Fiscal Year 2017 Review of Operations
Employees' Pension Insurance Benefit Association Reserve Fund

全国市町村職員共済組合連合会
National Federation of Mutual Aid Associations for Municipal Personnel

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Table of Contents
・Fiscal Year 2017 Investment Results (Overview)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 3
Section 1 Administration and Investment of Funds in FY2017
・Fiscal Year 2017 Market Environment・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 5
・Fiscal Year 2017 Asset Mix ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 6
・Fiscal Year 2017 Investment Return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 7
・Fiscal Year 2017 Contribution Analysis of Excess Return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 8
・Fiscal Year 2017 Investment Income ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 10
・Fiscal Year 2017 Value of Assets ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 11
・Fiscal Year 2017 Status of Risk Management (Overall Assets)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 12
・Fiscal Year 2017 Fees・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 13
Section 2 Systems and Activities Concerning Administration and Investment of Funds
・Basic Approach to Investment ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 15
・Benchmark Portfolio・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 16
・Stewardship Activities ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 17
・Diversification of eligible investment instruments (investment in alternative assets) ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 23
・Review of Manager Structure・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 24
・Administration and Evaluation of Entrusted Investment Management Institutions, etc.・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 25
・Governance・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 26
・Other systems ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 31
Section 3 Reference Data
・Changes in the investment return, etc. (since the integration of employee pension plans)・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 33
・Changes in the value of investment assets and the asset mix (since the integration of employee pension plans)・・・・・・・ P 34
・Change in number of passive/active funds by assets (entrusted) (since the integration of employee pension plans)・・・・ P 35
・Issues held (as of the end of Fiscal Year 2017)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 36

2

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Investment Results (Overview)

Investment return(FY2017)+6.40% *Modified total return (market value basis)+4.37% *Realized return (book value basis)

Investment income +JPY342.9 billion *Investment income(market value basis)(FY2017)+JPY211.2 billion *Realized income(book value basis)

Value of investment assets: JPY5,723.8 billion *Total market value(End of FY2017)* As pension funds are intended for long-term investment, the investment status must be judged from the long-term
perspective.
As investment income is based on the total market value as of the end of each term, it should be kept in mind that it
includes valuation gains/losses, which means it may change depending on market movements.
(Note 1) The return and income represent figures after the deduction of fees, etc. settled within the relevant period.
(Note 2) Realized income represents the sum of trading profits/losses and interest and dividend income, etc.

3

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 1 Administration and Investment of Funds in FY2017

4

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Market Environment○ Change in benchmark return (March 31, 2017 = 100)
130
Domestic bonds
125
Domestic equities

120

Foreign bonds
Foreign equities

115

110

105

100

95
Mar. 31,2017

Apr. 30,
2017

May. 31,2017

Jun. 30,
2017

Asset class

Jul. 31,2017

Aug. 31,2017

BenchmarkSep. 30,
2017

Oct. 31,2017

Nov. 30,
2017

Dec. 31,2017

Jan. 31,2018

Feb. 28,2018

Mar. 31,2018

Returns
Q1

Q2

Q3

Q4

Domestic bonds NOMURA-BPI Overall

0.02%

0.18%

0.33%

0.37%

0.90%

Domestic equities TOPIX (with dividends)

6.76%

4.74%

8.69%

-4.67%

15.87%

4.76%

2.46%

1.29%

-4.14%

4.23%

5.26%

5.60%

5.69%

-6.54%

9.81%

3.70%

3.02%

3.88%

-3.28%

7.34%

Foreign bonds

FTSE World Government Bond Index (excluding Japan;
without hedging, yen-based)

Foreign equities MSCI ACWI ex. JAPAN (yen-based, with dividends)
Total

Full fiscal year

(Note) The total is the return calculated by weight-averaging the benchmark returns for individual asset classes basedon the shares in the asset mix of the benchmark portfolio.

5(Source: bloomberg)

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Asset Mix
The composition by asset is as follows:(Unit: %)FY2016End of FY

FY2017
End of Q1

End of Q2

End of Q3

End of FY

Domestic bonds

39.5

38.7

34.7

33.0

Short-term
assets
32.7
8.1%

Domestic equities

19.5

22.3

22.8

24.7

23.3

Foreign bonds

12.1

13.5

13.4

14.2

13.4

Foreign equities

20.3

22.7

23.2

24.4

22.5

Short-term assets

Total

8.6

2.7

5.9

3.7

8.1

100.0

100.0

100.0

100.0

100.0

Composition by Asset Class(as of end of FY2017)

Foreignequities
22.5%

Foreign
bonds
13.4%

Domestic
bonds
32.7%

Domestic
equities
23.3%(Note 1) Concerning the benchmark portfolio, the share in the mix is 35% for domestic bonds (±15%), 25% for domestic equities (±14%), 15% for foreign bonds(±6%) and 25% for foreign equities (±12%) (the figures in the parentheses represent deviation tolerances).
(Note 2) Due to rounding, the total sum of individual figures may not necessarily add up to 100%.
(Note 3) Starting in fiscal year 2016, short-term assets held by each fund were classified into relevant asset classes in principle.

6

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Investment Return
The modified total return for FY2017 was 6.40% for the overall assets.
(Unit: %)FY2017

Changes in modified total return10.00%

9.89%

Each quarter
8.00%

Q1

Q2

Q3

Q4

FY total

6.00%

Modified total return

3.28

2.80

3.60

-3.13

6.40

4.00%

Domestic bonds

0.13

0.44

0.35

0.36

1.25

2.00%

Domestic equities

6.84

5.00

8.76

-4.52

15.85

Foreign bonds

4.77

2.44

1.34

-4.36

3.47

Foreign equities

5.61

5.45

5.51

-6.60

9.34

Short-term assets

0.00

0.00

0.00

0.00

0.00

Aggregate

6.40%

6.14%

3.60%

3.28%

2.80%

0.00%

-2.00%-4.00%
Q1

Q2

Q3-3.13%
Q4

Modified total return by asset (aggregate for the fiscal year)
18.00%
15.85%(Unit: %)FY2017

Realized return15.00%
12.00%

Q1

Q2

Q3

Q4

FY total

1.00

1.18

0.86

1.32

4.37

9.34%
9.00%

6.40%
6.00%
3.47%

(Note 1) The return in each quarter is the period rate.
(Note 2) The modified total return and realized return represent figures after the deduction offees, etc. settled within the relevant period.
(Note 3) The amount of interest related to the settlement of additional expenses for the transferfrom the transitional long-term accounting to the employees' pension insurance
accounting is included in the return for domestic bonds.

