Yen Trading - How to Calculate the Fair Value of Investment

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1 NonConsolidated Summary Report for the Six Months ended September 30, 2001 <According to Japanese GAAP> November 26, 2001 L i s t e d C o m p a n y N a m e : M i t s u b i s h i Tokyo Financial Group, Inc. ( T h e M i t s u b i s h i Trust and Banking Corporation ( The Bank )) (Previous name: The Mitsubishi Trust and Banking Corporation) Listings: First Section of the Tokyo Stock Exchange and the Osaka Securities Exchange Code No.: 8306 Location of Head Office: Tokyo, Japan Contact: Keiichi Riko, Chief Manager of Financial Policy Division, Mitsubishi Tokyo Financial Group, Inc. TEL: Saburo Sato, Senior Chief Manager of Corporate Planning Division, The Mitsubishi Trust and Banking Corporation TEL: Date of the Board of Directors Meeting on the Settlement of Accounts: November 26, 2001 Interim Dividend System: Existent Dividend Payment Date: November 27, 2001 Performance for the Six Months ended September 30, 2001 (April 1, 2001 to September 30, 2001) ( 1 ) O p e r a t i n g R e s u l t s (All amounts are rounded down to the nearest million.) Operating Income (Yr to Yr % change) Operating Profit (Loss) (Yr to Yr % change) Millions of Yen (%) Millions of Yen (%) September 30, ,367 (7.5) (17,526) ( ) September 30, ,649 (2.7) 27,734 (11.0) March 31, ,752 11,627 Net Income (Loss) (Yr to Yr % change) Net Income (Loss) per Common Share Millions of Yen (%) September 30, 2001 (7,724) ( ) (6.55) September 30, ,736 (16.9) March 31, , Notes: 1. Number of shares (average of the beginning and ending balances) September 30, 2001: 1,302,303,109 common shares, 100,000,000 preferred shares September 30, 2000: 1,302,303,109 common shares, 100,000,000 preferred shares March 31, 2001: 1,302,303,109 common shares, 100,000,000 preferred shares 2. There is no change in accounting policy. 3. Percentage figures in operating income, operating profit (loss) and net income (loss) columns indicate increase or decrease from the previous (interim) period. 1

2 (1) Dividends September 30, 2001 Common Shares Preferred Shares September 30, 2000 Common Shares Preferred Shares March 31, 2001 Common Shares Preferred Shares Interim Dividend per Share Annual Dividend per Share (3) Financial Position Total Assets Millions of Yen Shareholders Equity Millions of Yen Equity Ratio % Shareholders Equity per Common Share March 31, 2001 March 31, ,061,916 16,682, , , Millions of Yen Millions of Yen % March 31, ,161, , Note: Number of shares outstanding at the end of term : September 30, 2001: 1,302,303,109 common shares, 100,000,000 preferred shares September 30, 2000: 1,302,303,109 common shares, 100,000,000 preferred shares March 31, 2001: 1,302,303,109 common shares, 100,000,000 preferred shares Risk Adjusted Capital Ratio (BIS) % (Sep 30,2001: Preliminary Value) % Performance for the Six Months ended September 30, 2001 (Benchmark Formulas) * Interim Net Income (loss) per Common Share = (Interim Net Income (loss) Total Dividends on Preferred Shares) / Average Number of Common Shares * Shareholders Equity per Share = Shareholders Equity at Six MonthEnd (Number of Issued Shares of Preferred Shares at Six MonthEnd) x Issuing Value / Number of Issued Shares of Common Shares at Six MonthEnd 2

3 Comparison of NonConsolidated Balance Sheet The Mitsubishi Trust and Banking Corporation September 30, 2001 and 2000, and March 31, 2001 Millions of Yen Sept. 30 Sept. 30 Increase March 31 Increase (Decrease) 2001 (Decrease) (A) (B) (AB) (C) (AC) A s s e t s : Cash and Due from Banks 775, ,114 (66,694) 751,438 23,981 Call Loans 6,817 73,688 (66,870) 85,524 (78,706) Bills Purchased 50, ,000 (80,000) 127,900 (77,900) Monetary Claims Purchased 2,978 3,494 (516) 3,508 (530) Trading Assets 404, , , ,037 (12,041) Money Held in Trust 24,606 80,787 (56,181) 78,559 (53,953) Investment Securities 5,933,753 5,161, ,800 6,033,577 (99,823) Loans and Bills Discounted 8,902,366 8,630, ,871 8,962,483 (60,116) Foreign Exchange 13,353 16,985 (3,631) 13,962 (608) Other Assets 1,294, , ,926 1,074, ,848 Premises and Equipment 169, ,084 16, ,960 1,722 Deferred Tax Assets 233, ,016 81, ,365 85,109 Customers Liabilities for Acceptances and Guarantees 587, , , ,837 (47,150) Reserve for Possible Loan Losses (337,321) (280,745) (56,575) (337,527) 205 Reserve for Possible Losses on Investment Securities (291) 291 (8) 8 T o t a l A s s e t s 18,061,916 16,682,367 1, 3 7 9, ,161,871 ( 9 9, ) L i a b i l i t i e s : Deposits 10,302,021 9,406, ,992 10,367,360 (65,338) Negotiable Certificates of Deposit 1,196, , , , ,331 Call Money 76, ,224 58,395 17,633 Payabes under Repurchase Agreements 39,999 39,999 39,999 Bills Sold 197,600 45, ,600 96, ,000 Trading Liabilities 157,436 78,893 78, ,267 37,169 Borrowed Money 434, ,423 (6,438) 435,276 (291) Foreign Exchange 26,511 45,590 (19,078) 26,784 (272) Bonds 159, ,000 (20,600) 102,200 57,200 Convertible Bonds 36 (36) 27 (27) Due to Trust Account 2,759,313 3,411,262 (651,948) 3,249,980 (490,667) Other Liabilities 1,347,778 1,052, ,493 1,248,053 99,724 Reserve for Employees Bonuses 3,474 3,474 3,474 Reserve for Retirement Benefits 6,526 18,045 (11,519) 6, Reserve for Contingencies on Loans Sold 3,552 5,811 (2,258) 3,679 (126) Acceptances and Guarantees 587, , , ,837 (47,150) Total Liabilities 1 7, 2 9 8, , 7 7 9, ,519, , 2 6 0, ,679 Shareholde r s E q u i t y : Capital Stock 292, , ,793 Capital Surplus 290, ,893 2, ,967 1,074 Retained Earnings 192, ,013 (23,925) 206,255 (14,167) Voluntary Reserves 169, ,225 (10,016) 179,225 (10,016) Unappropriated Retained Earnings at End of Year 22,879 36,787 (13,908) 27,029 (4,150) Net Income (Loss) (7,724) 21,736 (29,461) 18,420 (26,145) Unrealized Gains (Losses) on Securities Available for Sale (11,763) 106,492 (118,255) 113,777 (125,541) Total Shareholders Eq u i t y 763, ,193 ( 1 4 0, ) 901,794 ( 1 3 8, ) Total Liabilities and 18,061, ,682,367 1, 3 7 9, ,161,871 ( 9 9, ) a n d Shareholders Equity All amounts are rounded down to the nearest million. 3

