Development Bank Of Japan 18-K Annual report (foreign governments)

Exhibit 4

ChuoAoyama Audit Corporation	PRICEWATERHOUSECOOPERS
	Kasumigaseki Bldg, 32nd Floor
	3-2-5, Kasumigaseki, Chiyoda-ku,
	Tokyo 100-6088, Japan

Report of Independent Auditors

To the Governor of

Development Bank of Japan

We have audited the accompanying consolidated balance sheet of Development Bank of Japan and its subsidiary as of March 31, 2003, and the related consolidated statements of operations, equity and cash flows for the year then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of Development Bank of Japan’s management. Our responsibility is to express an opinion on these consolidated 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 require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Development Bank of Japan and its subsidiary as of March 31, 2003, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles and practices generally accepted in Japan (see Note 1).

The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 1 to the accompanying consolidated financial statements.

/s/ ChuoAoyama Audit Corporation

ChuoAoyama Audit Corporation

Tokyo, Japan

June 25, 2003

Development Bank of Japan

CONSOLIDATED BALANCE SHEET

	Millions of yen			Thousands of U.S. dollars
March 31	2003			2003
Assets
Cash and Due from banks	¥	39,787		$	331,013
Reverse Repurchase Agreements		192,880			1,604,665
Money Held in Trust (Note 24)		1,969			16,384
Securities (Note 4, 13 and 24)		439,063			3,652,774
Loans (Note 5)		15,713,160			130,725,131
Other Assets (Note 6)		320,403			2,665,584
Premises and Equipment (Note 7)		38,862			323,319
Deferred Charges on Bonds and Notes		1,808			15,049
Customers’ Liabilities for Acceptances and Guarantees		87,715			729,745
Allowance for Loan Losses (Note 8)		(474,603	)		(3,948,450	)
Allowance for Investment Losses		(11,237	)		(93,492	)
Total Assets	¥	16,349,810		$	136,021,722

	Millions of yen		Thousands of U.S. dollars
	2003		2003
Liabilities and Equity
Liabilities
Bonds and Notes (Note 9)	¥	1,596,630	$	13,283,114
Borrowings (Note 10)		12,664,024		105,357,939
Other Liabilities (Note 11)		357,808		2,976,780
Allowance for Bonus Payments		1,775		14,772
Allowance for Employee Retirement Benefits (Note 20)		32,888		273,617
Acceptances and Guarantees (Note 12)		87,715		729,746
Total Liabilities	¥	14,740,843	$	122,635,968
Equity
Capital	¥	1,182,286	$	9,835,990
Retained Earnings		426,416		3,547,561
Net Unrealized Gain on Available-for-sale Securities,Net of Taxes(Note 24)		264		2,203
Total Equity	¥	1,608,967	$	13,385,754
Total Liabilities and Equity	¥	16,349,810	$	136,021,722

Accompanying notes are an integral part of these financial statements.

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Development Bank of Japan

CONSOLIDATED STATEMENT OF OPERATIONS

	Millions of yen			Thousands of U.S. dollars
For the Fiscal Year ended March 31	2003			2003
Revenues
Interest Income	¥	543,179		$	4,518,963
Interest on Loans		540,870			4,499,752
Interest and Dividends on Securities		2,297			19,110
Interest on Reverse Repurchase Agreements		7			60
Interest on Due from banks		4			39
Other Interest Income		0			2
Fees and Commissions (Note 14)		1,659			13,805
Other Operating Income (Note 15)		1,020			8,488
Other Ordinary Income (Note 16)		214			1,787
Collection of Written-off Claims		470			3,915
Gains on Sales of Premises and Equipment		246			2,055
Total Revenues	¥	546,791		$	4,549,013
Expenses
Interest Expense	¥	439,932		$	3,660,006
Interest on Bonds and Notes		33,562			279,219
Amortization of Discounts on Bonds and Notes		354			2,953
Interest on Borrowings		397,690			3,308,576
Other Interest Expenses		8,324			69,258
Fees and Commissions (Note 17)		48			401
Other Operating Expenses (Note 18)		1,977			16,451
General and Administrative Expenses		31,653			263,342
Other Ordinary Expenses (Note 19)		151,789			1,262,805
Losses on Sales of Premises and Equipment		264			2,202
Total Expenses	¥	625,665		$	5,205,207
Net Loss (Note 3(n))	¥	(78,874	)	$	(656,194	)

Accompanying notes are an integral part of these financial statements.

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Development Bank of Japan

CONSOLIDATED STATEMENT OF CASH FLOWS

	Millions of yen			Thousands of U.S. dollars
For the Fiscal Year ended March 31	2003			2003
Cash Flows from Operating Activities
Net Loss	¥	(78,874	)	$	(656,194	)
Depreciation and Amortization		1,106			9,206
Change in Allowance for Loan Losses		104,107			866,120
Change in Allowance for Investment Losses		9,411			78,300
Change in Allowance for Bonus Payments		1,775			14,772
Change in Allowance for Employee Retirement Benefits		3,371			28,052
Interest Income-Accrual Basis		(543,179	)		(4,518,963	)
Interest Expense-Accrual Basis		439,932			3,660,006
Net Gains and Losses on Securities		8,607			71,610
Net Gains and Losses on Money Held in Trust		15			127
Net Gains and Losses on Foreign Exchanges		1			9
Net Gains and Losses on Sale of Premises and Equipment		17			147
Net Change in Loans		955,764			7,951,449
Net Change in Bonds and Notes		253,072			2,105,431
Net Change in Borrowings		(1,192,003	)		(9,916,838	)
Net Change in Reverse Repurchase Agreements		(177,882	)		(1,479,886	)
Interest Income-Cash Basis		545,606			4,539,155
Interest Expense-Cash Basis		(450,590	)		(3,748,676	)
Others		(8,832	)		(73,478	)
Net Cash used in Operating Activities	¥	(128,572	)	$	(1,069,651	)
Cash Flows from Investing Activities
Payments for Purchases of Securities	¥	(115,271	)	$	(958,994	)
Proceeds from Redemption of Securities		112,138			932,929
Payments for Money Held in Trust		(1,984	)		(16,511	)
Payments for Purchases of Premises and Equipment		(641	)		(5,340	)
Proceeds from Sale of Premises and Equipment		465			3,870
Net Cash used in Investing Activities	¥	(5,294	)	$	(44,046	)
Cash Flows from Financing Activities
Capital Contribution from the Japanese Government	¥	60,000		$	499,168
Net Cash provided by Financing Activities	¥	60,000		$	499,168
Effect of Exchange Rate Changes on Cash and Cash Equivalents	¥	(0	)	$	(7	)
Net Change in Cash and Cash Equivalents	¥	(73,867	)	$	(614,536	)
Cash and Cash Equivalents at the Beginning of the Fiscal Year	¥	113,585		$	944,970
Cash and Cash Equivalents at the End of the Fiscal Year	¥	39,718		$	330,434

Accompanying notes are an integral part of these financial statements.

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CONSOLIDATED STATEMENT OF EQUITY

	Millions of yen
	Capital		Retained Earnings			Net Unrealized Gain on Available-for- sale Securities,Net of Taxes			Total Equity
Balance at March 31, 2002	¥	1,122,286	¥	505,291		¥	869		¥	1,628,446
Net Unrealized Loss on Available-for-sale Securities, Net of Taxes		—		—			(605	)		(605	)
Capital Contribution from the Japanese Government		60,000		—			—			60,000
Net Loss		—		(78,874	)		—			(78,874	)
Balance at March 31, 2003	¥	1,182,286	¥	426,416		¥	264		¥	1,608,967

	Thousands of U.S. dollars
	Capital		Retained Earnings			Net Unrealized Gain on Available-for-sale Securities,Net of Taxes			Total Equity
Balance at March 31, 2002	$	9,336,822	$	4,203,755		$	7,234		$	13,547,811
Net Unrealized Loss on Available-for-sale Securities, Net of Taxes		—		—			(5,031	)		(5,031	)
Capital Contribution from the Japanese Government		499,168		—			—			499,168
Net Loss		—		(656,194	)		—			(656,194	)
Balance at March 31, 2003	$	9,835,990	$	3,547,561		$	2,203		$	13,385,754

Accompanying notes are an integral part of these financial statements.

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Development Bank of Japan

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying consolidated financial statements have been prepared from the accounts maintained by Development Bank of Japan (“DBJ”) and its consolidated subsidiary in accordance with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

The consolidated financial statements are not intended to present the financial position and the result of operations in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan.

The amounts indicated in millions of yen are rounded down by omitting the figures less than one million yen. Accordingly, the sum of each amount appearing in the accompanying financial statements and the notes thereto may not be equal to the sum of the individual account balances. Amounts in U.S. dollars are presented solely for the convenience of readers outside Japan. The rate of ¥120.20=$1.00, the effective exchange rate prevailing as of March 31, 2003, has been used in conversion. The presentation of such amounts is not intended to imply that Japanese yen amounts have been or could have been readily translated, realized or settled in U.S. dollars at that rate or any other rate.

2. Principles of Consolidation

(a) Scope of Consolidation

The consolidated financial statements include the accounts of DBJ and its solely consolidated subsidiary, DBJ Business Restructuring Investment Co., Ltd., which is newly consolidated due to the incorporation in the fiscal year ended March 31, 2003. Tomatoh Inc. and Shin Mutsu-Ogawara Inc., in which DBJ has over 50% ownership interest, are excluded from the scope of consolidation, because those investments are made as a part of the financing operations, which is the primary objective of the bank, and are not for the purpose of obtaining control over their operating and financial policies.