7

3.00%

1.25%
0.00%

0.00%
Domestic Domestic
bonds
equities

Foreignbonds

Foreignequities

Short-term
assetsOverallassetsEmployees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Contribution Analysis of Excess Return ①
The modified total return for overall investment assets was 6.40%, while the excess return compared with the benchmark return was -0.94%.
For the asset allocation factors, domestic equities whose benchmark return was relatively high were underweight against the benchmark
portfolio on average. This factor and the holding of short-term assets necessary for the pension benefit payment contributed to the negative
excess return.
The excess return due to the individual asset factor made negative contributions because the modified total return on foreign bonds andforeign equities was lower than the benchmark return.
FY2017 (April 2017 through March 2018)
Overallassets(Unit: %)Excess Returns (by Asset Class)Domesticbonds

Domestic
equities

Foreignbonds

Foreignequities

0.50%
0.00%

Modified total return

6.40

1.25

15.85

3.47

9.34

Benchmark return* 7.34

0.90

15.87

4.23

9.81

Excess return

-0.94

0.34

-0.01

-0.76

-0.47

* The benchmark return for overall assets is calculated by weight-averaging the benchmark returns
for individual asset classes based on the shares in the asset mix of the benchmark portfolio.

Asset allocation
factor①

Individual asset
factor②①＋②

Domestic bonds-0.13%

0.13%-0.00%

Domestic equities-0.29%

0.00%-0.29%

Foreign bonds

0.06%-0.11%-0.04%

Foreign equities-0.07%-0.11%-0.17%

Short-term assets-0.44%

0.00%-0.44%

Total-0.86%-0.08%-0.94%

0.34%-0.01%-0.50%-0.47%-0.94%-0.76%OverallassetsDomestic Domestic Foreignbonds
equitiesbonds-1.00%

Foreignequities(Reference) Deviation of the Federation's portfolio (book value average balance +accrued income as of the end of previous period + valuation gains/losses as of theend of previous period) from the benchmark portfolio
Federation's
portfolio

Benchmarkportfolio

Deviation

Deviation
tolerance

Domestic bonds

37.2%

35.0%

2.2%

±15%

Domestic equities

21.6%

25.0%

-3.4%

±14%

Foreign bonds

13.3%

15.0%

-1.7%

±6%

Foreign equities

21.9%

25.0%

-3.1%

±12%

Short-term assets

6.0%

6.0%

Total
100.0%
100.0%
0.0%(1) Asset allocation factor: A factor that is attributable to the difference between the asset mix of the fund and the benchmark portfolio.
(2) Individual asset factor: A factor that is attributable to the difference between the modified total return and benchmark returns concerning each asset class.

8

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Contribution Analysis of Excess Return ②○ Domestic bonds
The modified total return of domestic bonds was 1.25%, which exceeds the benchmark return (0.90%) by 0.34%.
The portfolio was overweight in local government bonds and corporate bonds whose returns were relatively higher thanthe benchmark. In addition, the interest related to the settlement of additional expenses was received. Owning to factors
such as these, the excess return was positive.
○ Domestic equities
The modified total return of domestic equities was 15.85%, which was below the benchmark return (15.87%) by 0.01%.
The selection of issues of the active fund was generally good; whereas the modified total return on passive funds was
lower than the benchmark due to such factors as impact of additional investment. Owing to these, the excess return turned
out to be negative.
○ Foreign bonds
The modified total return of foreign bonds was 3.47%, which was below the benchmark return (4.23%) by 0.76%.
The excess return was negative due to such factors as the relatively lower returns on active funds whose benchmark is
Barclays Global Aggregate Index compared with active funds whose benchmark is FTSE Global Bond Index.
○ Foreign equities
The modified total return of foreign equities was 9.34%, which was below the benchmark return (9.81%) by 0.47%.
In addition to the negative impact of dividend taxation factors on passive funds, a part of active funds fell below thebenchmark, and the excess return turned out to be negative.

9

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Investment Income
Changes in investment income

The investment income for FY2017 was JPY342.9 billion (for overall assets).
(Unit: JPY100M)(Unit: JPY100M)

6,000

5,260

FY2017

Investment income

Each quarter

Q1

Q2

Q3

Q4

FY total

1,715

1,524

2,020

-1,831

3,429

4,500

Aggregate

2,020

1,715

Domestic bonds

27

88

66

67

248

1,500

Domestic equities

740

598

1,133

-636

1,836

0

Foreign bonds

319

176

103

-351

247

-1,500Foreign equities

629

663

718

-912

1,098

-3,000

3,429

3,240

3,000

1,524

-1,831
Q1

0

Short-term assets

0

0

0

0

Q2

Q3

Q4

Investment income by asset (aggregate for the fiscal year)(Unit: JPY100M)

3,429

3,500

(Unit: JPY100M)
3,000

FY2017

Realized income

Q1

Q2

Q3

Q4

FY total

2,500

471

568

417

656

2,112

2,000

(Note 1) The investment income and realized income represent figures after the deduction of fees, etc. settled
within the relevant period.
(Note 2) The investment income represents the realized income adjusted for the effects of changes invaluation gains/losses based on market value.
(Note 3) Realized income represents the sum of trading profits/losses and interest and dividend income, etc.
(Note 4) The amount of interest related to the settlement of additional expenses for the transfer from thetransitional long-term accounting to the employees' pension insurance accounting is deducted fromthe return for domestic bonds.
(Note 5) Due to rounding, the total sum of individual figures may not necessarily add up to FY Total.

