NBF Report Jul.-Dec. 2002

3rd Period
From : July 1, 2002
To
: December 31, 2002

7-2, Yaesu 2-chome, Chuo-ku, Tokyo, Japan

http://www.nbf-m.com/nbf/

Table of Contents
Pages

Introduction
Message from NBFM to the NBF Shareholders
Location of Office Properties
Portfolio Snapshot
Investment Policies of NBF
Distribution Policies of NBF
Investment Restrictions
I Performance Information Report

1
2
10
12
17
23
24
25

Investment Performance Overview

26

Overview of NBF

32

Outline of Investment Portfolio

36

Capital Expenditures

44

Expenses regarding Entrustment etc.

45

Trading Activities during the Current Period

46

II Financial Statements

49

III Overview of Related Operating Entities

61

IVAppendix

71

Investment Objects

71

Investment Restrictions

73

Corporate Data

Back coverThis document contains translations of selected information described in the Securities Report (yuka shoken hokokusho) filed on March 27, 2003 pursuant to the
Securities Exchange Law of Japan, and the Financial Statements and the Performance Information Report for the period from July 1, 2002 to December 31,2002, of
Nippon Building Fund Inc. prepared pursuant to the Investment Trust Law of Japan.
This English language document was prepared solely for the convenience of and reference by overseas investors and neither corresponds to the original Japanese
documents nor is it intended to constitute a disclosure document. The Japanese language Securities Report and the Financial Statements and the Performance
Information Report for the aforementioned period should always be referred to as originals of this document.
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japaneseterms. With respect to any and all terms herein, including without limitation, financials statements, if there exist any discrepancies in the meaning or interpretation
thereof between the original Japanese documents and English statements contained herein, the original Japanese documents will always govern the meaning andinterpretation. None of Nippon Building Fund Inc., Nippon Building Fund Management Ltd. or any of their respective directors, officers, employees, partners,
shareholders, agents or affiliates will be responsible or liable for the completeness, appropriateness or accuracy of English translations or the selection of the
portions(s) of any document(s) translated into English. No person has been authorized to give any information or make any representations other than as contained inthis document in relation to the matters set out in this document, and if given or made, such information or representation must not be relied upon as having beenauthorized by Nippon Building Fund Inc., Nippon Building Fund Management Ltd. or any of their respective directors, officers, employees, partners, shareholders,
agents or affiliates.
The financial statements of Nippon Building Fund Inc. have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP)
which may materially differ in certain respects from generally accepted accounting principles in other jurisdictions.
Many provisions of this document contain forward-looking statements and information. We base these statements on our beliefs as well as our assumptions based
solely on certain limited information currently available to us. Because these statements reflect our current views concerning future events, these statements involve
known and unknown risks, uncertainties and assumptions. Our future performance could materially differ from those set out in these forward-looking statements. We
do not undertake and will not undertake to release revisions of forward-looking statements to reflect future events or circumstances or of any other statements orinformation contained herein.

Nippon Building Fund Inc.

Introduction
Nippon Building Fund Inc. (formerly: “Office Building Fund of Japan, Inc.”. The current name wasadopted on March 14, 2003, hereinafter “NBF”) is a real estate fund structured in the form of aninvestment corporation as prescribed in the Investment Trust Law of Japan. It was formed on March 16,
2001 in Japan as an investment corporation with the objective of investing in assets, consisting primarilyof Designated Assets (as this term is defined in the Investment Trust Law of Japan). The Investment Trust
Law of Japan requires an investment corporation to be managed by an external entity; management ofsuch assets is entrusted to an asset management company (in this case, “Nippon Building FundManagement Ltd.” (formerly “Office Building Fund Management Japan Limited”) hereinafter “NBFM”)
which undertakes such asset management.
NBF’s primary investment objective is to achieve sustainable growth in portfolio value and stableprofits on a mid-term to long-term basis. NBF intends to achieve this objective by investing in real estate
consisting of buildings primarily used for offices and their underlying land located in Tokyo Central
Business Districts (hereinafter “CBDs”), Other Greater Tokyo and Other Cities in Japan as well as
securities, beneficiary certificates representing beneficiary interests in trusts (hereinafter “beneficiary
certificates”) and other assets backed by office properties(collectively hereinafter “Real Estate etc.”)
NBF, which is a public corporation, is a closed-end fund whose shares are non-redeemable upon
demand by a shareholder. The accounting period is six months, except for the first term. For tax
reporting purposes, NBF may deduct its cash dividends of profits from taxable income under Japanese tax
regulations if it distributes to its shareholders amounts being in excess of 90% of taxable income for theperiod and complies with other organizational and operational requirements. NBF will continue its efforts
to satisfy these requirements.

History of NBF
March 16, 2001

Established by founders: Mitsui Fudosan Co., Ltd., The Chuo Mitsui
Trust and Banking Co., Ltd., and NBFM (at the time known as “MF
Asset Management Co., Ltd.”)

May 10, 2001

Registration under Article 187 of the Investment Trust Law of JapanMay 23, 2001

Commencement of business (acquiring trust beneficiary certificateswith respect to properties consisting of 22 office buildings held in
trust)

September 10, 2001

Listing of common shares on the Japanese Real Estate Investment
Trust (hereinafter “J-REIT”) section of the Tokyo Stock Exchange.

1Message from NBFM to the NBF
Shareholders(right) Toshihiko Fukase, Executive Directorof Nippon Building Fund Inc.
(left)

Koichi Nishiyama, President & CEO of
Nippon Building Fund Management
Ltd., Executive Director of Nippon
Building Fund Inc.

Accumulated Results (Looking back on 2002)
As all of you know, NBF was the first J-REIT to be listed on the Tokyo Stock Exchange. Commencing
operations in May 2001 with total assets of ¥218,971 million, as of the end of 2002 the fund's assets
amounted to ¥290,725 million and it continues to grow.
As of the end of 2002, six J-REIT companies had become listed with NBF taking the top spot in termsof market cap with the value of issued shares being ¥174,595 million based on market price. Among
those companies, only NBF and one other company exclusively invest in office buildings in Japan. NBF
mainly owns grade-A, large-scale buildings in accordance with its policy of aggressively investing inproperties with emphasis on the Tokyo CBDs.
Other Greater Tokyo
35,971million (14.0%)

Other Cities
33,956million (13.2%)

Real estate
17,073million(5.9%)

Real estate held in trust
240,394mil. (82.7%)

Deposits and other assets
33,257mil. (11.4%)

2

Tokyo CBDs
187,540million (72.8%)

Nippon Building Fund Inc.

NBF’s common share price rose approximately 27% during the course of 2002 compared to a 20%
decline in the TOPIX index, meaning that NBF outperformed the TOPIX by 47 percentage points.
Moreover, the total amount of pre-tax distributions per share applicable to the two dates of record for 2002
(September 2002 and March 2003) was ¥32,256, which is equivalent to a 5.2% income return based on theshare price as of the end of 2002.
(yen)(unit)

640,000

30,000620,000
600,000
580,000

20,000560,000
540,000
520,000

10,000500,000
480,000
0

0
Sep
2001

Oct

Nov

Dec

Jan
2002

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

NBF’s results at the close of the second period (January 1 through June 30, 2002) and the third period(July 1 through December 31, 2002) were, respectively, operating revenues of ¥11,259 million and¥11,845 million, net income of ¥4,492 million and ¥4,562 million, distributions per share of ¥16,003 and¥16,253, and total assets of ¥278,976 million and ¥290,725 million. Thus, income increased in tandemwith the growth of assets.
The unrelenting recession in the office rental market in Japan during 2002 featured generally higher
vacancy rates and lower rent levels regardless of geographic location. However, buildings in the NBF
portfolio enjoyed high occupancy rates mainly due to efforts to improve tenant satisfaction, which led totenant stability, while use of NBFM’s original Office Management ( herein“OM” ) systems promoted
efficient property management and reduced operating costs.

(%)

100

95

90

99.9

99.8

99.8

99.8

99.8

99.8

99.9

99.9

99.9

99.8

99.7

99.8

99.8

99.8

96.9

97.0

96.9

97.2

97.2

97.5

97.6

97.3

97.4

97.2

97.3

97.2

97.0

94.4

94.2

94.6

95.0

95.3

94.1

95.0

97.4
95.9

94.9

90.5

91.4

93.6

93.8

93.8

93.0

93.0

94.8
93.4

93.7

92.8

93.6

92.8

91.6

95.6

92.7

92.6

92.5

92.6

96.0
94.7
93.8
92.2

96.0
94.6
93.7
91.9

96.0
94.8
94.5
92.0

95.0

96.4
95.0

96.4
95.3

94.6

94.6

94.7

91.3

91.2

96.4

92.1

85

80

0

May 23 Aug 31 Sep 30 Oct 31 Nov 30 Dec 31 Jan 31 Feb 28 Mar 31 Apr 30 May 31 Jun 30
2001
2002

1st Period

2nd PeriodTokyo CBDs

Other Greater Tokyo

Jul 31 Aug 31 Sep 30 Oct 31 Nov 30 Dec 31 Jan 31 Feb 28
2003

3rd Period
Other Cities

3

4th PeriodTotalIn order to develop NBF’s portfolio and derive the utmost economic efficacy therefrom as well as toestablish a firm foundation for revenue growth, NBFM faced and met the challenge of expanding theportfolio throughout 2002. NBF acquired or executed contracts to purchase six buildings during 2002
with an approximate total value of ¥50,000 million. Three of those buildings are located in the Tokyo
CBDs, one in the Other Greater Tokyo, and two in the Other Cities. These assets were acquired from avariety of sources through the use of differing acquisition methods, all of which involved the applicationof stringent selection criteria. As a result, they accordingly possess the characteristics of being newly
competitive properties.
NBF acquired the following properties during the 3rd fiscal period. As for overviews of the properties
as of the date of 3rd fiscal period end , please see page 37.

Nishi-Shinjuku Mitsui Building
Tokyo CBDs

4

Nippon Steel Building No.2
Tokyo CBDs

Nippon Building Fund Inc.

NBF acquired the following property on February 3, 2003. An overview of the property as of the date of the acquisition is as follows.

Naka-Meguro GT Tower
Tokyo CBDs

Acquisition date:February 3, 2003

Outline of Acquired Property: Condominium interest
Acquisition price:¥13,763 million

Acquisition structure:

Real Estate

Location:

1-1, Kami-Meguro 2-chome, Meguro-ku, Tokyo

Site area:

6,971.15m2 (including an office building, a residential building and a building forretail, residential and public use) in which NBF holds an interest of 47%.

Floor area of building:Gross floor area of the entire building: 56,171.33m2
Floor space of divided condominium interests of NBF:
office:condominium interest in the 14th to 25th
floors of the office building totaling 11,485.20m2
retail:condominium interest in the B1 and B2
floors of the office building totaling 2,051.15m2

Structure:

Steel-framed reinforced concrete building, Flat roof
25 above ground floors, 3 below ground floors

Completion:

March 25,2002

Number of tenants:

1 (Note 3)

Rentable area:

13,569.15m2

Leased area:

13,569.15m2

Occupancy rate:

100%

Note 1Site area, gross floor area, floor space of divided condominium interests of NBF and construction date stated in the outlines are as specified in the real estate register.

Note 2Acquisition price stated does not include national consumption tax, regional consumption tax and miscellaneous costs of acquisition.

Note 3

Mitsui Fudosan is the tenant of the property and a master lessor of 15 sub-tenants as of the date of acquisition.

NBF plans to acquire the following property on November 5, 2003. An overview of the property as of December 25, 2002 (date of the acquisition contract) is as follows.

Sapporo L-plaza
Other Cities

Expected Acquisition date:November 5, 2003

Outline of Acquired Property: condominium interest
Acquisition price:¥3,195 million

Acquisition structure:

Real Estate

Location:

Kita 8-jo, Nishi 3-chome, Kita-ku, Sapporo-city, Hokkaido

Site area:

4,759.69m2 in which NBF holds an interest of 23.2%.

Expected floor area of building:Gross floor area of the entire building:34,643.75m2
Floor space of divided condominium interests of NBF:8,461.09m2

Structure:

Steel-framed reinforced concrete building, Flat roof
:13 above ground floors, 1 tower floor, 2 below ground floors

Expected Completion:

March,2003

Expected Number of tenants: 9
Rentable area:

8,461.09m2

Expected Leased area:

7,702.13m2

Expected Occupancy rate of NBF’s interest:

91%

Note 1Site area is as specified in the real estate register. Location and expected floor area of the property described in the outline above are as stated in the “Rights Conversion Plan of Class 1 Urban Redevelopment
Project for the Western District of North No. 8 West No. 3 approved by Sapporo City”.

Note 2

Expected acquisition price stated does not include national consumption tax, regional consumption tax and miscellaneous costs of acquisition.

Note 3

The relevant purchase and sale agreement is subject to certain conditions and the agreement can be terminated if such conditions have not been satisfied on or before delivery.

5

A Year of Differentiation (Outlook and Policies for 2003)
A recent popular topic in the real estate markets of Japan is the so-called “2003 Problem”. What people are talking about is the impact ofapproximately 1 million square meters of new space in mostly newly constructed, large-scale and high spec office buildings slated forcompletion during 2003. This space is equivalent to approximately 3% of the current stock of office space (total: approximately 29 million
square meters in the 23 wards of Tokyo (source: Ikoma Data Service System). Some in the industry say that this problem may become more
serious due to their perception that in light of current economic conditions in Japan, demand may be insufficient to absorb this new capacity.
If the question is “Will this take the wind out of NBF’s sails?”, the answer is “No.” Here are the reasons why:
1) NBFM had already anticipated this impact in 2001 and conducted asset management activities so as to minimize it. For example, we
extended the terms of lease contracts for many properties thereby stabilizing future revenues.
2) NBF’s properties are hallmarked by competitiveness, high levels of trust and satisfaction from tenants etc. For example, the results of the
2nd tenant satisfaction survey conducted with each tenant in 2002 showed that more than 90% of them were very satisfied, and inconsequence, the occupancy rates in 24 out of 28 rental markets where NBF’ owns properties are higher than average.
3) At present, NBF’s business standing is sufficiently sound to enable it to acquire new properties through the use of additional debt rather
than the issuance of new shares (this is not, however, to say that new issues of shares will never occur). This strength may lead to the
upward revision of forecasted financial results for NBF.
4) Further contributions to results are expected through reduction of rental costs, etc.
Contrary to the general perspective, 2003 is, in NBFM’s opinion, a year of differentiation for both external and internal growth based on the
cumulative effect of the factors described immediately above. Our strategies are as follows:In addition to the maintenance of high occupancy rates by means of improvement of satisfaction of tenants, one of the most important issues
is leasing existing or future vacant space. More specifically: the issues of how to lease up the lower floors of the Shiba NBF Tower aftertermination of T&D Financial Life Insurance Company lease contract and the upper floors of the same Shiba NBF Tower as well as the Mita
City Building, terminations which are expected during 2003. We consider this a good opportunity to show NBF’s real potentials by improving
office specifications following termination thereby strengthening competitiveness vis-a-vis neighboring offices, and by supplying tenants ofhigh standing with satisfactory office space based on long term commitment.
Next, based on NBFM’s forecasts regarding the impact of the 2003 Problem and the recovery of the market thereafter, we believe that (1)internal growth may be achieved by retaining stable tenants and reducing operating costs, and that (2) as the differences between NBF and otherreal estate funds become apparent during weak markets, there will be exciting opportunities for well-managed and highly-motivated companies
like NBF to expand externally through the acquisition of new properties. As a result, the aggressive acquisition of new properties on behalf of
NBF based on stringent selection criteria will continue to be both a priority and a welcome challenge for NBFM.
As for operational costs, we continue to reduce fees paid for building maintenance. As for other costs, in light of the fact that as of date ofMarch 2003 total assets reached approximately ¥300,000 million and NBFM and Mitsui Fudosan, the latter being responsible for OM, havebegun to enjoy the benefits of scale in their operations, it has been decided to reduce the percentages of asset management fees and OM fees
related to the operating revenues of NBF. This decision is not only intended to cut costs, but also reflects the fact that as the scale of assets
increases, the growth of net income becomes more important than the expansion of revenues in determining the compensation of NBFM and
Mitsui Fudosan. NBFM believes that the effect of such changes in the incentives of NBFM and Mitsui Fudosan with respect to management
activity will be in the best interests of NBF’s shareholders. Moreover, the decrease of operational costs etc. and increase of cash flows fromoperations may contribute to further competitiveness of properties by permitting the allocation of revenues to new investment or repairs andmaintenance in relation to large-scale and strategic renovations of existing buildings. Also, this serves as a driving force for NBF to reach thelevel of a ¥500,000 million company.
Faced with these conditions, every J-REIT and private real estate fund investing in Japan, including but not limited to NBF, will find it achallenge to achieve a higher level of performance in 2003 than in 2002. At the same time NBFM’s continuous management efforts toward thetargets of steady growth of managed assets and of securing stable revenues from a mid and long-term perspective will achieve a difference inresults.

6

Nippon Building Fund Inc.

NBFM’s Management Policy
With respect to asset management activities, shareholders should take note that NBFM and NBF utilize the various abilities of Mitsui
Fudosan with respect to real estate. For example, Mitsui Fudosan makes very important contributions in areas such as advising andassisting in the review of potential investments in new properties as well as in leasing. In addition, Mitsui Fudosan and NBF
collaborated in a direct manner in connection with NBF’s acquisition of the Naka Meguro GT Tower property. In this case, Mitsui
Fudosan undertook management tasks during the stages from initial development to immediate post-completion. After revenues
stabilized, NBF acquired Mitsui Fudosan’s interest in the property. This model may become one of the keys to NBF’s strategy ofdifferentiation. Mitsui Fudosan and its subsidiaries are “interested parties” of NBF. With respect to any transaction which mayengender a conflict of interest, we consider it essential that such transaction occur in an appropriate manner and that proper disclosures
be made.

General Meeting ofshareholders

The Chuo Mitsui Trustand Banking

Asset Custody
Entrustment

Asset Management
Entrustment

Asset Custody

Mitsui Fudosan

Office Management
Entrustment

Office Building FundManagementJapan(NBFM)

Nippon Building
Fund Inc.
(NBF)
Board of Directors

NBF Office
Management

Borrowings/Bonds
Debt service

Liabilities

OfficeManagement

Investment

AssetsRent etc.

Investment

Shareholders’EquityReal Estateetc.

Distribution

Qualified
Institutional
Investors/
Bondholders

Shareholder

Trading

Shareholder

With two years having elapsed since its formation, NBFM’s vigorous activities as an asset management company are starting to pay
off. We are continuously improving our organization, including existing personnel, and implementing efforts to adapt for expansions ofscale by specializing internal functions and streamlining office management systems.

7

NBFM’s Stance Regarding External Growth
NBFM’s basic policy concerning expansion is to continue an aggressive investment program on behalfof NBF. Sales of quality properties are expected to increase due to financial and asset restructuring, thereorganization of Japanese enterprises, as well as the disposition of bad debts by financial institutions.
Specifically, NBFM has the goal of facilitating the growth of NBF’s assets to ¥500,000 million by theend of March 2006. The acquisition goal with respect to the end of March 2004 is ¥70,000 million. As
was the case in 2002, investment targets will be selected mainly from the Tokyo CBDs.

Financial Management
The availability of favorable funding options together with healthy financial management makes it
possible to conduct active asset management. It is very important for NBF to maintain access to financial
markets as well as bargaining power in real estate markets based on the size of its portfolio and as theresult of such financial management practices.
In preparation for anticipated future increases in interest rates, the replacement of existing interestbearing obligations with long-term loans or fixed-interest loans continues. NBF also enjoys ‘A’ long-termand ‘A-1’ short-term corporate credit ratings by S&P and an issuer rating of A3 by Moody’s, which wereawarded after the close of its first period. Terms and conditions for funding though loans or the issuanceof bonds are decided taking these ratings into consideration.

8

Nippon Building Fund Inc.

(Conclusion)
Since NBF became a listed company in September 2001, NBF’s shareholders are now evenly
distributed into the categories of financial institutions, corporations, individuals and foreign investors.
While great efforts have exerted to advance the level of disclosure when conducting investor relations todate, we are of the opinion that we have yet more work ahead of us in order to bring about a higher levelof understanding of NBF and NBFM, both domestically and abroad. We intend to further strive toward
this goal now that NBF is a public company.
Trust is one of the most important factors in business. Our objective is to earn further trust through theresults of our performance. We hope to increase the level of such trust, suitable for a leading J-REIT
company, by enhancing brand equity based on evaluations by tenants as well as by the financial markets

Koichi Nishiyama
Nippon Building Fund Management Ltd.
President & CEO

9Location of Office Properties
Tokyo CBDs
Kita-ku

Itabashi-ku

Arakawa-ku
IkebukuroHaToshima-ku
oshima-ku

Nippori

ku

sa

n-

dori

Av
e

.

-

Bunkyo-ku
BunkyoTaito- -ku

Showa-do- ri Av

e.

Ueno

Shinjuku-ku

Sumida-ku

oda-kuChiyoda-ku
Chiy

So

tob

or

-

Ome-kaido Ave.

i-d oriAve

Meiji-do- ri

Nakanosakaue
-

.

Ave.

Chu- o- Line

Shinjuku

Mitsukoshimae

- shu

Ko

e.
- ri Av-do

Shibuya-ku
a

am

Aoy

Hib
iya
-dori Ave.

- Ave.
o- -kaidve

O temachi-

Kiyosubashi-dori Ave.
-

-

Tokyo

Ko- to- -ku.

- ri Aodgi-Toranomon

n

po

-

Imperial Palace

Yotsuya

Shinbashi

Chu- o- -kupRoRoppongi

Shibuya

Yam

.

te L

ano

e
Av

TamachiineNakamegurove- ri A
do
tema
Ya

- ri
o
-d
wa
a
ag
m
Ta

Hamamatsucho-

Minato-ku

Setagaya-ku.

Meguro-ku

ShinagawaTo- kyo- -Bay

keih
in H

Daini-

ighway

keihinHigh way

Shinagawa-ku
Shinagawa-ku
Shinaga
wa-ku

chi-

Express way

Daii

JR LineSubway Ginza Line
Subway Marunouchi Line

(Other Greater Tokyo)
Nakano-Sakaue Sunbright Twin

Subway Hibiya Line-NKK Headquarters’ Bldg.
Shiba NBF Tower
Shinjuku Mitsui Bldg. No.2
GSK Bldg.
Kowa Nishi Shinbashi Bldg. B
Nippon Steel Bldg. No.2
Nihonbashi Muro-machi Center Bldg.
Takanawa 1-chome Bldg.
Mita City Bldg.
Shinjuku Yocho-machi Bldg.
Nishi-Shinjuku Mitsui Bldg.

-

Subway Hanzomon Line10

Nippon Building Fund Inc.

su

- et
Jo

ToSh hok
ink u
an
se
n

Tsukuba Mitsui Bldg.

Joba

Tsukuba(temporaly)nE

IBARAKI

xp

wy

Other Greater TokyoTSUKUBA-SHI

)
05
20
r
ss fo
re n
xp la
E p
a ing
ub n
uk en
e
Ts Op
Lin
(
- an
Job

ku

en

- ho

ns

To

ka

in

Sh

SAITAMA

y
pw
Ex

-

Omiya

Daido Life Omiya Bldg.
SAITAMA-SHI
su
et
nKa
-

y
pw
Ex

Toky

o- Ga

ikan

Expw

y

-

Matsudo City Bldg.
MATSUDO-SHI

-

TOKYO

MatsudoTokyo CBDs
MUSASHINO-SHI

CHIBA

Kitasenju

Nakano-Sakaue
Sunbright Twin

Shinjuku

Akihabara

CHOFU-SHI
pwy

-

to

hi-kanHigasyExpw

To- kyo--Shibuya

- Ex
-o
Chu

Inagekaigan

CHIBA-SHI
Shinagawa

Tome
iE
xp
wy

Inage Kaigan Bldg.

Chiba

Other Cities

To- kyo- -Bay

Kawasaki

KANAGAWAKAWASAKI-SHI

YOKOHAMA-SHI
Yokohama

Toky ow
a

nA

qu

aL

ine

Sapporo Minami Nijo Bldg.

Yokohama ST Bldg.

JR LineExpress Way

Daido Life Sendai Bldg.

Niigata Telecom Bldg.

Unix Bldg.
Shijo Karasuma Minami Bldg.

Other Greater Tokyo
Hamamatsu City Bldg.

Hakata Gion 21 Bldg.

Sun Mullion NBF Tower
Otemae Center Bldg.
Kyoumachi bori Center Bldg.
Sakai Higashi Center Bldg.

11

Portfolio Snapshot

NKK Headquarters’ Bldg.

GSK Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo: 5,495.49m2: 62,949.13m2: Above ground: 18 floors, below ground 4 floors: June 1974

: 6-15, Sendagaya 4-chome, Shibuya-ku, Tokyo: 5,335.28m2: 29,137.86m2: Above ground: 18 floors, below ground 4 floors: November 1990

Shiba NBF Tower

Kowa Nishi Shinbashi Bldg. B

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 1-30, Shiba Daimon 1-chome, Minato-ku, Tokyo
: 6,475.44m2 (*): 44,437.17m2: Above ground: 18 floors, below ground 3 floors: October 1986

: 14-1, Nishi Shinbashi 2-chome, Minato-ku, Tokyo: 2,449.40m2 (*): 20,180.42m2 (*): Above ground: 16 floors, below ground 2 floors: August 1994(*)Note: NBF has leasehold right in trust for most of the land underlying of the building.

(*)Note: Condominium ownership of the building (partly co-owned interest thereof). NBF owns approx.83% of the entire
building.
For further information, see page33, Note5 of Selected Data by Property

Shinjuku Mitsui Bldg. No.2

Nippon Steel Bldg. No.2

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure: 2-11, Nishi Shinjuku 3-chome, Shinjuku-ku, Tokyo: 2,980.64m2: 27,685.90m2: Above ground: 18 floors, below ground 4 floors: October 1983

Completion: 31-1, 31-7, 20-15, Shinkawa 2-chome, Chuo-ku, Tokyo: 4,307.41m2 (*): 25,938.79m2(*): Above ground: 15 floors, below ground 2 floor: Above ground: 10 floors, below ground 1 floor: November 1989(*)Note: This property consists of the East and Maison New River Building (site area of 2,775.23m2; floor area of
17,586.10m2) and the West Building (site area of 1,532.18m2; floor area of 8,352.69m2). The figures statedabove as “Site area” and “Floor area” are total figures.

12

Nippon Building Fund Inc.

Nihonbashi Muro-machi Center Bldg.

Shinjuku Yocho-machi Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 2-15, Nihonbashi Muro-machi 3-chome, Chuo-ku, Tokyo: 3,097.74m2 (*): 23,019.01m2(*): Above ground: 12 floors, below ground 1 floor: October 1986

: 10-10, Yocho-machi, Shinjuku-ku, Tokyo: 1,984.82m2: 7,185.38m2: Above ground: 7 floors, below ground 1 floor: January 1989(*)Note: Ownership interest is of floors 6-12 of the building. Above figures for floor area are for the entire building.
For further information, see page33, Note6 of Selected Data by Property

Takanawa 1-chome Bldg.

Nishi-shinjuku Mitsui Bldg.

Location

Location
Site area
Floor area of building
Structure
Completion

Site area
Floor area of building
Structure
Completion: 3-13, Takanawa 1-chome,
Minato-ku, Tokyo
: 2,618.77m2: 12,847.59m2: Above ground: 9 floors: November 1987

: 24-1, Nishi-shinjuku 6-chome, Shinjuku-ku, Tokyo: 10,014.02m2(*): 84,634.02m2(*): Above ground: 27 floors, below ground 2 floor: April 1999(*)Note: The figures given for “Site area” and “Floor area” above indicate the total site area and total floor area of
this property. NBF owns 3.7% of the site area. An office building (the Nishi-Shinjuku Mitsui Building) anda residential building are located on this site. NBF owns the 18th floor of the office building (1,558.18m2),
which represents 4.1% of the exclusive use area of the office building.

Mita City Bldg.

Nakano-Sakaue Sunbright Twin

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building: 12-15, Mita 3-chome, Minato-ku, Tokyo: 1,458.95m2: 9,185.13m2: Above ground: 12 floors, below ground 1 floor: June 1991

Structure
Completion13: 46-1, Honcho 2-chome, Nakano-ku, Tokyo: Size of total site 10,331.90m2: Floor space of divided condominium interests are
10,955.90m2 and 984.32m2 respectively ,out of the gross floor area of the entire building:
63,396.95m2(including common areas): Steel-framed reinforced concrete building, Flat roof
Above ground: 30 floors, below ground: 2 floors: September 1996

Yokohama ST Bldg.

Matsudo City Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 11-15, Hokko1-chome, Nishi-ku, Yokohama, Kanagawa: 6,348.45m2 (*): 42,568.77m2 (*): Above ground: 18 floors, below ground 2 floors: October 1987

: 18-4, Hon-cho, Matsudo, Chiba: 1,064.25m2: 6,386.17m2: Above ground: 8 floors: August 1992(*)Note: Co-ownership of 75% of the site and floor area.

Tsukuba Mitsui Bldg.

Inage Kaigan Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 6-1, Takezono 1-chome, Tsukuba, Ibaraki: 6,280.82m2 (*): 26,266.10m2 (*): Above ground: 19 floors, below ground 2 floors: March 1990

: 23-2, Takasu 3-chome, Mihama-ku, Chiba, Chiba: 1,884.29m2: 7,175.12m2: Above ground: 7 floors: November 1992(*)Note: Co-ownership of 75% of the site and floor area.

Daido Life Omiya Bldg.

Sapporo Minami Nijo Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 23-1, Yoshijiki-cho 1-chome, Saitama, Saitama: 1,290.21m2: 6,155.16m2: Above ground: 8 floors: October 1991

14

: 18-1, Minami Nijo Nishi 2-chome, Chuo-ku, Sapporo, Hokkaido: 970.42m2: 8,149.78m2: Above ground: 9 floors, below ground 2 floors: November 1990

Nippon Building Fund Inc.

Daido Life Sendai Bldg.

Hamamatsu City Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 16-10, Honcho 2-chome, Aoba-ku, Sendai, Miyagi: 1,658.99m2: 10,585.42m2: Above ground: 14 floors, below ground 1 floor: June 1987

Unix Bldg.
Location
Site area
Floor area of building
Structure
Completion: 312-32, Denmacho, Hamamatsu, Shizuoka: 1,144.81m2: 6,931.30m2: Above ground: 9 floors: December 1990

Sun Mullion NBF Tower: 6-6, Sakae-cho, Fukushima, Fukushima: 3,112.75m2: 23,420.12m2: Above ground: 11 floors, below ground 2 floors: September 1994

Location
Site area
Floor area of building
Structure
Completion: 6-12, Minami-Honmachi 2-chome, Chuo-ku, Osaka, Osaka: 2,150.36m2: 23,755.80m2: Steel-framed reinforced concrete
Above ground: 22 floors, below ground: 2 floors: January 1996

Niigata Telecom Bldg.

Sakai Higashi Center Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 4-27, Bandai 4-chome, Niigata, Niigata: 2,385.83m2: 14,146.71m2: Above ground: 10 floors: May 198915

: 3-17, Kita Kawara-machi 1-cho, Sakai, Osaka: 1,978.53m2: 7,294.35m2: Above ground: 8 floors: June 1991

Otemae Center Bldg.

Hakata Gion 21 Bldg.

Location
Site area
Floor area of building
Structure
Completion

Location
Site area
Floor area of building
Structure
Completion: 2-15, Otemae 1-chome, Chuo-ku, Osaka, Osaka: 1,038.25m2: 7,580.74m2: Above ground: 13 floors, below ground 1 floor: June 1992

Kyoumachibori Center Bldg.
Location
Site area
Floor area of building
Structure
Completion: 17-16, Kyoumachibori 1-chome, Nishi-ku, Osaka, Osaka: 530.21m2: 3,919.95m2: Above ground: 10 floors, below ground 1 floor: April 1987

Shijo Karasuma Minami Bldg.
Location
Site area
Floor area of building
Structure
Completion: 167, Dojishacho, Karasuma Nishi-iru, Ayanokoji, Shimogyo-ku,
Kyoto, Kyoto: 761.21m2: 5,792.21m2: Above ground: 9 floors, below ground 1 floor: September 199116

: 2-1, Gion-cho, Hakata-ku, Fukuoka, Fukuoka: 1,394.88m2: 7,477.69m2: Above ground: 9 floors: April 1993

■Investment Policies of NBF
1. Basic Investment Policies
A.

Basic Policies

NBF’s primary investment objective is to achieve sustainable growth in portfolio value and stable profits on a
mid-term to long-term basis. NBF intends to achieve this objective by investing in real estate consisting ofbuildings primarily used for offices and their underlying land located in Tokyo Central Business Districts (hereinafter“CBDs”), Other Greater Tokyo and Other Cities in Japan as well as securities, beneficiary certificates representing
beneficiary interests in trusts (hereinafter “beneficiary certificates”) and other assets backed by office properties（collectively hereinafter “Real Estate etc.”）（“Investment Objects and Policies”, Articles of Incorporation）.
（Note: laws, documents and so forth used as the basis or sources hereof are set forth in parenthesis in thissection.)B.

Investment Strategy

NBFM will, based on the investment strategy of NBF set forth below, invest and manage the assets of NBF.
NBFM has established asset management guidelines based on the Articles of Incorporation of NBF and inaccordance with the investment strategy of NBF.

(1) Special Characteristic of Investment Objects
Compared to other sectors of income-producing real estate in Japan, NBF believes that there exists a
relatively abundant stock of high-quality office buildings. NBF also believes it will be able to take advantageof this special characteristic both to create the portfolio and to efficiently undertake management of the officebuildings (Office Management Business, as defined below), placing emphasis thereon in adopting the basic
policies described above.

(2) Strategy for Creation of the Portfolio
It is desired that the managed assets in the portfolio experience steady growth and generate stable profits
on a mid-term to long-term basis. At the time of selection of investment assets, the composition of investment
assets for the portfolio will be based on consideration of a quantitative proportion of the office stock located in
the various regions of Japan.
Area Diversification
In the investment strategy of NBF, the investment area is divided into three areas consisting of Tokyo
CBDs, Other Greater Tokyo and Other Cities in such manner that 70% or more of total investment assets (Real
Estate etc.) is allocated to Tokyo CBDs and Other Greater Tokyo and 30% to Other Cities. The purpose of thisarea diversification is to mitigate cash flow risks such as risks of earthquakes, risk of vacancies and so forth.

17

The following table sets forth abovesaid area diversification strategy.
Area and Allocation Ratio
Area Analysis
Tokyo CBDs
9 central wards in Tokyo :Chiyoda, Minato, Chuo, Shinjuku,
Shinagawa, Shibuya, Toshima, Bunkyo
and Meguro■ Relatively high rent levels and low vacancy rates
compared to Other Cities; also, relatively large market
scale (both leasing and purchase/sale) with highgrowth rates.
■ Relatively low yearly NOI yields. Relatively highliquidity at the time of sales.

Other Greater Tokyo■ Basic special characteristics are between those of
Other 14 wards in Tokyo andTokyo CBDs and Other Cities.
Neighboring Cities (see Note 1 below)
such as Musashino, Tachikawa,
Yokohama, Kawasaki, Chiba, Kashiwa,
Saitama etc.
Total of above two areas :70% or more

Other Cities
Principal regional cities such as
Sapporo, Sendai, Niigata, Shizuoka,
Hamamatsu, Nagoya, Kyoto, Osaka,
Kobe, Okayama, Hiroshima,
Takamatsu, Fukuoka, Kumamoto etc.

■ Rent levels relatively low and vacancy rates relatively
high compared to Tokyo CBDs.
■ Also, scale of market is relatively small and growth
rates relatively low.
■ Relatively high yearly NOI yields. Relatively low
liquidity at the time of sales.

Total of above area: 30% or less
Note 1 "Neighboring Cities" refers to the Metropolis of Tokyo excluding its 23 wards, and the 6 prefectures of
Kanagawa, Chiba, Saitama, Ibaragi, Gunma and Tochigi.
Note 2 Due to reasons such as unforeseeable, extreme fluctuations in macro-economic trends, financial trends, realestate market trends and so forth, it may not always be possible to operate in accordance with each of theabove criteria (“ Investment Objects and Policies”, Articles of Incorporation).

(3) Acquisition Strategy
Ratio of Real Estate Assets
NBF will maintain ratios of 75% or more with respect to both the “Designated Real Estate Ratio” and the“Real Estate etc. Ratio”(both defined in the Note below). As of December 31 2002, NBF satisfied both of theabove criteria.
Note:
The ratio of the amount of Designated Real Estate acquired by NBF to the total amount of Designated Assets (asthose terms are defined in the Investment Trust Law of Japan, with said ratio hereinafter “Designated Real
Estate Ratio”) will be 75% or more.
Note:

Designated Real Estate means real estate, real estate leasehold rights, superficies and beneficiary

certificates backed by real estate, land leasehold rights and superficies (as designated under Article 83.7.2.1 of18

the Special Taxation Measures Law of Japan).
The ratio of the amount of Real Estate etc. (real estate, real estate leasehold rights, superficies and beneficiary
certificates (but limited to real estate held in trust, land leasehold rights and superficies) and tokumei kumiai
ownership interests (but limited to operating real estate, real estate leasehold rights and superficies) to the total
amount of all assets (herein “Real Estate etc. Ratio”) will, in accordance with the relevant Article of the Finance
Ministry Ordinance (Finance Ministry Ordinance) be 75% or more.

Due Diligence
When investing in office properties, selections will be made through comprehensive research and analysis
based on the forecast investment yields resulting from their acquisition costs and their anticipated profits, future
prospects and stability of the area of location, availability of measures responding to risks of deterioration andobsolescence, insurability and so forth. The details of the relevant criteria are set forth in the following table(“Investment Objects and Policies”, Articles of Incorporation).
Though such consideration will involve the study of the criteria included in the following table, it ispossible that when NBF acquires or intends to acquire operating assets, not all of the following criteria will besatisfied.
Item

Points to be reviewed

Scale of building■ Net rentable area, including net rentable area of entire building
and standard net rentable area per floor. Desired total net
rentable area is 1,650㎡(approximately 500 tsubo) or more.
Standard net rentable area per floor is 330㎡ (approximately 100
tsubo) or more

Construction type andspecifications of facilities■ Building design and floor plan suitable for leasing, withdivisibility, adequate ceiling height, electrical service, HVAC
equipment etc.