4 Comparison of NonConsolidated Statement of Income The Mitsubishi Trust and Banking Corporation Six Months ended September 30, 2001 and 2000, and year ended March 31, 2001 Millions of Yen Sept. 30 Sept. 30 Increase March (Decrease) 2001 (A) (B) (AB) (C) Operating Income: 334, ,649 ( 2 7, ) 674,752 Trust Fees 41,110 31,131 9,979 78,379 Interest Income: 202, ,952 (41,312) 448,442 (Interest on Loans and Discounts) 80,784 96,907 (16,122) 205,729 (Interest and Dividends on Securities) 74,423 67,675 6, ,418 Fees and Commissions: 17,777 16,652 1,125 36,827 Trading Profits : 1,510 1, ,503 Other Business Income: 23,735 18,838 4,897 34,144 Other Operating Profits: 47,593 49,964 (2,371) 72,455 Opera ting Expenses: 351, ,914 17, ,125 Interest Expenses: 126, ,576 (37,148) 298,748 (Interest on Deposits) 65,445 61,197 4, ,826 Fees and Commissions: 2,910 2, ,816 Trading Losses: Other Business Expenses: 17,559 16,244 1,314 28,391 General and Administrative Expenses 78,119 73,161 4, ,034 Other Operating Expenses: 126,709 78,645 48, ,582 Operating Profit (Loss) ( 1 7, ) 27,734 ( 4 5, ) 11,627 Special Gains 6,358 5,312 1,046 19,071 Special Losses 2,216 2,255 (38) 4,380 Income (Loss) before Income Taxes (13,384) 30,791 (44,175) 26,318 Income Taxes Current (182) 1,367 Income Taxes Refund (11,031) 11,031 (12,649) Income Taxes Deferred (6,080) 19,482 (25,563) 19,180 Net Income (Loss) ( 7, ) 21,736 ( 2 9, ) 18,420 Unappropriated Retained Earnings Brought Forward 30,604 15,050 15,553 15,050 Interim Dividends 5,368 Transfer to Legal Reserve 1,073 Unappropriated Retained Earnings 2 2, , ( 1 3,9 0 8 ) 2 7, at E n d o f Y e a r All amounts are rounded down to the nearest million. 4

5 NonConsolidated Interim Balance Sheet The Mitsubishi Trust and Banking Corporation September 30, 2001 Millions of Yen A s s e t s : Cash and Due from Banks 775,420 Call Loans 6,817 Bills Purchased 50,000 Monetary Claims Purchased 2,978 Trading Assets 404,996 Money Held in Trust 24,606 Investment Securities 5,933,753 Loans and Bills Discounted 8,902,366 Foreign Exchange 13,353 Other Assets 1,294,100 Premises and Equipment 169,682 Deferred Tax Assets 233,475 Customers Liabilities for Acceptances and Guarantees 587,686 Reserve for Possible Loan Losses (337,321) T o t a l A s s e t s 1 8,061,916 Millions of Yen Liabilities: Deposits 10,302,021 Negotiable Certificates of Deposit 1,196,441 Call Money 76,029 Repurchase Agreement Account Sold 39,999 Bills Sold 197,600 Trading Liabilities 157,436 Borrowed Money 434,985 Foreign Exchange 26,511 Bonds 159,400 Due to Trust Account 2,759,313 Other Liabilities 1,347,778 Reserve for Employee Bonuses 3,474 Reserve for Retirement Benefits 6,526 Reserve for Contingencies on Loans Sold 3,552 Acceptances and Guarantees 587,686 Total Liabilities 1 7, 2 9 8, Shareholders Equity: Capital Stock 292,793 Capital Surplus 290,041 Retained Earnings 192,088 Voluntary Reserves 169,208 Unappropriated Retained Earnings at End of Year 22,879 Net Loss 7,724 Unrealized Losses on Securities Available for Sale 11,763 Total Shareholders Equity 763,160 Total Liabilities and Shareholders Equity 18,061,916 See accompanying Notes to NonConsolidated Interim Balance Sheet 5