10

1,836

1,500
1,098
1,000
500

247

248

0
0
Domesticbonds

Domestic
equities

Foreignbonds

Foreignequities

Short-term
assetsOverallassetsEmployees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Value of Assets
The book value, total market value and valuation gains/losses by asset is as follows.
(Unit: JPY100M)

FY2017FY2016End of FY
Book
value

End of Q1

Total market Valuations
profits/losses
value

Book
value

End of Q2

Total market Valuations
profits/losses
value

Book
value

End of Q3

Total market Valuations
profits/losses
value

Book
value

End of FY

Total market Valuations
profits/losses
value

Book
value

Total market Valuations
profits/losses
value

Domestic
bonds

20,486

21,454968

19,526

20,361

834

18,63819,331

693

17,981

18,677695

18,10518,744639

Domestic
equities

8,745

10,601

1,856

9,341

11,731

2,391

9,852

12,7392,887

10,217

13,962

3,745

10,487

13,3272,840

Foreign
bonds

6,737

6,590

-148

6,961

7,099

137

7,225

7,485

259

7,721

8,028

306

7,799

7,677

-122

Foreignequities

8,441

11,031

2,590

8,870

11,950

3,080

9,291

12,922

3,632

9,513

13,771

4,257

9,632

12,8583,226

Short-term
assets

4,649

4,649

0

1,426

1,426

0

3,283

3,283

0

2,094

2,094

0

4,632

4,632

0

Total

49,05854,324

5,266

46,12552,566

6,442

48,28955,7607,471

47,52756,531

9,004

50,65557,238

6,583(Note 1) Due to rounding, the total sum of individual figures may not necessarily add up to Total.
(Note 2) Short-term assets held by each fund were classified into relevant asset classes in principle.

The amount of funds allocated and withdrawn by asset class (for FY2017)(Unit: JPY100M)

Amount of funds
allocated and withdrawn

Domestic bonds

Domestic equities-2,958890

Foreign bonds

840

Foreign equities

730(Note) The above figures represent the total amount of fund flows related to the allocation and withdrawal of funds (rebalancing) conducted for the
purpose of changing the asset mix and pension benefit payment (cashing-out).

11

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Status of Risk Management (Overall Assets)○ Asset mix and estimated tracking error
In fiscal year 2017, the shares in the asset mix concerning all asset classes—domestic bonds, domestic equities, foreign
bonds and foreign equities—stayed within the deviation tolerance.
In addition, the estimated tracking error for the entire asset (*) declined at the end of the fiscal year compared with that of
the beginning of the fiscal year because the shares of each asset in the asset mix came close to the benchmark portfolio.
【Changes in the asset mix】
Domestic bonds【Changes in the estimated tracking error】

Domestic equities

55%

(%)

45%

Deviation tolerance (upper limit: 50%)

Deviation tolerance (upper limit: 39%)

50%

40%

45%

35%

40%

30%

3.0
2.5

2.0
Benchmark portfolio (25%)

35%

1.5

25%

Benchmark portfolio (35%)
30%

20%

25%

15%

20%

10%

1.0
0.5
Deviation tolerance (lower limit: 11%)

Deviation tolerance (lower limit: 20%)
15%

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

5%
Apr

May

Jun

Foreign bonds

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Foreign equities

23%

Deviation tolerance (upper limit: 21%)
35%

Deviation tolerance (upper limit: 37%)

19%
30%
17%

Benchmark portfolio (25%)

Benchmark portfolio (15%)
15%

25%

13%

20%

11%
15%
9%

Deviation tolerance (lower limit: 9%)

7%
5%

10%

Deviation tolerance (lower limit: 13%)

5%

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

12

Nov

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

(*) Measured the estimated tracking error against thebenchmark portfolio.

40%

21%

0.0

Dec

Jan

Feb

Mar

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Fees
The amount of fees totaled about JPY3.3 billion in fiscal year 2017.
The fee rate relative to the value of investment assets came to 0.07%.
(Unit: JPY100M, %)FY2017Fees

Fee rate

Domestic bonds

7

0.04

Domestic equities

10

0.08

Foreign bonds

5

0.07

Foreign equities

11

0.09

Overall assets

33

0.07

(Note 1) Fees include management fees and custodian fees related to investment.
(Note 2) The amount of fee is rounded off to the nearest hundred million yen.
(Note 3) Fee rate = fee amount/month-end market value average balance13Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 2 Systems and Activities Concerning Administration and Investment of Funds

14

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Basic Approach to Investment○ As a basic policy, the Federation shall make investments for the purpose of contributing to the stable management of the Employees
Pension Insurance scheme operations in the future, from a long-term perspective and in a stable and efficient manner for the benefit of theinsured of the Employee Pension Insurance.
○ In the management of funds, investments shall be made in a way that ensures appropriate diversification across multiple assets withdifferent risk/return profiles and other characteristics.
○ In addition, in order to ensure investment returns which is set as the investment targets of managed funds provided in Article 79-6,
Paragraph (1) of the Employees' Pension Insurance Act, a benchmark portfolio shall be set and appropriately managed, and efforts shall bemade to earn the benchmark return for each asset class, as well as generating benchmark returns for each asset class over the long term.

Basic Policy for Management and Investment of Employees' Pension Insurance Benefit Association Reserve Fund (Extract)
1. Basic Policy
Especially keeping in mind that the Employees' Pension Insurance Benefit Association Reserve Fund is part of insurance premiums collectedfrom insured persons of the EPI and valuable resources for funding future pension benefits, the funds shall be managed with the objective ofcontributing to the stable operation of EPI schemes in the future by investing it safely and efficiently "solely for" ("for" in the case of investing in linewith the objectives of the Act under Article 79-3, Paragraph (3), of the EPI Act) the interests of insured persons of the EPI from the long-term
perspective.
Accordingly, the Employees' Pension Insurance Benefit Association Reserve Fund shall be managed and invested with an asset mix establishedfrom the long-term perspective (the "benchmark portfolio") based on appropriately diversifying investments in multiple assets that differ inrisk/return and other characteristics ("diversified investment").
2. Investment target
Investment of the Employees' Pension Insurance Benefit Association Reserve Fund shall be managed appropriately by establishing a Benchmark
Portfolio, so as to secure investment returns targeted for managed funds provided in Article 79-6, Paragraph (1) of the EPI Act (the "managed
funds").
In doing so, attention shall be paid not to distort price formation in the market and private sector investment activities.
In addition, efforts shall be made to secure benchmark returns for each asset class in each fiscal year by appropriately selecting, managing andassessing entrusted investment management institutions, as well as securing benchmark returns for each asset class over the long term.

