INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders Tokyu Construction Co., Ltd. We have audited the accompanying consolidated balance sheets of Tokyu Construction Co., Ltd. and consolidated subsidiaries as of 31st March 2002 and 2003, and the related consolidated statements of operations, shareholdersﾕ equity, and cash flows for the years then ended, all expressed in yen. These financial statements are the responsibility of the Companyﾕs management. Our responsibility is to independently express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan. Those standards, procedures and practices 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 managements, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respect, the consolidated financial position of Tokyu Construction Co., Ltd. and consolidated subsidiaries at 31st March 2002 and 2003, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles and practices generally accepted in Japan. As described in Note 17 to the consolidated financial statements, the spin-off of the Companyﾕs construction business to TC Holdings Co., Ltd. effective 1st October 2003 was approved at the annual shareholdersﾕ meeting held on 25th June 2003 in order to respond to the current business environment in Japan and to achieve the financial independence of its construction operations. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended 31st March 2003 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 26th June 2003

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

Consolidated Statements of Operations Years ended 31st March 2002 and 2003

Consolidated Statements of Shareholders' Equity Years ended 31st March 2002 and 2003

Consolidated Statements of Cash Flows Years ended 31st March 2002 and 2003

(1) Summary of Significant Accounting Policies

(a)

Ownership On 25th February 2000, the Board of Directors of Tokyu Construction Co., Ltd. (the ﾒ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 23rd March 2000, 67.33% of the Companyﾕs shares were owned by Tokyu Corporation (the ﾒParent Companyﾓ). 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 27th March 2002, 78.32% of the Companyﾕs shares were owned by the 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 Commercial Code of Japan and in conformity with accounting principles and practices generally accepted in Japan, which may differ in certain 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 the 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 Company and its subsidiaries consider all highly liquid securities with maturities of three months or less when purchased to be cash equivalents.

(d)

Consolidation Policies The consolidated financial statements include the accounts of the Company and its subsidiaries (together, the ﾒCompaniesﾓ). 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.

(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. Certain long-term contracts whose contract price is in excess of ｴ10,000 million and contract period is longer than 24 months are accounted for by the percentage-of-completion method. Revenues from long-term contracts of the foreign subsidiaries are recorded by the percentage-of-completion method. In accordance with accounting principles generally accepted in Japan, the amount of progress billings is not deducted from the cost of the contracts until completion and the anticipated losses on contracts in process are not charged to income until completion.

(f)

Inventories Inventories are stated at cost, the determined by the identified cost method for land and housing, as adjusted for any substantial permanent decline in value, 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. ﾒOther securitiesﾓ (which means other than trading, held-to-maturity, subsidiaries and affiliates) with market value are carried at market value. The difference between the acquisition cost and the market value of ﾒOther securitiesﾓ is recognized in ﾒUnrealized holding gain (loss) on securitiesﾓ in the balance sheet. The cost of ﾒOther securitiesﾓ sold is computed based on the moving average method. Bonds with maturities of less than 1 year included in bonds held-to-maturity and Parent Companyﾕs stock are recognized in the securities account as current asset. Other securities are presented as investment securities.

(h)

Property and Equipment Property and equipment are stated at cost. The Company and most of the 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. The estimated useful lives are principally as follows: 　　Buildings and structures･････････････････････････････20 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 the temporary differences between assets and liabilities recognized for financial reporting purposes and for tax purposes. Deferred income taxes are measured by applying the currently enacted tax laws.

(j)

Accrued retirement benefits From the year ended 31st March 2001, the Company adopted a new accounting standard for retirement benefits (ﾒAccounting Standard for Retirement Benefitsﾓ issued by the Business Accounting Deliberation Council of Japan (BADC) on 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 plan assets. The transition difference of \18,836 million arising from the adoption of the new accounting standard is being amortized over 15 years. Actuarial gain or loss is being amortized by the straight-line method principally over 10 years which is within the estimated average remaining years of service of the eligible employees. Retirement and severance benefits and amounts payable for past service liabilities under the employerﾕs tax-qualified pension plan have been 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 the shareholders at the annual shareholdersﾕ meeting. According to established guidelines, the amount of such allowance is computed based upon factors determined by the position and length of service of each director or statutory auditor. The Board of Directors decided by resolution that the level of allowance payable to directors and statutory auditors 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. The Board of Directors subsequently extended this freeze until the year ended 31st March 2003 because for the same reason. The amounts payable to directors and statutory auditors under the retirement benefit plan have been included in accrued retirement benefits, the balances of which at 31st March 2002 and 2003 were \48 million and \48 million (U.S. $406 thousand), respectively.

(k)

Equity in Loss of an Affiliates For the year ended 31st March 2002, the Company estimated and accrued a loss contingency for a real estate project operated by an affiliate. The estimated loss includes the Companyﾕs share of loss which would be expected in a liquidation of the affiliate and the amount of the affiliateﾕs bank loans guaranteed. During the year ended 31st March 2003, the full amount of the accrued loss was transferred and offset against the long-term trade receivables from the affiliate.

(l)

Foreign Currency Translation All foreign monetary assets and liabilities are translated into yen amounts at the exchange rate in effect at the balance sheet date. Assets, liabilities, revenues and expenses of the overseas subsidiaries and affiliates are translated into yen amounts at the exchange rate in effect at the balance sheet date and their shareholdersﾕ equity accounts are translated into yen amounts at historical rates. Translation adjustments arising from translation of financial statements are included in foreign currency translation adjustments in shareholdersﾕ equity and in minority interests.