6 N o t e s t o N o n Consolidated Interim Balance Sheet (As of September 30, 2001) 1. The accompanying NonConsolidated Interim Balance Sheet is compiled as required by the Banking Law and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as compared to the application and disclosure requirements of International Accounting Standards. The NonConsolidated Interim Balance Sheet is not intended to present the financial position in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. For the convenience of readers, the presentation is modified in certain respects from the original Japanese report. All amounts are rounded down to the nearest million. 2. Transactions (for Trading Purposes seeking to derive gains arising from shortterm changes in interest rates, currency exchange rates or market prices of securities as well as other marketrelated indices, or from arbitrage among markets) are reported on the NonConsolidated Interim Balance Sheet as Trading Assets and Trading Liabilities on a tradedate basis. Securities and monetary claims held for trading purposes are stated at market value at the end of the interim period. Tradingrelated derivative financial products, such as swaps, futures and options, are stated at amounts that would be received or paid for settlement if such transactions were terminated at the end of the interim period. 3. Investment securities are accounted for by the following methods: Marketable Debt Securities Being Held to Maturity are stated at amortized cost using the movingaverage cost method (straightline method). Stocks in subsidiaries and affiliated companies are stated at cost using the movingaverage cost method. Other investment securities (securities available for sale), for which market prices are available, are stated at fair value based on the market price, etc., at the end of the interim period, with prices calculated primarily by the movingaverage cost method, while those for which fair value is not available are stated at cost or amortized cost using the movingaverage cost method. Unrealized gain or loss on securities available for sale (net of tax effects) is reported in Shareholders Equity. 4. Securities held by the Bank as trust assets in individuallymanaged money held in trust accounts for the primary purpose of investing in securities are stated at fair value. 5. Derivative transactions (not including Transactions for Trading Purposes) are stated at fair value. 6. Depreciation of premises and equipment is calculated by the decliningbalance method, and estimated annual depreciation is divided proportionally over the useful life. Depreciation is based on estimated useful lives as follows: Buildings: 260 years Equipment: 220 years Effective this interim period, the Bank has changed the estimated useful life of computers from six years to four years for personal computers, excluding servers, and to five years for other computers. Due to this change, Operating Losses and Interim Losses before Income Taxes each increased 106 million. 7. Costs of computer software for internal use are amortized by the straightline method, over the estimated useful life (five years) of the assets. 8. Costs related to the issuance of corporate debentures are expensed upon payment. 9. Foreigncurrencydenominated assets and liabilities and overseas branch accounts of the Bank (parent), with the exception of stock in subsidiaries and affiliates for which amounts are translated into yen equivalents at exchange rates effective at the acquisition date, are translated into yen equivalents, primarily at the exchange rates prevailing at the end of the interim period. In the prior year, the Bank applied the New Foreign Exchange Accounting Standard, pursuant to Temporary Auditing Treatment for Continuous Application of the New Foreign Exchange Accounting Standard in the Banking Industry (the Japanese Institute of Certified Public Accountants, JICPA, April 10, 2000). However, effective this interim period, the Bank applied the revised accounting standard for foreign currency transactions ( Opinion Report Concerning Amendment of Accounting Standards Applied for Foreign Currency Transactions, issued by the Business Accounting Deliberation Council, October 22, 1999), except for the accounting treatment stipulated in Temporary Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in Banking Industry (JICPA Industry Audit Committee, Report No. 20). This change had an immaterial impact on the amounts of Investment Securities, Ordinary 6

7 Losses and Interim Loss before Income Taxes. For fundingrelated swaps, the Bank reports, on the interim balance sheet, the net yen equivalents of the notional principal amounts translated at the exchange rate prevailing at the end of the interim period, in accordance with Report No. 20 of JICPA Industry Audit Committee. The difference between spot and forward rates, which reflects the interest rate gap between different currencies, is reported on the interim statement of income on an accrual basis over the period from the spot settlement date to the forward settlement date. Fundingrelated swaps are foreign exchange swaps that are executed for the purpose of raising and investing funds in different currencies, for which the Bank records the notional principal amounts of the funds as spot exchange purchased or spot exchange sold, with the notional principal amounts plus the amounts of interest income or interest expense due at the maturity dates being recorded as forward foreign exchange purchased or forward foreign exchange sold. For cross currency swaps, which meet the following criteria indicated in Report No.20 of the JICPA Industry Audit Committee, the Bank is reporting, on the interim balance sheet, the net yen equivalents, translated using exchange rates prevailing at the end of the interim period, of the notional principal amounts, with the related interest income and interest expense being accrued and reported on the interim statement of income. Cross currency swaps mentioned above are entered into by the Bank for the purpose of raising and investing funds in different currencies, for which the notional principal amounts of the spot exchange and the forward exchange are identical, i.e. the notional principal amounts paid or received at the value date correspond to the notional amounts to be received or paid at the maturity of the swap agreements and the swap rates used for calculating principal and interest amounts of the swaps are considered reasonable (including cross currency swaps for which the principal amounts in one currency are updated at the reset dates to reflect the spot exchange rate at the reset dates and the notional principal amounts of the spot exchange and the forward exchange are identical in each reset period). 10. Reserve for Possible Loan Losses is provided as described below, in accordance with the internal rules for writeoffs of, and provision for, possible loan losses: For claims to debtors who are legally bankrupt, due to bankruptcy, special liquidation, etc. (bankrupt debtors), or who are deemed substantially bankrupt (substantially bankrupt debtors), a reserve is provided based on the amount of claims, after the chargeoff stated below, net of amounts expected to be collected through the disposal of collateral or execution of guarantees For claims to debtors who are likely to become bankrupt, a reserve is provided based on the amount considered to be necessary based on overall solvency assessment, out of the amount of claims net of amounts expected to be collected through the disposal of collateral or execution of guarantees. For claims other than those mentioned above, a reserve is provided based on historical loanloss experience. With respect to claims other than those to bankrupt debtors and substantially bankrupt debtors and for which cash flow through the recovery of principal or the receipt of interest can be reasonably estimated, a reserve is provided for the difference between the carrying value of the claim and the present value of expected future cash flows discounted at the initial contract interest rate. Reserves for loans to specific foreign borrowers (including reserves for losses on overseas investments that are allowed under Article 55 2 of the Special Taxation Measures Law) are provided based on the estimated amount of losses that could result from the political and economic situation in such countries. All claims are assessed by branches and credit divisions, based on the Bank s internal rules for selfassessment of asset quality. Asset Audit Division, which is independent from branches and credit divisions, subsequently conducts audits of the assessments, and reserves are provided based on the audit results. For secured or guaranteed claims against bankrupt debtors or substantially bankrupt debtors, the amounts of claims, net of estimated fair value of the collateral and estimated amounts that are deemed to be collectible through execution of the guarantees, are directly deducted, as estimated uncollectible amounts, from the outstanding amounts of the claims. The amounts are estimated at 235,161 million. 11. Reserve for Employee Bonuses is set aside to pay employee bonuses with respect to the portion of estimated bonus payments to employees that corresponds to the current interim period. The Bank previously recorded the accrued employee bonuses as an accrued expense under Other Liabilities. 7