15

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Benchmark Portfolio
1. Benchmark portfolio (asset mix)
Domestic bonds

Domestic equities

Foreign bonds

Foreign equities

Asset mix

35%

25%

15%

25%

Deviation tolerance

±15%

±14%

±6%

±12%

16

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ①
1. Stewardship activities○ The Federation has the responsibility to increase medium to long-term investment returns for its members and beneficiaries by encouraging
improvements in enterprise value and sustainable growth of investee companies. Efforts for the fulfillment of these responsibilities, including
constructive dialogues with the investee companies (engagement) and exercise of voting rights, are collectively called "stewardship activities."<Stewardship Activities>
Entrusted investment

Equity investment(1) Guidelines for Exercising Shareholders' Voting Rights(2) Corporate Governance Principles

Federation

Research and hearing on activities

Entrusted
investment
management
institutions

Constructive dialogues

Companies
Exercise of Voting Rights

Report of activities

Enhancement of enterprise values

Medium- to long-term return○ The Federation has established the "Corporate Governance Principles of National Federation of Mutual Aid Associations for Municipal
Personnel" and "Guidelines for Exercising Shareholders' Voting Rights" setting forth basic approaches to stewardship activities. In addition,
the Federation agreed with the purpose of Japan's Stewardship Code, and it announced its acceptance of the Code in May 2014 and the
Revised Stewardship Code (the "Revised SSC") in November 2017. As the Federation currently makes equity investments throughentrusted investment management institutions, it checks whether these institutions are implementing engagements and exercising voting
rights in an appropriate way according to the policies of the Federation through investigations and hearings.

Past efforts•

May 2010

Established the "Guidelines for Exercising Shareholders' Voting Rights" (Document (1)), announcing the Federation's approaches to equity investment and exercise of voting rights as abeneficial shareholder.

•

May 2014

Announced its acceptance of the Japan's Stewardship Code.
Established the "Corporate Governance Principles" (Document (2)), announcing the Federation's approach for corporate governance necessary for the long-term enhancement of stock
values.

•

October 2015 Established the Basic Policy for Management and Investment of Funds associated with the integration of the employee pension plans, and newly established Documents (1) and (2).

•November 2017 Announced the acceptance of the Revised SSC

17

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ②
2. Efforts in fiscal year 2017
○ As a part of its stewardship activities for fiscal year 2017, the Federation conducted surveys and hearings for entrusted investment
management institutions in relation to the situations of engagement activities and exercise of shareholders' voting rights so as to verify thestatus of their efforts. In addition, the Federation sought their opinions on challenges and issues with their stewardship activities andencouraged them to engage in stewardship activities in an effective way adapted to their respective investment styles and resources.
○ For the Revised SSC published by the Financial Services Agency on May 29, 2017, the Federation agreed with the purpose and renewed
its acceptance at the end of November 2017, publishing it on its website. Further, the Federation confirmed that all twelve entrusted
investment management institutions of domestic equities have signed up for the Revised SSC.
○ On January 25, 2018, the Federation publicized its Annual Stewardship Activity Report FY2017 on its website.

Outline of efforts in fiscal year 2017
Subjects

PeriodSurveyed institutions

Survey on exercise of voting
rights

September 2017

Entrusted investment management
institutions for domestic and foreign
equities(12 companies for domestic equities
and 8 companies for foreign equities)

Survey on performance of
stewardship activities
Hearings of entrusted
investment management
institutions

Signup of Revised SSC (for thedetails, see the following page)

Public disclosure of Annual
Stewardship Activity Report
FY2017Main subjects confirmed••••

Results of exercise of voting rights
Changes to guidelines
Structure for exercise of voting rights
Special features of proposals and trends ofaffirmative and negative voting decisions

October 2017••

Structure for managing conflicts of interest
Specific details of engagement activities (target

November 2017•

companies, details, progress management, costs, etc.)

November 30,
2017

12 entrusted investment management
institutions for domestic and foreign
equities••

January 201818

Improvements, challenges and issues withengagement efforts
Reason for decision on exercise of individual
proposals
Method of self-assessment of stewardship
activities (including internal assessments andincentives of persons in charge)

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ③
3. Signup to revised stewardship code
○ About three years have passed from the establishment of Japan's Stewardship Code, and some progress has been made in corporate
governance reform; however, it has been also pointed out that companies' responses are only formal. In this situation, in order to develop
the formal corporate governance reform into a substantive one, the Financial Services Agency published the revised SSC in May 2017.
○ The revised SSC provides for the more stringent management of conflicts of interest by entrusted investment management institutions,
expanded disclosure of results of exercise of voting rights and self-assessment of stewardship activities, in addition to existing provisions.
○ The following table shows the major items newly added to the Revised SSC and the Federation's responses.

Major new items of Revised SSC and responses by Federation
Major new items of Revised SSC

Responses of Federation(Principle 1)
Guidance
1-3,4,5

Effective monitoring ofasset managers by asset
ownersThe Federation made it clear in its signup statement that it will conduct monitoring focusing on the quality ofefforts in relation to stewardship activities by entrusted investment management institutions.

(Principle 2)
Guidance
2-2,3,4Strengthening
governance andmanagement of conflict ofinterest

The Federation made it clear in its signup statement that it will conduct monitoring of entrusted investment
management institutions to check whether they have established appropriate governance structures andmanage conflicts of interest in an appropriate way.

(Principle 5)
Guidance 5-3

Enhanced disclosure of
voting records (disclosureon the basis of individual
investee companies andagenda items)(Principle 7)
Guidance 7-4

Self-assessment ofstewardship activities

The Federation required all twelve entrusted investment management institutions of domestic equities to makedisclosure on an individual basis. As a result, it was confirmed that eleven of them already made the disclosureon the individual basis on their websites and that the remaining one company plans to make the disclosure in
May 2018.
In addition, the Federation made clear in its signup statement that it will require the entrusted investment
management institutions to make public disclosure of results of exercise of voting rights with respect to individual
investee companies and agenda items, and also that it will require any non-disclosing institution to provide an
explanation for non-disclosure.

The Federation made clear in its signup statement that it will regularly conduct a review of the status of
implementation of each principle as set out in the Revised SSC and make efforts to further improve its futurestewardship activities.

19

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ④
4. Exercise of Voting Rights(i) Exercise of Voting Rights○ In order to fully achieve returns on equity investments, it is necessary to ensure that investee companies secure profits fora long time and manage their businesses paying attention to the interests of shareholders to the maximum degree.
Exercising of voting rights is an important means to enhance shareholder value, and the Federation encourages business
management which would contribute to the long-term enhancement of shareholder value through appropriately exercising
voting rights, in relation to all issues held in principle.
○ More concretely, in principle, entrusted investment management institutions exercise voting rights according to the policyon the exercise of shareholders' voting rights established by the institutions in line with the intent of the Guidelines for
Exercising Shareholders' Voting Rights of the Federation and reviewed by the Federation. In addition, the Federation seeks
reports from the entrusted investment management institutions on the status of exercising voting rights and considers themas part of the assessment of the institutions.
(ii) Exercise of Voting Rights in Fiscal Year 2016
○ For the exercise of voting rights at general meeting of shareholders of companies which settled accounts in fiscal year
2016 (between April 2016 and March 2017), the Federation received reports from its entrusted investment management
institutions on the results of exercising voting rights, reason for voting against the proposal, and organizational structure forexercise of voting rights. In addition, the Federation confirmed that voting rights were exercised in an appropriate way
according to the Guidelines for Exercising Shareholders' Voting Rights of the Federation through hearings.

20

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ⑤(iii) Results of the exercise of voting rights concerning domestic equities (companies with accounting settlement between April 2016 and March 2017)(Unit: Number of occasions)
Vote forItems on agenda

Vote against

Rate
Total

Abstention

Total
Rate

Rate

Vote-against ratein the previous
year

28,857

22,666

78.5%

6,191

21.5%

0

0.0%

19.3%

(1,388)(70)(5.0%)(1,318)(95.0%)(0)(0.0%)(97.3%)

Board of Directors/Directors

8,780

5,875

66.9%

2,905

33.1%

0

0.0%

30.7%

Board of Auditors/Auditors

5,089

4,441

87.3%

648

12.7%

0

0.0%

17.5%

Director Remuneration, etc.

3,460

2,891

83.6%

569

16.4%

0

0.0%

11.0%

Appropriation of Surplus

5,763

5,393

93.6%

370

6.4%

0

0.0%

4.6%

Capital Structure

1,421

1,124

79.1%

297

20.9%

0

0.0%

30.5%

Takeover Defense Measures

449

160

35.6%

289

64.4%

0

0.0%

49.7%

Capital Increase or Reduction

27

27

100.0%

0

0.0%

0

0.0%

6.5%

Third Party Allotment of Shares

7

5

71.4%

2

28.6%

0

0.0%

26.7%

Acquisition of Own Shares

2

0

0.0%

2

100.0%

0

0.0%

40.7%

Business Restructure

165

162

98.2%

3

1.8%

0

0.0%

0.0%

Incentives Improvement for Executives

652

494

75.8%

158

24.2%

0

0.0%

35.4%

3,527

2,286

64.8%

1,241

35.2%

0

0.0%

21.6%

3,256

2,072

63.6%

1,184

36.4%

0

0.0%

22.5%

(Shareholder Proposal)
By subject

Other proposals
Amendment to Articles of Incorporation○ Main features relating to exercise of voting rights• Proposals for which the vote-against ratio was high mainly concerned board of director/directors, takeover defense measures, and amendment to articles ofincorporation.
• The vote-against ratio of proposals concerning board of director/directors slightly increased from the previous fiscal year (from 30.7% to 33.1%). The major
reason for this is that several entrusted investment management institutions tightened the criteria for the exercise of voting rights and proactively
implemented qualitative evaluation. Amidst investors' emphasized focus on corporate governance, a proposal for election of outside directors is increasing.
• The vote-against ratio of proposals concerning takeover defense measures significantly increased from the previous fiscal year (from 49.7% to 64.4%). The
major reason for this is that several entrusted investment management institutions tightened the criteria for the exercise of voting rights. On the other hand,more and more companies decide to abandon takeover defense measures due to investors' stringent policy for exercise of voting rights.

21

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ⑥(iv) Results of the exercise of voting rights concerning foreign equities (companies with accounting settlement between April 2016 and March 2017)(Unit: Number of occasions)
Vote forItems on agenda

Vote against

Rate
Total

Abstension

Total
Rate

Rate

Vote-against ratein the previous
year

17,65015,193

86.1%

2,405

13.6%

52

0.3%

12.9%

(1,611)(625)(38.8%)(940)(58.3%)(46)(2.9%)(57.3%)

Board of Directors/Directors

4,942

4,448

90.0%

490

9.9%

4

0.1%

11.4%

Board of Auditors/Auditors

996

993

99.7%

3

0.3%

0

0.0%

1.7%

Director Remuneration, etc.

3,922

3,347

85.3%

574

14.6%

1

0.0%

9.4%

360

358

99.4%

2

0.6%

0

0.0%

0.0%

(Shareholder Proposal)
By subject

Appropriation of Surplus

1,660

1,378

83.0%

282

17.0%

0

0.0%

10.2%

Takeover Defense Measures

222

203

91.4%

19

8.6%

0

0.0%

6.5%

Capital Increase or Reduction

729

554

76.0%

175

24.0%

0

0.0%

14.1%

Third Party Allotment of Shares

231

231

100.0%

0

0.0%

0

0.0%

0.6%

Acquisition of Own Shares

Capital Structure

309

302

97.7%

7

2.3%

0

0.0%

3.7%

Business Restructure

232

227

97.8%

5

2.2%

0

0.0%

13.1%

Incentives Improvement for Executives

778

682

87.7%

96

12.3%

0

0.0%

16.3%

4,760

3,760

79.0%

953

20.0%

47

1.0%

20.3%

411

341

83.0%

70

17.0%

0

0.0%

16.6%

Other proposals
Amendment to Articles of Incorporation(Note) In some countries, voting rights were
not exercised due to such factors as costconsideration and constraints related toadministration.

○ Main features relating to exercise of voting rights• The major proposals for which the vote-against ratio was high concerned director remuneration, etc., capital increase or reduction, andamendment to articles of incorporation.
• The vote-against ratio of director remuneration, etc. increased from the previous fiscal year (from 9.4% to 14.6%). In all markets, there is a
growing interest in transparent, performance-linked remuneration systems.
• In addition, against the background of the adoption of the Paris Agreement on December 2015, shareholder proposals on the environment (E) andsocial concerns (S) increased, voted for by many investors. Further, for some investees, a proposal was made for the appointment of experts witha view to reducing potential risks to shareholder value.