(m)

Derivative financial instruments The Company has entered into various derivatives transactions in order to manage certain risks arising from adverse fluctuations in interest rates. Derivative financial instruments are carried at fair value with any 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 the convenience of the readers, have been translated into U.S. dollars at \118 = U.S. $1, the approximate rate of exchange in effect on 26th June 2003. This translation should not be construed as a representation that all yen amounts could be converted into U.S. dollars at the above or any other rate.

(3) Short-term Investments and Investment Securities

(a)

Marketable securities classified as held-to-maturity debt securities and other securities at 31st March 2003 are summarized as follows:

(b)

Securities not valued at market as of 31st March 2003 are summarized as follows:

(4) Property and Equipment

Property and equipment at 31st March 2002 and 2003 was as follows:

(5) Short-term and Long-term Borrowings

Short-term borrowings mainly consisted of notes maturing within one year. The annual interest rates applicable to the borrowings outstanding at 31st March 2002 and 2003 ranged from 1.130% to 2.750%, and from 1.375% to 2.750%, respectively. The annual interest rates applicable to the long-term borrowings outstanding at 31st March 2002 and 2003 ranged from 1.03% to 3.50% and from 0.99% to 3.50%, respectively. The aggregate annual maturities of long-term borrowings maturing after 31st March 2003 are as follows: The following assets were provided as security for the borrowings at 31st March 2003: In accordance with customary business practices in Japan, substantial deposit balances (generally in the form of time deposits) are maintained with the 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 a lending bank, and that the bank 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 bank.

(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 these 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 approved a lump-sum payment plan on 1st July 2000 under which the amounts payable are determined based on the operating performance of the Company. This new lump-sum plan will be implemented effective July 2003. The retirement benefit 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 by year. The impact of this lump-sum payment plan have not been 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 at 31st March 2002 and 2003 for the Companyﾕs and the consolidated subsidiariesﾕ defined benefit plans: The components of retirement benefit expenses for the years ended 31st March 2002 and 2003 were as follows: The assumptions used in accounting for the above plans were as follows:

(7) Guarantee Deposits

Guarantee deposits at 31st March 2002 and 2003 are summarized as follows: The deposits from the golf club members are refundable to the members at the dates of their retirement from the clubs.

(8) Shareholders' Equity

(a)

The Company transferred and offset the additional paid-in capital balance of \93,095 million against the accumulated deficit in accordance with a resolution adopted at the general meeting of the shareholders held on 21st June 2002.

(b)

On 13th August 2002, the Company reduced both common stock and deferred stock by the total amount of \34,306 million in accordance with a resolution adopted at the general meeting of the shareholders held on 21st June 2002. A portion of this capital reduction, in the amount of \9,296 million was transferred and offset against the deficit and the remaining balance of \25,010 million was transferred to additional paid-in capital.

(c)

Effective 1st October 2001, the Commercial Code of Japan requires that at least 50% of the issue price of new shares be transferred to the common stock account. In accordance with this requirement, one-half of the proceeds from the new shares issued in 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 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 shareholders receive \24 per share dividend only if the holders of shares of common stock receive a dividend of \6 or more. The deferred shares have no preference and are to be treated in the same manner as common shares upon liquidation. The Company may repurchase the deferred shares at a premium of 10% of the issue price at any time beginning 5 years after the issuance date. The deferred shares may also be converted to shares of common stock at the request of the deferred shareholders. The conversion period begins either on the day after a lapse of 5 years from the issuance or on the date of the next shareholdersﾕ meeting at which the Board of Directors of the Company declare a dividend on the deferred shares. The conversion period extends through the date of the first annual shareholdersﾕ meeting held after the shareholdersﾕ meeting at which the dividend on the deferred shares was declared. Any deferred shares which are not converted during the conversion period shall be automatically converted to shares of common stock at the end of the conversion period.

(9) Land and housing

Land and housing at 31st March 2002 and 2003 are summarized as follows:

(10) Other Income

The composition of other income-other for the years ended 31st March 2002 and 2003 was as follows:

(11) Other Expenses

The composition of other expenses-other for the years ended 31st March 2002 and 2003 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, resulted in a statutory tax rate of approximately 42.1% for the years ended 31st March 2002 and 2003. The tax effects of temporary differences which gave rise to significant portions of deferred tax assets and deferred tax liabilities at 31st March 2002 and 2003 are summarized as follows: The effective tax rates reflected in the consolidated statements of operations for the year ended 31st March 2002 differ from the statutory tax rates for the following reasons:

(13) Rental Expense

Rental expenses, principally for office buildings for the years ended 31st March 2002 and 2003, totaled approximately \3,742 million and \4,060 million (U.S. $34,409 thousand), respectively.

(14) Contingent Liabilities

At 31st March 2002 and 2003 contingent liabilities for loans guaranteed by the Company amounted to \1,988 million and \4,110 million (U.S. $34,830 thousand), respectively.

(15) Derivatives

Derivative financial instruments consisted 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ﾕs Operations Manual. Exposure to interest rate risk is hedged in conformity with these regulations.

(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 the segments based on the nature of each expense.

(17) Subsequent Events

On 27th May 2003, the Board of Directors of the Company approved spin-off of its construction business to TC Holdings Co., Ltd. effective 1st October 2003. This plan was approved at the annual shareholdersﾕ meeting held on 25th June 2003 in order to respond to the recent business environment in Japan and to achieve the financial the independence of its construction operations.

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