8 However, effective this interim period, the Bank is reporting the amount as Reserve for Employee Bonuses, in accordance with Concerning Financial Statement Titles to Be Used for Accrued Bonuses for Employees (JICPA Research Center Review Information No. 15). As a result of this change, Other Liabilities decreased by 3,474 million, and Reserve for Employee Bonuses increased by the same amount. 12. Reserve for Retirement Benefits is provided for the amount deemed necessary, based on estimated pension benefits obligations and pension plan assets at the end of the interim period, to cover required retirement benefits for eligible employees. Unrealized Actuarial Losses are deferred and amortized ratably from the term following that in which the respective costs were generated, using the straightline method, from the following term over a fixed period (12 years) in the average remaining years of service for employees when the losses are recognized. The unrecognized net retirement benefits obligation at transition ( 15,844 million) is amortized and charged to income ratably over the fiveyear period, with the proportional amount multiplied by 6/12 and the resulting figure recorded on the books for the interim period. 13. Reserve for Contingencies on Loans Sold is provided based on the amount of estimated possible losses in the future with respect to loans collateralized by real estate sold to the Cooperative Credit Purchasing Company, Ltd., considering the fair value of the collateral of the loans. This reserve is provided in compliance with Article 2872 of the Commercial Code. 14. Finance leases, other than those under which ownership of leased assets is deemed to be transferred to a lessee, are accounted for as operating leases. 15. The Bank applies macrohedging for accounting for hedge transactions by which it manages, on a macro basis, interest rate risk arising from numerous financial assets and liabilities, such as loans and deposits. Macrohedging is a risk management tool allowed under the riskmanagement approach stipulated by the Temporary Treatment of Accounting and Auditing Concerning Application of Accounting Standards for Financial Instruments in the Banking Industry (JICPA Industry Audit Committee, Report No. 15). The Bank applies deferred hedge accounting. The Bank assesses hedge effectiveness by testing whether the risk amount of derivatives (the hedging instrument) stays within the permissible risk amount predetermined pursuant to the Bank s risk management policy, and whether the interest rate risk of the hedged items is reduced. In addition, to hedge the risk of foreign exchange rate fluctuations on foreigncurrencydenominated equity in subsidiaries and affiliates as well as other investment securities (or availableforsale securities, excluding bonds), the Bank designates, at the inception of the hedge, the names of foreigncurrencydenominated investment securities that will be hedged, based on Temporary Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in Banking Industry (JICPA Industry Audit Committee, Report No. 20), and applies deferred hedge and fairvalue hedge accounting to such foreigncurrencydenominated investment securities, to the extent that the Bank has spot and forward foreign exchange liabilities exceeding the acquisition cost of the relating securities. The Bank applies a special rule for interest rate swaps with respect to certain assets and liabilities. 16. The Consumption Tax and the Municipal Consumption Tax are excluded from amounts of transactions. However, nondeductible consumption taxes on premises and equipment are expensed in the current interim period. 17. Accumulated depreciation on premises and equipment: 93,690 million. 18. Amounts deducted from the cost of premises and equipment (based on the Corporation Income Tax Law): 8,320 million. 19. Of total loans, loans to bankrupt debtors and pastdue loans amounted to 33,251 million and 506,974 million, respectively. Loans to bankrupt debtors represent loans that are placed in a nonaccrual status (not including the chargedoff portion). NonAccrual Loans are loans for which events defined in Article 961, Subparagraphs 3 (i v) and 4 of the Enforcement Ordinance of the Corporation Income Tax Law (the Ordinance No. 97, 1965) have taken place. Loans are generally placed in a nonaccrual status based on the judgement that principal or interest is not expected to be collectible because payment of principal or interest has not been current for a considerable period of time, as well as for certain other reasons. Pastdue loans are nonaccrual loans other than loans to the bankrupt debtors or loans on which interest payments have been rescheduled to provide support to, and facilitate the 8

9 restructuring of, the debtors. 20. Loans past due more than three months totaled 382 million. Loans past due more than three months are loans on which interest or principal payments are past due for three months or more but are not included in loans to bankrupt debtors or nonaccrual loans. 21. Restructured loans totaled 314,924 million. Restructured Loans are loans, other than loans to bankrupt debtors, nonaccrual loans and loans past due for more than three months, for which the Bank has granted certain concessions to the debtors, such as a reduction of interest rates, a rescheduling of interest/principal payments, or a waiver of debts, to provide support to, and facilitate the restructuring of, the debtors. 22. The aggregate amount of loans to bankrupt debtors, nonaccrual loans, loans past due for more than three months and restructured loans amounted to 855,532 million. Loans described in Notes 19 through 22 above represent amounts before deduction of reserve for possible loan losses. 23. For loan participation transactions, transferred loans were accounted for as sales to the participants in accordance with the Accounting System Committee Report No. 3, issued June 1, 1995 by the Japanese Institute of Certified Public Accountants. Total loan principal amount of 284,576 million would have been recorded at the end of the interim period if the transactions had not been recognized as sales. 24. The face amounts of commercial bills acquired through discounting of bills totaled 34,997 million. 25. Assets pledged as collateral were as follows: Pledged Assets: Investment Securities 954,174 million Loans and Bills Discounted 157,068 million Trading Assets 39,997 million Liabilities related to the above pledged assets: Bills Sold 197,600 million Payables under Repurchase Agreements 39,999 million Payables under Securities Lending Transactions 237,429 million Other than those stated above, investment securities totaling 418,007 million and due from banks totaling 20,364 million were pledged as collateral for settlement of exchange or as a substitute for the margin deposits for futures transactions, etc. Lease Deposits of 41,352 million are included in Premises and Equipment. Initial margin for future contracts of 6,876 million are included in Other Assets. 26. Borrowed money includes subordinated borrowings of 391,700 million. 27. All bonds were subordinated bonds. 28. Trusts with contracts for compensating the principal comprised 984,669 million in money trusts (jointly operated designated money in trust) and 2,926,594 million in loan trusts. 29. When the fair values of investment securities, other than securities held for trading purposes, that have a market value or value determined reasonably, fall significantly below their respective historical costs the Bank generally considers that the fair value will be unlikely to recover up to the historical cost and applies the fair value to calculate interim balance sheet amounts, charging the unrealized losses to income for this interim period. The criteria used to determine significant decline of fair value are as follows, categorized according to classifications of issuing companies under the Bank s selfassessment standards for assets. Bankrupt debtors, substantially bankrupt debtors, and possibly insolvent debtors Debtors under close observation Pass debtors When fair values decline below historical cost When fair values decline more than 30% below historical cost When fair values decline more than 50% below historical cost 9