22

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Diversification of eligible investment instruments (investment in alternative assets)○ In fiscal year 2017, the Federation adopted an asset manager registration system for real estate and started receiving entries. The
selection of asset managers has been underway.
○ In fiscal year 2018, the Federation will also start receiving entries for infrastructure and private equities.

Investment policy pertaining to diversification of eligible investment instruments(investment in alternative assets) (Excerpt)1.

Definition of diversification of eligible investment instrumentsi.
Definition of diversification of eligible investment instruments"Diversification of eligible investment instruments" means making investments in assets whose characteristics, such as the risk/return profiles, are different from those of
traditional assets such as equities and bonds ("alternative assets").
ii.
Scope of alternative assets
Alternative assets are assets such as real estate, infrastructure and private equities, and negotiable securities, trust beneficiary rights and other assets backed by those assets.

2.

Purpose of diversification of eligible investment instruments
Diversification is used to promote diversified investment of the Employees' Pension Insurance Benefit Association Reserve Fund for the purpose of investing the funds safely andefficiently from a long-term perspective.

3.

Classification of alternative assets in the benchmark portfolioi.
Classification of alternative assets in the benchmark portfolio
Alternative assets are classified into domestic bonds, domestic equities, foreign bonds or foreign equities according to their risk/return profiles and other characteristics.
ii. Share of alternative assets in the asset mix of the portfolio
The share of alternative assets in the asset mix is limited to a maximum of 5% of the overall assets of the Employees' Pension Insurance Benefit Association Reserve Fund.

4.

Matters to note when diversifying eligible investment instruments
The National Federation of Mutual Aid Associations for Municipal Personnel (hereinafter referred to as the "Federation") takes note of the following matters when diversifying eligible
investment instruments.
i.
In principle, investment shall be diversified between traditional assets, such as equities and bonds, and alternative assets and across different types of alternative assets.
ii. Diversification shall made after the effects of diversified investment have been recognized and sufficient evidence to support the expectation that an excess returns can beobtained has been obtained.
iii. Because alternative assets are different from traditional assets in many points, such as marketability, profitability, individuality, transaction cost, and information disclosure status,
the Federation shall conduct a study with due consideration of the development of the market environment, including the steady improvement of the earning capacity of each
asset and the development of the secondary market.
iv. The Federation shall make alternative investment after developing the investment and risk management systems necessary for the investment (including hiring personnel withadvanced expert skills).
v. The Federation shall use the expert knowledge of the Fund Management Committee.

23

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Review of Manager Structure
1. Selection of Entrusted Investment Management Institutions
In order to maintain and improve the expected returns on investment in domestic bonds, the Federation invited the public
applications for entrusted investment management institutions for active investment in currency-hedged foreign bonds andstarted the investments from fiscal year 2017. In the process of selection, the Federation took the following measures as aresult of overall assessment of past performances, investment philosophy, investment structure and investment process
through documentary examinations and hearings.
○ Active investment in currency-hedged foreign bonds
The Federation invited public applications for various investment products, and selected four products.

2. Selection of asset administration institutions
For an asset administration institution for active investment in currency-hedged foreign bonds, from the standpoint of
economies of scale related to efficiency of business administration and fees considerations, the Federation made an
additional entrustment to the existing financial institution that has been already entrusted with the asset administration
business related to active investment in foreign bonds.

3. Annual comprehensive evaluation
The amount of active investment of domestic equities was reduced based on an annual comprehensive evaluation as ofthe end of fiscal year 2016.

24

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Administration and Evaluation of Entrusted Investment Management Institutions, etc.
1. Administration and evaluation of entrusted investment management institutions
For the administration of entrusted investment management institutions, the Federation seeks monthly reports fromthem on investment performance and the status of risk, verifies compliance with investment guidelines, and receives abriefing on regular meetings on the overview of investment results and future investment policies.
For the assessment of entrusted investment management institutions, the Federation performs a qualitative assessment(investment structure, investment process, structures for risk management and compliance) and quantitative assessment(excess return and tracking error in the case of passive investments, and excess return and information ratio in the case ofactive investments) as of the end of each year fiscal.

2. Administration and evaluation of asset administration institutions
For the administration of asset administration institutions, the Federation seeks monthly reports from them on the statusof administration of assets, verifies compliance with asset administration guidelines, and receives a briefing at regularmeetings.
For the evaluation of asset administration institutions, the Federation performs qualitative assessment based onorganizations for business operation, asset administration system, etc.

25

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ①
1. Organization
As of April 1 of 2018, the Federation has executives consisting of one president, 13 managing directors and three auditors, including one full-time managing
director and one full-time auditor with academic knowledge. The maximum number of employees is 120.
The organization consists of the General Affairs Department (General Affairs Division, Planning Division, Insurance Division and Welfare Division), the Finance
Department (Accounting Division, Investment Planning Division, In-house Investment Division and Fund Management Division), the Pension Department (Pension
Planning Division, Pension Information System Division, Pension Inspection Division, Pension Benefit Division and Retirement Pension Benefit Division), as wellas the Investment Risk Management Office and Audit Office.
The Investment Risk Management Office was newly established on April 1, 2018, as a section separate from the Finance Department from the standpoint of
improving and reinforcing risk management and the mutual checks and balances function.

2. General Assembly
The General Assembly consists of 61 members, 47 of which are elected by mutual vote the Presidents of associations which are the members of the Federation(hereinafter the "Member Associations"). Among the members of the General Assembly, 14 are elected by mutual vote of the Executive Directors of the Member
Associations.
Revision of the articles of incorporation, the formulation and revision of the rules of operations, annual business plans, budgets and account settlement, disposalof important assets and assumption of significant debt are subject to resolution of the General Assembly.

3. Fund Management Committee
This is a committee consisting of members who possess academic knowledge or practical experience in areas such as the pension system, economics, financeand fund management, which studies expert matters pertaining to the establishment and revision of basic policies and the administration and investment of the
Employees' Pension Insurance Benefit Association Reserve Fund, Annuity Retirement Benefit Association Reserve Fund and Transitional Long-term Benefit
Association Reserve Fund (hereinafter the "Funds").