Earthquake resistance■ Ensure that construction quality exceeds earthquake standards(meaning those required pursuant to the Building Standards Law
as amended in 1981) or standards equivalent thereto.

Measures regarding status oflegal title■ In cases such as co-ownership, divided condominium ownership,a building erected on leased land etc. where NBF will not obtaincomplete ownership of a building: measures to protect security
deposits, policies and measures regarding cash reserves forlong-term renovation plans; appropriate measures regarding
demands for division of co-owned interests or the sale of aco-owner’s interest etc; condition of secured interests establishedprior to acquisition etc.

Tenancy characteristics■ Acceptable creditworthiness of tenants, purposes of use bytenants, configuration, and condition of collectibility of rents etc.

Current building managementetc.

■ Condition of compliance with applicable laws and regulations etc

19Environmental; condition ofland etc.

■ Absence of harmful substances such as asbestos, (orcountermeasures can be implemented for any such substances),
non-existence of soil pollution etc.

Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate etc. which are leased/leasable assets at the time of closing. NBF
may acquire a property which is not yet leasable at the time of closing based on consideration of the impact on
NBF's asset management activities after taking into account the investment amount, the date of completion orof becoming leasable, estimated revenues and so forth; provided, however, that the contract amount of any such
unleasable asset combined with the total contract amount of previously acquired unleasable assets (butexcluding unleasable assets which thereafter become operational) will not exceed 10% of the total assets
indicated on the most recent balance sheet of NBF. For this purpose, “leased/leasable assets” shall mean
property with respect to which the construction of the building has been completed and such building is leasedor leasable. Properties which are owned by NBF and have become operational at some point shall be deemed“leasable ” thereafter (including such cases as reconstruction or large-scale renovation of a building).
“unleasable assets” shall mean properties etc. other than leased/leasable assets. However, consideration of theacquisition of uncompleted or unleasable assets above will occur only after the total amount of assets reaches
approximately ¥300,000 million.
Direct Acquisition of Real Estate
One objective is for the ratio of the amount of real estate directly acquired by NBF to the total amount of
Designated Assets acquired by NBF during each year to be 50% or more of Designated Real Estate. Thisobjective will be applicable during the period from April 1, 2002 until the existence of the measures to abate thereal estate acquisition tax (“Investment Objects and Goals”, Articles of Incorporation).

(4) Management and Disposition Policies
Regarding acquired operating properties, the goal is to obtain steady growth of operating profits on a
mid-term to long-term basis by planning to maintain and improve asset value and competitive ability throughinvestment in facilities and by expanding income (increasing rents etc., increasing occupancy rates, extending
the term of leases and rendering them more stable etc.) and reducing property-related expenses.
NBF will, in principle, for the purpose of assuring stable income on a mid-term to long-term basis, leaseout all operating properties included in operating assets (including installation of parking lots, billboards etc.).
When conducting such leasing, security deposits etc. and other similar monies may be received and said monies
will be managed in accordance with the requirements of “Investment Objects and Policies” of the Articles ofIncorporation (“Investment Objects and Policies”, Articles of Incorporation).
Reserves for Long-Term Renovations
NBF is entitled to establish reserves for long-term renovations required to maintain and enhance the valueof operating properties, reserves for payables, reserves for cash distributions and any other similar reserves etc.
(Articles of Incorporation). From among the reserves set forth above, a portion corresponding to renovations,repairs and tenant improvements will be determined based on renovation plans for each building. As of March
20

20, 2002, foreseen reserves provided from January to December 2003 are as follows:
Item
ReasonReserves for long-term renovations ■ Average annual amount over an approximately
10-year period based on engineering reports
Reserves for tenant improvements(reserves for future construction
expenses required for spaces leased
to tenants)■ Expenses of providing “free access floor”(orraised floor); expenses for other move-inconstruction costs (partitions etc.)

Total Foreseen Amount: (annual basis)¥2,797 million

Measures to Avoid Reductions and Fluctuations in Operating Income
In order to avoid large-scale reductions and fluctuations in operating income due to fire damage,withdrawal of tenants and so forth, efforts, beginning with area diversification, will be exerted to obtainadequate fire and casualty insurance, such as fire insurance, insurance for loss of rental income caused byearthquakes, owner’s liability insurance etc.
Disposition
In disposing of individual operating properties, selections will be made through comprehensive research
and analysis based on the forecasted income, actual and predicted fluctuations in asset value, future prospects
and stability of the area of location, risks of deterioration and obsolescence of real estate and predicted costs
thereof as well as the composition of the portfolio etc. Study as to whether to sell or hold will be periodicallyundertaken with respect to all operating properties (“Investment Objects and Policies”, Articles ofIncorporation).
Appraisal Value etc.
In the event that valuation of real estate, land leasehold rights and superficies (including beneficiary
certificates, securities and tokumei-kumiai ownership interests, and other asset-backed instruments) is
undertaken for the purpose of disclosure in Performance Information Reports etc., the value to be used fordisclosure will, in principle, be the appraisal valuation provided by a certified real estate appraiser (Articles ofIncorporation).

(5) Financial Policies
Issuance of Shares
NBF may issue shares in order to undertake acquisition and renovation and so forth of assets and toprovide allowance for funds required for working capital as well as for the repayment of debt (including
security deposits, borrowings and repayment of obligations regarding NBF bonds and notes etc.)
Debt Financing
NBF may borrow capital (including use of the call loan market) and issue bonds and notes in order toundertake acquisition and renovation and so forth of assets and to provide allowance for funds required forworking capital as well as for the repayment of debt (including security deposits, borrowings and repayment of21

obligations regarding NBF bonds and notes etc.) (“Investment Objects and Policies”, Articles of Incorporation).
NBF will in principle, when undertaking borrowings or issues of NBF bonds and notes, undertake
short-term borrowings as a flexible method of obtaining capital required for the acquisition of new properties,
and undertake mid-term to long-term borrowings at fixed interest rates, or issue NBF bonds and notes, as astable method of obtaining capital.
Borrowings are limited to those from Qualified Institutional Investors as specified in Article 2.3.1 of the
Securities and Exchange Law of Japan, in case capital is borrowed. Further, the total limit on all suchborrowings and issues of NBF bonds and notes will be ¥1,000,000 million. When undertaking borrowings orwhen issuing NBF bonds and notes, NBF may provide operating assets as collateral (Articles of Incorporation).
Loan to Value Ratio
The ratio of the total amount of borrowings and issues of NBF bonds and notes to the total amount ofassets of NBF (Loan-to-Value ratio) is envisioned to be limited to 60%, but may temporarily exceed 60% when
acquiring certain assets etc.
Derivatives
In order to avoid risks of fluctuation in the prices of operating assets as well as risks of fluctuations ininterest rates, futures transactions, option transactions, swap transactions and forward rate transactions withrespect to Japanese interest rates may be undertaken (“Investment Objects and Policies”, Articles ofIncorporation).

22

■ Distribution Policies of NBFA.

Distributions of Profits

A registered investment corporation may deduct its cash dividends of profits from taxable income underJapanese tax regulations if it distributes to its shareholders in excess of 90% of its taxable income and complies
with other organizational and operational requirements. NBF intends to make dividend distributions that
ensure that NBF satisfies those requirements.
NBF will, in principle, effect distributions in accordance with the followings policies (Articles ofIncorporation).
Earnings Available for Distributions
NBF’s earnings available for distributions is based on accounting of profits prepared in accordance with
the Investment Trust Law and the Securities and Exchange Law of Japan and in conformity with generally
accepted accounting principles in Japan.
The distributable amount which results from operation of managed assets of NBF (hereinafter,“Distributable Amount”) shall be the amount of profit (the amount of net assets on the balance sheet less theamount of total expenses, capital surplus reserves and estimated variances) calculated on each closing date inaccordance with the Investment Trust Law of Japan and corporate accounting principles generally deemed to be
fair and appropriate.
Cash Distribution of Profits
The amount of cash distributions will be determined by NBF, such amount being in excess of 90% of
taxable income available for dividends of NBF set forth in Article 67-15 of the Special Taxation Measures Law
of Japan (hereinafter "Taxable Income Available for Dividends"); provided, however, that the maximum amountof distributions will be the Distributable Amount. NBF has the right to allow for long-term reserve for repair,reserve for outstanding claims, reserve for distributions and other reserves and allowances similar thereto which
are deemed necessary for maintenance or appreciation of the assets of NBF.

B.

Distribution in Excess of Earnings

A registered investment corporation is allowed to distribute cash to its shareholders in excess of retained
earnings under the Investment Trust Law of Japan, although the Investment Trusts Association of Japan has
established rules such that a corporate-style J-REIT may pay out the excess of retained earnings for the period
up to a maximum of 60% of depreciation for the period. NBF is entitled to make cash distributions of theamounts described below in excess of the Distributable Earnings in the following cases; provided, however, thatthe maximum amount of such distributions will be the amount set forth in the rules of the Investment Trusts
Association of Japan (Article 16.2 of the Articles of Incorporation).
Amount determined by NBF as being eligible for the requirements of the Special Taxation
Treatment for Investment Corporations, in case of the Distributable Earnings being less than the
Taxable Income Available for Dividends

23Amount determined by NBF not in excess of the amount of depreciation for the current term lessthe amount of appropriate reserves for the current term, if NBF determines it appropriate
considering trends in macro-economic environments, real estate markets and leasing markets
NBF’s Current Policy on Distributions in Excess of Profits
As for cash distributions in excess of profits, as long as the current Japanese taxation treatment applicable
to NBF’s shareholders in Japan to whom such distributions are paid requires them to calculate capital gain orloss at the time of each distribution, NBF will not make distributions in excess of profits.
Notwithstanding the above, NBF may make distributions in excess of profits in accordance with the
distribution policies stated above in order to meet “Requirement for Deduction from taxable income of
Dividends of Profit, etc.”, and if such distributions in excess of profits are deemed necessary by the Board of
Directors of NBF.

C. Method of Distributions
Distributions will be made in cash, in principle, within three months from the closing date, to suchshareholders or registered pledgees as are listed in the latest Shareholder Registry as of the closing date, in
proportion to the number of shares owned by them (Articles of Incorporation).

D. Prescription for Cash Distributions etc.
NBF will be discharged from the obligation to pay distributions of profits three calendar years from thedate of commencing payment. Interest will not accrue on unpaid distributions (Articles of Incorporation).

■Investment Restrictions
NBF will invest neither in real estate located outside of Japan nor in assets denominated in non-Japanesecurrencies as specified in the Articles of Incorporation. Please see “Investment Restrictions” regarding otherinvestment restrictions. Also, refer to " Basic Investment Policies (B) Investment Strategy" hereinabove.

24

Ⅰ

Performance Information Report■ Investment Performance Overview
Financial Highlights
Performance Review for the Current Period
Management Discussion on Investment Policy and Outlook■ Overview of NBF
Distributions for the Current Period
Capitalization
Major Shareholders
Categories of Shareholders■ Outline of Investment Portfolio
Portfolio Summary
Selected Data by Property
Selected Office Leasing Data by Property
Selected Financial Data by Property
Major Tenants Roster
Other Assets■ Capital Expenditures
Planning
Capital Expenditures for the Current Period
Cash Reserve for Capital Improvements■ Expenses regarding Entrustment etc.
■ Trading Activities during the Current Period
Trading of Real Estate and Real Estate held in Trust
Trading of Other Assets Including Total Amount and Transactions
Related Parties Transactions25

■ Investment Performance Overview
1.

Financial Highlights
3rd Period
from July 1, 2002 to
December 31, 2002

2nd Period
from January 1,
2002
to June 30, 2002

1st Period
from March 16,
2001 (date ofInception) to
December 31, 2001

(Yen in millions, except per share data or where otherwise indicated)

Operating revenues
Revenues from property leasing
Operating expenses
Rental expenses
Income before income taxes
Net income
Total assets
Total shareholder’s equity (‘Net assets’)Contribution capital
Total amount of cash distribution(a)¥

11,25911,259
6,252
5,623
4,493
4,492

¥

12,561
12,561
6,395
5,737
5,342
5,341

290,725
153,461
148,899
4,562

278,976
153,391
148,899
4,492

256,847
154,240
148,899
5,340

Total number of common shares issued (shares)(d)
Net assets per share (Yen)(c) / (d)Distribution per share (Yen)(e) / (d)Distribution of net income per share (Yen)Distribution in excess of net income per share (Yen)280,700
546,710
16,253
16,253−

280,700
546,460
16,00316,003−

280,700
549,482
19,026
19,026−Return on total assets

Note 2

ROE

Note 2

Capital ratio
Payout ratio
Number of days(c) / (b)(e) / (a)Note 2

1.60%（3.20%）
2.97%（5.95%）
52.8%
99.9%
184

1.68%
(3.35%)
2.92%(5.84%)
55.0%
100.0%
181

2.25%(3.68%)
4.22%(6.91%)
60.1%
99.9%
223

28
441
322,344
95.0%
2,072
368
7,886

26
448
303,485
97.4%
1,947
454
7,583

24
411
277,054
97.5%
2,170
494
8,993

Other supplement data :Number of investment properties
Number of tenants
Total rentable square meters
Occupancy rate
Depreciation and amortization
Capital expenditure
NOI from property leasing activities

(b)
(c)

¥11,846
11,846
6,656
6,031
4,563
4,562

(e)

Note 4Note 4Note 4Note 2

Note 1 Operating revenues do not include consumption taxes.
Note 2 All valuations are calculated through the following formula. The figures in parenthesis are converted to an annual basis as actual investing
activities began on May 23, 2001 for the first period and as 6 months figures adjusted for the second and the third period. The adjective“Initial” used in the following formula means figures as of May 23, 2001.
Return on total assets: Income before income taxes / (Initial total assets + Total assets at end of term)÷2
ROE: Net income / (Initial shareholder’s equity + Shareholder’s equity at end of term)÷2
Net Operating Income (NOI) from property leasing activities:(Revenue from property leasing−Rental expenses)＋Depreciation and Amortization
Note 3 As for payout ratio, figures beyond the first decimal place have been disregarded.
Note 4 Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number oftenants by building. Occupancy rate is ratio of gross leased area to total rentable area at the end of period.

26

2. Performance Review for the Current Period
About NBF and NBFM
Nippon Building Fund Inc. formerly “Office Building Fund of Japan, Ltd.” and hereinafter “NBF ”)
is a real estate fund structured in the form of an investment corporation as prescribed in the Investment
Trust Law of Japan. It was formed on March 16, 2001 with Mitsui Fudosan Co. Ltd., The Chuo Mitsui
Trust and Banking Co. Ltd. and NBFM (at the time known as "MF Asset Management Co.,Ltd") acting
as founders. Registration with Kanto Local Finance Bureau of the Ministry of Finance was completed
on May 10, 2001 and NBF started acquisition of office properties on May 23, 2001. NBF is anexternally managed real estate investment corporation. NBFM, acting as NBF’s asset managementcompany, is engaged in acquiring, managing, leasing, and renovating office properties. Mitsui
Fudosan Co., Ltd. and Sumitomo Life Insurance Company own 43% and 35% respectively of NBFM
with the remaining 22% mainly owned by financial institutions.
Investment Climate and Operating Performance
The Japanese economy continued to suffer from deflationary trends during the current period, capital
expenditures by companies continued to slump and personal consumption remained weak, partly due tothe slowdown of the U.S. economy. As a result, the Japanese economy as a whole was stagnant.
While the general office building rental market was depressed, demand for new office space in theTokyo CBDs had been relatively stable. However, both the beginnings of a gradual decline in demandin the Tokyo CBDs during 2002 and the impact of the so called “2003 problem” attributable to theoversupply of newly constructed large-scale buildings led to higher vacancy rates and lower rent levels.
In addition, occupancy rates continued to fall in most areas of Other Greater Tokyo and Other Cities
due to weak demand. Conversely, announced asset purchase and sale transactions in the officeproperty market indicated a certain amount of activity in anticipation of financial restructuring and/or
the adoption of accounting of impairment of properties under Japanese GAAP. Unfortunately, inseveral instances transactions did not close due to disagreements over pricing.
In response to this environment, NBF has managed its assets based on the policy of investing in very
desirable office properties which are competitive in terms of location, size and equipment specifications
and which have prime tenants resulting in relatively stable cash flows and decreased risk of sudden
drops in the value of assets.
NBF added two office properties to its portfolio during the current period. In September 2002, NBF
acquired a condominium interest in the “Nishi-Shinjuku Mitsui Building” (the acquisition price ofapproximately ¥1,600 million being based on the sales and purchase agreement, hereinafter the same toapply) and in December 2002, NBF acquired the “Nippon Steel Building No. 2”（approximately¥12,610 million）. These decisions were made in accordance with strict investment criteria, theabovesaid policies and the enormous amount of information concerning properties available to us. As
a result, NBF’s office portfolio now consists of 28 office properties representing a total investment ofapproximately ¥260,200 million and comprising total rentable area of approximately 322,000 square
meters (approximately 97,000 tsubo).

27

Moreover, in August 2002 NBF decided to acquire a condominium interest in the “Naka-Meguro GT
Tower”. The acquisition occurred on February 3, 2003 for a price of approximately ¥13,760 million.
In addition, in December 2002 NBF contracted to acquire a condominium interest in the “Sapporo
L-Plaza” for approximately ¥3,190 million (estimated). Closing of this transaction is scheduled for
November 2003.
While one large tenant did terminate its lease (for 6,551 square meters, or approximately 1,980 tsubo,
in the Shiba NBF Tower) during the current period, the occupancy rate for NBF’s portfolio as a whole
was 95.0% as of the close of the current period. Properties owned by NBF continue to enjoy this very
high level of occupancy due to diligence in obtaining new tenants for acquired assets as well as
uninterrupted efforts to increase the level of satisfaction of existing tenants. With regard to the Shiba
NBF Tower, NBF commenced a large-scale renovation of the recently vacated portion thereof with theobjective of achieving an even higher degree of competitiveness.
Further, while assuring proper building maintenance standards, NBF cut leasing operational costs
even more than the original target by reviewing and in some cases changing building maintenancecompanies through competitive bidding as well as by revising the provisions of the contracts with suchcompanies.
(b) Outline of Funding
Regarding funding through interest-bearing obligations such as loans etc., NBF intends to exercise
financial prudence by focusing on highly flexible unsecured non-guaranteed bank loans (suchinterest-bearing obligations comprised 38.0% of total assets as of the close of the current period).
Also, as the result of an aggressive program of replacing short-term loans with long-term fixed interest
loans with the objective of minimizing risks of future increases in interest rates, the portion ofinterest-bearing obligations represented by long-term loans at the close of the current term was 65.2%.
Moreover, NBF obtained the following issuer ratings with the objective of diversifying future funding
methods.
Rating Agency
Rating Description
Standard & Poors
Long Term Corporate：A
Short Term Corporate：A-1
Outlook： stable
Moody's Investors Service
Issuer Rating: A3
Outlook：stable(c) Outline of Business Results and Distributions
NBF's business results for operations during the current period consisted of operating revenues of¥11,845 million (an increase of ¥586 million, or 5.2%, compared to the previous period), operating
income from leasing activities of ¥5,814 million (an increase of ¥177 million, or 3.2%, compared to theprevious period) and income before income taxes of ¥4,563 million (an increase of ¥70 million, or
1.6%, compared to the previous period). Such increases in both revenue and profit for the current
period compared to the previous period are mainly attributable to the fact that the Nakano-Sakaue
Sunbright Twin and the Sun Mullion NBF Tower both commenced operations during this period(resulting in a ¥261 million increase in operating revenues), the fact that other revenues (including
28

cancellation fees from a major tenant of the Shiba NBF Tower, etc.) from leasing activities increased by¥647 million as well as the fact that NBF’s effort to decrease out-sourcing costs resulted in a decreaseof rental expenses. These factors more than off-set a decrease in rental revenues from several
properties.
In addition, NBF distributed almost 100% of unappropriated profit (¥16,253 per share) in accordancewith the distribution policies of its Articles of Incorporation and assumes that the regulations
concerning the deduction of such distribution from taxable income (Article 67-15 of the Special
Taxation Measures Law) will apply resulting in net income of ¥4,562 million for the current period (up1.6% compared to the previous period).

3．Management Discussion on Investment Policy and Outlook（a） Operating Policies
While many view the domestic economy with pessimism, certain trends tending to enhance demandin the office building rental market are apparent. Examples include the relocation of offices due tomergers or consolidations as well as the concentration of diversified business functions into head
offices etc. in industries including manufacturing, finance and financial services in preparation for theera of global competition. Tenants who are considering relocation seem to focus on, and be highly
selective with respect to, very desirable properties that can provide lower costs as well as enhancements
in office equipment and amenities. With respect to the supply of rental space, numerous newlarge-scale buildings were completed in the Tokyo CBDs during the second half of 2002. Some areoperating, or are expected to operate, at full occupancy from day one but others entered the market
largely vacant and its is commonly understood in the business that aggressive tactics will be required inorder to attract tenants to such buildings.
For the time being higher vacancy rates and lower rent levels are to be expected in the Tokyo CBDs
and the Other Greater Tokyo due to the current imbalance in supply and demand. It is also expectedthat rental markets in Other Cities as a whole will be slow, as vacancy rates continue to rise due to theconcentration of business activities in Tokyo.
However, adjustment of inventory resulting from a decrease of supply in the Tokyo CBDs is
expected to commence from 2004 with a simultaneous moderate recovery of the market. For example,
there are companies which choose to benefit from current market not by demanding cuts in their leasing
costs but by receiving upgrades of their existing office space.
As for the market for the purchase and sale of office properties, decisions to sell may become evenmore frequent as owners are more likely to sell in light of decreasing rental revenues as well as the factthat financial institutions are under pressure to reduce non-performing loans, which may lead to anincrease in the number of foreclosures and distress sales. In other words, sales of assets are expected
to increase in the same manner seen last year due to business bankruptcies, liquidations or
reorganizations all of which may provide new opportunities to acquire desirable properties. For the time
being higher vacancy rates and lower rent levels are to be expected in the Tokyo CBDs and the Other
Greater Tokyo due to the current imbalance in supply and demand. It is also expected that rental
markets in Other Cities as a whole will be slow, as vacancy rates continue to rise due to the29concentration of business activities in Tokyo.
（b） Management Strategies(1) Operating Strategies for Existing Properties
As for properties experiencing significant vacancies due to actual or imminent cancellation of lease
contracts, NBF will exert its efforts toward attracting new tenants by exercising flexibility in pricing ofrents based on our assessment of market trends.
As for existing tenants, NBF will strive to stabilize turnover by enhancing the level of tenantsatisfaction through service upgrades etc. based on the results of tenant surveys. Further, we areconsidering the adoption of longer-term lease contracts or adding provisions prohibiting earlycancellation etc. at the time the terms and conditions of leases come up for review.
During through the second and third periods, NBF attained reductions in building maintenance costsof 17% on an annualized basis for 23 properties. Cost reductions were already higher than original
targets. NBF will continue to pursue cost reductions through competitive bidding by building
maintenance companies and so forth.
(2) Strategies for New Investment
NBF will, after taking in account market risk due to the existing oversupply of newly constructed,
large-scale buildings, continue to select and acquire desirable properties in the Tokyo CBDs that will
satisfy the needs of tenants (convenient location, recent-construction, generous size floor plate for eachbuilding, useful layout of floors, high-spec electric capacity and HVAC equipment, availability of IT
facilities, ample parking spaces etc.) In addition, in order to avoid the risk of vacancy due to tenant
relocation, NBF will give priority to the acquisition of properties in which it can expect tenants toprefer long-term lease contracts as well as the acquisition of multi-tenant buildings. At the same time,
NBF will rigorously examine market trends and plan investments in relatively stable districts avoiding
areas that are prone to excessive competition.
While the Other Greater Tokyo and Other Cities markets are comparatively small and demand is
static or declining, the impact of new supply on such markets is greater than in the Tokyo CBDs. NBF
will accordingly continue to review its investments with a critical eye, considering not only whether or
not there are already desirable properties but also the issue of scarcity in specific locations and thebenefits of creating new supply in such locations.
In order to acquire competitive, attractive properties at reasonable prices, NBF will, while exercisingsufficient risk management skills, study the potential benefits of making commitments on properties
prior to completion as it did in the case of the Sapporo L-Plaza.
In order to avoid excessive price competition through bidding wars, NBF will, insofar as possible,
continue to strive to obtain advance information regarding potential sales and to develop informationroutes to locate desirable properties.
(3)Financial Strategies Etc.
As for financing, and in particular the provision of operating funds through borrowings, NBF is
preparing for future increases in interest rates by continuing to base its funding needs on long-term
fixed interest borrowings. Further, from the viewpoint of expanding a stable funding base, measures

30

such as the issuance of bonds are being considered.
NBF is continuously increasing its output of information concerning investment management. In
addition to timely disclosures required under the rules of the Tokyo Stock Exchange, NBF regularly
releases such information as may be useful to investors including various disclosure documents,
detailed information such as descriptive summaries of the existing portfolio of properties, monthly
portfolio performance reports, explanations of new acquisitions and distributions, Q&A, etc. all ofwhich are readily accessible on the website (http://www.nbf-m.com/nbf/).

31

■ Overview of NBF
1. Distribution for the Current Period
Distribution per share for the current period was ¥16,253. NBF expects to distribute almost all taxable
income for the current period to be eligible for special tax treatment (Special Taxation Measures Law ofJapan Article 67-15) that allows NBF to deduct its cash dividends of profits from taxable income.
For the period
from July 1 2002
to December 31,
2002

For the period
from January 1,
2002
to June 30, 2002

¥ 4,562,325
108
4,562,217
16,2534,562,217
16,253¥ 4,492,139
96
4,492,042
16,0034,492,042
16,003¥ 5,340,714
116
5,340,598
19,026
5,340,598
19,026

―

―

―

―

―

―

For the period
from March 16,
2001 to December
31,2001(Yen in thousands, except per share amount)

Net income. . . . . . .. . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . .
Total cash distribution . . . . . . . . . . . . . .
(Total cash distribution per share) . . . . .
..................
Cash Dividends.......
(Cash distribution per share)
Cash Distributions in excess of.......
accumulated earnings.......
(per share)
Note

2.

Above cash dividends were paid after the period end.

Capitalization
Balance of Paid-in Capital
The following table sets forth the capital balance for the current period. NBF was established on
March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001
after ¥98,800 million was raised through private placements. As of June 30, 2002 NBF had issued
280,700 common shares out of 2,000,000 total authorized shares. NBF’s common shares were listed on
the J-REIT section of the Tokyo Stock Exchange in September 2001 upon the completion of a public
offering. As the Investment Trust Law of Japan does not contain any provision for the issue of more than
one class of shares, said common shares comprise the sole class of shares authorized and issued by NBF.

Payment date

Remarks

March 15, 2001

Initial capital(private)

May 22, 2001
September 7, 2001

Common Shares
outstanding
Increase
Balance(shares)

Paid-in capital

Notes

Increase
Balance(Yen in millions)

200

200

¥ 100

¥ 100

Note 1

Privateplacement

197,600

197,800

98,80098,900Note 2Public offering

82,900280,700

49,999148,899

Note 3Note 1

NBF was established with initial capital of ¥500,000 per share.

Note 2

Follow-on private offering at ¥500,000 per share to raise funds for acquisition of 22 properties.

Note 3Public offering of new units for ¥625,000 per share (excluding underwriting fee: ¥603,125) to repay debts andto fund property acquisition.

32

Market Price of shares
High/Low (closing price) of shares on the TSE:
For the period
from July 1, 2002
to December 31,
2002

For the period
from January 1,
2002
to June 30, 2002

¥ 624,000
537,000(in Yen)¥ 581,000
474,000

High . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . .

For the period
from September 10,
2001
to December 31, 2001

¥ 616,000
480,000

Borrowings
Borrowings by financial institution as of December 31,2002 are shown below.
Short-term debts
Average

Balance

Lender

The Chuo Mitsui Trust and Banking Co., Ltd.
Bank of Tokyo Mitsubishi
The Norinchukin BankThe Sumitomo Mitsui Banking Corp.
The Hachijuni bank
Shinkin Central BankThe Chugoku Bank, Ltd.
Yamanashi Chuo Bank
Short-term debt Total(Yen in millions)¥ 16,600
8,200
5,000
4,850
1,300
1,000
1,000
500
¥ 38,450

Long-term debts
Sumitomo Life Insurance Company

The Chuo Mitsui Trust and Banking Co., Ltd..
Yasuda Life Insurance Company

Sumitomo Trust and Banking Corp.
Nippon Life Insurance Company
The Sumitomo Mitsui Banking Corp.
The Joyo Bank, Ltd.
Long-term debts Total
Borrowings Total

Note 1.
Note 2.
Note 3.

interestrate(%)(Note 1)

¥ 12,000
5,000
5,000
10,000
9,000
3,000
4,000
1,000
6,000
3,000
2,000
2,000
1,000
1,000
¥ 64,000¥102,450

0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%

Due onMay 23, 2003
January 10, 2003
May 23, 2003
January 16, 2003
February 7, 2003
January 24,2003
January 24,2003
January 17, 2003

1.7% May 23, 2008
1.7% July 16, 20092.1% July 16, 2011
1.3% May 23, 2006
1.3% July 16, 2007
2.1% December 21, 2011
2.2% April 27, 2012
2.2% May 23, 2012
1.3% July 16, 2007
0.7% August 9, 2005
0.7% September 30, 2005
1.2% March 12, 2007
0.9% May 23, 2006
1.4% May 23, 2008

Repayment
MethodBulletpayment

Use ofFunds(Note 3)

Notes

Unsecured/unguaranteed/pari passu,
See (Note 4)
Floating rate

Bulletpayment(Note 3)

Unsecured/unguaranteed/pari passu,
See (Note 4)
Fixed rate

Average interest rate is stated for each lender (average weighted by borrowing outstanding in case of more than one
loan from the same lender) by rounding down to the second decimal place.
With respect to the date of drawdown and date of repayment in case of more than one short-term loan from the samelender, the earliest date of repayment for all such loans coming due is given.
Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings andworking capital.

33

Note 4.

A special agreement attached to “Loan Agreement” entered into between the NBF and each financial institution
provides that the above borrowings from all financial institutions rank pari passu to each other.

NBF Bonds

Issue
No.1 Unsecured
Bond
Total

Issue
Date

Balance as ofDecember 31,
2002(Yen in millions)

May 23, 2001

¥ 8,000

CouponMaturity
Date

0.68％

May 21, 2004

Redemption
BulletPayment

Use ofProceeds

Note

Note 1

Note 2¥ 8,000

Note 1.
Note 2.
Note 3.

Use of funds includes acquisition of Real Estate etc., repayment of borrowings and working capital.
The bonds are limited to qualified institutional investors and rank pari passu with other debts issued.
On February 10,2003 NBF issued No.2 Unsecured Bond in the amount of ¥10,000 million with coupon of 0.75%
payable in full on February 9, 2007.

Others
NBF has security deposits totaling ¥22,851 million as of December 31,2002.

34

3.

Major Shareholders
The following table sets forth our major shareholders’ information as of December 31,2002.

AddressName

Number ofCommonSharesOwned
2-chome,16,200Mitsui Fudosan Co., Ltd. . . . . . . . . . . . . . . . .

1-1 Nihonbashi
Chuo-ku, Tokyo

The Nomura Securities Co., Ltd. . . . . . . . . . .
Goldman Sachs International . . . . . . . . . . . . . . .

9-1 Nihonbashi 1-chome, Chuo-ku, Tokyo
133 Fleet Street London EC4A 2BB, U.K.
(ARK Mori Building, 1-12-32 Akasaka,
Minato-ku, Tokyo)

11,478
11,3914.1
4.0

1-1 Nishi Shinjuku 2-chome, Shinjuku-ku, Tokyo
2-7 Moto Akasaka 1-chome, Minato-ku, Tokyo
18-24 Tsukiji 7-chome, Chuo-ku, Tokyo
13-10 Kudan-Kita 1-chome, Chiyoda-ku, Tokyo
8-11, Harumi 1-Chome, Chuo-ku, Tokyo
Woolgate House, Coleman Street, London
EC2P 2HD, England(6-7 Nihonbashi Kabuto-cho, Chuo-ku, Tokyo)

10,52410,00010,00010,000
9,330
7,179

3.7
3.6
3.6
3.6
3.3
2.5

9-1 Nishi Shinjuku 1-chome, Shinjuku-ku,
Tokyo

6,712

2.4

102,814

36.6%(Standing Proxy: Goldman Sachs (Japan) Ltd.)

Obic Business Consultants Co., Ltd. . . . . . . .
Kajima Corp. . . . . . . . . . . . . . . . . . . . . . . . . .
Sumitomo Life Insurance Company . . . . . . .
Aozora Bank, Ltd. . . . . . . . . . . . . . . . . . . . . .
Japan Trustee Services Bank, Ltd. . . . . . . . .
The Chase Manhattan Bank NA London . . . .
(Standing Proxy: Kabuto-cho Custody Operation
Room, Mizuho Corporate Bank, Limited)

Yasuda Mutual Life Insurance Company . . . .

Muro-machi,

Total

4.

Ownership
5.8%

Categories of Shareholders（as of December 31,2002）

Financial institutions
Other legal entities
Overseas investors
Individuals and others
Securities companies
Japanese government and regional authorities
Total
Note

Number ofshareholders

Number ofshares owned

105
464
112
12,4169
0
13,106

109,894
60,34755,772
41,865
12,8220280,700

Japan Securities Depositary Center (JASDEC) is included in “Other legal entities”.

35

Percent of
number ofshares owned
39.1%
21.5
19.9
14.9
4.6
0.0
100.0%

■ Outline of Investment Portfolio
1. Portfolio Summary
As of December 31,2002
Investments
Investments/ total assets
Asset type
Region(Yen in millions)(%)
Real estate . . . . . . . . . . . .
Tokyo CBDs . . . . . . . . .
¥ 14,535
5.0%
Other Greater Tokyo. . . .
2,538
0.9
Real estate held in trust. . . . Tokyo CBDs . . . . . . . . .
173,005
59.5
Other Greater Tokyo. . .
33,433
11.5
Other Cities. . . . . . . . .
33,957
11.7
Subtotal of Real estate and Real estate held in trust . ...
257,468
88.6
Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . .
33,25711.4¥ 290,725
100.0%
Total assets
Note

As of June 30, 2002
Investments
Investments/ total assets(Yen in millions)
(%)
¥ ―
―
2,567
0.9%
174,006
62.4
33,781
12.1
34,223
12.3
244,577
87.7
34,39912.3¥ 278,976
100.0%

Investments above are based on the book value as of December 31, 2002 and June 30, 2002 respectively.

36

2. Selected Data by Property
The outline of NBF’s properties as of December 31,2002 and June 30,2002, is as follows.

Name of Building

Percentage
Type ofof
Ownership
Ownershipof theof theBuildings
Buildings

Invest-ment
Type(Note 1)

Appraisal Value(Note 2)

Book Value
Year
Built

(%)

As of
December31, 2002

As ofJune 30,
2002(Yen in millions)

As ofDecember31, 2002

As ofJune 30,
2002(Yen in millions)

Probable
Maximum
Loss (PML)(Note 3)(%)

Tokyo CBDs
NKK Headquarters'
Bldg.

Trust

fee simple

100

1974

¥73,122¥73,425¥ 72,983¥73,018

10.0%

Shiba NBF Tower(Note 4)Trust

fee simple

100

1986

31,81532,094

26,90030,400

6.8%

Shinjuku Mitsui Bldg.

Trust

fee simple

100

1983

16,036

16,117

16,30016,800

10.0%

GSK Bldg.
Kowa Nishi Shinbashi
Bldg. B

Trust

fee simple

100

1990

15,196

15,33218,00018,000

2.2%

Trust

condominium

83

1994

12,951

13,03413,00013,6706.0%

fee simple

100

1989

12,862―

12,750

―

7.4%
12.6%

Nippon Steel Building
Ownership
No.2
Nihonbashi Muro-machi
Center Bldg.

Trust

condominium

100(Note 5)

1986

9,888

9,897

10,50010,600Takanawa 1-chome Bldg.

Trust

fee simple

100

1987

6,531

6,567

6,900

6,930

15.0%

Mita City Bldg.

Trust

fee simple

100

1991

5,167

5,230

5,290

5,320

12.9%

Shinjuku Yocho-machi

Trust

fee simple

100

1989

2,299

2,310

2,430

2,450

14.0%

Nishi-Shinjuku Mitsui
Ownership condominium
Building

4

2001

1,673

―

1,670

―

4.8%

32

1996

9,319

9,404

9,310

9,330

2.8%

Other Greater Tokyo
Nakano-Sakaue
Sunbright Twin

Trust

condominium

Yokohama ST Bldg.

Trust

co-ownership

75

1987

13,396

13,51913,942

14,261

6.4%

Tsukuba Mitsui Bldg.

Trust

co-ownership

75

1990

6,519

6,626

6,832

6,720

11.0%

Daido Life Omiya Bldg.

Trust

fee simple

100

1991

2,313

2,325

2,660

2,660

14.8%

Matsudo City Bldg.

Ownership

fee simple

100

1992

2,538

2,567

2,530

2,580

10.8%

Inage Kaigan Bldg.

Trust

fee simple

100

1992

1,886

1,907

1,850

1,830

13.0%

Sapporo Minami Nijo
Bldg.

Trust

fee simple

100

1990

1,816

1,832

2,020

2,030

6.8%

Daido Life Sendai Bldg.

Trust

fee simple

100

1987

3,479

3,509

3,640

3,640

3.9%

Unix Bldg.

Trust

fee simple

100

1994

3,830

3,892

4,200

4,230

1.6%
12.0%

Other Cities

Niigata Telecom Bldg.

Trust

fee simple

100

1989

3,879

3,903

4,270

4,330

Hamamatsu City Bldg.

Trust

fee simple

100

1990

1,333

1,349

1,173

1,258

6.1%

Sun Mullion NBF Tower

Trust

fee simple

100

1996

10,62010,781

9,560

10,060

2.3%

Sakai Higashi Center

Trust

fee simple

100

1991

2,187

2,206

2,423

2,461

10.2%

Otemae Center Bldg.
KyoumachiboriCenter
Bldg.

Trust

fee simple

100

1992

1,807

1,801

2,176

2,180

5.4%

Trust

fee simple

100

1987

868

765

663

660

8.6%

Shijo Karasuma Minami

Trust

fee simple

100

1991

1,567

1,590

1,614

1,708

17.0%

Hakata Gion 21 Bldg.