There are no non-consolidated subsidiaries and affiliates, which are accounted for under equity method. The companies, such as NIHONKAI LNG CO., LTD and 31 other companies, in which DBJ has 20% or more and 50% or less interests, are not considered as affiliates, because those investments, based on political policy of DBJ, are not for the purpose of obtaining control over their operating and financial policies.

On consolidation, significant intercompany accounts and transactions have been eliminated. In addition, all significant unrealized profit included in assets resulting from transactions between DBJ and DBJ Business Restructuring Investment Co., Ltd. has also been eliminated.

(b) Year-end Date of Consolidated Subsidiary

Fiscal year-end of the consolidated subsidiary is March 31.

(c) Appropriation of Retained Earnings

Consolidated Statement of Equity is recorded based on the approved appropriation of Retained Earnings for the fiscal year ended March 31,2003.

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3. Significant Accounting Policies

(a) Cash and Cash Equivalents

“Cash and Cash Equivalents” in the consolidated statement of cash flows consists of cash on hand and due from banks, excluding money held in trust related to principal or interest payments on bonds to financial agencies, that is included in “Cash and due from banks” as presented in the consolidated balance sheet.

The reconciliation between “Cash and Cash Equivalents” and “Cash and Due from banks” is as follows:

	Millions of yen			Thousands of U.S. dollars
March 31	2003			2003
Cash and Due from Banks	¥	39,787		$	331,013
Trust Money to Financial Agencies		(69	)		(579	)
Cash and Cash Equivalents	¥	39,718		$	330,434

(b) Securities

Held-to-maturity Debt Securities are stated at amortized cost on a straight-line basis, computed using the moving-average method. Available-for-sale Securities whose current values can be estimated are stated at market value (cost is calculated principally using the moving-average method), and other non-marketable securities are stated at cost or amortized cost computed using the moving-average method. Unrealized gain and loss on Available-for-sale Securities are included in Equity, net of income taxes.

(c) Valuation Method for Derivative Financial Instruments

All derivative financial instruments are carried at market value.

(d) Hedge Accounting

(i) Hedge Accounting

DBJ applies the deferral method of hedge accounting. Foreign currency swaps, which are used to hedge the foreign currency fluctuations are translated not at market values but at contractual rates, as the foreign currency swap contracts meet the hedging criteria under the Japanese Accounting Standards for Financial Instruments.

(ii) Hedging Instruments and Hedged Items

Hedging Instrument: Interest Rate Swaps

Hedged Items: Bonds and Notes, Borrowings

Hedging Instrument: Foreign Currency Swaps

Hedged Items: Foreign currency dominated Loans and Bonds and Notes

(iii) Hedging Policy

DBJ utilizes hedging instruments to hedge interest rate and foreign exchange fluctuations on its assets and liabilities.

(iv) Evaluation of Hedge Effectiveness

DBJ evaluates effectiveness of the hedges by testing periodically whether the derivatives are effective in reducing the risks associated with the hedged items.

(e) Depreciation basis for Premises and Equipment

Premises and Equipment are depreciated using the declining-balance method, except for buildings (excluding furniture and equipment) that are depreciated on a straight-line basis.

The estimated useful lives are principally as follows:

Buildings: 22 years to 50 years

Equipment: 3 years to 20 years

(f) Amortization of deferred charges

“Discounts on Bonds and Notes” are amortized over the life of Bonds and Notes, and “Bonds and Notes Issuance Costs” are charged to income as they are incurred.

(g) Foreign currency translation and revaluation method

Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the market exchange rates prevailing at the fiscal year end.

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(h) Allowance for Loan Losses

DBJ provides for “Allowance for Loan Losses” as detailed below pursuant to the internal rules for self-assessment of credit quality and loan losses.

The allowance for claims on debtors who are legally bankrupt (e.g., due to bankruptcy, special liquidation, and suspension of transactions with banks by the rules of clearing houses) or substantially bankrupt is provided based on the amount of claims, after the write-off described below, net of amounts expected to be collected through disposal of collateral or execution of guarantees.

The allowance for claims on debtors who are likely to become bankrupt for which future cash flows cannot reasonably be estimated is provided for the amount considered to be necessary based on an overall solvency assessment performed on the claims, net of amounts expected to be collected through disposal of collateral or execution of guarantees.

The allowance for claims on debtors who are likely to become bankrupt, to be closely monitored and for which future cash flows can reasonably be estimated is provided for the difference between the present value of expected future cash flows discounted at the contracted interest rate and the carrying value of the claim.

The allowance for claims on debtors other than above is provided based on the historical default rate, which is calculated based on the actual defaults over a certain historical period (the average financing period for DBJ).

All claims are assessed initially by investment and lending departments and then by the credit risk management department, which is independent from the investment and lending departments based on internal rules for self-assessment of credit quality. The allowance is provided based on the results of the self-assessment.

With respect to the claims on debtors who are legally or substantially bankrupt with collateral or guarantees, the amount of claims exceeding the estimated market values of collateral or guarantees, which are deemed un-collectible, have been written-off, and totaled ¥77,016 million ($640,733 thousand) as of March 31, 2003.

(i) Allowance for Investment Losses

“Allowance for Investment Losses” is provided based on the estimated losses on non-marketable debt securities.

(j) Allowance for Bonus Payments

Allowance for Bonus Payments, which is provided for future payments to employees and executive directors, is maintained at the amount accrued at the end of the fiscal year, based on the estimated future payments and services periods.

(k) Allowance for Employee Retirement Benefits

Allowance for Employee Retirement Benefits represents future payments for pension and retirement benefits to employees and executive directors, and is accrued based on the projected benefit obligations and estimated pension plan assets at fiscal year end. The method of accounting for net actuarial gains/losses is as follows:

Net Actuarial Gains/Losses are charged to income.

(l) Equipment Used under Finance Lease Agreements

Equipment used under finance lease agreements is accounted for as equipment leased under operating leases, except for those the ownership of leased equipment transfer to the lessee.

(m) Consumption tax

Income and expense subject to consumption tax exclude related consumption taxes paid or received.

(n) Income Taxes

DBJ is exempt from taxes based on income, however DBJ pays capitation of the inhabitants’ taxes among local taxes.

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4. Securities

Securities as of March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Japanese Government Bonds	¥	204,027	$	1,697,396
Corporate Bonds		79,051		657,667
Equities		155,834		1,296,463
Others		150		1,248
	¥	439,063	$	3,652,774

5. Non-performing Loans

The amounts of Non-Performing Loans included in “Loans” on the balance sheet as of March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Loans to Bankrupt Debtors	¥	54,692	$	455,014
Delinquent Loans		341,115		2,837,902
Loans Due Past Three Months or More		6,707		55,806
Restructured Loans		182,724		1,520,170
	¥	585,240	$	4,868,892

Notes: 1.     The amounts of Loans indicated above are stated at gross amounts, before reduction of allowance for loan losses.

2. Loans to Bankrupt Debtors represent non-accrual loans to debtors who are legally bankrupt as defined in Article 96-1-3 and 4 of the Japanese Tax Law Enforcement Regulation.

3. Delinquent Loans represent non-accrual loans other than (i) Loans to Bankrupt Debtors and (ii) Loans whose interest payments are deferred in order to assist or facilitate the restructuring efforts of borrowers in financial difficulties.

4. “Loans Due Three Months or More” are loans whose principal or interest payment is three months or more in arrears, calculated from the day payment is due, and do not fall under the category of “Loans to Bankrupt Debtors” or “Delinquent Loans.”

5. “Restructured loans” are loans whose repayment terms have been modified to the advantage of debtors through means such as reduction or exemption of interest rates, postponement of principal and interest payments, and forgiveness of loans to support or restructure the debtors’ businesses, and do not fall under the category of “Loans to Bankrupt Debtors,” “Delinquent Loans,” or “Loans Due Past Three Months or More”.

DBJ is committed to lend necessary funds up to the pre-determined amount, which shall be within the borrowers’ financing needs for the projects and up to the agreed maximum amount to lend upon borrowers’ request, provided that the request meets terms and conditions for disbursement prescribed in the loan agreements. The total balance of unused commitment lines as of March 31, 2003 is ¥129,003 million ($1,073,239 thousand), including ¥87,221 million ($725,635 thousand) being financed within one year.

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6. Other Assets

Other Assets as of March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Prepaid Expenses	¥	89	$	743
Accrued Income		73,393		610,595
Derivatives		5,872		48,853
Deferred Hedge Losses		225,383		1,875,069
Others		15,664		130,324
	¥	320,403	$	2,665,584

Notes: Deferred Hedge Losses are net realized or unrealized losses from hedging instruments. The gross amounts of deferred hedge gains and losses before netting are ¥5,203 million ($43,292 thousand) and ¥230,587 million ($1,918,362 thousand) as of March 31,2003, respectively.

