The Trust invests in derivative financial instruments. Equity index futures are used as strategic
substitutions to cost effectively replicate the underlying index of its domestic equity investment
fund. At March 31, 2001, the fair value of these instruments was approximately $9.0 million
and was included in non-JM investments available-for-sale on the statement of net
claimants’ equity.

The cost of non-income producing assets that will be exhausted during the life of the Trust and are
not available for satisfying claims are expensed as incurred. Since inception, these costs, net of
disposals, include:

           Acquisition of furniture and equipment                                   $ 759,843
           Acquisition of computer hardware and software                     1,855,278
           Leasehold improvements                                                              42,965
                    Total                                                                              $2,352,607

These items have not been recorded as assets, but rather as direct deductions to net claimants’ equity in
the accompanying financial statements. The cost of fixed assets, net of proceeds on disposals, that were
expensed during the years ended March 31, 2001 and 2000 was approximately $305,500 and $71,300,
respectively.

Depreciation expense related to asset acquisitions using accounting principles principles generally
accepted in the United States would have been approximately $40,800 and $53,200 for the
years ended March 31, 2001 and 2000 respectively.

Beginning in August 1996, the JM Board of Directors declared regular quarterly dividends of $.03
per share, the first time such dividends were declared since 1982. In August 1997, the dividend was
increased to $.04 per share and in August 1998 to $.06 per share. The Trust received its last dividend
payment in January 2001.  Such dividends are reported as additional to net claimants' equity.

(3)    LITIGATION

During 1997, the Trustees filed a complaint in the U.S. District Court for the Eastern District of New York (the Court) on behalf of the Trust against seven tobacco manufacturers ("Falise I"), pursuant to which the Trust sought contribution and indemnification for claims paid and to be paid in which a portion of the claimant’s injury was caused by smoking. In November 1999, the Court dismissed Falise I on jurisdictional grounds and during the same month, the Trust filed a second complaint ("Falise II") which alleged the same causes of action as in Falise I and, in addition, violations of the Federal RICO Act.

On December 4, 2000, the jury trial of Falise II began in the Court. On January 25, 2001, the Court declared a mistrial because the jury was unable to reach a verdict after six days of deliberation. The Trust has not determined at this time whether it will seek a retrial.

(4)    UNPAID CLAIMS

The Trust distinguishes between claims that were resolved prior to the filing of the class action complaint on November 19, 1990, and claims resolved after the filing of that complaint. Claims resolved prior to the complaint (Pre-Class Action Claims) were resolved under various payment plans, all of which called for 100% payment of the full liquidated amount without interest over some period of time. However, between July 1990 and February 1995, payments on all claims except qualified exigent health and hardship claims were stayed by the courts. By court order on July 22, 1993 (which became final on January 11, 1994), a plan submitted by the Trust was approved to immediately pay, subject to claimant approval, a discounted amount on Pre-Class Action Claims, in full satisfaction of these claims. The discount amount taken, based on the claimants who accepted the Trust’s discounted offer, was approximately $135 million.

The unpaid liability for the Post-Class Action claims represents outstanding offers made in First-in, First-out (FIFO) order to claimants eligible for settlement after November 19, 1990. Under the TDP (Note 6), claimants receive an initial pro rata payment equal to 10% of the liquidated value of their claim. The Trust remains liable for the unpaid portion of the liquidated amount only to the extent that assets will be available after paying all claimants the established pro rata share of their claims. The Trust makes these offers in the form of a check made payable to the claimant and/or claimant’s counsel. If the offer is accepted, a Trust release is completed, the check is deposited and the claim is recorded as settled. An unpaid claim liability is recorded once an offer is made. The unpaid claim liability remains on the Trust’s books until accepted or expiration of the offer after 180 days. A claimant may request that an offer be extended for an additional 180 days.

Pursuant to the Stipulation of Settlement, the Trust is obligated to pay approximately $63 million plus investment earnings on funds set aside for contribution and indemnity claims occurring before July 25, 1994. As of March 31, 2001 approximately $0.1 million remains to be paid.

(5) COMMITMENTS AND CONTINGENCIES

Operating Leases

In September 1993, the Trust executed a 5-year lease through December 1998 for its offices in
Fairfax, Virginia. The lease was extended for an additional 5 years beginning at the expiration of the
initial lease. Effective January 1, 1999, the Trust assigned its rights under the lease to CRMC
conditioned upon the Trust’s guarantee of future lease payments.

Future minimum rental commitments under this operating lease, as of March 31, 2001 are as follows:

                                            Calendar Year       Amount

This obligation has been recorded as a liability at face value in the accompanying financial statements.

(6) NET CLAIMANTS’ EQUITY

A class action complaint was filed on behalf of all Trust beneficiaries on November 19, 1990, seeking to
restructure the methods by which the Trust administers and pays claims. On July 25, 1994, the parties
signed a Stipulation of Settlement that included a revised Trust Distribution Process (the TDP).
The TDP prescribes certain procedures for distributing the Trust’s limited assets, including pro rata
payments and initial determination of claim value based on scheduled diseases and values. The
Court approved the settlement in an order dated January 19, 1995. Though six appeals were filed
with the Court of Appeals, no stay was granted and the Trust implemented the TDP payment
procedures effective February 21, 1995. On February 21, 1996, the Court of Appeals affirmed
the decision.