10 Note that bankrupt debtors are companies for which business failure has legally and formally occurred through such events as bankruptcy, special liquidation, and disposition by suspension of business through clearing houses, and substantially bankrupt debtors are companies that have essentially succumbed to business failure. Possibly insolvent debtors are companies for which the potential for business failure is deemed high, and debtors under close observation are companies that will require careful monitoring in the future. Pass debtors are companies other than those falling under the aforementioned debtor classifications of bankrupt, substantially bankrupt, possibly insolvent, and under close observation. In regard to stocks without market prices, appropriate reductions will be made when fair value declines significantly because of worsening financial performances by the respective issuing companies, and the unrealized loss will be charged to income in the interim period. The Bank considers that a significant decline of fair value has occurred if the fair value of investment securities is more than 50% lower than historical cost for securities for which individual issuing companies are classified as pass debtors or debtors under close observation pursuant to the Bank s selfassessment standard for assets and if the fair value declines below historical cost for securities for which individual issuing companies are classified as possibly insolvent, substantially bankrupt and bankrupt. 30. Information on the market value of, and unrealized gains and losses on, investment securities is presented below. The information includes trading account securities; negotiable certificates of deposit and commercial paper in Trading Assets ; negotiable certificates of deposit in Cash and Due from Banks ; and commodities investment beneficiary rights in Monetary Claims Purchased, in addition to Investment Securities. This grouping applies through Note 33. Securities Held for Trading Purposes: Carrying value at the end of the current interim period 243,168 million Unrealized loss charged to income in the current interim period 22 million Marketable Debt Securities Being Held to M a t u r i t y: (Millions of Yen) Book Market Unrealized Unrealized Unrealized Value Value Gain (Net) Gain (Gross) Loss (Gross) Municipal Bonds 122, ,503 5,586 5, Corporate Bonds 99, ,652 4,958 4,958 Other 59,324 63,532 4,207 4,207 Total 281, ,688 14,752 14, Marketable Securities Available for Sale: (Millions of Yen) Cost Book Unrealized Unrealized Unrealized Value Gain (Net) Gain (Gross) Loss (Gross) Equity Securities 1,529,402 1,427,182 (102,219) 99, ,228 Debt Securities 2,082,337 2,126,747 44,410 45, Government Bonds 1,576,669 1,608,627 31,957 32, Municipal Bonds 77,040 81,441 4,400 4,402 1 Corporate Bonds 428, ,678 8,051 8, Other 1,804,077 1,841,681 37,604 84,423 46,818 Total 5,415,816 5,395,612 (20,204) 228, ,925 Note: 11,763 million, that is sum of unrealized loss (Net) of 20,204 million and tax effects of 8,441 million is included in unrealized loss on securities available for sale in the shareholders equity. 31. Investment securities available for sale, which the Bank sold in the interim period under review, are as follows: Sale amount 1,570,399 million Gain on sales 67,655 million Loss on sales 21,602 million 10

11 32. Major components and the balancesheet amount of nonmarketable investment securities are as follows: Subsidiaries and affiliated companies Subsidiaries 30,704 million Affiliated companies 9,048 million Securities available for sale Unlisted foreign securities 87,478 million Unlisted equity securities 49,651 million Note: Unlisted equity securities do not include stocks traded on the overthecounter market. 33. Projected redemption amounts of securities available for sale with maturity dates, and debt securities being held to maturity are listed below by the remaining terms of the securities. (Millions of Yen) One Year One to Five to More than or Less Five Years 10 Years 10 Years Debt Securities 215,250 1,235, ,716 1,223 Government Bonds 73, , ,468 Municipal Bonds 11,014 76, , Corporate Bonds 130, ,845 58,536 1,104 Other 139,266 1,216, ,146 35,322 Total 354,516 2,452,402 1,516,862 36, Money held in trust comprised the following. Money held in trust for trading purposes: Carrying value at the end of the current interim period: 24,606 million Unrealized loss charged to income in the current interim period: 2,401 million 35. Investment securities loaned through unsecured loan for consumption (bond lending transactions) and bailment for consumption represented 315,193 million of Other Securities under Investment Securities. Investment securities loaned through leasing contracts represented 43 million of Government Bonds under Investment Securities. Investment securities borrowed, which have been used in cashbacked bond lending transactions, that give borrowers the right to freely dispose of such holdings through sale or repledging amounted to 29,780 million. Investment securities borrowed, which have not been loaned amounted to 148,775 million at the end of the interim period. 36. Overdraft facilities and loan commitment line contracts are agreements which, subject to compliance with contractual conditions, pledge to provide clients with funds up to a fixed limit upon submission of a loan application to the Bank. The unused amount related to such facilities/contracts stood at 2,727,024 million. Most of these agreements will expire without the clients having utilized the financial leeway available to them, and the amount of nonexecuted financing itself will not necessarily impact the Bank s future cash flow, Most of these facilities/contracts contain a clause that allows the Bank to reject an application or reduce the upper limit requested in view of changing financial conditions, credit maintenance and other reasonable concerns. When necessary, the Bank will demand collateral, such as real estate or marketable securities, at the time the agreement is made. Also, after facilities/contracts are set down, the Bank will regularly assess the business status of the client, based on predetermined internal procedures and when prudent, revise agreements and formulate measures, for example, to maintain creditworthiness. 37. Effective this interim period, the following transactions are accounted for as indicated below in accordance with accounting standards for financial instruments. (1) Sales under repurchase agreements which were accounted for as sale, are now treated as lending/borrowing transactions using the account sales under agreement to repurchase. (2) Cashbacked bond lending transactions, which were accounted for as bond lending transactions backed with cash, are now treated as lending/borrowing transactions backed with investment securities. Moreover, as a result of these changes, investment securities in custody in Other Assets, as well as borrowed securities in Other Liabilities, decreased by 178,556 million, respectively. 11