7. Premises and Equipment

Premises and Equipment as of March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Tangible Fixed Assets
Land	¥	20,705	$	172,258
Buildings		34,188		284,427
Equipment		2,053		17,084
Construction in Progress		263		2,188
	¥	57,210	$	475,957
Less - Accumulated Depreciation		18,732		155,842
Net Book Value	¥	38,477	$	320,115
Intangible Fixed Assets
Guarantee Deposits	¥	382	$	3,177
Others		18		150
	¥	400	$	3,327
Less - Accumulated Amortization		14		123
Net Book Value	¥	385	$	3,204

8. Allowance for Loan Losses

Allowance for Loan Losses as of March 31, 2003 is as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
General Allowance for Loan Losses	¥	289,191	$	2,405,920
Specific Allowance for Loan Losses		185,412		1,542,530
	¥	474,603	$	3,948,450

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9. Bonds and Notes

Bonds and Notes as of March 31, 2003 are as follows:

March 31
Description of Bonds and Notes	Issue date	Currency and Amounts 2003 (In millions)	Interest rate (%)	Maturity date	Millions of yen				Thousands of U.S. dollars
					2003		2002		2003
Japanese Government-guaranteed Bonds 185-1861	February 1996- November 1996	JPY    20,000	2.90 ~ 3.10	February 2006- November 2006	¥	20,000		20,000	$	166,389
Japanese Government-guaranteed Bonds 1-6	August 2000- March 2003	JPY  300,000	0.80 ~ 1.90	August 2010- March 2013		300,000		250,000		2,495,840
Japanese Government-guaranteed Foreign Bonds 63-672	January 1995- September 1998	JPY    75,000 GBP        450	1.81 ~ 9.12	June2003- September 2028		146,359		209,309		1,217,629
Japanese Government-guaranteed Foreign Bonds 4-91	August 1993- March 1998	SF           340 DM         300	3.00 ~ 7.50	August2003- March 2005		47,140		68,320		392,181
Japanese Government-guaranteed Foreign Bonds 1-6	November 1999- February 2003	JPY  280,000 USD       750 EUR       750	1.40 ~ 6.87	June 2010- September 2022		438,621		258,621		3,649,095
Japanese Government-underwritten Bonds 143-2111	April 1993- December 1998	JPY  344,510	1.10 ~ 5.80	April 2003- December 2008		344,510		436,850		2,866,140
FILP Agency Bonds 1-6	September 2001- January 2003	JPY  300,000	0.41 ~ 1.23	September2006- September 2012		300,000		100,000		2,495,840
					¥	1,596,630	¥	1,343,100	$	13,283,114

Notes: 1. These bonds are government-guaranteed bonds and government-underwritten bonds issued by Hokkaido-Tohoku Development Finance Public Corporation prior to the merger with the Japan Development Bank that formed DBJ.

2. These bonds are government-guaranteed bonds issued by the Japan Development Bank prior to the merger with Hokkaido-Tohoku Development Finance Public Corporation that formed DBJ.

3. Fiscal Investment and Loan Program (FILP) Agency Bonds issued in Japanese domestic markets are not government-guaranteed.

Scheduled redemptions of Bonds and Notes for next five years as of March 31, 2003 are as follows:

Fiscal year ended in March 31, 2004	¥	161,024	million	$	1,339,634	thousands
2005		150,805			1,254,618
2006		51,770			430,699
2007		196,600			1,635,607
2008		183,250			1,524,542

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10. Borrowings

Borrowings as of March 31, 2003 are as follows:

	Average interest rate (%)	Due date of repayment	Millions of yen				Thousands of U.S. dollars
March 31			2003		2002		2003
Borrowings
Long-term Borrowings from Japanese Government	2.67	April 2003 –January 2023	¥	12,664,024	¥	13,856,028	$	105,357,939
			¥	12,664,024	¥	13,856,028	$	105,357,939

Borrowings with maturities for the next five years as of March 31, 2003 are as follows:

Fiscal year ended in March 31, 2004	¥	1,626,091	million	$	13,528,215	thousands
2005		1,577,523			13,124,157
2006		1,532,721			12,751,431
2007		1,491,934			12,412,104
2008		1,367,746			11,378,920

11. Other Liabilities

Other Liabilities as of March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Accrued Expenses	¥	63,542	$	528,641
Unearned Income		49,826		414,532
Deposits from Employees		181		1,511
Derivatives		232,013		1,930,232
Others		12,244		101,864
	¥	357,808	$	2,976,780

12. Acceptances and Guarantees

Acceptances and Guarantees as of March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Acceptances	¥	—	$	—
Guarantees		87,715		729,746
	¥	87,715	$	729,746

13. Assets Pledged as Collateral

Securities collateralized in foreign currency transactions are ¥204,027 million ($1,697,396 thousand) as of March 31, 2003.

14. Fees and Commissions (Income)

Fees and Commissions (Income) for the fiscal years ended March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2003
Commissions	¥	1,659	$	13,805
	¥	1,659	$	13,805

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15. Other Operating Income

Other Operating Income for the fiscal year ended March 31, 2003 is as follows:

	Millions of yen		Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2003
Gains on derivative instruments	¥	1,020	$	8,488
	¥	1,020	$	8,488

16. Other Ordinary Income

Other Ordinary Income for the fiscal year ended March 31, 2003 is as follows:

	Millions of yen		Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2003
Gains on Sales of Equities and Other Securities	¥	8	$	67
Others		206		1,721
	¥	214	$	1,787

17. Fees and Commissions (Expenses)

Fees and Commissions (Expense) for the fiscal year ended March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2003
Wire Transfer Service Charges	¥	5	$	43
Commissions		42		358
	¥	48	$	401

18. Other Operating Expenses

Other Operating Expenses for the fiscal year ended March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2003
Foreign Exchange Losses	¥	1	$	9
Bonds and Notes Issuance Costs		1,518		12,633
Others		457		3,809
	¥	1,977	$	16,451

19. Other Ordinary Expenses

Other Ordinary Expenses for the fiscal year ended March 31, 2003 are as follows:

	Millions of yen		Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2003
Provision for Loan Losses	¥	104,107	$	866,120
Provision for Investment Losses		9,432		78,469
Write-off of Loans		23,680		197,006
Write-off of Equities		8,607		71,610
Losses on Money Held in Trust		15		127
Others		5,946		49,473
	¥	151,789	$	1,262,805

Notes: Losses on sale of loans ¥5,554 million ($46,213 thousand) are included in “Others”.

13

20. Employee Retirement Benefits

DBJ has defined benefit pension plans, which consist of welfare pension fund plan and lump-sum severance indemnity plan.

(a) The Funded Status of the Pension Plans

		Millions of yen			Thousands of U.S. dollars
March 31		2003			2003
Projected Benefit Obligation	(A)	¥	(42,043	)	$	(349,778	)
Fair Value of Plan Assets	(B)		9,154			76,161
Unfunded Pension Obligation	(C)=(A)+(B)		(32,888	)		(273,617	)
Unrecognized Net Obligation at Transition	(D)		—			—
Unrecognized Net Actuarial Gains/Losses	(E)		—			—
Unrecognized Prior Service Cost	(F)		—			—
Net Amount Recognized on the Balance Sheet	(G)=(C)+(D)+(E)+(F)		(32,888	)		(273,617	)
Prepaid Pension Cost	(H)		—			—
Allowance for Employee Retirement Benefits	(G)-(H)	¥	(32,888	)	$	(273,617	)

Notes: The above Projected Benefit Obligations include a portion in which the pension fund manages on behalf of the Japanese Government welfare program.

(b) Component of Pension Cost

	Millions of yen			Thousands of U.S. dollars
March 31	2003			2003
Service Cost	¥	1,640		$	13,647
Interest Cost		996			8,291
Expected Return on Plan Assets		(206	)		(1,714	)
Amortization of Prior Service Cost		—			—
Amortization of Net Actuarial Gains/Losses		3,007			25,017
Amortization of Net Obligation at Transition		—			—
Other Costs		—			—
Net Pension Cost	¥	5,438		$	45,241

(c) Principal Assumptions Used

March 31, 2003
Discount Rate	2.0%
Expected Rate of Return on Plan Assets	2.0%
Method of Attributing the Projected Benefits to Periods of Services	Straight-line basis
Amortization Period of Actuarial Gains/Losses	Gains/losses are charged to income immediately

14

21. Lease Transactions

Lease transactions in the fiscal year ended March 31, 2003 are as follows:

(a) Finance lease transactions

(Excluding leases where the ownership of the property is deemed to have transferred to the lessee)

	Millions of yen						Thousands of U.S. dollars
	2003						2003
March 31	Equipment		Others		Total		Equipment		Others		Total
Acquisition Cost Equivalents	¥	871	¥	120	¥	991	$	7,252	$	1,000	$	8,252
Accumulated Depreciation Equivalents		413		43		456		3,443		358		3,801
Book Value Equivalents	¥	457	¥	77	¥	535	$	3,809	$	642	$	4,451

Future lease payments subsequent to the end of the fiscal year for finance leases (including the interest portion thereon) are summarized as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Due in One Year or Less	¥	211	$	1,760
Due after One Year		328		2,734
	¥	540	$	4,494

Lease expense, depreciation equivalents and interest expense equivalents relating to finance leases for the fiscal year ended March 31,2003 amount to ¥255 million ($2,123 thousand), ¥246 million ($2,047 thousand) and ¥9 million ($81 thousand), respectively.

Notes:	1.	The computing method for depreciation equivalents is as follows:
		Depreciation equivalents are calculated using the straight-line method, assuming that useful life is equal to the lease term and the residual value at the end of the lease term is zero.
	2.	The computing method for interest expense equivalents is as follows:
		The amount is defined as the difference between total lease payments and acquisition equivalents, which are allocated over the lease term using the interest method.

(b) Operating lease transactions

DBJ has no future lease payments subsequent to the end of fiscal year for operating lease transactions as of March 31, 2003.

22. Segment Information

(a) Segment Information by Type of Business

DBJ and its consolidated subsidiary are engaged in business such as private equity investment and fund management and other activities as well as banking business. Such segment information, however, is not presented, as the percentages of those activities are insignificant.

(b) Segment Information by Geographic Area

Segment information classified by geographic area is not presented, as there are no consolidated subsidiaries and offices located in countries or areas other than Japan.

(c) Ordinary Income from Overseas Entities

Ordinary income from overseas entities is omitted because the amount is below 10 percent of the consolidated ordinary income.