Prior to the commencement of the class action in 1990, the Trust filed a motion for a determination
that its assets constitute a "limited fund" for purposes of Federal Rules of Civil Procedure 23(b)(1)(B).
The Courts adopted the findings of the Special Master that the Trust is a "limited fund". In part,
the limited fund finding concludes that there is a substantial probability that estimated future assets
of the Trust are and will be insufficient to pay in full all claims that have been and will be asserted
against the Trust.

The TDP contains certain procedures for the distribution of the Trust’s limited assets. Under the TDP,
the Trust forecasts its anticipated annual sources and uses of cash until the last projected future claim
has been paid. A pro rata payment percentage is calculated such that the Trust will have no remaining
assets or liabilities after the last future claimant receives his/her pro rata share.

The Trust has conducted its own research and monitored studies prepared by the Courts’ appointee
regarding the valuation of Trust assets and liabilities. Based on this valuation, the TDP provides for
an initial 10% payment of the liquidated value of current and future claims. Accordingly, the Trust
has reported Post-Class Action Claims at 10% of their liquidated value. The 10% pro rata payment
represents the Trust’s best estimate of funds available over the life of the Trust to pay claims settled
under the TDP. The Trust will continue to monitor this estimate based on changes in settlement practices
and changes in future projected values of Trust assets and liabilities and make any necessary changes
in the pro rata payment percentage as required under the TDP.

(7) EMPLOYEE BENEFIT PLANS

The Trust established a tax-deferred employee savings plan under Section 401(k) of the Internal
Revenue Code, with an effective date of January 1, 1988. The plan allows employees to defer a
percentage of their salaries within limits set by the Internal Revenue Code with the Trust matching
contributions by employees of up to 6% of their salaries. The total employer contributions and
expenses under the plan were approximately $78,000 and $73,900 for the three months ended
March 31, 2001 and 2000, respectively.

(8) RESTRICTED ASSETS

In order to avoid the high costs of director and officer liability insurance and with the approval
of the United States Bankruptcy Court for the Southern District of New York, the Trust established
a segregated security fund of $30,000,000 and, with the additional approval of the United States
District Court for the Southern and Eastern Districts of New York, an escrow fund of $3,000,000
from the assets of the Trust, which are devoted exclusively to securing the obligations of the
Trust to indemnify the former and current Trustees and officers, employees, agents and representatives
of the Trust. In addition, a $15,000,000 escrow and security fund was established to secure the
obligations of the Trust to exclusively indemnify the current Trustees, whose access to the other
security funds is subordinated to the former Trustees. Upon the final order in the Class Action
litigation (Note 4), the $15,000,000 escrow and security fund was reduced by $5,000,000.
Pursuant to Section 5.07 of the plan, Trustees are entitled to a lien on the segregated security
and escrow funds to secure the payment of any amounts payable to them through such indemnification.
Accordingly, in total $43 million has been transferred from the Trust’s bank accounts to separate
escrow accounts and pledge and security agreements have been executed perfecting those interests.
The investment earnings on these escrow accounts accrue to the benefit of the Trust and are
recorded as unrestricted investments.

Pursuant to the Stipulation of Settlement, the Trust funded separate investment accounts for two
of the sub-class beneficiaries. During 1996, one of these accounts was fully disbursed and the
remaining balance for the other account at March 31, 2001 is approximately $0.1 million.

As a condition of the tax agreement between JM and the Trust discussed in Note 9 below, the Trust was required to transfer $30 million in cash to an escrow account to pay its future income tax obligations post settlement of the transaction. The escrow account balance may be increased or decreased over time. As of March 31, 2001, securities with a market value of $27.4 million were held by an escrow agent in accordance with the agreement. These funds have been reported as restricted investments.

(9)    INCOME TAXES

For Federal income tax purposes, JM has elected for the qualified assets of the Trust to be taxed as a Designated Settlement Fund (DSF). Income and expenses associated with the DSF are taxed in accordance with Section 468B of the Internal Revenue Code, which obligates JM to pay for any federal income tax liability imposed upon the DSF. In addition, pursuant to an agreement between JM and the Trust, JM is obligated to pay for any income tax liability. However, as discussed in Note 1, at the consummation of the tender offer transaction on February 26, 2001, JM paid the Trust $90 million to settle their obligation to the Trust. In return, the Trust terminated JM’s contractual liability for income taxes of the DSF and agreed to indemnify JM in respect for all future income taxes of the Trust. JM remained liable for the Trust’s income taxes through February 26, 2001. The statutory income tax rate for the DSF is 15%.

The Trust accounts for income taxes in accordance with the Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. As of March 31, 2001, the Trust has recorded a net deferred tax asset of $29,000, representing temporary timing differences primarily for CRMC’s accrued vacation and deferred compensation. The deferred asset is included in deposits and other assets in the accompanying consolidated statement of net claimants’ equity.

(10) PROOF OF CLAIMS FILED

Proof of claim forms have been filed with the Trust as follows: