determined by the position and length of service as a director or statutory auditor. The Board of Directors has decided by meeting resolution that the level of allowance payable to directors should be frozen at the 31st March, 2000 level until the year ended 31st March, 2002 because the Company is in the process of implementing its reconstruction plan. Amounts payable under the plan have been provided as unfunded retirement allowances, the balances of which at 31st March, 2001 and 2002 were �294 million and �48 million (U.S. $393 thousand), respectively.

(k)

Equity in Loss of Affiliates For the year ended 31st March, 2002, the Company has estimated and accrued a loss contingency for a real estate project operated by an affiliate. The estimated loss includes the Company's share of loss which would be expected in a liquidation of the affiliate and the amount of the affiliate's bank loans guaranteed. Until the year ended 31st March, 2001, the above mentioned loss was voluntarily estimated and accrued under Allowance for Loss on Real Estate Project.

(l)

Foreign Currency Translation All foreign currency denominated assets and liabilities are translated into yen amounts at the rates of exchange in effect at the balance sheet dates, and translation gains and losses are accounted for in statement of operations. Assets and liabilities of overseas subsidiaries are translated into yen amounts at the rates of exchange in effect at the balance sheet dates. Revenue and expenses are translated into yen amounts at the average exchange rate for the fiscal year and the differences are included in the Foreign Currency Translation Adjustment account in the Shareholders' Equity section and the Minority Interest account. Effective 1st April, 2000, the translation into Japanese yen of foreign currency denominated transactions is made by the method prescribed by the statements ("Revision of Accounting Standard for Foreign Currency Denominated Transactions, BADC, 22nd October, 1999). As a result of adopting the new standard, net income before income taxes increased by �109 million.

(m)

Derivative financial instruments The Company have entered into various derivative transactions in order to manage certain risks arising from adverse fluctuations in interest rates. In accordance with a new accounting standard for financial instruments which became effective 1st April, 2000, derivative financial instruments are carried at fair value with changes in unrealized gain or loss charged or credited to operations, except for those which meet the criteria for deferral hedge accounting under which an unrealized gain or loss is deferred as an asset or a liability.

(2) U.S. Dollar Amounts

The consolidated financial statements presented herein are expressed in yen and, solely for convenience of readers, have been translated into United States dollars at the rate of �122 = U.S. $1, the approximate exchange rate at 24th June, 2002. This translation should not be construed as a representation that all amounts shown could be converted into U.S. dollars.

(3) Short-term Investments and Investment Securities

(a)

Information regarding marketable securities classified as held-to-maturity debt securities and other securities as of 31st March, 2002 is as follows:

(b)

Sales of securities classified as other securities amounted to �2,896 million ($23,738 thousand) with an aggregate gain of �818 million ($6,703 thousand) and loss of � 8 million ($69 thousand) for the year ended 31st March,2002.

(c)

Information regarding securities not valued at market as of 31st March,2002 is as follows:

(d)

The redemption schedule for securities with maturity dates classified as other securities and held-to-maturity debt securities as of 31st March, 2002 is summarized as follows:

(4) Property and Equipment

Property and equipment at 31st March, 2001 and 2002 are summarized as follows:

(5) Short-term and Long-term Borrowings

Short-term borrowings mainly include notes maturing within one year. The annual interest rates applicable to the borrowings outstanding at 31st March, 2001 and 2002 ranged from 1.375% to 1.70% and from 1.130% to 2.750%, respectively. The annual interest rates applicable to the long-term borrowings outstanding at 31st March, 2001 and 2002 ranged from 2.20% to 2.30% and from 1.03% to 3.50%, respectively. The aggregate annual maturities of long-term borrowings maturing after 31st March, 2002 are as follows: The following assets are provided as security for loans payable at 31st March, 2002: In accordance with customary business practices in Japan, substantial deposit balances (generally in the form of time deposits) are maintained with banks from which the Company has borrowings. Withdrawal of such deposits is not legally restricted. As is customary in Japan, both short-term and long-term bank borrowings are made under general agreements which provide that security and guarantees for present and future indebtedness will be given upon request of the bank, and that the banks shall have the right to offset cash deposits against obligations that have become due or, in the event of default, against all obligations due to the banks.

(6) Retirement Benefit Plans

The Company and its domestic consolidated subsidiaries have defined benefit plans (tax-qualified pension plans and lump-sum payment plans) covering substantially all employees. Under the plans, employees are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. In addition, the Company has approved a lump-sum payment plan on 1st July, 2000 under which the amounts payable are determined by the operating performance of the Company. The new lump-sum plan will be executed from July 2003. The payments to the employees will be determined based on the operating performance of the Company, but the amounts of the payments will be decreased year on year. The impact of the amounts under this lump-sum payment plan are not considered in the calculation of the retirement benefit obligation. The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets as of 31st March, 2001 and 2002 for the Company's and the consolidated subsidiaries' defined benefit plans: The components of retirement benefit expenses for the years ended 31st March, 2001 and 2002 are as follows: The assumptions used in accounting for the above plans were as follows:

(7) Guarantee Deposits

Guarantee deposits at 31st March, 2001 and 2002 are summarized as follows: Deposits from members of golf clubs are refundable to the members at the dates of retirement from such golf clubs.