15

23. Derivative Transactions

1. Details Related to Transactions (Current Fiscal Year from April 1,2002 to March 31,2003)

(a) Details of Transactions

DBJ utilizes derivative financial instruments, which comprise of interest rate swap, currency swap and credit default swap.

(b) Policy for Derivative Transactions

DBJ utilizes interest rate swap and currency swap to reduce its exposure to market risks from fluctuations in interest rate and foreign currency exchange rate, and does not hold or issue derivative financial instruments for trading purposes. Also DBJ utilizes credit default swap as part of its “acceptances and guarantee on customers’ debts” business within the limit of a certain definite amount of risk.

(c) Purposes of Transaction

DBJ utilizes interest rate swap transactions to reduce its exposure to the risk of interest rate fluctuations associated with funding transactions, and foreign currency swap to reduce its exposure to the risks of foreign currency exchange rate fluctuations associated with its loans and bonds denominated in foreign currencies. And DBJ utilizes credit default swap as part of its “acceptances and guarantee on customers’ debts” business.

DBJ adopted the Japanese accounting standards for hedge accounting to interest rate swap and foreign currency swap as follows:

(i) Hedge Accounting

DBJ applies the deferral method of hedge accounting. Foreign currency swaps, which are used to hedge the foreign currency fluctuations as the foreign currency swap contracts meet the hedging criteria under the Japanese Accounting Standard for Financial Instruments, are translated not at market but at contractual rates.

(ii) Hedging Instruments and Hedged Items

Hedging Instrument: Interest Rate Swaps

Hedged Items: Bonds and Notes, Borrowings

Hedging Instrument: Foreign Currency Swaps

Hedged Items: Foreign currency dominated Loans and Bonds and Notes

(iii) Hedging Policy

DBJ utilizes hedging instruments to hedge interest rate and foreign exchange fluctuations of the hedged assets and liabilities.

(iv) Evaluation of Hedge Effectiveness

DBJ evaluates effectiveness of the hedges by testing periodically whether the derivatives are effective in reducing the risks associated with the hedged items.

(d) Risks Involved in Derivatives Transactions

Derivatives involve the following risks:

(i) Market Risk

Potential loss from changes in the market value of financial products due to fluctuations in interest rates or exchange rates.

(ii)Credit Risk

Potential loss from the failure of a counterparty to perform its obligations in accordance with terms and conditions of contract governing the transactions due to the counterparty’s bankruptcy or deteriorating business conditions.

Concerning derivative transactions for hedging purpose, the market risk on derivatives is offset against the hedged transactions. As for credit risk, DBJ limits the counterparty to financial institutions highly rated by the credit rating agencies, and monitors consistently the cost of restructuring its transactions and creditworthiness of each counterparty. In addition, DBJ transacts with multiple counterparties to reduce credit risk. Also, concerning credit derivative transactions, DBJ holds credit risk of target debt itself in the transaction.

16

(e) Risk Management Policies for Derivatives

The treasury department enters into and monitors derivative transactions in accordance with the internal management policy, which defines the authorization procedures, including pre-approval by authorized personnel, and limits on derivative transactions. Also, total contract amount, total amount of risk, market value, and total amount of counterparties’ credit risk in the derivative transactions are reported to the directors in charge periodically.

2. Information on Market Value of Derivatives

The market value of derivatives at March 31,2003 is as follows:

(a) Interest Rate-related Transactions

	Millions of yen
	Contract Value				Market Value			Unrealized Gain (Loss)
March 31, 2003	Total		Over one year
Over-the-Counter Swaps
Receive Fixed/ Pay Float	¥	197,000	¥	197,000	¥	8,065		¥	8,065
Receive Float/ Pay Fixed		197,000		197,000		(6,726	)		(6,726	)
	¥	394,000	¥	394,000	¥	1,339		¥	1,339

	Thousands of U.S. dollars
	Contract Value				Market Value			Unrealized Gain (Loss)
March 31, 2003	Total		Over one year
Over-the-Counter Swaps
Receive Fixed/ Pay Float	$	1,638,935	$	1,638,935	$	67,099		$	67,099
Receive Float/ Pay Fixed		1,638,935		1,638,935		(55,957	)		(55,957	)
	$	3,277,870	$	3,277,870	$	11,142		$	11,142

Notes:	1.	The above transactions are marked to market and change in unrealized gain (loss) is included in the Consolidated Statement of Operations. Derivative transactions qualifying for hedge accounting are excluded from the table above.
	2.	Market values for the over-the-counter transactions are based primarily on discounted present values.

(b) Currency-related Transactions

There is no currency-related derivative transactions whose unrealized gains and losses are recognized currently in income.

(c) Equity-related Transactions

Not applicable

(d) Bond-related Transactions

Not applicable

(e) Commodity-related Transactions

Not applicable

17

(f) Credit Derivatives Transactions

	Millions of yen
	Contract Value				Market Value		Unrealized Gain (Loss)
March 31, 2003	Total		Over one year
Over-the-Counter Credit Default Swap
Sold	¥	2,241,169	¥	2,241,169	¥	676	¥	676
Bought		2,224,769		2,224,769		167		167
	¥	/	¥	/	¥	843	¥	843
	Thousands of U.S. dollars
	Contract Value				Market Value		Unrealized Gain (Loss)
March 31, 2003	Total		Over one year
Over-the-Counter Credit Default Swap
Sold	$	18,645,335	$	18,645,335	$	5,630	$	5,630
Bought		18,508,896		18,508,896		1,391		1,391
	$	/	$	/	$	7,021	$	7,021

Notes:	1.	The above transactions are marked to market and change in unrealized gain (loss) is included in the Consolidated Statement of Operations.
	2.	Market values are based on the counterparties’ tendered price.
	3.	‘Sold’ means the underwriting of credit risk and ‘Bought’ means the transferring of credit risk.

24. Market Value of Securities and Money Held in Trust

Market value of Securities and Money held in Trust as of March 31, 2003 is as follows. The information about investments in subsidiary and affiliates with market value is reported in the notes to non-consolidated financial statements.

1. Securities

(a) Trading Securities

Not applicable

(b) Held-to-maturity Debt Securities with market values

	Millions of yen
					Unrealized Gain (Loss)
March 31, 2003	Book Value		Market Value		Net		Gain		(Loss)
Japanese Government Bonds	¥	—	¥	—	¥	—	¥	—	¥	—
Japanese Local Government Bonds		—		—		—		—		—
Short-term Corporate Bonds		—		—		—		—		—
Corporate Bonds		60,100		61,312		1,212		1,277		(64	)
Others		—		—		—		—		—
	¥	60,100	¥	61,312	¥	1,212	¥	1,277	¥	(64	)

Notes: Market value is based on the closing price at the fiscal year end.

18

	Thousands of U.S. dollars
					Unrealized Gain (Loss)
March 31,2003	Book Value		Market Value		Net		Gain		(Loss)
Japanese Government Bonds	$	—	$	—	$	—	$	—	$	—
Japanese Local Government Bonds		—		—		—		—		—
Short-term Corporate Bonds		—		—		—		—		—
Corporate Bonds		500,000		510,085		10,085		10,624		(539	)
Others		—		—		—		—		—
	$	500,000	$	510,085	$	10,085	$	10,624	$	(539	)

Notes: Market value is based on the closing price at the fiscal year end.

(c) Available-for-sale Securities with market values

	Millions of yen
					Unrealized Gain (Loss)
March 31, 2003	Acquisition Cost		Book Value		Net		Gain		(Loss)
Equities	¥	—	¥	—	¥	—	¥	—	¥	—
Bonds		213,752		214,027		274		309		(34	)
Japanese Government Bonds		203,752		204,027		274		309		(34	)
Japanese Local Government-Bonds		—		—		—		—		—
Short-term Corporate Bonds		—		—		—		—		—
Corporate Bonds		10,000		10,000		0		0		—
Others		—		—		—		—		—
	¥	213,752	¥	214,027	¥	274	¥	309	¥	(34	)

Notes: Book value equals to market value based on the closing price at the fiscal year end.

	Thousands of U.S. dollars
					Unrealized Gain (Loss)
March 31, 2003	Acquisition Cost		Book Value		Net		Gain		(Loss)
Equities	$	—	$	—	$	—	$	—	$	—
Bonds		1,778,307		1,780,592		2,285		2,574		(289	)
Japanese Government Bonds		1,695,112		1,697,396		2,284		2,573		(289	)
Japanese Local Government Bonds		—		—		—		—		—
Short-term Corporate Bonds		—		—		—		—		—
Corporate Bonds		83,195		83,196		1		1		—
Others		—		—		—		—		—
	$	1,778,307	$	1,780,592	$	2,285	$	2,574	$	(289	)

Notes: Book value equals to market value based on the closing price at the fiscal year end.