Trust

fee simple

100

1993

2,571

2,595

2,473

2,506

13.0%

−

−

−

−

¥257,468¥244,577¥258,059¥249,632

4.5%

Total

37

Note 1All financial activities in the properties are accounted for in the appropriate financial statements of each property,
even in case of trust beneficiary interests or in case where a trust contains more than one building.

Note 2

Appraisal values as of December 31,2002 and June 30, 2002 are based on the appraisal methods prescribed in the
Articles of Incorporation and in the guidelines set forth by the Investment Trusts Association of Japan.

The above

values have been prepared by Tanizawa Real Estate Appraisal.
Note 3

The figures for “probable maximum loss” of real estate (excluding the NKK Headquarters' Bldg.) were obtained
from the report of Engineering & Risk Services Corporation (ERS).

As for the NKK Headquarters' Bldg., thefigure was obtained from the report of Nikken Sekkei Co., Ltd. Probable maximum loss is used as an index toestimate the earthquake resistance of buildings or foundations of buildings.

In the report provided by ERS, the loss

factor indicates only the ratio of restoration costs against the cost of reconstruction of buildings themselves(structural materials, non-structural materials and construction facilities) and incidental damages such as damage to
production equipment or machinery, furniture or fixtures, damage due to water or fire, indemnification of affected
persons, or loss of business due to suspension of business.

These reports were provided with respect to each entire

building, regardless of NBF’s ownership interest therein, and accordingly the figure above represents each entire
building.
Note 4

Most of the land underlying the Shiba NBF Tower (6,075.38 ㎡ out of 6,475.44 ㎡) is owned by the Japanese Red
Cross Society.

It simultaneously entrusted the leasehold with respect to the leased land, along with its own

building and land, to the Trustee.
Note 5The leasehold was entrusted with the consent of the owner of said land.

The trustee of the Nihonbashi Muro-machi Center Bldg. owns 100% of the interests in the portion of offices
consisting of the 6th through 12th floors (floor space of 7,755.94 ㎡), 45.11% of the parking portion (floor space of
1,141.83 ㎡) and 45.11% of the common use space established pursuant to an agreement.

38

3. Selected Office Leasing Data by Property
The following table sets forth selected information relating to office leasing as of December 31,2002.
Current period(July 1, 2002-December 31, 2002)
Tokyo CBDs
NKK Headquarters’ Bldg.
Shiba NBF Tower
Shinjuku Mitsui Bldg. No.2
GSK Bldg.
Kowa Nishi Shinbashi Bldg. B
Nippon Steel Building No.2
Nihonbashi Muro-machi Center Bldg.
Takanawa 1-chome Bldg.
Mita City Bldg.
Shinjuku Yocho-machi Bldg.
Nishi-Shinjuku Mitsui Building
Other Greater Tokyo
Nakano-Sakaue Sunbright Twin
Yokohama ST Bldg.
Tsukuba Mitsui Bldg.
Daido Life Omiya Bldg.
Matsudo City Bldg.
Inage Kaigan Bldg.
Other Cities
Sapporo Minami Nijo Bldg.
Daido Life Sendai Bldg.
Unix Bldg.
Niigata Telecom Bldg.
Hamamatsu City Bldg.
Sun Mullion NBF Tower
Sakai Higashi Center Bldg.
Otemae Center Bldg.
Kyoumachibori Center Bldg.
Shijo Karasuma Minami Bldg.
Hakata Gion 21 Bldg.
Total

Leased Square Occupancy Rates Total Number
Rentable Square
Meters at the End
at the Endof Tenants
Metersof Periodof Periodat the End(Note 1)
(Note 1)
(Note 2)of Period
65,28024,56014,946
20,407
10,08817,314
8,041
10,473
6,002
5,177
1,576

65,28017,855
14,946
20,407
10,08817,314
8,041
10,473
6,002
5,177
1,576

100.0%
72.7%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%

1
1
29
1
2
1
7
4
1
4
1

12,22020,08912,636
3,604
4,771
5,881

12,22019,547
10,322
3,443
4,067
4,444

100.0%
97.3%
81.7%
95.5%
85.3%
75.6%

1
75
59
8
23
12

5,376
7,498
13,478
10,226
5,152
14,210
5,360
5,532
3,112
3,918
5,417
322,344

5,266
7,498
12,941
9,793
3,987
12,741
5,303
5,532
2,874
3,651
5,417
306,205

97.9%
100.0%
96.0%
95.8%
77.4%
89.7%
98.9%
100.0%
92.4%
93.2%
100.0%
95.0%

7
7
57
33
22
27
15
7
14
15
7
441

Note 1Figures stated above are based on NBF’s ownership interest.

Note 2

Occupancy rates is the ratio of leased area to rentable area at the end of period.

39

4.

Selected Financial Data by Property
The following table sets forth selected information relating to office leasing for the period from July 1, 2002
to December 31,2002.

Current period(July 1, 2002- December 31, 2002)

Revenues(Yen in millions)Tokyo CBDs
NKK Headquarters’ Bldg. （Note 5）¥ 2,175
Shiba NBF Tower
1,958
Shinjuku Mitsui Bldg. No.2
739
GSK Bldg.
(Note2)
Kowa Nishi Shinbashi Bldg. B(Note2)
Nippon Steel Building No.2
17
Nihonbashi Muro-machi Center Bldg.
484
Takanawa 1-chome Bldg.
356
Mita City Bldg.
(Note2)
Shinjuku Yocho-machi Bldg.
126
Nishi-Shinjuku Mitsui Building
35
Other Greater Tokyo
Nakano-Sakaue Sunbright Twin
(Note2)
Yokohama ST Bldg.
778
Tsukuba Mitsui Bldg.
376
Daido Life Omiya Bldg.
138
Matsudo City Bldg.
137
Inage Kaigan Bldg.
145
Other Cities
Sapporo Minami Nijo Bldg.
143
Daido Life Sendai Bldg.
249
Unix Bldg.
323
Niigata Telecom Bldg.
284
Hamamatsu City Bldg.
96
Sun Mullion NBF Tower
500
Sakai Higashi Center Bldg.
158
Otemae Center Bldg.
166
KyoumachiboriCenter Bldg.
50
Shijo Karasuma Minami Bldg.
114
Hakata Gion 21 Bldg.
162
Total
¥ 11,846
Note 1
Note 2
Note 3Note 4Note 5Percent of
total
revenues(Note 1)(%)

OperatingExpensesNet
Operating
Income(Note 3)

CapitalExpenditures

OperatingDays
in thecurrent
period(Yen in millions)

18.4%
16.5
6.2
(Note2)(Note2)0.1
4.1
3.0(Note2)
1.1
0.3

¥ 720
914
389
(Note2)(Note2)24
176
211(Note2)74
16¥ 1,758
1,335
463
566
402
16
343
193
180
76
29

¥ 13
32
5
0
25
13
13
-

184
184
184
184
184
7
184
184
184
184
93

(Note2)
6.6
3.2
1.2
1.2
1.2

(Note2)
457
279
63
72
100

342
466
212
97
95
68

9
23
9
9
1
2

184
184
184
184
184
184

1.2
2.1
2.7
2.4
0.8
4.2
1.3
1.4
0.4
1.0
1.4
100.0%

80
134
231
152
76
333
81
162
34
68
130
¥ 6,031

86
148
159
175
46
344
102
30
23
73
59
¥ 7,887

7
4
5
18
10
17
6
31
109
4
3
¥ 368

184
184
184
184
184
184
184
184
184
184
184
―

Percent of total revenue is ratio of revenue from each office property to total revenues from all officeproperties.
The consent for disclosure was not obtained from tenants from whom rent revenue accounts for more than 80%
of total rent revenues for the property. However, relevant figures are included in the total.
Net Operating Income of an individual property is calculated through the following formula:(Revenue from property leasing−Rental expenses)＋Depreciation and Amortization
Figures stated above are based on NBF’s ownership interest.
NKK Corporation, who is the only tenant of NKK Headquarters’ Bldg, is responsible for capital expenditures.

40

Breakdown of Operating Expenses
Current period(July 1, 2002
- December 31, 2002)

OperatingExpensesCasualty
Land
Insurance
Other
Depreand&House
Expenses ciation
Trust
Rent
Charges

Building Office Repairs
Realand
Utility Mainte- ManageEstate
Mainmenｔ
Charges nance
Taxes
Costs Fee etc. tenance(Yen in millions)Tokyo CBDs
NKK Headquarters’ Bldg. (Note 2)
Shiba NBF Tower
Shinjuku Mitsui Bldg. No.2
GSK Bldg.
Kowa Nishi Shinbashi Bldg. B
Nippon Steel Building No.2
Nihonbashi Muro-machi Center Bldg.

Takanawa 1-chome Bldg.
Mita City Bldg.
Shinjuku Yocho-machi Bldg.
Nishi-Shinjuku Mitsui Building
Other Greater Tokyo
Nakano-Sakaue Sunbright Twin
Yokohama ST Bldg.
Tsukuba Mitsui Bldg.
Daido Life Omiya Bldg.
Matsudo City Bldg.
Inage Kaigan Bldg.
Other Cities
Sapporo Minami Nijo Bldg.
Daido Life Sendai Bldg.
Unix Bldg.
Niigata Telecom Bldg.
Hamamatsu City Bldg.
Sun Mullion NBF Tower
Sakai Higashi Center Bldg.
Otemae Center Bldg.
KyoumachiboriCenter Bldg.
Shijo Karasuma Minami Bldg.
Hakata Gion 21 Bldg.
Total
Note 1
Note 2
Note 3¥ 720 ¥ 281¥ ¥ - ¥ 122¥ ¥ ¥ 14
¥ 0
914
83
62
120
105
135
104
8
6
389
73
50
72
38
25
11
8
(Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1)(Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1)
24
1
0
176
46
25
40
26
0
5
0
211
27
28
19
19
63
5
1
(Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1)

¥ 303
292
113
142
82
23
34
49
63

74

12

12

12

6

4

-

1

1

24

16

-

-

5

1

-

-

0

0

10

(Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1) (Note1)
457
66
66
68
46
53
7
6
279
25
63
44
18
7
5
2
63
8
8
12
7
3
1
1
72
10
11
11
7
2
0
1
0
100
15
24
19
7
8
2
2

124
146
115
22
30
23

80
134
231
152
76
333
81
162
34
68
130
¥ 6,031

14
22
45
25
10
0
10
14
6
8
17
¥974

13
21
42
27
11
46
13
19
7
8
17
¥715

13
19
47
29
16
52
14
19
6
12
17
¥856

7
13
15
15
5
27
8
9
2
6
8
¥633

6
22
9
9
5
20
8
74
3
3
40
¥521

0
¥105

1
1
2
3
1
5
1
1
1
1
2
¥99

2
23
1
33
3
67
2
43
2
26
6
178
1
25
1
25
3
6
2
27
2
27
¥2,072¥56

The consent for disclosure was not obtained from tenants from whom rent revenue accounts for more than 80% of total
rent revenue of the property. However, relevant figures are included in the total.
NKK Corporation, who is the only tenant of NKK Headquarters’ Bldg, is responsible for costs of administration andmaintenance, repair, retention and renewal, etc. except for casualty insurance and real estate taxes.
Figures stated above are based on NBF’s ownership interest.

41

5．Major Tenants Roster
Building leases in Japan are usually for a relatively short term (most commonly two years) and subject toautomatic renewals unless either party gives notice to the contrary. Such leases also typically allow for
termination by the lessee before the expiry of the term upon six months’ prior written notice. However, inJapan there also exists a special type of building lease known as “teiki tatemono chintaishaku” which is for a
fixed term that cannot be terminated by the landlord prior to the expiry of its term or by the tenant withoutcompensation to the landlord with regard to the remaining period. Such fixed term lease agreement may set
a fixed rental amount that is not subject to adjustment.
NBF’s ten major tenants by leased area as of December 31,2002 are listed in the table set forth below.

Name of Tenants

Name of Building

LeasedsquaremetersExpiration
Date（Note 1）

Percent of
total rentablearea

１

NKK Corporation

NKK Headquarters’ Bldg.

65,280March 31, 2011
（Note 2）

20.3%

２

GlaxoSmithKline. KK.

GSK Bldg.

20,407

September 30,
2010（Note 3）

6.3%

３

Fuji Xerox Co., Ltd.

Shinjuku Mitsui Bldg. No.2
/Nakano-Sakaue Sunbright Twin
/Tsukuba Mitsui Bldg.
/ Hamamatsu City Bldg.

17,905June 30, 2003

5.6%

４

Matsushita Investment andDevelopment Incorporation

Shiba NBF Tower

17,855September 30,
2004（Note 4）

5.5%

５

Nippon Steel City Produce, Inc.

Nippon Steel Bldg. No2

17,314

November 30,
2003（Note 5）

5.4%

６

NTT Communications
Corporation

Kowa Nishi Shinbashi Bldg. B

8,493

March 31, 2003
（Note 6）

2.6%

７Canon Sales Co., Ltd.

Mita City Bldg./Tsukuba Mitsui
Bldg. /Unix Bldg.

6,682

June 30, 2003
（Note 7）2.1%

８Sumitomo Life Insurance
Company

Yokohama ST Bldg. and other 6buildings

6,050

March 31, 2003

1.9%

９

Toden Kogyo Co., Ltd.

Takanawa 1-chome Bldg.

5,411

July 31, 2004

1.7%

10

Dai Nippon Printing Co., Ltd.

Shinjuku Yocho-machi Bldg.

3,966

May 31, 2004

1.2%

Note 1
Note 2

Note 3The expiration date in cases where the tenant has several lease contracts with respect to the real estate owned by NBF
indicates the earliest expiration date out of said contracts.
The lease contract with NKK Corporation is of the abovestated “teiki tatemono chintaishaku” type; provided, however,that the lessee may terminate the contract by notifying the lessor in writing prior to the end of March during each of theyears 2006 to 2008 with termination to be effective as of the end of March of the immediately following year. Also,
the lessee may terminate the contract by payment of the amount equal to the rent for the remaining term of the lease
contract. Further, as NKK Corporation is responsible for costs of administration and maintenance, repair, retention andrenewal, etc. during the term of the contract, common area charges are not collected. Upon complete vacation due tothe expiration or termination of contract as stated above, NKK Corporation will be, in principle, be released from theobligation to restore the premises to their original condition.
Although the term of the lease contract with Glaxo Smith Kline K.K. is relatively long compared with lease contracts
commonly used in Japan, it is not an abovestated “teiki tatemono chintaishaku” type of contract. Glaxo Smith Kline

42

Note 4Note 5Note 6Note 7Note 8Note 9Note 10K.K. may exercise its priority right to offer to purchase and negotiate during the applicable period (being the two-month
period commencing October 1 and ending November 30, during each year of the period commencing October 1, 2002
and ending September 30, 2007). In the event that the lessee offers to purchase the GSK Building, it has the priority
right to negotiate with NBF. Terms and conditions such as the price determination method etc. are separately set forth,but NBF is under no obligation to sell the building.
Matsushita Investment and Development Incorporation is considering vacation of its entire space within the Shiba NBF
Tower around August 2003 in line with the decision of the Matsushita (Panasonic) Group (including Matsushita ElectricIndustrial Co., Ltd. etc.) to concentrate operations in the redeveloped Higashi Shinagawa Seaside Forest building. NBF
is currently conducting negotiations toward an agreement to cancel the lease contract as of the date of Matsushita
Investment and Development Incorporation's departure.
The indicated expiration date of December 31, 2002 for the lease contract with Nippon Steel City Produce, Inc. affects
94 ㎡ of office space. As for other office space in the amount of 15,215 ㎡ and residential space in the amount of
2,005.20 ㎡, the expiration date was scheduled to be November 30, 2009. As of February 28, 2003 the abovesaid lease
contract with Nippon Steel City Produce, Inc. was terminated and as for the office space of 15,333.29 ㎡, a new lease
contract with limited right of termination (“teiki tatemono chintaishaku”) has been concluded with Nippon SteelCorporation for the term commencing March 1, 2003 and ending November 30, 2009, and as for the residential space inthe amount of 2,005.200 ㎡, a new lease contract has been executed with Mitsui Fudosan Housing Lease Co., Ltd. withthe expiration date being February 28, 2009. Nippon Steel Corporation and Mitsui Fudosan Housing Lease Co., Ltd.
respectively sub-lease the entire leased area to sub-lessees. The leased square meter figure given for the Nippon Steel
Building No. 2 indicates the total area consisting of the East Building, Maison New River and the West Building.
The lease contract with NTT Communications Corporation was renewed prior to its expiration date of December 31,
2002, which fact was disclosed in NBF’s 2nd Period Report, for a term of 2 years with an expiration date of March 31,
2003.
It is expected that the lease contract concerning Canon Sales Co., Ltd.'s space in the Mita City Building will terminate on
June 30, 2003. Negotiations with Canon Sales Co., Ltd. are currently under way concerning the agreed cancellation ofthat contract.
On September 25, 2002, T & D Financial Life Insurance Company, which was a tenant within the Shiba NBF Tower forthe office space of 6,551 ㎡ at the beginning of the 3rd period, terminated the lease contract.
On February 3, 2003 NBF acquired a condominium interest in land and buildings comprising the Naka-Meguro GT
Tower which is not listed above. Since that date, 13,569.15 ㎡ of office space has been leased to Mitsui Fudosan Co.,
Ltd. As of March 31, 2003, Mitsui Fudosan was sub-leasing the entire area.
Percent of total rentable area is calculated by dividing the area leased by the tenant by the total leased area (in square
meters). Total rentable area and leased area (in square meters) are based on NBF’s ownership interest.

6．Other Assets
Real estate held in trust is included in the Selected Data by Property (Sec. 2). There are no othersignificant investment assets in the portfolio as of December 31,2002 and June 30, 2002.

43

■ Capital Expenditures
1. Planning
NBF is planning the following capital expenditures for the renovation of the properties. The amounts
below include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition toa steady program of expenditures for construction, repair and renovation of facilities, a program ofrenewal construction is being implemented in order to increase competitive power in the market as wellas to increase the level of tenant satisfaction based on the results of tenant satisfaction surveys andneighboring competitive building specification surveys etc.
Estimated Amounts
Property(Location)

Objective

Estimated
Duration

Total
Amounts

Payment for theCurrent Period(from July 1, 2002
to December 31,
2002)

Cumulative
AmountPaid(Yen in millions)Shiba NBF Tower

Mita City Bldg.
Tsukuba Mitsui Bldg.

Renovation work oflower floors
Renovation work ofupper floors
Leaseholdimprovements
Renewal of central
surveillance board
Renewal of automatedsecurity system

From September 2002
To January 2003

¥ 663

¥ 24

¥ 24

From August 2003
To December 2003

1,511

−

−

From May 2003
To June 2003

100

−

−

From August 2003
To December 2003

101

−

−

From August 2003
To December 2003

200

−

−

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. We posted ¥ 369 million
in capital expenditures together with ¥ 521 million for repairs and maintenance expenses.
Name of Property

Objective

Renovations intended to improve
the level of tenant satisfaction
Other installations and renovations . . . .
n.a.
Almost all of properties . . . . . . . . .

(Parking, signboards, etc.)

Total

PeriodExpenditure(Yen in millions)

From July 2002
To December 2002

¥ 252

n.a

117
¥ 369

44

3.

Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term
capital improvements and repairs and maintenance that will be conducted in accordance with NBF’s
business plan for each property.
As ofDecember 31, 2002

As ofJune 30, 2002

(Yen in millions)

Reserve balance at the beginning of the period. . . . . . . . .
Amount accumulated in current period . . . . . . . . . . . . . .
Withdrawal from reserves in the current period . . . . . . .
Amount carried forward . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 1,409934
359¥ 1,984

¥ 877
1,129
597
¥ 1,409

Note 1 Upon the acquisitions of the Real Estate etc., NBF also assumed accumulated reserves of ¥ 716
million as of December 31,2002 for capital expenditures from previous owners, which were notincluded in the above amount accumulated.
Note 2 With respect to the first as well as the current periods, the amount of reserves jointly owned together
with other owners attributable to the ownership interests of said other owners has been excluded andthe figures represent only the amount of reserves attributable to NBF's ownership interest.

■

Expenses regarding Entrustment etc.
The following table sets forth the breakdown of entrustment fees etc. paid by NBF.
For the period
from July 1,
2002
to December
31, 2002

For the period
from January
1, 2002
to June 30,
2002

Item

For the period
from March
16, 2001(dateof inception)
to December
31, 2001(Yen in millions)

Asset management fees. . . . . . . . . . . . . . . . . . . . . . . . .
Asset custody fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agent fees (stock transfer, accounting. . . . . . . . . . . .
and administrative)
Director’s remuneration. . . . . . . . . . . . . . . . . . . . . . . .
Auditor’s fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note

¥ 497
12
38

¥ 477
11
39

¥ 542
12
50

11
12
55
¥ 625

11
9
82
¥ 629

12
10
32
¥ 658

In addition to the amounts stated above, there are asset management fees of ¥ 63 million for theperiod from July 1, 2002 to December 31, 2002, ¥ 96 million for the period from January 1, 2002 toJune 30,2002 and ¥103 million for the period from March 16, 2001(date of inception) to December
31, 2001 related to investment in properties, which were booked on each property.

45

■Trading Activities during the period from July 1, 2002 to December 31,2002
1. Trading of Real Estate and Real Estate held in Trust
AcquiredName of Building
Nishi Shinjuku Mitsui Bldg.
Nippon Steel Bldg No.2
Total

Date
September 30, 2002
December 25, 2002

AcquisitionPrice¥ 1,603
12,614¥14,217

Date
−
−
−

(Yen in millions)
Transferred
CapitalTransfer Book Gain/
Price
Value
Loss
−
−
−
−
−
−
−
−
−

Note 1“Acquisition price” does not include national consumption tax, regional consumption tax and miscellaneous costs ofNote 2All buildings acquired during the period from July 1, 2002 to December 31,2002 are real estate.

acquisition.

2.

Trading of Other Assets Including Total Amount and Transactions
Other major assets besides real estate and real estate held in trust stated above consist mostly of bankdeposits or bank deposits included in assets held in trust.

46

3. Related Parties Transactions
1. Ongoing Transactions
None.
2. Fees Paid for the period from July 1, 2002 to December 31,2002
Description of Transactions with Related Party (Note 1)

Total Fees Paid
Amount of(A)
Payment (B)(Yen in(Yen in millions)Category
millions)
Paid toBrokerage commissions¥ 218 Mitsui Fudosan Co., Ltd.
¥ 48
Office management fees etc.
648 Mitsui Fudosan Co., Ltd.
647
NBF Office Management
1
Property transfer fees
5 Mitsui Fudosan Co., Ltd.
5
Property maintenance fees
856 Daiichi Seibi Co., Ltd.
134
Mitsui Fudosan Co., Ltd.
82
MF Building Management Co., Ltd
11
NBF Office Management1
Mitsui Fudosan Housing Lease Co., Ltd.
1
Leasing related service fees
17 NBF Office Management
4
Mitsui Fudosan Co., Ltd.
1
Mitsui Real Estate Sales Co., Ltd.
1

B/A

22.1%
99.8%
0.2%
100.0%
15.7%
9.6%
1.3%
0.1%
0.1%
24.2%
6.8%
4.9%

Note 1 “Related parties” mean parties defined in Article 20 of the government ordinance regarding the Investment Trust Law
of Japan, principally, parties related to an asset management company.
Note 2 In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.
(Yen in millions)

Mitsui Fudosan Co., Ltd.

¥ 83

Daiichi Seibi Co., Ltd

38

MF Building Management Co., Ltd.

17

Mitsui Designtech Co., Ltd.

3

Mitsui Fudosan Housing Lease Co., Ltd.

47

0.07

48

Ⅱ Financial Statements
Report of Independent Public Accountants
Balance Sheets
Statements of Income
Statements of Shareholders’ Equity
Statements of Cash Flows
Notes to Financial Statements

49

50

NIPPON BUILDING FUND INC.
BALANCE SHEETSAs of December 31, 2002 and June 30, 2002

As of
As of
June 30,
December 31,
2002
2002
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents
Tenant receivables
Consumption tax refund receivables and other assets
Total current assets
Investment properties:
Land including trust accounts
Building and improvements including trust accounts
Other tangible assets
Less: accumulated depreciation
Leasehold rights in trust accounts and other intangible assets
Total investment properties-net
Other assets
Total Assets
Liabilities
Current Liabilities:
Short-term loans
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term debt
Tenant security deposits
Other liabilities
Total Liabilities
Shareholders’ Equity
Common shares, non-par value
Shares Authorized: 2,000,000 shares
Shares Issued and Outstanding: 280,700 shares
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity¥ 31,854
105
205
32,164)
159,446
86,051
1,292(6,176)
16,815
257,428
1,133¥ 290,725))¥ 38,450
1,722
1,747
468
42,38772,00022,852
25
137,264)
148,899))
4,562
153,461) ¥ 290,725

The accompanying notes to financial statements are an integral part of these balance sheets.

51¥ 32,883
183
303
33,369) 152,178) 78,520) 1,101(4,108)16,818244,5091,098¥ 278,976¥ 33,450
1,388
1,669
) 403
36,91067,000) 21,654) 21) 125,585) 148,899

4,492
153,391¥ 278,976

NIPPON BUILDING FUND INC.
STATEMENTS OF INCOME
For the six months ended December 31, 2002 and June 30, 2002 and for the period from March 16, 2001(date of inception) to December 31, 2001

For the period

For the period

For the period

from July 1, 2002

from January 1, 2002

from March 16, 2001

to December 31, 2002

to June 30, 2002

(date of inception)
to December 31, 2001

(Yen in millions)

Revenues:
RentalOthersTotal Revenues
Operating Expenses:
Property management fees
Real estate taxes
Insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses
Total Operating Expenses
Interest income
Other income
Interest expense
Initial public offering costs
Issuance costs of common shares
Amortization of deferred bond issue costs
Other expenses
Income Before Income Taxes
Current and deferred income taxes
Net Income¥ 10,366
1,480
11,846
)
1,542
974
47
521
875
2,072
496
129
6,656
1
1
(585)
―
―
(6)
(38)
4,563
(1)
4,562¥ 4,562

The accompanying notes to financial statements are an integral part of these statements.

52¥ 10,427) 832
11,259¥ 11,555
1,006
12,561

1,545
977
52
315
787
1,947
477
) 152
6,252
3
10
(521)
―
―
(6)
―
4,493
(1)
) ¥ 4,492

1,780
486
52
369
880
2,170
542
116
6,395
2
―
(570)
(187)
(58)
(11)
―
5,342
(1)
¥ 5,341

NIPPON BUILDING FUND INC.
STATEMENTS OF SHAREHOLDERS’ EQUITY
For the six months ended December 31, 2002 and June 30, 2002 and for the period from March 16, 2001 (date of inception) to December 31, 2001

(Yen in millions)
Number ofCommon Common Retained
SharesShares Earnings
Total
Initial capital contribution. . . . . . . . . . . . . . . . . . . . . . . . . . .
200 ¥
100
Issuance of common shares under private offering on May
23, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,600
98,800Issuance of common shares under initial public offering on
September 10, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,90049,999

¥

―

¥

100

―

98,800―49,999Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

―

―

5,341

5,341

Balance as of December 31, 2001 . . . . . . . . . . . . . . . . . . .

280,700

148,899

5,341

154,240

Cash Dividends declared――（5,341）（5,341）

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

―

―

4,492

4,492

Balance as of June 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . 280,700

148,899

4,492

153,391

Cash Dividends declared――(4,492)(4,492)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

―

―

4,562

4,562

Balance as of December 31, 2002 . . . . . . . . . . . . . . . . . . .

280,700¥148,899¥4,562¥153,461

The accompanying notes to financial statements are an integral part of these statements.

53

NIPPON BUILDING FUND INC.
STATEMENTS OF CASH FLOWSFor the six months ended December 31, 2002 and June 30, 2002 and for the period from March 16, 2001 (date of inception) to December 31, 2001

For the period

For the period

For the period

from July 1, 2002

from January 1,

from March 16, 2001

to December 31,

2002(date of inception)

2002

to June 30, 2002

to December 31, 2001

(Yen in millions)
Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of deferred bond issue costs
Interest expense
Tenant receivables
Accounts payable
Rents received in advanceCash payments of interest expense
Other-net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Refunds from security deposits paid to lessors
Payments for security deposits paid to lessors
Payments for purchases of other assets
Net Cash Used in Investing Activities
Cash Flows by Financing Activities:
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term debts
Payments for deferred bond issue costs
Proceeds from issuance of common shares
Payment of dividends
Net Cash Provided by Financing Activities
Net Change in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and Cash Equivalents at end of period

¥

4,563
2,072
6
585
78
334
79
(557)
137
7,297
)
(14,991)
2,979(1,781)6(9)(42)(13,838)¥ 4,493) 1,947
)6
) 521
(74)
) 257
) 146
(496)
2,667
9,467

¥ 5,342
2,170
11
570
(109)
1,131)
1,523)(317)(2,914)
7,407)(20,806)) 1,501
(512)
14
(1)
(675)
(20,479)(227,820)
21,286)
(620)
12)
(363)
―
(207,505)

117,100(112,100)
5,000――(4,488)5,512(1,029)32,883¥ 31,854) 96,750(84,200)) 9,000――(5,322)) 16,228) 5,216) 27,667¥ 32,883

201,000)(180,100)
58,000)(34)
148,899―
227,765
27,667―¥ 27,667

The accompanying notes to financial statements are an integral part of these statements.

54

NOTES TO FINANCIAL STATESMENTS
Nippon Building Fund Inc.
December 31, 2002 and June 30, 2002

Note 1 –Organization and Basis of Presentation
Organization
Nippon Building Fund Inc. (formerly: "Office Building Fund of Japan, Inc." The current name wasadopted on March 14, 2003, hereinafter "NBF") was formed on March 16, 2001 as an investment
corporation under the Investment Trust Law of Japan with Mitsui Fudosan Co., Ltd., The Chuo Mitsui
Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd. (formerly: "Office Building
Fund Management Japan Limited", hereinafter "NBFM") acting as sponsors. Registration with the
Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF
started acquisition of office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as
NBF’s asset management company, is engaged in acquiring, managing, leasing, and renovating officeproperties. Mitsui Fudosan Co., Ltd. currently own 43 % of NBFM while Sumitomo Life Insurance
Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public
offering of common shares. Those common shares are listed on the J-REIT section of the Tokyo Stock
Exchange.
As of December, 31 2002, NBF had ownerships or beneficiary interests in 28 office properties
containing approximately 322,344 rentable square meters of office space. As of December 31, 2002,
NBF had leased office space to 441 tenants engaged in a variety of businesses. The occupancy rate for
the Office Properties was approximately 95.0%.

Basis of Presentation
NBF maintains its records and prepares financial statements in Japanese yen and in accordance withthe provisions set forth in the Investment Trust Law of Japan and the Securities and Exchange Law ofJapan, and in conformity with accounting principles generally accepted in Japan. Certain accounting
principles and practices generally accepted in Japan are different from International AccountingStandards and standards in other countries in certain respects as to application and disclosure
requirements. Accordingly, the accompanying financial statements are intended for use by those whoare informed about Japanese accounting principles and practices. The accompanying financial
statements have been translated from the audited financial statements that were prepared for Japanese
domestic purposes from accounts and records maintained by NBF and were filed with Local Finance
Bureau of the Ministry of Finance as required by the Securities and Exchange Law. NBF does notprepare consolidated financial statements, as NBF has no subsidiaries.
In preparing the accompanying financial statements, certain reclassifications and modifications havebeen made in the financial statements issued domestically in order to present them in a form that ismore familiar to readers outside Japan. The statements of shareholders’ equity and cash flows have been
prepared for the purpose of inclusion in the accompanying financial statements, although suchstatements were not required for domestic purposes and were not filed with regulatory authorities.

55

Note 2 –Summary of Significant Accounting Policies
Cash and Cash Equivalents
NBF considers all highly liquid investments with original maturity of three months or less to be
cash and cash equivalents.

Investment Properties
Investments properties are recorded at cost, which included the allocated purchase price andrelated costs and expenses for acquisition of the office properties and the beneficiary interests ofproperties in trust. Property and equipment balances are depreciated using the straight-line method
over estimated useful lives. The estimated useful lives of the buildings vary from 16 to 50 years.
Costs related to the renovation, construction and improvement of properties are capitalized.
Expenditures for repairs and maintenance which do not add to the value or prolong the useful life ofa property, are expensed as incurred.

Deferred Bond Issue Costs
Deferred bond issue costs are amortized using the straight-line method over three years.

Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax
effect of temporary differences between the amounts of assets and liabilities for financial statements
and for income tax purposes is recognized as deferred income taxes.

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis. NBF is allocated the portionof the real estate taxes related to the period following the purchase date of each property through theend of the year and the equivalent amounts of those allocated portions are capitalized as part of theacquisition costs of the relative properties. Capitalized real estate taxes amounted to ¥13 million forthe period ended December 31, 2002 and ¥182 million for the period ended June 30, 2002,
respectively.

Revenue Recognition
NBF operates office properties that are rented to tenants on lease terms of generally two years,
with monthly payments due in advance. Rental and other property income is recorded when due fromtenants and is recognized monthly as it is earned. Common area charges provided for in tenant leases
are recognized as income when earned and their amounts can be reasonably estimated.

Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate
For trust beneficiary interests in real estate, all accounts of assets and liabilities within assets intrust as well as all income generated and expenses incurred from assets in trust are recorded in therelevant balance sheet and income statement accounts.

56

Note 3 – Schedule of Other Tangible Assets
Other tangible assets as of December 31, 2002 and June 30, 2002 consisted of the following:
As of December 31, 2002
As of June 30, 2002
(Yen in millions)
Acquisi-tion
Costs
Structures. . . . . . . . . . . . . . . ¥ 91
26
Machinery and equipment. . . . . . . . . . . . .
Tools furniture and fixtures . .. . . . . . . . . .
4Structures in trust. . . . . . . . . . . . . . . 379
538
Machinery and equipment in trust . . . . . .
Tools, furniture and fixtures in trust . . . . . . . . . 230
Construction in process. . . . . . . . . .
24

Total

¥1,292

Accumu-latedDepreci-ationBook
Value

Acquisi
-tion
Costs

Accumulated
Depreci-ation

Book
Value

¥ (1)
(0)
(0)
(72)
(92)
(72)
¥ (237)

¥ 90
26
4
307
446
158
24
¥ 1,055

¥ 0
2
371
531
197
¥ 1,101

¥ (0)
(0)
(49)
(60)
(47)
¥ (156)

¥ 0
2
322
471
150
¥ 945

Note 4 – Shareholders’ Equity
NBF issues only non-par value shares in accordance with the Investment Trust Law of Japan and allof the issue price of new shares is designated as stated capital. NBF maintains at least ￥50 million as
the minimum net assets as required by the Investment Trust Law of Japan.
Effective April 1, 2002, NBF adopted the new accounting standard for treasury stock and reductionof statutory reserves (Accounting Standards Board Statement No. 1, "Accounting Standard for Treasury
Stock and Reduction of Statutory Reserves", issued by the Accounting Standards Board of Japan on
February 21, 2002). Adoption of such accounting standard, however, had no effect on statement ofincome for the period ended December 31,2002.

Note 5 – Short-Term Loans and Long-Term Debts
Short-term loans consist of short-term notes and short-term borrowings under loan agreements.
The annual interest rates on short-term loans outstanding are floating rate and at December 31, 2002
and June 30, 2002 mainly ranging from 0.47% to 0.53% and from 0.46% to 0.54%, respectively.
Long-term debts are fixed rate and as of December 31, 2002 and June 30, 2002 consisted of the following:(Yen in millions)
As of
As of
December 31,
June 30,
2002
2002
Unsecured loans due 2005 to 2012 principally from banks andinsurance companies with interest rates mainly ranging
from 0.7% to 2.2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 64,000¥ 59,000
0.68% unsecured bonds due 2004. . . . . . .. . . . . . . . . . . . . . . . . .
8,000
8,000
¥ 72,000¥ 67,000
The annual maturities of long-term debt as of December 31, 2002 were as follows:(Yen in millions)2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 8,000
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,0002006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,000
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,00057During the period ended December 31, 2002, NBF obtained committed credit lines of ¥30 billion
with certain financial institutions to reduce refinancing risk. The unused amount of such committed
credit lines was ¥30 billion at December 31, 2002.

Note 6 –Rental Revenues and Expenses
Rental revenues and expenses for the period ended December 31, 2002, June 30, 2002 and December
31, 2001 were as follows:
For the period

For the period

For the period

from July 1, 2002

from January 1,

from March 16,

to December 31,

2002

2001 (date of

2002

to June 30, 2002

inception) to
December 31, 2001

(Yen in millions)

Revenues from Property Leasing :Rental:Rental revenues . . . . . . . . . . . . . . . . . . . . . .
Common area charges. . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
Others:Parking lots . . . . . . . . . . . . . . . . . . . . . . . . .
Facility charge . . . . . . . . . . . . . . . . . . . . . . .
Incidental income . . . . . . . . . . . . . . . . . . . . .
Cancellation fees. . . . . . . . . . . . . . . . . . . . . .
Miscellaneous income . . . . . . . . . . . . . . . . .
Subtotal.....................
Total revenues from property leasing
Rental Expenses:
Property management fee. . . . . . . . . . . . . . .
Real estate taxes . . . . . . . . . . . . . . . . . . . . .
Repairs and maintenance . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .
Total rental expenses. . . . . . . . . . . . .
Operating Income from Property Leasing
Activities¥ 8,925
1,404
37
10,366¥ 8,971
1,422
34
10,427¥ 9,9221,590
43
11,555

255
59
563
585
18
1,480
11,846

248
54
488
13
29
832
11,259

307
50
624
5
20
1,006
12,561

1,542
974
521
47
875
2,072
6,031

1,545
977
315
52
787
1,947
5,623

1,780
486
369
52
880
2,170
5,737

¥ 5,815¥ 5,636¥ 6,824Note 7 –Income Taxes
NBF is subject to income taxes in Japan. The effective tax rate on NBF's income based on applicable
Japanese tax law was 0.02% for the period ended December 31, 2002 and approximately 0.02% for theperiod ended June 30, 2002 and approximately 0.03% for the period ended December 31, 2001. The
following table summarizes the significant differences between the statutory tax rates and NBF's
effective tax rates for financial statement purposes for the period from July 1, 2002 to December
31,2002 and the period from January 1, 2002 to June 30, 2002 and for the period from March 16, 2001
(date of inception) to December 31,2001.