(8) Shareholders' Equity

(a)

Effective from 1st October, 2001, the Japanese Commercial Code requires that at least 50% of the issue price of new shares be transferred to the common stock accounts. In accordance with this requirement, one half of proceeds from the new shares issued based upon the private placement on 27th March 2002 was transferred to the common stock account and the remaining proceeds were credited to additional paid-in capital. The Company issued both 161,291,000 shares on 23rd March, 2000 and 338,709,000 shares on 27th March 2002 of redeemable, voting deferred stock without par value. The deferred shares receive �24 per share dividend only if the common shares receive a dividend of �6 or more. The deferred shares have no preference and are treated the same as common shares on liquidation. The Company may repurchase the deferred shares at a 10% premium to the issue price at any time beginning 5 years after the issuance date. The deferred shares may also be converted to common shares at the request of the deferred shareholders. The conversion period begins from the earlier of the date after a lapse of 5years from the issuance or the next shareholders' meeting at which the board of directors of the Company shall declare a dividend for the deferred shares. The conversion period extends through the date of the first annual shareholders' meeting held after the shareholders' meeting declared the dividend for the deferred shares. The deferred shares that are not converted during the conversion period shall be automatically converted to common shares at the end of the conversion period.

(b)

On 11th August, 2000, the Company reduced Common stock by an amount of � 19,022 million, representing the excess over par value of all common stock, and transferred �19,022 million to Additional Paid in Capital by a resolution of the general meeting of stockholders held on 27th June, 2000.

(9) Land and housing

Land and housing at 31st March, 2001 and 2002 are summarized as follows:

(10) Other Income

The composition of other income-other for the years ended 31st March, 2001 and 2002 was as follows:

(11) Other Expenses

The composition of other expenses-other for the years ended 31st March, 2001 and 2002 was as follows:

(12) Income taxes

The Company and its consolidated subsidiaries are subject to a number of taxes based on income which, in the aggregate, result in a normal tax rate of approximately 42.1% for the year ended 31st March, 2001 and 2002, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at 31st March, 2001 and 2002 are as follows: The effective tax rates reflected in the consolidated statements of operations for the years ended 31st March, 2001 and 2002 differ from the statutory tax rates for the following reasons:

(13) Rental Expense

Rental expense, principally for office buildings for the years ended 31st March, 2001 and 2002 was approximately �4,135 million and �3,742 million (U.S. $30,670 thousand), respectively.

(14) Contingent Liabilities

At 31st March, 2001 and 2002 contingent liabilities for loans guaranteed by the Company amounted to �539 million and �1,988 million (U.S. $16,299 thousand), respectively. Receivables sold during 1999 with recourse amounted to �11,851 million. At 31st March, 2001 and 2002, �3,712 million and �1,657 million (U.S. $13,579 thousand) of receivables sold remained uncollected, respectively.

(15) Derivative Transactions

Derivative financial instruments are comprised principally of interest rate swaps to reduce interest rate risks. The Company and its subsidiaries do not hold or issue financial instruments for trading purposes.

(a)

Hedge accounting Deferred hedge accounting is used in principle. Special hedge accounting is applied for interest rate swaps that meet criteria for qualification for special hedge accounting.

(b)

Hedging methods and risks hedged Hedging method: interest rate swaps Risks hedged: loans payable

(c)

Hedging policy Rules regarding authority to enter into derivative transactions are defined in the Company's Operations Manual. Exposure to interest rate risk is hedged in conformity with these regulations.

(d)

Assessing the effectiveness of a hedge Rate of changes in the cash flows from hedging instruments and the risks hedged over their respective lapsed periods are used as the yardsticks for measuring the effectiveness of the hedge. The contract amounts of derivative financial instruments are not a measure of the exposure of the Company through its use of derivative financial instruments. The Company is exposed to the risks of credit related losses in the event of non-performance by counterparties to interest rate swaps but it is not expected that any counterparties will fail given their high credit ratings. Interest rate swap contracts are generally used by the Company to offset changes in the rates paid/received.

(16) Segment Information

The Company and its consolidated subsidiaries operate in two business segments, as indicated below. Certain corporate administrative expenses have been allocated to segments based on the nature of the expense.

(17) Subsequent Events

On 24th May, 2002, the Board of Directors decided to introduce a resolution of capital reduction by an amount of \34,306 million into the annual shareholders' meeting. The Company approved the capital reduction by the amount of \34,306 million at the annual shareholders' meeting held on 21st June, 2002.

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