(d) Held-to-maturity Debt Securities sold

Not applicable

19

(e) Available-for-sale Securities sold

	Millions of yen
For the Fiscal Year ended March 31, 2003	Proceeds from Sales		Total amount of Gain on Sales		Total amount of Loss of Sales
Available-for-sale Securities	¥	0	¥	0	¥	—
	¥	0	¥	0	¥	—

	Thousands of U.S. dollars
For the Fiscal Year ended March 31, 2003	Proceeds from Sales		Total amount of Gain on Sales		Total amount of Loss of Sales
Available-for-sale Securities	¥	0	¥	0	¥	—
	¥	0	¥	0	¥	—

(f) Held-to-maturity Debt Securities and Available-for-sale Securities whose market values are not readily determinable

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Held-to-maturity Debt Securities
Unlisted Corporate Bonds	¥	8,951	$	74,472
Available-for-sale Securities
Unlisted Equities		155,834		1,295,046
Others		150		1,248
	¥	164,766	$	130,765

(g) Change in Classification of Securities

Not applicable

(h) Redemption Schedule of Available-for-Securities with maturities and Held-to-maturity-Debt Securities

	Millions of yen
	Maturity
March 31, 2003	Within 1 year		1 to 5 years		5 to 10 years		More than 10 years
Bonds	¥	90,529	¥	192,549	¥	—	¥	—
Japanese Government Bonds		90,288		113,739		—		—
Japanese Local Government Bonds		—		—		—		—
Short-term Corporate Bonds		—		—		—		—
Corporate Bonds		241		78,810		—		—
Others		—		150		—		—
	¥	90,529	¥	192,699	¥	—	¥	—

	Thousands of U.S. dollars
	Maturity
March 31, 2003	Within 1 year		1 to 5 years		5 to 10 years		More than 10 years
Bonds	$	753,153	$	1,601,909	$	—	$	—
Japanese Government Bonds		751,148		946,248		—		—
Japanese Local Government Bonds		—		—		—		—
Short-term Corporate Bonds		—		—		—		—
Corporate Bonds		2,005		655,661		—		—
Others		—		1,248		—		—
	$	753,153	$	1,603,157	$	—	$	—

20

2. Money Held in Trust

There is no Money Held in Trust held for the purpose of investment or held to maturity. Market value of Other Money Held in Trust (Money Held in Trust other than that stated above) is as follows:

	Millions of yen
	Acquisition Cost		Book Value		Unrealized Gain (Loss)
March 31, 2003					Net		Gain		(Loss)
Other Money Held in Trust	¥	1,984	¥	1,969	¥	—	¥	—	¥	—

	Thousands of U.S. dollars
	Acquisition Cost		Book Value		Unrealized Gain (Loss)
March 31, 2003					Net		Gain		(Loss)
Other Money Held in Trust	$	16,511	$	16,384	$	—	$	—	$	—

3. Net Unrealized Gain on Available-for-sale Securities

The breakdown of net unrealized gain on Available-for-sale Securities is as follows:

	Millions of yen		Thousands of U.S. dollars
March 31	2003		2003
Net Unrealized Gain
Available-for-sale Securities	¥	264	$	2,203
Other Money Held in Trust		—		—
	¥	264	$	2,203
Add: Deferred Tax Assets (Less: Deferred Tax Liabilities)		—		—
Net Unrealized Gain on Available-for-sale Securities, Net of Taxes	¥	264	$	2,203

Notes: Net unrealized loss on ‘Interest in Limited Partnership’ accounted in “Other Assets”, which amounts to ¥9 million ($82 thousand) are included in the “Net Unrealized Gain on Available-for-sale Securities, Net of Taxes” noted above.

21

ChuoAoyama Audit Corporation	PRICEWATERHOUSECOOPERS
	Kasumigaseki Bldg, 32nd Floor
	3-2-5, Kasumigaseki, Chiyoda-ku,
	Tokyo 100-6088, Japan

Report of Independent Auditors

To the Governor of

Development Bank of Japan

We have audited the accompanying non-consolidated balance sheets of Development Bank of Japan as of March 31, 2003 and 2002, and the related non-consolidated statements of operations, equity for the years ended March 31, 2003 and 2002, and cash flows for the year ended March 31, 2002, all expressed in Japanese yen. These non-consolidated financial statements are the responsibility of Development Bank of Japan’s management. Our responsibility is to express an opinion on these non-consolidated 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 require that we plan and perform the audit to obtain reasonable assurance about whether the non-consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the non-consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating overall non-consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the non-consolidated financial position of Development Bank of Japan as of March 31, 2003 and 2002, and the non-consolidated results of its operations for the years ended March 31, 2003 and 2002 and its cash flows for the year ended March 31, 2002 in conformity with accounting principles and practices generally accepted in Japan (see Note 1).

The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 1 to be accompanying non-consolidated financial statements.

/s/ ChuoAoyama Audit Corporation

ChuoAoyama Audit Corporation

Tokyo, Japan

June 25, 2003

22

Development Bank of Japan

NON-CONSOLIDATED BALANCE SHEETS

	Millions of yen						Thousands of U.S. dollars
March 31	2003			2002			2003
Assets
Cash and Due from banks	¥	39,778		¥	113,629		$	330,933
Reverse Repurchase Agreements		192,880			14,998			1,604,665
Money Held in Trust (Note 22)		1,969			—			16,384
Securities (Note 3, 11 and 22)		439,073			431,041			3,652,857
Loans (Note 4)		15,713,160			16,738,488			130,725,131
Other Assets (Note 5)		320,402			244,797			2,665,581
Premises and Equipment (Note 6)		38,862			39,810			323,319
Deferred Charges on Bonds and Notes		1,808			1,706			15,049
Customers’ Liabilities for Acceptances and Guarantees		87,715			78,103			729,745
Allowance for Loan Losses (Note 7)		(474,603	)		(410,519	)		(3,948,450	)
Allowance for Investment Losses		(11,237	)		(1,826	)		(93,492	)
Total Assets	¥	16,349,810		¥	17,250,231		$	136,021,722

	Millions of yen						Thousands of U.S. dollars
	2003			2002			2003
Liabilities and Equity
Liabilities
Bonds and Notes	¥	1,596,630		¥	1,343,100		$	13,283,114
Borrowings		12,664,024			13,856,028			105,357,939
Other Liabilities (Note 8)		357,808			315,035			2,976,777
Allowance for Bonus Payments (Note 9)		1,775			—			14,772
Allowance for Employee Retirement Benefits (Note 19)		32,888			29,516			273,617
Acceptances and Guarantees (Note 10)		87,715			78,103			729,745
Total Liabilities	¥	14,740,842		¥	15,621,784		$	122,635,964
Equity
Capital	¥	1,182,286		¥	1,122,286		$	9,835,990
Retained Earnings (Note 12)		426,417			505,291			3,547,565
Statutory Reserve		982,478			937,734			8,173,699
Accumulated Deficit		(556,061	)		(432,443	)		(4,626,134	)
Net Unrealized Gain on Available-for-sale Securities (Note 22)		264			869			2,203
Total Equity	¥	1,608,968		¥	1,628,446		$	13,385,758
Total Liabilities and Equity	¥	16,349,810		¥	17,250,231		$	136,021,722

Accompanying notes are an integral part of these financial statements.

23

Development Bank of Japan

NON-CONSOLIDATED STATEMENTS OF OPERATIONS

	Millions of yen						Thousands of U.S. dollars
For the Fiscal Years ended March 31	2003			2002			2003
Revenues
Interest Income	¥	543,179		¥	619,614		$	4,518,963
Interest on Loans		540,870			616,955			4,499,752
Interest and Dividends on Securities		2,297			2,622			19,110
Interest on Reverse Repurchase Agreements		7			23			60
Interest on Due from banks		4			12			39
Other Interest Income		0			0			2
Fees and Commissions (Note 13)		1,659			3,506			13,805
Other Operating Income (Note 14)		1,020			—			8,488
Other Ordinary Income (Note 15)		214			188			1,787
Collection of Written-off Claims		470			846			3,915
Gains on Sales of Premises and Equipment		246			69			2,055
Total Revenues	¥	546,791		¥	624,225		$	4,549,013
Expenses
Interest Expense	¥	439,932		¥	524,525		$	3,660,006
Interest on Bonds and Notes		33,562			40,675			279,219
Amortization of Discounts on Bonds and Notes		354			414			2,953
Interest on Borrowings		397,690			479,130			3,308,576
Interest on Swaps (net)		8,316			4,304			69,187
Other Interest Expense		8			—			71
Fees and Commissions (Note 16)		48			46			401
Other Operating Expenses (Note 17)		1,977			1,143			16,448
General and Administrative Expenses		31,653			33,620			263,342
Other Ordinary Expenses (Note 18)		151,789			125,759			1,262,805
Losses on Sales of Premises and Equipment		264			108			2,202
Total Expenses	¥	625,665		¥	685,204		$	5,205,204
Net Loss (Note 2(n))	¥	(78,874	)	¥	(60,978	)	$	(656,191	)

Accompanying notes are an integral part of these financial statements.

24

Development Bank of Japan

NON-CONSOLIDATED STATEMENT OF CASH FLOWS

	Millions of yen
For the Fiscal Year ended March 31	2002
Cash Flows from Operating Activities
Net Loss	¥	(60,978	)
Depreciation and Amortization		1,186
Change in Allowance for Loan Losses		67,934
Change in Allowance for Investment Losses		1,230
Change in Allowance for Employee Retirement Benefits		4,503
Interest Income-Accrual Basis		(619,614	)
Interest Expense-Accrual Basis		524,525
Net Gains and Losses on Securities		9,490
Net Gains and Losses on Foreign Exchanges		0
Net Gains and Losses on Sale of Premises and Equipment		38
Net Change in Loans		955,508
Net Change in Bonds and Notes		13,597
Net Change in Borrowings		(1,095,259	)
Net Change in Reverse Repurchase Agreements		82,371
Interest Income-Cash Basis		637,329
Interest Expense-Cash Basis		(555,500	)
Others		33,431
Net Cash used in Operating Activities	¥	(204	)
Cash Flows from Investing Activities
Payments for Purchases of Securities	¥	(10,102	)
Proceeds from Redemption of Securities		11,307
Payments for Purchases of Premises and Equipment		(423	)
Proceeds from Sale of Premises and Equipment		129
Net Cash provided by Investing Activities	¥	911
Cash Flows from Financing Activities
Capital Contribution from the Japanese Government	¥	82,900
Net Cash provided by Financing Activities	¥	82,900
Effect of Exchange Rate Changes on Cash and Cash Equivalents	¥	(0	)
Net Change in Cash and Cash Equivalents	¥	83,606
Cash and Cash Equivalents at the Beginning of the Fiscal Year	¥	29,979
Cash and Cash Equivalents at the End of the Fiscal Year	¥	113,585

Accompanying notes are an integral part of these financial statements.