4. Long-term Benefit Fund Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and study relating to basic policies forinvestment of Funds and other important matters.

5. Operational Management Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and monitoring of business administration andfund management implemented by the Federation and the Member Associations, as well as assessment of business.

6. Fund Investment Review Council
This is a council for ensuring the safe and effective investment of surplus from business operation of each of the accountings of the Federation, discussing
decision-makings as to the investment of funds, analyzing the investment status and checking the status of risk management indicators. This council is constituted
by a full-time managing director (hereinafter a “Senior Managing Director”), the Secretary-General, the General Manager of Finance Department, the Chief
Investment Specialist, the Senior Investment Specialist, the Manager of Investment Planning Division, the Manager of In-house Investment Division, the Manager
of Fund Management Division, the Manager of Investment Risk Management Office, and other members as may be deemed necessary. In principle, the council
regularly meets once a month, and from time to time depending on the necessity.

26

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ②
7. Organizational structure of Federation
Report of status ofinvestment, risk
management, etc.

Fund Management
Committee

Use of expert
knowledge(Discussion by financial experts)
Basic policy, benchmark portfolio,risk management, investment
methods, etc.

As of April 1, 2018

GeneralAssembly
Audits of businesses

President

Fund Investment Review
CouncilManaging Director

AuditorRecommendation

Cooperation

Long-term Benefit Fund
Committee(Discussion by representatives of Member
Associations, etc.)

Operational Management
Committee(Check and discussion by officers andemployees [monthly])
Status of investment, risk management, etc.

Secretary-General(Monitoring by certified public accountants, etc.)

Audit Office
Investment Risk
Management OfficeFinance Department
Chief Investment Specialist
Senior Investment Specialist

Investment Planning Division

In-house Investment Division

Fund Management Division

Basic policy, funding plan, benchmark portfolio

In-house investment

Entrusted investment management

27

Risk management

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ③ (Fund Management Committee)○ Fund Management Committee
The Federation has established the Fund Management Committee, which is comprised of members who possess academic
knowledge or practical experience in areas such as the pension system, economics, finance and fund management. Members areappointed by the President.
As an advisory body for the President, the Fund Management Committee has a duty to conduct research on basic issues relating tofund management, discuss matters necessary for the achievement of the purpose to contribute to the safe and efficient fundmanagement, and to report the findings to the President. The Committee is also to give advice to the President for any other importantmatters relating to the fund management.
For expert matters relating to the management and investment of Funds, including the adoption and amendment of basic policies forthe management and investment of Funds including benchmark portfolio, deliberation at the Fund Management Committee isrequired.

List of Committee Members (As of April 2018)
Yoshitaka Kai

Professor, The Kyoto College of Graduate Studies for Informatics

Yasuyuki Kato

Professor, Graduate School of Management, Kyoto University

Katsuyuki Tokushima

Chief Fixed Income Analyst, Financial Research Department, NLI
Research Institute

Masashi Toshino

Professor, Faculty of Economics, Seikei University

Hiroshi Miyai

President and Representative Director, Asset Management Life

Kenji Wada

Professor, Faculty of Business and Commerce, Keio University28

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ④ (Approach to Risk Management)○ Generally speaking, "risk" refers to a danger or possibility of negative impact. In the field of asset investment, risk canmean the magnitude of price fluctuation occurring under a certain condition or uncertainty towards the future.
○ Risks in the field of asset investment include interest rate fluctuation risk, price fluctuation risk, credit risk and liquidity risk.
For asset investment, for various risks commensurate with investment, it is important to understand the magnitude andmultifaceted impacts of risks from a long-term perspective.
○ The Federation appropriately implements risk management concerning investment in accordance with the implementation
policy for risk management concerning investment of the fund in consideration of the following points: that investment offunds should be made safely and efficiently from a long-term perspective; that diversified investments should bemaintained in principle; and that the relationship between liabilities and the funds of all Local Public Service Mutual Aid
Associations in the future should be taken into consideration.

Implementation policy for risk management concerning investment of the fund (extract)
Basic approach concerning risk management
The National Federation of Mutual Aid Associations for Municipal Personnel appropriately conducts risk management related
to the investment of funds in light of the following matters:(i) Investment of funds should be made safely and efficiently from a long-term perspective.
(ii) A benchmark portfolio should be developed and investment of funds should be made based on the benchmark portfolio
through appropriate diversification across multiple asset classes with different risk/return profiles and othercharacteristics (hereinafter referred to as "diversified investment") in principle.
(iii) Each fund should be invested in consideration of the relationship between all Local Public Service Mutual Aid
Associations’ liabilities and the funds of all Local Public Service Mutual Aid Associations in the future.

29

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ⑤ (Risk Management Efforts)○ Management of the deviation of the asset mix• Investment based on the benchmark portfolio requires the management of various risk factors. Therefore, in order to secure returns in linewith the benchmark portfolio from the long-term perspective, it is important, in particular, to manage the degree of deviation of the asset
mix ratio of the fund from that of the benchmark portfolio.
• Specifically, as the asset mix constantly changes due to asset price fluctuations, the Federation keeps track of the status of the deviationof the asset mix of the fund from that of the benchmark portfolio, and manages the actual portfolio so as to keep the degree of deviation
within a certain range (deviation tolerance). In this way, the Federation checks whether or not there are problems such as a deviation fromthe benchmark portfolio in excess of the deviation tolerance.
○ Monitoring of market risk, etc.
• The Federation identifies downside risks by using the value at risk approach, which measures the maximum foreseeable amount of losses
expected under certain conditions, and the simulation of impact on funds in the case of fluctuation of share price and interest rate within acertain range (a stress test). As it also uses active investment in its investment of funds, the Federation seeks to earn an excess rate of
return over the benchmark by diversifying investment strategies and investment issues within each asset class.
• Therefore, the Federation monitors the status of market risk (price volatility risk, etc. in each asset market), credit risk (default risk), etc.
with respect to each asset class, mainly from the viewpoint of difference from the benchmark for each asset class.