12 NonConsolidated Interim Statement of Income The Mitsubishi Trust and Banking Corporation Six Months ended September 30, 2001 Millions of Yen Operating Income: 3 3 4,367 Trust Fees 41,110 Interest Income: 202,640 (Interest on Loans and Discounts) 80,784 (Interest and Dividends on Securities) 74,423 Fees and Commissions: 17,777 Trading Profits : 1,510 Other Business Income: 23,735 Other Operating Profits: 47,593 Operating Expenses: 351,893 Interest Expenses: 126,427 (Interest on Deposits) 65,445 Fees and Commissions: 2,910 Trading Losses: 167 Other Business Expenses: 17,559 General and Administrative Expenses 78,119 Other Operating Expenses: 126,709 Operating Loss 17,526 Special Gains 6,358 Special Losses 2,216 Loss before Income Taxes 13,384 Income Taxes Current 421 Income Taxes Deferred (6,080) Net Loss 7, Unappropriated Retained Earnings Brought Forward 30,604 Unappropriated Retained Earnings at End of Year 2 2, See accompanying Notes to NonConsolidated Interim Statement of Income 12

13 N o t e s t o N o n Consolidated Interim Statement of Income (For the interim period ended September 30, ) 1. The accompanying NonConsolidated Statement of Income is compiled as required by the Banking Law and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as compared to the application and disclosure requirements of International Accounting Standards. The NonConsolidated Statement of Income is not intended to present the results of operations in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. For the convenience of readers, the presentation is modified in certain respects from the original Japanese report. All amounts are rounded down to the nearest million. 2. Transactions for trading purposes are recorded on a tradedate basis with gains or losses arising from the transactions being presented in Trading Profits or Trading Losses in the NonConsolidated Interim Statement of Income. Trading Profits and Trading Losses include: 1) Interest income received and interest expenses paid in cash in the current interim period, etc.; 2) The difference in holding gains and losses between the end of the previous fiscal year and the end of the current interim period with respect to securities, monetary claims, etc.; and 3) The difference in holding gains and losses between the end of the previous fiscal year and the end of the current interim period that are calculated based on the hypothetical closeout with respect to derivative financial products. 3. Other Operating Expenses includes 13,554 million in Loan Charge Offs, 23,158 million in Provision for Reserve for Possible Loan Losses, and 67,548 million in Losses from WriteDown of Stocks and Other Securities. 4. Other Special Gains includes 4,830 million in Gains on Disposal of Premises and Equipment. 5. Other Special Losses includes additional losses of 1,584 million, which represents amortization of unrecognized net retirement benefits obligation at transition associated with adoption of a new accounting standard for retirement benefits. 13

14 Comparison of Statement of Trust Assets and Liabilities The Mitsubishi Trust and Banking Corporation September 30, 2001 and 2000, and March 31, 2001 Millions of Yen Sept. 30 Sept. 30 Increase March 31 Increase Decrease 2001 Decrease (A) (B) (AB) (C) (AC) A s s e t s : Loans and Bills Discounted 1,290,215 1,721,839 (431,623) 1,484,986 (194,771) Securities 22,020,173 20,470,377 1,549,795 20,938,024 1,082,148 Securities Held for Securities Investment Trusts 5,026,494 (5,026,494) Securities Held for Investment Trusts 5,933,637 5,933,637 4,702,750 1,230,887 Foreign Investments Held for Securities Investment Trusts 380,188 (380,188) Foreign Investments Held for Investment Trusts 660, , ,085 84,511 Beneficiary Rights 92, ,159 (538,240) 83,113 9,805 Securities Held in Custody Accounts 470, ,332 35, ,071 49,456 Securities Lent 300 (300) Money Claims 1,897, ,309 1,138,640 1,599, ,063 Premises and Equipment 660, , , , ,795 Lease Rights 21,913 4,478 17,434 4,478 17,434 Other Claims 459, ,301 (73,130) 700,398 (241,228) Bills Bought 100 (100) Call Loans 1,665,344 1,456, ,433 1,743,161 (77,817) Due from Banking Account 2,759,313 3,411,262 (651,948) 3,249,980 (490,667) Cash and Due from Banks 786, ,218 91, , ,116 Total Assets 38,718,822 36,031,558 2,687,264 36,444,087 2,274,734 Liabilities: Money Trusts 15,235,505 14,346, ,190 14,811, ,057 Pension Trusts 6,257,142 6,095, ,465 6,327,314 (70,172) Property Formation Benefit Trusts 13,130 13,216 (86) 13,628 (498) Loan Trusts 2,252,841 3,387,790 (1,134,948) 2,825,860 (573,018) Securities Investment Trusts 6,760,690 (6,760,690) Investment Trusts 8,839,452 8,839,452 6,913,600 1,925,851 Money Entrusted Other than Money Trusts 2,603,810 2,501, ,778 2,378, ,391 Securities Trusts 633, ,473 (244,559) 777,636 (143,722) Money Claim Trusts 776, , , , ,637 Equipment Trusts 525 1,008 (482) 743 (218) Land and Fixtures Trusts 169,059 90,774 78, ,710 10,349 Other Trusts 1,937,113 1,623, ,718 1,712, ,078 Total Liabilities 38,718,822 36,031,558 2,687,264 36,444,087 2,274,734 All amounts are rounded down to the nearest million. From fiscal year ended March 31, 2001, account names has changed from Securities Held for Securities Investment Trusts to Securities Held for Investment Trusts, from Foreign Investments Held for Securities Investment Trusts to Foreign Investments Held for Investment Trusts and from Securities Investment Trusts to Investment Trusts. 14