25

Development Bank of Japan

NON-CONSOLIDATED STATEMENTS OF EQUITY

	Millions of yen
			Retained Earnings						Net Unrealized Gain on Available-for-sale Securities			Total Equity
For the Fiscal Year ended March 31, 2002	Capital		Statutory Reserve			Accumulated Deficit
Balance at March 31, 2001	¥	1,039,386	¥	951,894		¥	(385,624	)	¥	1,291		¥	1,606,947
Net Unrealized Loss on Available-for-sale Securities		—		—			—			(422	)		(422	)
Transfer from Statutory Reserve to net loss accounted under the DBJ Law		—		(14,159	)		14,159			—			—
Capital Contribution from the Japanese Government		82,900		—			—			—			82,900
Net Loss		—		—			(60,978	)		—			(60,978	)
Balance at March 31, 2002	¥	1,122,286	¥	937,734		¥	(432,443	)	¥	869		¥	1,628,446
Appropriations:
Provision for Statutory Reserve		—		44,743			(44,743	)		—			—
Total	¥	—	¥	44,743		¥	(44,743	)	¥	—		¥	—
Unappropriated Accumulated Deficit	¥	—	¥	—		¥	(477,187	)	¥	—		¥	—
	Millions of yen
			Retained Earnings						Net Unrealized Gain on Available-for-sale Securities
For the Fiscal Year ended March 31, 2003	Capital		Statutory Reserve			Accumulated Deficit						Total Equity
Balance at March 31, 2002	¥	1,122,286	¥	937,734		¥	(432,443	)	¥	869		¥	1,628,446
Net Unrealized Loss on Available-for-sale Securities		—		—			—			(605	)		(605	)
Transfer from net earnings accounted under the DBJ Law to Statutory Reserve (Note 12)		—		44,743			(44,743	)		—			—
Capital Contribution from the Japanese Government		60,000		—			—			—			60,000
Net Loss		—		—			(78,874	)		—			(78,874	)
Balance at March 31, 2003	¥	1,182,286	¥	982,478		¥	(556,061	)	¥	264		¥	1,608,968
Appropriations:
Provision for Statutory Reserve		—		18,429			(18,429	)		—			—
Total	¥	—	¥	18,429		¥	(18,429	)	¥	—		¥	—
Unappropriated Accumulated Deficit	¥	—	¥	—		¥	(574,490	)	¥	—		¥	—
	Thousands of U.S. dollars
			Retained Earnings						Net Unrealized Gain on Available-for-sale Securities
For the Fiscal Year ended March 31, 2003	Capital		Statutory Reserve			Accumulated Deficit						Total Equity
Balance at March 31, 2002	$	9,336,822	$	7,801,454		$	(3,597,700	)	$	7,234		$	13,547,811
Net Unrealized Loss on Available-for-sale Securities		—		—			—			(5,031	)		(5,031	)
Transfer from net earnings accounted under the DBJ Law to Statutory Reserve (Note 12)		—		372,243			(372,243	)		—			—
Capital Contribution from the Japanese Government		499,168		—			—			—			499,168
Net Loss		—		—			(656,191	)		—			(656,191	)
Balance at March 31, 2003	$	9,835,990	$	8,173,698		$	(4,626,134	)	$	2,203		$	13,385,758
Appropriations:
Provision for Statutory Reserve		—		153,325			(153,325	)		—			—
Total	$	—	$	153,325		$	(153,325	)	$	—		$	—
Unappropriated Accumulated Deficit	$	—	$	—		$	(4,779,459	)	$	—		$	—

Accompanying notes are an integral part of these financial statements.

26

Development Bank of Japan

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying financial statements have been prepared from the accounts maintained by the Development Bank of Japan (“DBJ”) in accordance with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

The financial statements are not intended to present the financial position and the result of operations in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan.

Non-consolidated statement of cash flows is prepared only for the year ended March 31, 2002, presented in the non-consolidated financial statements, and consolidated statement of cash flows for the year ended March 31, 2003 is presented in the consolidated financial statements.

The amounts indicated in millions of yen are rounded down by omitting the figures less than one million Yen. Accordingly, the sum of each amount appearing in the accompanying financial statements and the notes thereto may not be equal to the sum of the individual account balances.

Amounts in U.S. dollars are presented solely for the convenience of readers outside Japan. The rate of ¥120.20=$1.00, the effective exchange rate prevailing as of March 31, 2003, has been used in conversion. The presentation of such amounts is not intended to imply that Japanese yen amounts have been or could have been readily translated, realized or settled in U.S. dollars at that rate or any other rate.

2. Significant Accounting Policies

(a) Cash and Cash Equivalents

“Cash and Cash Equivalents” in the statements of cash flows consists of cash on hand and due from banks, excluding money held in trust related to principal or interest payments on bonds to financial agencies, that is included in “Cash and due from banks” as presented in the balance sheet.

The reconciliation between “Cash and Cash Equivalents” and “Cash and Due from banks” is as follows:

	Millions of yen
March 31	2002
Cash and Due from Banks	¥	113,629
Trust Money to Financial Agencies		(44	)
Cash and Cash Equivalents	¥	113,585

(b) Securities

Held-to-maturity Debt Securities are stated at amortized cost, on a straight-line basis, computed using the moving-average method. Investments in subsidiary are stated at cost computed using the moving-average method. Available-for-sale Securities whose current values can be estimated are stated at market value (cost is calculated principally using the moving-average method), and other non-marketable securities are stated at cost or amortized cost computed using the moving-average method. Unrealized gains and losses on Available-for-sale Securities are included in Equity.

(c) Valuation Method for Derivative Financial Instruments

All derivative financial instruments are carried at market value.

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(d) Hedge Accounting

(i) Hedge Accounting

DBJ applies the deferral method of hedge accounting. Foreign currency swaps, which are used to hedge the foreign currency fluctuations are translated not at market values but at contractual rates, as the foreign currency swap contracts meet the hedging criteria under the Japanese Accounting Standards for Financial Instruments.

(ii) Hedging Instruments and Hedged Items

Hedging Instrument: Interest Rate Swaps

Hedged Items: Bonds and Notes, Borrowings

Hedging Instrument: Foreign Currency Swaps

Hedged Items: Foreign currency dominated Loans and Bonds and Notes

(iii) Hedging Policy

DBJ utilizes hedging instruments to hedge interest rate and foreign exchange fluctuations on its assets and liabilities within the outstanding asset and liability amounts.

(iv) Evaluation of Hedge Effectiveness

DBJ evaluates effectiveness of the hedges by testing periodically whether the derivatives are effective in reducing the risks associated with the hedged items.

(e) Depreciation basis for Premises and Equipment

Premises and Equipment are depreciated using the declining-balance method, except for buildings (excluding furniture and equipment) that are depreciated on a straight-line basis.

The estimated useful lives are principally as follows:

Buildings: 22 years to 50 years

Equipment: 3 years to 20 years

(f) Amortization of deferred charges

“Discounts on Bonds and Notes” are amortized over the life of Bonds and Notes, and “Bonds and Notes Issuance Costs” are charged to income as they are incurred.

(g) Foreign currency translation and revaluation method

Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the market exchange rates prevailing at the fiscal year end.

(h) Allowance for Loan Losses

DBJ provides for “Allowance for Loan Losses” as detailed below pursuant to the internal rules for self-assessment of credit quality and loan losses.

The allowance for claims on debtors who are legally bankrupt (e.g., due to bankruptcy, special liquidation, and suspension of transactions with banks by the rules of clearing houses) or substantially bankrupt is provided based on the amount of claims, after the write-off described below, net of amounts expected to be collected through disposal of collateral or execution of guarantees.

The allowance for claims on debtors who are likely to become bankrupt for which future cash flows cannot reasonably be estimated is provided for the amount considered to be necessary based on an overall solvency assessment performed on the claims, net of amounts expected to be collected through disposal of collateral or execution of guarantees.

The allowance for claims on debtors who are likely to become bankrupt, to be closely monitored and for which future cash flows can reasonably be estimated is provided for the difference between the present value of expected future cash flows discounted at the contracted interest rate and the carrying value of the claim.

The allowance for claims on debtors other than above is provided based on the historical default rate, which is calculated based on the actual defaults over a certain historical period (the average financing period for DBJ).

All claims are assessed initially by investment and lending departments and then by the credit risk management department, which is independent of the investment and lending departments based on internal rules for self-assessment of credit quality. The allowance is provided based on the results of the self-assessment.

With respect to the claims on debtors who are legally or substantially bankrupt with collateral or guarantees, the amount of claims exceeding the estimated market values of collateral or guarantees, which are deemed un-collectible, have been written-off, and totaled ¥77,016 million ($640,733 thousand) and ¥66,236 million as of March 31, 2003 and 2002, respectively.

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(i) Allowance for Investment Losses

“Allowance for Investment Losses” is provided based on the estimated losses on non-marketable debt securities.

(j) Allowance for Bonus Payments

Allowance for Bonus Payments, which is provided for future payments to employees and executive directors, is maintained at the amount accrued at the end of the fiscal year, based on the estimated future payments and services periods.

(k) Allowance for Employee Retirement Benefits

Allowance for Employee Retirement Benefits represents future payments for pension and retirement benefits to employees and executive directors, and is accrued based on the projected benefit obligations and estimated pension plan assets at fiscal year end. The method of accounting for net actuarial gains/losses is as follows:

Net Actuarial Gains/Losses are charged to income.

(l) Equipment Used under Finance Lease Agreements

Equipment used under finance lease agreements is accounted for as equipment leased under operating leases, except for those in which the ownership of leased equipment transfer to the lessee, in which case the equipment is capitalized.

(m) Consumption tax

Income and expense subject to consumption tax exclude related consumption taxes paid or received.

(n) Income taxes

DBJ is exempt from taxes based on income, however DBJ pays capitation of the inhabitants’ taxes among local taxes.

3. Securities

Securities as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Japanese Government Bonds	¥	204,027	¥	201,489	$	1,697,396
Corporate Bonds		79,051		67,680		657,667
Equities		155,844		161,872		1,296,546
Other securities		150		—		1,248
	¥	439,073	¥	431,041	$	3,652,857

Notes: Investments in subsidiary, in the total amount of ¥10 million ($83 thousand) are included in “Equities”.

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4. Non-performing Loans

The amounts of Non-Performing Loans included in “Loans” on the balance sheets as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Loans to Bankrupt Debtors	¥	54,692	¥	87,722	$	455,014
Delinquent Loans		341,115		283,339		2,837,902
Loans Due Past Three Months or More		6,707		4,523		55,806
Restructured Loans		182,724		280,041		1,520,170
	¥	585,240	¥	655,627	$	4,868,892

Notes:	1.	The amounts of Loans indicated above are stated at gross amounts, before reduction of allowance for loan losses.
	2.	Loans to Bankrupt Debtors represent non-accrual loans to debtors who are legally bankrupt as defined in Article 96-1-3 and 4 of the Japanese Tax Law Enforcement Regulation.
	3.	Delinquent Loans represent non-accrual loans other than (i) Loans to Bankrupt Debtors and (ii) loans whose interest payments are deferred in order to assist or facilitate the restructuring efforts of borrowers in financial difficulties.
	4.	“Loans Due Three Months or More” are loans whose principal or interest payment is three months or more in arrears, calculated from the day payment is due, and do not fall under the category of “Loans to Bankrupt Debtors” or “Delinquent Loans.”
	5.	“Restructured loans” are loans whose repayment terms have been modified to the advantage of debtors through means such as reduction or exemption of interest rates, postponement of principal and interest payments, and forgiveness of loans to support or restructure the debtors’ businesses, and do not fall under the category of “Loans to Bankrupt Debtors,” “Delinquent Loans,” or “Loans Due Past Three Months or More”.

DBJ is committed to lend necessary funds up to the pre-determined amount, which shall be within the borrowers’ financing needs for the projects and up to the agreed maximum amount to lend upon borrowers’ request, provided that the request meets terms and conditions for disbursement prescribed in the loan agreements. The total balance of unused commitment lines as of March 31, 2003 and 2002 are ¥129,003 million ($1,073,239 thousand), including ¥87,221 million ($725,635 thousand) being financed within one year and ¥302,036 million, including ¥218,120 million being financed within one year, respectively.

5. Other Assets

Other Assets as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Prepaid Expenses	¥	89	¥	76	$	743
Accrued Income		73,393		85,483		610,594
Derivatives		5,872		—		48,853
Deferred Hedge Losses		225,383		158,999		1,875,069
Others		15,664		237		130,322
	¥	320,402	¥	244,797	$	2,665,581

Notes: Deferred Hedge Losses are net realized or unrealized losses from hedging instruments. The gross amounts of deferred hedge gains and losses before netting are ¥5,203 million ($43,292 thousand) and ¥230,587 million ($1,918,362 thousand) as of March 31,2003, respectively. The corresponding amounts as of March 31,2002 are ¥429 million and ¥159,429million, respectively.

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6. Premises and Equipment

Premises and Equipment as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Tangible Fixed Assets
Land	¥	20,705	¥	20,763	$	172,258
Buildings		34,188		34,774		284,427
Equipment		2,053		2,204		17,084
Construction in Progress		263		6		2,188
	¥	57,210	¥	57,748	$	475,957
Less- Accumulated Depreciation		18,732		18,347		155,842
Net Book Value	¥	38,477	¥	39,401	$	320,115
Intangible Fixed Assets
Guarantee Deposits	¥	382	¥	405	$	3,177
Others		18		18		150
	¥	400	¥	423	$	3,327
Less - Accumulated Amortization		14		13		123
Net Book Value	¥	385	¥	409	$	3,204

7. Allowance for Loan Losses

Allowance for Loan Losses as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
General Allowance for Loan Losses	¥	289,191	¥	280,626	$	2,405,920
Specific Allowance for Loan Losses		185,412		129,893		1,542,530
	¥	474,603	¥	410,519	$	3,948,450

8. Other Liabilities

Other Liabilities as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Accrued Expenses	¥	63,542	¥	78,737	$	528,637
Unearned Income		49,826		57,817		414,532
Deposits from Employees		181		266		1,511
Derivatives		232,013		159,713		1,930,232
Others		12,244		18,500		101,865
	¥	357,808	¥	315,035	$	2,976,777

9. Allowance for Bonus Payments

Until the fiscal year ended March 31, 2002, accrued liabilities for bonus payments to employees and executive directors, amounting to ¥1,738 million, had been recorded in ‘Accrued Expenses’ that is included in “Other Liabilities”. Beginning from the fiscal year ended March 31, 2003, they are reported as “Allowance for Bonus Payments” in accordance with Japanese Institute of Certified Public Accountants Research Center Review Information No.15, “Concerning Financial Statement Titles to Be Used for Accrued Bonus for Employees”. The effect of this change was to decrease ‘Accrued Expenses’ included in “Other Liabilities” by ¥1,775 million ($14,772 thousand) and to increase “Allowance for Bonus Payments” by the same amount as of March 31, 2003.

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10. Acceptances and Guarantees

Acceptances and Guarantees as of March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Acceptances	¥	—	¥	—	$	—
Guarantees		87,715		78,103		729,745
	¥	87,715	¥	78,103	$	729,745

11. Assets Pledged as Collateral

Securities collateralized in foreign currency transactions are ¥204,027 million ($1,697,396 thousand) as of March 31, 2003, and ¥201,489 million as of March 31, 2002.

12. Retained Earnings

A portion of net earnings calculated pursuant to Article 4 of the Development Bank of Japan Law (“DBJ Law”) was appropriated to Statutory Reserve as stipulated by Article 41 of the DBJ law. Losses carried forward to the following fiscal year are included in Accumulated Deficit at March 31, 2003.

13. Fees and Commissions (Income)

Fees and Commissions (Income) for the fiscal years ended March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2002		2003
Commissions	¥	1,659	¥	3,506	$	13,805
	¥	1,659	¥	3,506	$	13,805

14. Other Operating Income

Other Operating Income for the fiscal years ended March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2002		2003
Gains on derivative instruments	¥	1,020	¥	—	$	8,488
	¥	1,020	¥	—	$	8,488

15. Other Ordinary Income

Other Ordinary Income for the fiscal years ended March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2002		2003
Gains on Sales of Equities and Other Securities	¥	8	¥	31	$	67
Others		206		157		1,720
	¥	214	¥	188	$	1,787

16. Fees and Commissions (Expenses)

Fees and Commissions (Expense) for the fiscal years ended March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2002		2003
Wire Transfer Service Charges	¥	5	¥	5	$	43
Commissions		42		40		358
	¥	48	¥	46	$	401

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17. Other Operating Expenses

Other Operating Expenses for the fiscal years ended March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2002		2003
Foreign Exchange Losses	¥	1	¥	0	$	9
Bonds and Notes Issuance Costs		1,518		877		12,633
Others		457		265		3,806
	¥	1,977	¥	1,143	$	16,448

18. Other Ordinary Expenses

Other Ordinary Expenses for the fiscal year ended March 31, 2003 and 2002 are as follows:

	Millions of yen				Thousands of U.S. dollars
For the fiscal year ended March 31	2003		2002		2003
Provision for Loan Losses	¥	104,107	¥	67,934	$	866,120
Provision for Investment Losses		9,432		1,230		78,469
Write-off of Loans		23,680		45,579		197,006
Write-off of Equities		8,607		9,521		71,610
Losses on Money Held in Trust		15		—		127
Others		5,946		1,494		49,473
	¥	151,789	¥	125,759	$	1,262,805

Notes: Losses on sale of loans ¥5,554 million ($46,213 thousand) are included in “Others”.

19. Employee Retirement Benefits

DBJ has defined benefit pension plans, which consist of welfare pension fund plan and lump-sum severance indemnity plan. The information about Employee Retirement Benefits as of March 31, 2002 is as follows. This information as of March 31, 2003 is reported in the notes to the consolidated financial statements included within.

(a) The Funded Status of the Pension Plans

		Millions of yen
March 31		2002
Projected Benefit Obligation	(A)	¥	(39,819	)
Fair Value of Plan Assets	(B)		10,302
Unfunded Pension Obligation	(C)=(A)+(B)		(29,516	)
Unrecognized Net Obligation at Transition	(D)		—
Unrecognized Net Actuarial Gains/Losses	(E)		—
Unrecognized Prior Service Cost	(F)		—
Net Amount Recognized on the Balance Sheet	(G)=(C)+(D)+(E)+(F)		(29,516	)
Prepaid Pension Cost	(H)		—
Allowance for Employee Retirement Benefits	(G)-(H)	¥	(29,516	)

Notes: The above Projected Benefit Obligations include a portion in which the pension fund manages on behalf of the Japanese Government welfare program.