58

For the period

For the period

For the period

from July 1, 2002

from January 1,

from March 16,

to December 31,

2002

2001(date of inception)

2002

to June 30, 2002

to December 31, 2001

Statutory effective tax rate . . . . . . . . . .
Deductible dividends paid . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . .

39.39)%(39.37)%0.00
0.02)%

39.39)%(39.37))% 0.00)%0.02)%

39.39)%(39.38))% 0.02)%0.03)%

NBF was established as an investment corporation under the Investment Trust Law of Japan, and aslong as an investment corporation distributes to its shareholders at least 90% of taxable income for theperiod and other requirements are met, an investment corporation is allowed to deduct its dividends
from taxable income under Japanese tax regulations.

Note 8– Per Share Information
Information about earnings per share for the period ended December 31 2002, June 30, 2002 and theperiod from March 16, 2001 (date of inception) to December 31, 2001 and net assets per share as ofDecember 31 and June 30, 2002 was as follows.
The computation of earnings per share and net assets per share is based on the weighted average
number of common shares outstanding during the period. The figure for the period from March 16,
2001 to December 31, 2001 is weighted average number of common shares outstanding on a daily basis
from May 23, 2001（date of commencement of asset management））to December 31, 2001.
For the period

For the period

For the period

from July 1, 2002

from January 1,

from March 16, 2001

to December 31, 2002

2002

(date fo inception)

to June 30, 2002

to December 31, 2001

（Yen）

Earnings per Share of Common Shares:
Net income:Weighted average number ofcommon shares outstanding:¥ 16,253) ¥ 16,003¥ 22,271

280,700)

239,807

Net Assets Per Share. .. . . . . . . . . . . . . . .

280,700

As of

As of

December 31,

June 30,

2002

2002

¥ 546,710¥ 546,460

Effective April 1, 2002, NBF adopted the new accounting standard for earning per share (AccountingStandards Board Statement No. 2, "Accounting Standard for Earning Per Share", issued by the
Accounting Standards Board of Japan on September 25, 2002). For the period ended December 31,
2002, earnings per share calculated in accordance with the new accounting standard and the related
guidance were identical with those calculated in accordance with the previous accounting method.

59

Note 9–Leases
NBF leases its real estate properties to outside parties under non-cancelable operating leases. As of
December 31, 2002 and June 30, 2002, the future lease revenue under the non-cancelable operatingleases are as follows:
As of December 31, 2002

Due within one year………………….
Due after one year……………………
Total………………………………

As of June 30, 2002

(Yen in millions)¥ 4,948
14,225¥ 19,173¥ 4,630
16,414¥ 21,044

Note 10– Significant Subsequent Events
Cash distribution
As of February 12, 2003, the Board of Directors of NBF resolved to effect payment of a cash
distribution of ¥16,253 per share aggregating ¥ 4,562 million to shareholders of record on December 31,
2002.

Issuance of unsecured bonds
At the board meeting held on January 29, 2003, it was resolved that NBF issue unsecured bonds inthe amount of ¥10,000 million with coupon of 0.75% due 2007. Receipt of the proceeds of such issue
was completed on February 10, 2003. NBF intends to use such proceeds to repay the short-termborrowings.

60

Ⅲ

Overview of Related Operating Entities

Summary of the Business RelationshipAs an investment corporation, NBF undertakes management of funds obtained from investors byinvesting mainly in Real Estate etc. The following sets forth in general terms the business
relationships related to the asset management with related operating entities and their businesses.

(1) Business Related to Asset Management and Real Estate etc. Acquisition
NBFM, as the asset management company of NBF, studies and determines whether or not toacquire Real Estate etc. as part of its asset management of NBF. NBFM is entitled to require that
NBF Office Management Co., Ltd., as Property Acquisition Advisory Agent, provide advice concerning
the acquisition of Real Estate etc. In order to perform such advising, the Property Acquisition Advisor
is entitled to receive necessary materials etc. from Mitsui Fudosan Co., Ltd., as Property Acquisition
Assistant Advisor.
When NBF acquires Real Estate etc., Mitsui Fudosan Co., Ltd., as Property Transfer Agent, will
undertake supervision of the repair of existing defects etc. and delivery of notifications etc. which mustoccur prior to the delivery of Real Estate etc., in advance of commencing the management of Real
Estate etc. With the exception of a certain portion of such business, all such business will be entrusted
to NBF Office Management Co., Ltd., as Property Transfer Sub-Agent.

(2) Business Related to Management etc. of Real Estate etc.
In the event that NBF acquires Real Estate etc., Mitsui Fudosan Co., Ltd., as Office Management
Business Agent, will, upon an entrustment from NBF, undertake office management of said Real Estateetc.
In addition to above, while the trustee will possess managerial authority over any real estate heldin trust, NBF, as beneficiary, will have certain rights to instruct, and the Office Management Business
Agent, as agent and upon an entrustment from NBF, will perform on behalf of the trustee, such businessconcerning office management of such real estate held in trust.
Among Office Management Business concerning Real Estate etc. acquired by NBF, all business,
excluding a certain portion of such business, will be entrusted to the Office Management Business
Sub-Agent.
Furthermore, businesses such as acting as intermediary in the execution of leasing agreements
including the delivery of information regarding the leasing market in general, possible relocation ofexisting tenants (vacancies), identification of prospective new tenants, maintaining custody of
information regarding business opportunities will be conducted for the existing tenants by NBF Office
Management Co., Ltd. etc. as Existing Tenant Intermediary Agent, and for other than existing tenants,
by Mitsui Fudosan Co., Ltd. etc. as New Tenant Intermediary Agent.

61

(a) Nippon Building Fund Inc. ("NBF", an Investment Corporation)
Organization of NBF
The number of executive directors of NBF is one or more, and the number of supervisory
directors is four or fewer (but always equal to the number of executive directors, plus a minimumof one additional supervisory director) (Articles of Incorporation).
As of December 31, 2002, the organs of NBF consisted of, in addition to the general meeting of
the shareholders, two executive directors and four supervisory directors as well as a Board of
Directors comprised of the executive directors and supervisory directors.
As of December 31, 2002, members of the Board of Directors of NBF were as set forth in thetable below, each of which was reelected at the 3rd general meeting of NBF held on March 14,
2003 for 2 years terms commencing March 17, 2003.
Name of executive directors andsupervisory directors
Toshihiko Fukase
Koichi Nishiyama
Tadashi Niizawa
Tomio Hirota
Akira Nishizawa
Nobutoshi Kozuka
Note

Title
Executive Director
Executive Director
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director

Koichi Nishiyama, Executive Director, is concurrently President & CEO of NBFM. No executive
or supervisory director directly or indirectly holds any shares in NBF. Further, while somesupervisory directors are concurrently officers in other corporations, there exist no conflicts ofinterest between said corporations and NBF.

General Meeting of Shareholders
Certain matters concerning NBF set forth in the Investment Trust Law of Japan or its Articles
of Incorporation are determined by the general meeting of shareholders. The general meeting ofshareholders of NBF is held once or more during each two year period. The time for convocationof a meeting is not fixed. The meetings are to take place in Chuo-ku or any neighboring ward inTokyo. The general meeting of shareholders is to be convened by public notice at least twomonths prior to the date of meeting as well as by notice to be sent to each shareholder at least two
weeks prior to such date (Article 91.1 of the Investment Trust Law of Japan). In principle, aresolution may be adopted by a majority of the voting rights of those present; provided, however,that with respect to certain material matters such as amendment of the Articles of Incorporation, aresolution must be adopted by two-thirds of the total voting rights (special resolution) of theshareholders present who represent a majority of all issued and outstanding shares.
Policies of asset management by NBF are set forth in its Articles of Incorporation. In orderto change the policies of asset management set forth in the Articles of Incorporation, the Articles
of Incorporation must be amended pursuant to the procedures for special resolutions set forth
above.
NBF has entered into an Asset Management Entrustment Agreement with NBFM, an asset
management company, and entrusted business such as managing the assets of NBF (herein“Managed Assets”) to said company. In the event that NBFM is to terminate the AssetManagement Entrustment Agreement, it must obtain the agreement of NBF, and in order for the
executive directors to give such agreement, they must obtain the approval of the general meetingof shareholders. Also, in the event NBF terminates the Asset Management Entrustment
Agreement, it must, in principle, be determined by resolution of the general meeting of62

shareholders.
Executive Directors, Supervisory Directors and Board of Directors
In addition to executing the business of NBF, the executive directors, as representatives of
NBF, are authorized to conduct any and all judicial or non-judicial acts in relation to the businessof NBF except for executing asset management. However, certain acts such as agreeing to thetermination by NBFM of the Asset Management Entrustment Agreement, convening the general
meeting of shareholders, entrusting administrative affairs to the Administrative Agent, execution ofan asset management entrustment agreement or asset custody entrustment agreement, or any otherbusiness undertaking set forth in the Investment Trust Law of Japan, need to be approved by the
Board of Directors.
The supervisory directors are authorized to supervise the business conductof the executive directors. The Board of Directors has the authority to approve certain mattersconcerning business as stated above and also has such authority as is set forth in the Investment
Trust Law of Japan and the Articles of Incorporation as well as the authority to supervise thebusiness conduct of the executive directors. Resolutions of the Board of Directors will be adopted
at a meeting at which a majority of directors comprising the Board of Directors is present and withthe consent of the majority of such attending directors.
The rules of the Board of Directors of NBF stipulate that an executive director or supervisory
director may not participate in a resolution in which such director has any specific interest, andthat, in such case, such executive director or supervisory director will be excluded from thecalculation of the number of executive directors and supervisory directors present.
Change of Directors
The term of office of the executive directors and supervisory directors is two years
commencing upon their appointment; provided, however, that the term of office of an executive
director or supervisory director who is appointed due to a vacancy or an increase in the number of
directors will be the same as the remaining term of his predecessor or the concurrent directors(Articles of Incorporation).
The executive directors and supervisory directors are selected and appointed at the general
meeting of shareholders (Articles 95 & 100 of the Investment Trust Law of Japan, Articles ofIncorporation) except for those who are deemed selected and appointed upon the establishment of
NBF based on the provisions of the Investment Trust Law of Japan (Article 72 of the Investment
Trust Law of Japan, Articles of Incorporation).
Executive directors and supervisory directors may be removed by a special resolution of thegeneral meeting of shareholders. If the motion for removal of an executive director orsupervisory director is rejected in spite of the fact that there was material misconduct or violationof laws or the Articles of Incorporation with respect to the duties of such executive director orsupervisory director, any shareholder representing 3% or more of the total issued and outstanding
shares (and who has been a shareholder with respect to said shares for not less than six months)
may, within thirty days of said resolution, submit a demand for the removal of such executive
director or supervisory director to the court (Articles 99.1 & 104 of the Investment Trust Law ofJapan, Article 257 of the Commercial Code of Japan).
Appointment of Third Parties
Under the Investment Trust Law of Japan, due to the legal requirement of external asset
management, the Board of Directors of NBF has limited functions which include approving thecommencement of any bond offering and the appointment of a Bond Trustee for any of NBF bonds,
issuance of new shares, convocation of the general meeting of shareholders, termination of theAsset Management Entrustment Agreement (subject to approval by the general meeting ofshareholders), financial documents, appointment of NBF administrative service provider, any

63

agreements pertaining to asset management and asset custody, and any payment of fees, charges orother expenses pertaining to asset management and asset custody.
NBF is required under the Investment Trust Law of Japan to appoint third parties to undertakeits management and administrative functions, including the management of its properties.
Related operating entities to NBF means the asset management company that performs
management of the assets of NBF, the Administrative Agent of NBF, the Asset Custodian, theBond Trustee and so forth involved in the management of NBF, the names and related functions ofwhich are set forth below.

(b) Nippon Building Fund Management Ltd. (Asset Management Company and Administrative
Agent regarding the Management of Institutions, herein "NBFM")
NBFM, as Asset Management Company provided for in the Investment Trust Law of Japan,
performs management of NBF's assets and undertakes management of the institutions of NBF.
As of December 31 2002, NBFM has been entrusted as an asset management company only by
NBF.
As of the same date, NBFM has paid-in capital of ¥ 495 million. There is no capital
relationship with NBF. Koichi Nishiyama, President & CEO of NBFM, is concurrently an
executive director of NBF.
Operation- Undertakes asset management of NBF pursuant to an Asset Management Entrustment Agreement( (1) in below diagram) based on an entrustment from NBF in accordance with the Articles ofIncorporation of NBF and the Investment Objects and Policies set forth therein.
- Undertakes management of the general affairs of the general meeting of shareholders and the Boardof Directors as Administrative Agent regarding the Management of Institutions based on an
entrustment from NBF and pursuant to an Agreement for General Administration Regarding theManagement of Institutions ( (2) in below diagram).
Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 3% (2.5% effective from July 1, 2003) of the amount of the revenue
arising from Real Estate etc. as calculated on each closing date (provided, however, that revenues
from the sale of Real Estate etc. and other Managed Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax (provided, however, that in theevent a loss is carried forward, then the amount of income before income taxes remaining after
said loss has been covered) prior to deduction of Management Fees 2 as calculated on each closing
date will be payable.
Management Fees 3
In the event that Real Estate etc. is newly-acquired, compensation equivalent to the total
amount of the acquisition price of said Real Estate etc.(meaning the acquisition price of both landand buildings, and in the event of the simultaneous acquisition of multiple units of Real Estate etc.,
the acquisition price of each item; provided, however, that national consumption tax, regional
consumption tax and miscellaneous costs of acquisition are excluded) multiplied by the following
percentage rates will, in principle, be payable; provided, however, that with the approval of the64directors of NBF, compensation will be calculated within the scope decided up to the following
maximum rates.
・The portion up to and including ¥10,000million
0.5％・The portion exceeding ¥10,000 million up to and including ¥30,000 million 0.2％
・The portion exceeding ¥30,000 million up to and including ¥50,000 million 0.05％
・The portion exceeding ¥ 50,000 million
nothing
History of NBFM
NBFM is an Asset Management Company which is a limited company duly established under
the laws of Japan. Major events in the history of NBFM are as follows.
September 19, 2000
November 17, 2000
January 29, 2001
February 15, 2001
March 7, 2001
March 22, 2001
May 23, 2001
June 16, 2001
March, 2003

EstablishedObtained license as a building lots and building transactions agent
under the Building Lots and Building Transactions Law
Obtained approval as a discretionary transaction agent under the
Building Lots and Building Transactions Law
Registered as a general real estate investment advisor under the Real
Estate Investment Advisor Registration Regulations
Obtained approval as an Asset Management Company under theInvestment Trust Law of Japan
Increased capital from ¥100 million to ¥198 million
Changed name (from “MF Asset Management Co., Ltd.” to "Office
Building Fund Management Japan Limited")
Increased capital from ¥198 million to ¥495 million
Changed name (from "Office Building Fund Management Japan
Limited" to "Nippon Building Fund Management Ltd.")

List of Shareholders （as of December 31 2002）
Name
Mitsui Fudosan Co., Ltd.
Sumitomo Life Insurance Company
The Chuo Mitsui Trust and Banking Co., Ltd.
Sumitomo Mitsui Banking Corporation
Daido Life Insurance Company
Mitsui Sumitomo Insurance Co., Ltd
Mitsui Mutual Life Insurance Company
Britel Fund Trustees Limited
Total

Number of shares
owned
4,257
3,465
495
495
297
297
297
297
9,900

Percent
43.0%
35.0
5.0
5.0
3.0
3.0
3.0
3.0
100.0%

Directors and Staff
As of December 31,2002 the directors and corporate auditors of NBFM are as follows. The
staff other than directors and auditors of NBFM is comprised of 13 persons.

Name of Directors and Auditors
Koichi Nishiyama

Title
President & CEO (standing)65

Kenji Iino
Satoru Yamanaka
Ken Tanaka
Tamotsu Shinyama
Mutsumi Hiroshima
Masahiko Suemitsu

Director, Head of Investment & Finance Group (standing)
Director, Head of Administration Group (standing)
Director
Director
Corporate Auditor
Corporate Auditor

Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of Principal Assets and Liabilities for the Most Recent Fiscal Year
Current as of March 31, 2002
Total Assets
Total Liabilities
Shareholders’ Equity

Yen in thousands
1,257,655
447,948809,707

Profit & Loss for the Most Recent Fiscal YearFirst Fiscal Year
From: April 1, 2001
To: March 31, 2002
Operating Income
Ordinary Profit
Net Income

Yen in thousands
1,039,395
539,853
308,627(c) The Chuo Mitsui Trust and Banking Co., Ltd. (Manager of General Administration regarding
Share Transfers and General Asset Custodian)
The Chuo Mitsui Trust and Banking Co., Ltd. performs commercial banking and trust
business pursuant to the Bank Act and the Trust Law in Japan. As of March 31, 2002 the Bank
had paid-in capital of ¥335 billion. As of December 31, 2002, the Bank owned 4,000 shares of
NBF. There are no concurrent directorships with NBF.
Operation- acting as a Transfer Agent pursuant to a Share Transfer Entrustment Agreement ( (3) in below
diagram), based on an entrustment from NBF, creates, controls and maintains the Shareholder
Registry and Beneficial Shareholder Registry, transfers names of owners of shares, delivers
investment share certificates, prepares convocation notices for the general meeting of shareholders
and performs other administration work concerning the procedures for the calculation andpayment of cash distributions as well as the issue of new shares etc.
- acting as an Asset Custodian pursuant to an Asset Custody Agreement ( (4) in below diagram) andbased on an entrustment from NBF , undertakes custody of written documents, including
documents required to prove ownership of assets owned by NBF, such as real estate registration
documents, beneficiary certificates, contracts, securities and other certificates and instruments andother documents.

(d) Akira Sugai of Heiseikaikeisha Accounting Office(General Agent Concerning Accounting
Business Etc.)
66

Akira Sugai of Heiseikaikeisha Accounting Office is a Certified Public Accountant and a
Certified Tax Consultant. There is neither a capital relationship nor any concurrent directorships
with NBF.
Operation- acting as an Accounting Agent pursuant to a General Accounting Business Entrustment
Agreement ( (5) in below diagram) and based on an entrustment from NBF, undertakes the
preparation of financial and accounting documents and tax-related affairs.