15 Interim Statement of Trust Assets and Liabilities The Mitsubishi Trust and Banking Corporation September 30, 2001 Millions of Yen A s s e t s : Loans and Bills Discounted 1,290,215 Securities 22,020,173 Securities Held for Investment Trusts 5,933,637 Foreign Investments Held for Investment Trusts 660,596 Beneficiary Rights 92,918 Securities Held in Custody Accounts 470,528 Money Claims 1,897,949 Premises and Equipment 660,113 Lease Rights 21,913 Other Claims 459,170 Call Loans 1,665,344 Due from Banking Account 2,759,313 Cash and Due from Banks 786,949 Total Assets 38,718,822 Liabilities: Money Trusts 15,235,505 Pension Trusts 6,257,142 Property Formation Benefit Trusts 13,130 Loan Trusts 2,252,841 Securities Investment Trusts 8,839,452 Money Entrusted Other than Money Trusts 2,603,810 Securities Trusts 633,913 Money Claim Trusts 776,326 Equipment Trusts 525 Land and Fixtures Trusts 169,059 Other Trusts 1,937,113 Total Liabilities 38,718,822 See accompanying Notes to Statements of Trust Assets and Liabilities. 15

16 Notes to Interim Statement of Trust Assets and Liabilities (As of September 30, 2001) 1. Amounts less than one million yen are rounded down to the nearest million. 2. Joint trust assets under the management of other companies: 11,216,131 million. 3. Loans in trusts with contracts for compensating the principal amounted to 1,088,679 million. Of this amount, loans to bankrupt debtors, past due loans, loans past due more than three months and restructured loans amounted to 7,589 million, 18,270 million, 1,074 million and 44,884 million, respectively, and 71,818 million in total. Supplemental Data (As of September 30, 2001) The component items of trusts with contracts for compensating the principal, including trusts for which the beneficiary interests are reentrusted for investing in trust assets, are presented below. Money Trusts (Jointly Operated Designated Money in Trust) Millions of Yen Assets: Loans and Bills Discounted 282,754 Securities 181,371 Other 521,841 T o t a l 985,968 Liabilities: Principal 984,669 Reserve for Possible Loan Losses 858 Other 440 T o t a l 985,968 Note: Amounts less than one million yen are rounded down to the nearest million. Loan Trusts Millions of Yen Assets: Loans and Bills Discounted 805,924 Securities 376,200 Other 1,785,822 T o t a l 2,967,947 Liabilities: Principal 2,926,594 Special Reserve Funds 15,807 Other 25,545 T o t a l 2,967,947 Note: Amounts less than one million yen are rounded down to the nearest million. 16

17 Financial Highlights The Mitsubishi Trust and Banking Corporation September 30, 2001 and 2000, and March 31, 2001 Millions of Yen S e p t. 3 0 Sept. 30 Increase March 31 Increase (Decrease) 2001 Decrease (A) (B) (AB) (C) (AC) T o t a l F u n d s 3 5, 2 5 7, , 9 0 0, , 3 5 6, , 2 5 5, , Deposits 10,302,021 9,406, ,992 10,367,360 (65,338) Negotiable Certificates of Deposit 1,196, , , , ,331 Money Trusts 15,235,505 14,346, ,190 14,811, ,057 Pension Trusts 6,257,142 6,095, ,465 6,327,314 (70,172) Property Formation Benefit Trusts 13,130 13,216 (86) 13,628 (498) Loan Trusts 2,252,841 3,387,790 (1,134,948) 2,825,860 (573,018) Loans and Bills Discounted 1 0, 1 9 2, , 3 5 2, ( 1 5 9, ) 1 0, 4 4 7, ( 2 5 4, ) Banking Account 8,902,366 8,630, ,871 8,962,483 (60,116) Trust Account 1,290,215 1,721,839 (431,623) 1,484,986 (194,771) Investment Securities 2 7, 9 4 8, , 6 3 2, , 3 1 5, , 9 7 1, , Note: Amounts less than one million yen are rounded down to the nearest million. 17

18 The Mitsubishi Trust and Banking Corporation 1 Performance for the Six Months ended September 30, 2001 (April 1, 2001 to September 30, 2001) (1) Financial Result (Nonconsolidated) (Millions of Yen) September 30, 2001 September 30, 2000 (A) Change (AB) (B) Gross Operating Profit 139,837 10, ,823 (Gross Operating Profit before Trust Account WriteOffs) (Note 1) 150,178 (2,694) 152,872 Trust Fees 41,110 9,979 31,131 Trust Fees before Trust Account WriteOffs (Note 1) 51,452 (2,727) 54,180 Loan Trusts and Money Trusts (Jointly Operated Designated Money in Trust) before Trust Account WriteOffs) (Note 1) 33,052 (2,123) 35,176 Other Trust Fees 18,399 (603) 19,003 1.Credit Costs for Trust Account (Note 2) 10,341 (12,707) 23,049 Loan Losses Writtenoff 7,423 (5,486) 12,909 Loss on Sale to CCPC 2,600 (6,739) 9,339 Loss on Sale of PastDue Loans 318 (481) 799 Interest Income 76,340 (4,283) 80,623 Fees and Commissions 14, ,365 Trading Profit 1, ,110 Other Operating Profit 6,176 3,582 2,594 Gains (Losses) on bonds 2,487 2,998 (511) General and Administrative Expenses Personnel Cost 75,158 3,140 72,018 31,342 (474) 31,817 40,862 3,784 37,077 2,953 (170) 3,123 Equipment and Occupancy Expenses Income Taxes Net Business Profit before Trust Account WriteOffs (before Transfer to General Reserve) (Note 3) 75,020 (5,834) 80, Transfer to General Reserve (4,843) (36,596) 31,752 Net Business Profit 69,522 43,470 26,052 Other Income (Loss) (87,049) (88,730) 1, Credit Costs for Banking Account 41,874 18,650 23,224 Loan Losses Writtenoff 13,554 (9,081) 22,636 Transfer to Specific Reserves 28,949 29,538 (589) Loss on Sale of Loans to CCPC (216) 216 Loss on Sale of PastDue Loans Reserve for Contingent Liabilities related to Loans Sold Transfer to Reserve for Account for Specified Overseas Debt (1,373) (765) (607) Other Losses Incurred from Sales of Loans 208 (1,011) 1,219 Gains (Losses) on Sales and Devaluation of Stocks and Others (37,130) (64,090) 26,959 Loss on Devaluation 67,548 57,418 10,129 Others (8,043) (5,989) (2,053) Operating Profits (17,526) (45,260) 27,734 Special Gains (Losses) 4,142 1,085 3,056 Recovery of Loans Charges Off 1,528 (1,262) 2,790 Gains (Losses) on Disposition of Premises and Equipment Expenses for Retirement Benefits 4,198 3, ,584 (0) 1,584 Income (Loss) before Income Taxes (13,384) (44,175) 30,791 Income Taxes Current 421 (182) 603 Income Tax Refund 11,031 (11,031) Income Taxes Deferred (6,080) (25,563) 19,482 Net Income (7,724) (29,461) 21,736 Total credit costs ( ) 47,372 (30,654) 78,026 Notes 1 Amounts before credit costs for loans in trusts with contracts for compensating the principal 2 Credit costs for loans in trusts with contracts for compensating the principal 3 Net business profit + credit costs for trust account + transfer to general reserve (Gross Operating Profit before Trust Account WriteOffs General and Administrative Expenses) 1