33

(b) Component of Pension Cost

	Millions of yen
March 31	2002
Service Cost	¥	1,652
Interest Cost		1,069
Expected Return on Plan Assets		(265	)
Amortization of Prior Service Cost		—
Amortization of Net Actuarial Gains/Losses		4,131
Amortization of Net Obligation at Transition		—
Other Costs		—
Net Pension Cost	¥	6,587

(c) Principal Assumptions Used

March 31, 2002
Discount Rate	2.5	%
Expected Rate of Return on Plan Assets	2.5	%
Method of Attributing the Projected Benefits to Periods of Services	Straight-line basis
Amortization Period of Actuarial Gains/Losses	Gains/losses are charged to Income immediately

34

20. Lease Transactions

Lease transactions in the fiscal years ended March 31, 2003 and 2002 are as follows:

(a ) Finance lease transactions

(Excluding leases where the ownership of the property is deemed to have transferred to the lessee)

	Millions of yen
	2003						2002
March 31	Equipment		Others		Total		Equipment		Others		Total
Acquisition Cost Equivalents	¥	871	¥	120	¥	991	¥	634	¥	59	¥	693
Accumulated Depreciation Equivalents		413		43		456		276		30		307
Book Value Equivalents	¥	457	¥	77	¥	535	¥	358	¥	28	¥	386

	Thousands of U.S. dollars
	2003
March 31	Equipment		Others		Total
Acquisition Cost Equivalents	$	7,252	$	1,000	$	8,252
Accumulated Depreciation Equivalents		3,443		358		3,801
Book Value Equivalents	$	3,809	$	642	$	4,451

Future lease payments subsequent to the end of the fiscal year for finance leases (including the interest portion thereon) are summarized as follows:

	Millions of yen				Thousands of U.S. dollars
March 31	2003		2002		2003
Due in One Year or Less	¥	211	¥	168	$	1,760
Due after One Year		328		222		2,734
	¥	540	¥	391	$	4,494

Lease expense, depreciation equivalents and interest expense equivalents relating to finance leases for the fiscal year ended March 31,2003 amount to ¥255 million ($2,123 thousand), ¥246 million ($2,047 thousand) and ¥9 million ($81 thousand), respectively. The corresponding amounts for the fiscal year ended March 31, 2002 are ¥143 million, ¥137 million, and ¥6 million, respectively.

Notes:	1.	The computing method for depreciation equivalents is as follows: Depreciation equivalents are calculated using the straight-line method, assuming that useful life is equal to the lease term and the residual value at the end of the lease term is zero.
	2.	The computing method for interest expense equivalents is as follows: The amount is defined as the difference between total lease payments and acquisition equivalents, which are allocated over the lease term using the interest method.

(b) Operating lease transactions

DBJ has no future lease payments subsequent to the end of fiscal year for operating lease transactions as of March 31, 2003 and 2002.

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21. Derivative Transactions

The information of derivative transactions for the fiscal year ended March 31,2002 is as follows. This information for the fiscal year ended March 31, 2003, is reported in the notes to consolidated financial statement.

1. Details Related to Transactions (Fiscal Year from April 1, 2001 to March 31, 2002)

(a) Details of Transactions

DBJ utilizes derivative financial instruments, which comprise principally of interest rate swap and currency swap.

(b) Policy for Derivative Transactions

DBJ utilizes derivative financial instruments to reduce its exposure to market risks from fluctuations in interest rates and foreign currency exchange rates, and does not hold or issue derivative financial instruments for trading purposes.

(c) Purposes of Transaction

DBJ utilizes interest rate swap transactions to reduce its exposure to the risk of interest rate fluctuations associated with funding transactions, and foreign currency swaps to reduce its exposure to the risks of foreign currency exchange rate fluctuations associated with its loans and bonds denominated in foreign currencies.

DBJ adopted the Japanese accounting standards for hedge accounting as follows:

(i) Hedge Accounting

DBJ applies the deferral method of hedge accounting. Foreign currency swaps, which are used to hedge the foreign currency fluctuations as the foreign currency swap contracts meet the hedging criteria under the Japanese Accounting Standard for Financial Instruments, are translated not at market but at contractual rates.

(ii) Hedging Instruments and Hedged Items

Hedging Instrument: Interest Rate Swaps

Hedged Items: Bonds and Notes, Borrowings

Hedging Instrument: Foreign Currency Swaps

Hedged Items: Foreign currency dominated Loans and Bonds and Notes

(iii) Hedging Policy

DBJ utilizes hedging instruments to hedge interest rate and foreign exchange fluctuations of the hedged liabilities.

(iv) Evaluation of Hedge Effectiveness

DBJ evaluates effectiveness of the hedges by testing periodically whether the derivatives are effective in reducing the risks associated with the hedged items.

(d) Risks Involved in Derivatives Transactions

Derivatives involve the following risks:

(i) Market Risk

Potential loss from changes in the market value of financial products due to fluctuations in interest rates or exchange rates.

(ii) Credit Risk

Potential loss from the failure of a counterparty to perform its obligations in accordance with terms and conditions of contract governing the transactions due to the counterparty’s bankruptcy or deteriorating business conditions.

DBJ uses derivative transactions solely for hedging purpose. Therefore, the market risk on derivatives is offset against the hedged transactions. As for credit risk, DBJ limits the counterparty to financial institutions highly rated by the credit rating agencies, and monitors consistently the cost of restructuring its transactions and creditworthiness of each counterparty. In addition, DBJ transacts with multiple counterparties to reduce credit risk.

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(e) Risk Management Policies for Derivatives

The treasury department enters into and monitors derivative transactions in accordance with the internal management policy, which defines the authorization procedures, including pre-approval by authorized personnel, and limits on derivative transactions.

2. Information on Market Values of Derivatives

The market value of derivatives at March 31, 2002 is as follows:

(a) Interest Rate-related Transactions

There is no interest rate-related derivative transactions whose unrealized gains or losses are recognized currently in income.

Hedge accounting is applied to all of the interest rate-related derivative transactions.

(b) Currency-related Transactions

There is no currency-related derivative transactions whose unrealized gains and losses are recognized currently in income.

Hedge accounting is applied to all of the currency-related derivative transactions.

(c) Equity-related Transactions

Not applicable

(d) Bond-related Transactions

Not applicable

(e) Commodity-related Transactions

Not applicable

(f) Credit Derivatives Transactions

Not applicable

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22. Market Value of Securities and Money held in Trust

Market value of Securities and Money held in Trust as of March 31, 2002are as follows. This information as of March 31, 2003, excluding investments in subsidiary and affiliates with market value, is reported in the notes to consolidated financial statement. For the fiscal year ended March 31, 2003, DBJ holds no investments in subsidiary and affiliates with market value.

1. Securities

(a) Trading Securities

Not applicable

(b) Held-to-maturity Debt Securities with market values

	Millions of yen
					Unrealized Gain (Loss)
March 31, 2002	Book Value		Market Value		Net			Gain		(Loss)
Japanese Government Bonds	¥	—	¥	—	¥	—		¥	—	¥	—
Japanese Local Government Bonds		—		—		—			—		—
Corporate Bonds		57,600		52,440		(5,159	)		188		(5,347	)
Others		—		—		—			—		—
	¥	57,600	¥	52,440	¥	(5,159	)	¥	188	¥	(5,347	)

Notes: Market value is based on the closing price at the fiscal year end.

(c) Available-for-sale Securities with market values

	Millions of yen
	Acquisition Cost		Book Value		Unrealized Gain (Loss)
March 31, 2002					Net		Gain		(Loss)
Equities	¥	—	¥	—	¥	—	¥	—	¥	—
Bonds		200,619		201,489		869		869		—
Japanese Government Bonds		200,619		201,489		869		869		—
Japanese Local Government Bonds		—		—		—		—		—
Corporate Bonds		—		—		—		—		—
Others		—		—		—		—		—
	¥	200,619	¥	201,489	¥	869	¥	869	¥	—

Notes: Book value equals to market value based on the closing price at the fiscal year end.

(d) Held-to-maturity Debt Securities sold

Not applicable

(e) Available-for-sale Securities sold

Not applicable

(f) Held-to-maturity Debt Securities and Available-for-sale Securities whose market values are not readily determinable

	Millions of yen
March 31	2002
Held-to-maturity Debt Securities Unlisted Corporate Bonds	¥	10,080
Available-for-sale Securities Unlisted Equities		161,872
	¥	171,952

(g) Change in Classification of Securities

Not applicable

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(h) Redemption Schedule of Available-for-Securities with maturities and Held-to-maturity Debt Securities

	Millions of yen
	Maturity
March 31, 2002	Within 1 year		1 to 5 years		5 to 10 years		More than 10 years
Bonds	¥	117,923	¥	142,695	¥	8,500	¥
Japanese Government Bonds		110,315		91,174		—		—
Japanese Local Government Bonds		—		—		—		—
Corporate Bonds		7,608		51,521		8,500		—
Others		—		—		—		—
	¥	117,923	¥	142,695	¥	8,500	¥	—

2. Money Held in Trust

Not applicable

3. Net Unrealized Gain on Available-for-sale Securities

The breakdown of net unrealized gain on Available-for-sale Securities is as follows:

	Millions of yen
March 31	2002
Net Unrealized Gain Available-for-sale Securities	¥	869
Other Money Held in Trust		—
	¥	869
Add: Deferred Tax Assets (Less: Deferred Tax Liabilities)		—
Net Unrealized Gain on Available-for-sale Securities	¥	869

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