(e) Mitsui Fudosan Co., Ltd. (Office Management Business Agent, Property Acquisition Assistant
Advisor, Property Transfer Agent and New Tenant Intermediary Agent)
Mitsui Fudosan Co., Ltd. performs comprehensive real estate business, such as real estatedevelopment, leasing, sales of housing, office building and land, brokerage and so forth. As of
September 30, 2002, Mitsui Fudosan had paid-in capital of ¥134 billion. As of December 31,
2002, Mitsui Fudosan owned 16,200 shares of NBF. There are no concurrent directorships with
NBF.
Operation- based on Office Management Agreements ( (6) in below diagram) concluded with respect to officeproperty(ies), performs Office Management Business concerning Real Estate Real Estate etc.
acquired by NBF.
Excluding a portion of such business, entrusts all business (herein "Subcontracted Office
Management Business ") to NBF Office Management Co., Ltd. ( (7) in below diagram)(Note) Office Management“Office Management”, as defined by Mitsui Fudosan group, means the active andfully-integrated management of office properties,. “Office Management Business” is collectively
defined to include profit management, interfacing with tenants, planning renovations, emergency
management and so forth concerning Real Estate etc. acquired by NBF as well as real estate held in
trust, providing instructions to trustees, and similar trust representative business including theprovision of accounting support.
- based on a Supplemental Property Acquisition Advisory Agreement ( (11) in below diagram)assists NBF Office Management Co., Ltd. in performing Property Acquisition Advisory Businessincluding preparation and gathering of documents, conducting investigations etc. as required forundertaking the Property Acquisition Advisory Business for NBFM (hereinafter "Supplemental
Property Acquisition Advisory Business").
- based on a Property Transfer Agency Business Agreement ( (8) in below diagram) when NBF
acquires Real Estate etc., in order to avoid thereafter hindering the entrustment of management ofreal estate and having received a request from NBF, undertakes supervision of the repairs ofexisting defects etc. and delivery of notifications etc. which must occur prior to the delivery of realestate, in advance of commencing the management of real estate.
- excluding a portion of such business, entrusts all Property Transfer Agency Business (herein"Subcontracted Property Transfer Agency Business") to NBF Office Management Co., Ltd. ( (9) inbelow diagram)67

- based on a New Tenant Intermediary Business Agreement ( (13) in below diagram), acts as anintermediary concerning the execution of leasing agreements (hereinafter "New Tenant
Intermediary Business") including delivery of information regarding the leasing market in general,and possible relocations of potential tenants other than existing tenants to, NBF.
Fees for the Office Management Operation
Entrustment Business Fees
The total amount of both fees described below payable pursuant to each Office Management
Agreement, which in the case of real estate is paid by NBF, and in the case of real estate held in
trust, is paid from the trust assets related to the real estate held in trust.
・ 3% (2.5% effective from July 1,2003) of revenue arising from each item of Real Estateetc. as calculated on each closing date (provided, however, that revenues from the sale ofReal Estate etc. and other Managed Assets will be excluded);
・ 3% of net operating income before deduction of Entrustment Business Fees and amountof depreciation (hereinafter “Adjusted NOI”); provided, however, that income from thesale of Real Estate etc. and other Managed Assets is excluded herefrom; and further
provided that notwithstanding the foregoing, if Adjusted NOI becomes zero or negative,no fees based on Adjusted NOI will be payable.
Construction Supervision Fees
In the event that the Office Management Business Agent prepares plans and undertakes
supervision of building-maintenance construction or tenant improvements and large-scalerenovation, construction supervision fees calculated per instance in accordance with construction
cost (before consumption tax) as described below will be payable.
・ No Fees for construction cost less than ¥0.5 million
・ Fees of 5％ of construction cost from ¥0.5 million up to and excluding ¥10 million
・ Fees of ¥0.5 million plus 3% of construction cost from ¥10 million up to and excluding¥100 million
Note

Construction supervision fees will be determined on a case-by-case basis pursuant toseparate discussions regarding execution of extraordinarily large-scale renovation withrespect to supervision of planning and construction, negotiations with tenants,neighborhood and administration agency concerning the execution of construction
projects which are considered to be very large compared to ordinary construction
projects, including construction cost exceeding ¥100 million.

Transfer Supervision Fees
If NBF or the Trustee entrusts supervision of management of assets to the Office Management
Business Agent as representative of the seller of Real Estate etc., Transfer Supervision Fees(including costs of preparation to conduct leasing business), being the amount equivalent to theactual costs of supervision of the delivery of documents etc., will be paid as separately determinedby discussions.

68

(f) NBF Office Management Co., Ltd. (Office Management Business Sub-Agent, Agent for
Vicarious Execution of Office Business, Property Transfer Sub-Agent, Existing Tenant
Intermediary Agent and Property Acquisition Advisor, herein "NBFOM")
NBFOM engages solely in businesses concerning office management of NBF and is a 100%
owned subsidiary of Mitsui Fudosan Co., Ltd. as of December 31, 2002. As of December 31,
2002, NBFOM had paid-in capital of ¥10,000,000. There is neither a capital relationship nor any
concurrent directorships with NBF.
Operation- upon an entrustment from Mitsui Fudosan Co., Ltd. and pursuant to an Office Management
Business Sub-Agent Agreement ( (7) in below diagram), performs Subcontracted Office
Management Business (as defined below)- based on a Vicarious Execution of Office Business Entrustment Agreement ((14) in below
diagram) concluded with respect to office property(ies) for which certain Office Management
Business activities have not been entrusted to third parties, performs said Office Business
Management activities in lieu of the owners and lessors of said buildings.
- upon an entrustment from Mitsui Fudosan Co., Ltd. and pursuant to a Property Transfer
Sub-Agent Agreement ( (9) in below diagram), performs subcontracted Property Transfer Agency
Business (as defined below)- based on an Existing Tenant Intermediary Business Agreement ( (12) in below diagram), acts as anintermediary concerning the execution of leasing agreements, including delivery of information
regarding Real Estate etc. acquired by NBF to existing tenants and regarding possible relocationsof, or expansions of leased space occupied by, existing tenants to NBF (Existing Tenant
Intermediary Business).
- based on a Property Acquisition Advisory Agreement ( (10) in below diagram), when NBFM
is to acquire Real Estate etc., advises NBFM concerning study and determination of theacquisition of such Real Estate etc.

69

Diagram of Related Operating Entities
Nippon Building FundManagement Limited(“NBFM”)
As Asset Management
Company（１）,（２）

Nippon Building
Fund Inc.

(“NBF”)（３）,（４）As Trust
Beneficiary
Board of Directors
Executive directors
Supervisory
directors

（１４）
（１０）

.As Manager of General
Administration regarding
Share Transfers andGeneral Asset Custodian
（５）

（８）

（９）

Akira Sugai of
Heiseikaikeisha
Accounting Office
Entities relating to
NBF Bonds

Trust Banks
（１３）

（７）

Real estate trust
agreements（６）

Mitsui FudosanCo., Ltd.

The Chuo Mitsui
Trust and Banking
Co.,Ltd.

（１１）
（１２）

NBF Office Management
Co., Ltd. (“NBFOM”)

As Trustee(1)Asset Management Entrustment Agreement(2)General Administration Regarding the Management of Institutions(3)Share Transfer Entrustment Agreement(4)Asset Custody Agreement(5)General Accounting Business Entrustment Agreement(6)Office Management Agreements(7)Office Management Business Sub-Agent Agreement(8)Property Transfer Agency Business Agreement(9)Property Transfer Sub-Agent Agreement(10)Property Acquisition Advisory Agreement(11)Supplemental Property Acquisition Advisory Agreement(12)Existing Tenant Intermediary Business Agreement(13)New Tenant Intermediary Business Agreement(14) Vicarious Execution of Office Business Entrustment Agreement

Note:
This diagram indicates, in the event that NBF holds real estate held in trust, the principal contractual relationships andentities.

In the event NBF directly holds real estate, the parties to contracts (6) and (13) are NBF and Mitsui Fudosan Co.,

Ltd., and as for contract (12), NBF and NBFOM.

In the case of other forms of ownership, the contracts and their parties(entities) may vary.
With respect to contracts and entities not included in this diagram, for example, building security and maintenance etc., theProperty Maintenance Company will perform pursuant to a Property Maintenance Agreement.

In the event that NBF

acquires real estate directly, said agreement will be by and among the Property Maintenance Company, NBF and NBFOM.
In the event NBF acquires real estate held in trust, the agreement will be by and among Trust Banks as Trustee, the Property
Maintenance Company and NBFOM.

70

Ⅳ Appendix■

Investment Objects
The Investment Objects of NBF specified in the Articles of Incorporation are as follows.

A.

Principal Investment Objects among Designated Assets

NBF will principally invest in the below-listed Designated Assets with the objective of assuring
steady growth and stable profits from the Managed Assets.
(1) Real estate, real estate leasehold interests and superficies.
(2) Beneficiary Certificates backed by real estate, land leasehold rights and superficies,
including inclusive trusts consisting of funds appurtenant to real estate.
(3) Tokumei-kumiai ownership interests (provided, however, that this is limited to those theassets of which are primarily invested and Managed Assets principally referred to inparagraphs (1) and (2) above).
(4) Preferred Investment Certificates of Special Purpose Companies (meaning those specified
in Article 2.1.5.3 of the Securities and Exchange Law of Japan; provided, however, that
this is limited to those the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above).
(5) Special Purpose Beneficiary Certificates (meaning those specified in Article 2.1.7.4 of the
Securities and Exchange Law of Japan; provided, however, that this is limited to those theassets of which are primarily invested and Managed Assets principally referred to inparagraphs (1) and (2) above).
(6) Beneficiary Certificates of investment trusts (meaning those specified in Article 2.1.7 of
the Securities and Exchange Law of Japan; provided, however, that this is limited to those
the assets of which are primarily invested and Managed Assets principally referred to inparagraphs (1) and (2) above).
(7) Investment Securities (meaning those specified in Article 2.1.7.2 of the Securities andExchange Law of Japan; provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred to in paragraphs (1)and (2) above).
(8) Beneficiary Certificates of Money Trust (limited to those the trust assets of which areprimarily invested and Managed Assets referred to in paragraph (1) above).

B.

Other Investment Objects among Designated Assets

NBF may, for the purpose of efficiently managing surplus funds, invest in the following Designated
Assets.
(1) Bank deposits.
(2) Call loans.
(3) Japanese Government Bonds, Notes and Bills(4) Regional Treasury Bonds, Notes and Bills(5) Commercial Paper(6) Designated Bonds of Special Purpose Companies (meaning those specified in Article
2.3.1.2 of the Securities and Exchange Law of Japan; provided, however, that this islimited to asset-backed securities principally referred to in paragraphs (1) and (2) ofsection (a) above).
71

(7) Beneficiary Certificates of Money Trust invested and managed for the purpose of any of
the foregoing items.
(8) Monetary Claims (excluding those subject to the provisions of Paragraphs 1, 12 and 14 of
Article 3 of the government ordinance regarding the Investment Trust Law of Japan).
Moreover, in order to avoid risks of fluctuation in the prices of the Managed Assets as well as risksof fluctuations in interest rates, futures transactions, option transactions, swap transactions and forward
rate transactions with respect to Japanese interest rates may be undertaken.

C. Assets other than Designated Assets
NBF may, for the purpose of efficiently managing surplus funds, invest in Certificates of Deposit
issued by Japanese legal entities. Moreover, NBF may invest in equity interests of voluntary
partnerships as defined by Article 667 of the Civil Code of Japan associated with investment in realestate, lease rights or superficies (but limited to investment in partnerships established with
contributions of real estate, lease rights or superficies and having the objective of leasing, operating andmanaging etc. the same).

D.

Investment in Ordinary Securities

NBF does not, in principle, have the objective of investing in and managing assets which are
securities, except for those described in A and B above.

72

■ Investment Restrictions
A. The investment restrictions specified in the Articles of Incorporation and the asset
management guidelines applicable to NBF.
Investment Location and Currencies
NBF will invest neither in real estate located outside of Japan nor in assets denominated in
non-Japanese currencies ("Investment Objects and Policies", Articles of Incorporation). Please also
refer to "Investment Policies of NBF 1. Basic Investment Policies B. Investment Strategy" herein.
Subscription and Margin Trading of Securities
NBF may not subscribe to, or conduct margin trading of, securities.
Borrowing
See “Investment Policies of NBF(5) Financial Policies”

1. Basic Investment Policies B. Investment Strategy

Concentration of investment
There is no limitation on concentration of investment. See “Investment Policies of NBF
Investment Policies B. Investment Strategy (2) Strategy for Creation of the Portfolio”.

1.Basic

Investment in Other Funds
See “Ⅳ Appendix Investment Objects A. Principal Investment Objects amongst Designated
Assets”.
The real estate held by such funds may not include any real estate located outside of Japan (Articles
of Incorporation).
Investment in Assets Lacking Liquidity
There is no limitation on investment in assets lacking liquidity.
Compliance with Laws and Regulations
The Managed Assets of NBF will be managed in compliance with Investment Trust Law of Japanand related regulations, the rules stipulated by the Investment Trusts Association (as amended), as wellas “Investment Objects and Policies” of the Articles of Incorporation.

B. Compliance with the Investment Trust Law of Japan
While a registered investment corporation must entrust business related to asset management to an
asset management company, an asset management company is prohibited from performing certain acts
related to the business of managing the assets of said investment corporation. As a result, aninvestment corporation is subject to certain investment restrictions (all references in parentheses below
are to the provisions of the Investment Trust Law of Japan) besides restrictions applied to a registeredinvestment corporation. NBF will naturally comply with said investment restrictions, a general
overview of which follows.

73

Reciprocal Transactions with Investment Corporations (§34.3.1.5)
Transactions between investment corporations, the assets of which are managed by an asset
management company are prohibited except for certain cases specified in the provisions of thegovernment ordinance regarding the Investment Trust Law of Japan that are considered unlikely toresult in failure to protect the interests of shareholders.
Transactions by an Investment Corporation with Investment Trust Assets (§15.1.3)
Transactions between an investment corporation and investment trust assets subject to asset
management are prohibited except for certain cases specified in the provisions of the government
ordinance regarding the Investment Trust Law of Japan that are considered unlikely to result in failure
to protect the interests of shareholders.
Transactions for the benefit of Third Parties (§34.3.1.6)
An asset management company may not undertake transactions in certain securities based on
fluctuations in the price, index, value, or amount of consideration related to transactions in the assets ofan investment corporation, without a legally-valid reason, with the objective of benefiting a third party
other than NBF or said investment.
Transactions Harmful to the Interests of NBF (§34.3.1.7)
An asset management company may not undertake transactions that are other than upon normal
terms and conditions for such transaction, and further, such transaction upon said conditions would be
harmful to the interests of the investment.
Other Transactions specified in the Government Ordinance regarding the Investment Trust Law ofJapan (§34.3.1.8)
In the addition to the foregoing, those acts specified in the government ordinance regarding theInvestment Trust Law of Japan being certain acts committed by an asset management company thatwould result in failure to protect the interests of shareholders, damage the fairness of the managementof the assets of NBF, and pose a risk of damaging the good public reputation of NBF are prohibited.
Limitation on Acquisition of the Same Issue of Shares (§194)
A registered investment corporation may not acquire the same shares issued by a corporation inexcess of 50/100 of total number of said issued and outstanding shares
Restriction on Acquisition of Own Shares and Acceptance of Pledge (§80.1)
An investment corporation may not acquire shares issued by itself, or accept them for the purpose ofpledge, unless it acquires shares issued by itself in the following cases
・ when acquired as the result of merger;
・ if necessary for attaining the purpose of exercising its rights; or・ when purchasing shares pursuant to the provisions of the Investment Trust Law ofJapan.
Restriction on Acquisition of Parent Corporation’s Shares by Subsidiary Corporation (§81.1)
An investment corporation (e.g. subsidiary), a majority of the shares of which is owned by anotherinvestment corporation (e.g. parent) may not acquire the shares of such parent investment corporation
except in the following cases74

・ when acquired as the result of merger; or・ if necessary for attaining the purpose of exercising its rights.
Restrictions of Transactions with Interested Parties(1) Restriction on an asset management company (§34.3)
In accordance with the provisions of laws and regulations, an asset management company isprohibited from committing any of the following acts in connection with transactions with an Interested
Party etc. "Interested Party etc." as used herein means a person who holds a majority of the shares ofan asset management company or otherwise has a close relationship with said asset managementcompany as designated by the government ordinance regarding the Investment Trust Law of Japan.
a)An investment trust agent, trust company, financial institution engaged in trust business,investment advisor, residential land and building specialist etc. who is an Interested Party etc.
of an asset management company undertakes a transaction which harms the interests of NBF
with the objective of benefiting a customer etc. specified in the Investment Trust Law ofJapan.

b)

Undertaking transactions which harm the interests of an investment corporation with theobjective of benefiting an Interested Party etc. of NBFM.

c)

Undertaking transactions clearly recognized to be unnecessary in light of the management
policies for the assets of an investment corporation, the amount of net assets of NBF, ormarket conditions, with the purpose of benefiting a securities company, registered financial
institution, residential land and building specialist or other person specified in the government
ordinance regarding the Investment Trust Law of Japan who is an Interested Party etc. of anasset management company.

d)

In the event that a securities company, who is an Interested Party etc. of an asset managementcompany, acts as an underwriter in a securities transaction, undertaking transactions with theobjective of fraudulently manipulating the market for the purpose of having an influence upon
the conditions of the primary offer or secondary distribution of said securities not reflecting
correct market pricing.

e)

In the event that a securities company or registered financial institution, who is an Interested
Party etc. of an asset management company, undertakes a primary offer or secondary
distribution of securities or participates in handling a primary offer, private offering, or
secondary distribution at a time when the subscription amount of said acquisition or theamount of purchase offer of securities to said securities company or registered financial
institution is not foreseen to reach that otherwise expected by said securities company orregistered financial institution, acquiring or purchasing said securities with assets of NBF at
the request of said securities company or registered financial institution.

f)

In the event that the manager of a tokumei kumiai, who is an Interested Party etc. of an asset
management company, makes a solicitation in connection with the execution of a tokumei
kumiai agreement at a time when the total investment amount otherwise obtained pursuant tosaid tokumei kumiai agreement is not foreseen to reach that expected by the manager of said
tokumei kumiai, acquiring a tokumei kumai interest pursuant to said tokumei kumiai
agreement with assets of NBF at the request of the manager of said tokumei kumiai.

g)

In the event that a trust company, who is an Interested Party etc. of an asset management
75company, makes a solicitation in connection with the execution of a trust agreement at a time
when the amount of trust assets otherwise obtained pursuant to said trust agreement is notforeseen to reach that expected by said trustee, acquiring a beneficiary certificate pursuant tosaid trust with assets of NBF at the request of said trustee.
(2)

Restriction on an investment corporation

Restrictions on Asset Management (§195)
A registered investment corporation must not, in principle, acquire or sell securities, lend or borrow
securities, acquire or sell real estate, lease real estate or entrust the supervision of real estate (provided,
however, that, it is acceptable to cause NBFM to act as an agent or broker concerning the purchase orleasing of residential building lots or buildings) or otherwise engage in transactions concerning
Designated Assets other than the preparation of residential building lots and design of buildings, with
its executive directors or supervisory directors, asset management companies who perform asset
management, close relatives of executive directors or supervisory directors, or persons or employees
who perform duties similar to directors or auditors of an asset management company who perform asset
management.

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Nippon Building Fund Inc.
Corporate Data
Corporate Office:7-2, Yaesu 2-chome, Chuo-ku, Tokyo, 104-0028, Japan+81-3-3281-8810
www.nbf-m.com/nbf/
Date of Inception:
March 16, 2001
Capital:Contributed capital and common shares issued and outstanding as of December 31, 2002:¥148,899 million
280,700 shares
Shareholders:
13,106 (As of December 31, 2002)
Transfer Agent
The Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo, 105-8574, Japan
Business Office of the Transfer Agent
Stock Transfer Agency Department of the Chuo Mitsui Trust and Banking Co.,Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo, 168-0063, Japan+81-3-3323-7111
Independent Public Accountants
Asahi & Co.
Asahi Center Building
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo, 162-8551, Japan
Investor Relations
For further information, please contact our Asset Management company:
Investor Relations of Financial Department
Nippon Building Fund Management Japan Ltd.
7-2, Yaesu 2-chome, Chuo-ku, Tokyo, 104-0028, Japan+81-3-3281-8810