19 Financial Result (Consolidated) (Millions of Yen) September 30, 2001 September 30, 2000 (A) Change (AB) (B) Consolidated Gross Operating Profit 1 145,254 10, ,069 (Gross Operating Profit before Trust Account WriteOffs) 2 155,596 (2,522) 158,118 Trust Fees 3 41,110 9,979 31, Credit Costs for Trust Account 4 10,341 (12,707) 23,049 Interest Income 5 78,182 (3,972) 82,155 Fees and Commissions 6 18, ,535 Trading Profit 7 2, ,682 Other Operating Profit 8 5,662 3,097 2,565 General and Administrative Expenses 9 78,217 3,065 75,152 Consolidated Net Business Profit before Trust Account WriteOffs (before Transfer to General Reserve) (Note 2) 10 77,378 (5,587) 82, Transfer to General Reserve 11 (4,821) (36,340) 31,519 Consolidated Net Business Profit(Note3) 12 71,858 43,460 28,397 Other Income (Loss) 13 (88,946) (89,818) Credit Costs for Banking Account 14 44,252 20,017 24,234 Loan Losses Writeoff 15 13,643 (9,093) 22,736 Transfer to Specific Reserves 16 31,238 30, Loss on Sale of Loans to CCPC 17 (216) 216 Transfer to Reserve for Account for Specified Overseas Debt 18 (1,373) (765) (607) Other Credit Costs (824) 1,568 Gains (Losses) on Sales and Devaluation of Stocks and Others 20 (37,159) (64,133) 26,973 Gains (Losses) in Equity Method 21 (314) (172) (142) Others 22 (7,219) (5,495) (1,724) Operating Profit 23 (17,088) (46,357) 29,269 Special Gains (Losses) 24 4, ,402 Income (Loss) before Income Taxes 25 (12,954) (45,625) 32,671 Income Taxes Current 26 1,219 (160) 1,379 Income Tax Refund 27 11,031 (11,031) Income Taxes Deferred 28 (6,221) (25,403) 19,182 Minority Interests (316) Net Income 30 (8,233) (31,690) 23,457 Total credit costs (1+2+3) 31 49,772 (29,030) 78,803 Notes 1 All amounts are rounded down to the nearest million. 2 Consolidated Net Business Profit (before Trust Account Writeoff and Transfer to General Reserve) =Consolidated Net Business Profit + Credit Costs for Trust Account +Transfer to General Reserve 3 Consolidated Net Business Profit = Nonconsolidated Net Business Profit+Gross Operating Profit of SubsidiariesGeneral and Administrative Expenses of Subsidiaries Tranfer to General Reserve of SubsidiariesInternal Transactions Consolidated Subsidiaries and Affiliates Number of Consolidated Subsidiaries Subsidiary Applied for Equity Method ( Number of Companies ) September 30,2001 March 31,2001 (A) Change(AB)

20 2.Net Business Profits (Nonconsolidated) (Millions of Yen) September 30, 2001 September 30, 2000 (A) Change (AB) (B) (1) Net Business Profit before Trust Account writeoffs (before transfer to general reserve) 75,020 (5,834) 80,854 Per Employee (Thousands of Yen) 13,081 (638) 13,720 (2) Net Business Profits 69,522 43,470 26,052 Per Employee (Thousands of Yen) 12,122 7,702 4,420 3.Profit Margin (Nonconsolidated) (Total) ( %) September 30, 2001 September 30, 2000 (A) Change (AB) (B) InterestEarning Assets (I) Loans Securities InterestBearing Liabilities (II) Deposits Margin (I) (II) (Domestic) ( %) September 30, 2001 September 30, 2000 (A) Change (AB) (B) InterestEarning Assets (I) Loans Securities InterestBearing Liabilities (II) Deposits Margin (I)(II) The Mitsubishi Trust and Banking Corporation 4.Gains (Losses) on Securities (Nonconsolidated) (Total) (Millions of Yen) September 30, 2001 September 30, 2000 (A) Change (AB) (B) Gains (Losses) on Debt Securities 2,487 2,998 (511) Gains on Sales 20,046 4,333 15,712 Losses on Sales 14,953 (1,095) 16,049 Write down 2,605 2, (Domestic) (Millions of Yen) September 30, 2001 September 30, 2000 (A) Change (AB) (B) Gains (Losses) on Debt Securities 1,581 3,473 (1,891) Gains on Sales 9,128 4,566 4,561 Losses on Sales 7, ,440 Write down (Total) (Millions of Yen) September 30, 2001 September 30, 2000 (A) Change (AB) (B) Gains (Losses) on Equity Securities (37,130) (64,090) 26,959 Gains on Sales 47,837 2,351 45,485 Losses on Sales 17,420 9,023 8,396 Write down 67,548 57,418 10,129 3