○ Management of entrusted investment management institutions, etc.
The Federation manages liquidity risk (risk that purchasing and selling assets will become difficult due to a decline in trading volume) fromthe viewpoint of revising asset allocations (rebalancing) and smooth conversion of assets into cash. In addition, as the Federation entrusts
the operation of some investment-related activities to external institutions under its asset investment system, it manages the status ofmanagement (status of risk management and asset administration) of the institutions to which it entrusts asset management or asset
administration (entrusted investment management institutions and asset administration institutions), from the viewpoint of ensuring thesmooth operation.
○ Verification of the benchmark portfolio
It is necessary to periodically verify the benchmark portfolio, which is formulated in consideration of long-term economic forecasts. In theverification, the Federation also checks whether the existing benchmark portfolio is appropriate from the viewpoint of ensuring safe andefficient investment over the long term, and gives consideration to the viewpoint of comparison between the target investment return and thereturn that would be achieved if all funds were invested in domestic bonds.
○ Reporting on the status of risk management and improvement measures implemented
The status of risk management and improvement measures implemented are reported to the General Assembly and the Fund Management
Committee.

30

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Other efforts○ Measures taken in response to low interest rate
The Bank of Japan (BOJ) has introduced the Quantitative and Qualitative Monetary Easing with a Negative Interest Rate(announced on January 29, 2016), which has resulted in declines in yields of many domestic bonds.
In addition, as a part of the monetary easing policy, the BOJ has introduced a negative interest rate policy for a part of the balance in
BOJ current accounts of financial institutions. Due to this policy, a principal bears the burden of a portion of the amount equivalent to
the negative interest rate applied to its asset management institutions, according to the balance of short-term assets within funds.
In these situations, the Federation took the following measure in fiscal year 2017.
i.

Starting of active investment in currency-hedged foreign bonds
Amid the protracted excessively low interest rates, as the yields of bonds of various terms contained in NOMURA-BPI Overall,which is a benchmark for domestic bonds, are negative, in fiscal year 2016, the Federation invited public applications for entrusted
investment management institutions for the active investment in hedged foreign bonds in order to expand its investment
strategies, and started the investments from fiscal year 2017.

ii. Others• As an alternative investment, the Federation started receiving entries for investment products investing in real estate (selection is
now underway).
In addition, the Federation discussed adding infrastructure and private equities to the investment instruments (the public
application is to be started from fiscal year 2018).
• For passive investment of domestic bonds, the Federation instructed the institutions to refrain from purchasing bonds withnegative yields.

○ Increase of eligible investment instruments
In fiscal year 2017, the Federation discussed adding inflation-indexed government bonds to eligible investment instruments so as tosecure the substantive value of funds, considering that benefits are linked to prices, and it is more probable than not that the future
prices will rise at least from the current level (investment will be started from fiscal year 2018 in relation to an in-house investment).

31

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 3 Reference Data

32

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Changes in the investment return, etc. (since the integration of employee pension plans)
1. Investment return

2. Value of investment income(Unit: %)FY 2015(second half)

FY2016FY2017FY 2015(second half)(Unit: JPY100M)

FY2016FY2017

Modified total return

0.89

4.16

6.40

Investment income

473

2,150

3,429

Domestic bonds

3.32

-0.79

1.25

Domestic bonds

984

-188

248

Domestic equities

-3.98

14.76

15.85

Domestic equities

-330

1,331

1,836

Foreign bonds

-2.32

-5.23

3.47

Foreign bonds

-105

-320

247

Foreign equities

-1.04

14.43

9.34

Foreign equities

-75

1,327

1,098

Short-term assets

-0.03

0.00

0.00

Short-term assets

-1

0

0
(Unit: JPY100M)

FY 2015(second half)(Unit: %)FY 2015(second half)
Realized return

2.29

FY2016FY20172.24

4.37

FY2016FY2017

Realized income

1,111

1,066

2,112

(Income gain)

(349)

(820)

(1,170)(Note 1) The investment return for fiscal year 2015 is the period rate for the second half of fiscal year 2015.
(Note 2) The investment income for fiscal year 2015 is the aggregate amount of investment income for the second half of fiscal year 2015.
(Note 3) Income gains comprise interest and dividend income.

33

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Changes in the value of investment assets and the asset mix (since the integration of employee pension plans)(Unit: JPY100M, %)End of FY2015

End of FY2016

End of FY2017

Total market
Total market
Total market
Composition
Composition
Composition
value
value
value

Total

25,81047.67

21,45439.49

18,74432.75

Passive

19,99936.94

15,65928.82

11,16919.51

Active

5,811

10.73

5,795

10.67

7,575

13.23

Total

8,566

15.82

10,601

19.51

13,327

23.28

Passive

6,735

12.44

6,630

12.20

8,922

15.59

Active

1,831

3.38

3,971

7.31

4,405

7.70

Total

5,875

10.85

6,590

12.13

7,677

13.41

5,694

10.52

4,968

9.15

6,004

10.49

Active

181

0.34

1,622

2.99

1,673

2.92

Total

8,744

16.15

11,031

20.31

12,858

22.46

Passive

7,020

12.97

9,028

16.62

10,661

18.63

ActiveShort-term assets

1,724
5,145

3.18
9.50

2,003
4,649

3.69
8.56

2,197
4,632

3.84
8.09

Total

54,140100.0054,324100.0057,238100.00

Domesticbonds
Domestic
equities

Foreign bonds Passive

Foreignequities(Note 1) Starting in fiscal year 2016, short-term assets held by each fund were classified into relevant asset classes in principle.
(Note 2) In principle, assets invested according to a methodology intended to achieve investment performance linked to the benchmark of each asset isclassified as "passive," and other assets as "active."34

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Change in number of passive/active funds by assets (entrusted) (since the integration of employee pension plans)

FY 2015 (After the integration)
Cancellation New adoption

FY2016FY2017

End of FY Cancellation New adoption

End of FY Cancellation New adoption

End of FY

Passive

0

0

2

2

2

2

0

0

2

Active

0

8

8

0

0

8

0

4

12

Passive

0

0

2

0

0

2

0

0

2

Active

1

11

19

0

0

19

1

0

18

Passive

0

0

2

0

0

2

0

0

2

Active

0

0

1

0

7

8

0

0

8

Passive
Active

0
1

0
5

2
8

0
0

0
0

2
8

0
0

0
0

2
8

Total

2

24

44

2

9

51

1

4

54

Asset administration institutions

0

0

4

0

0

4

0

0

4

Domestic bonds
Domestic equities

Foreign bonds
Foreign equities(Note 1) Cancellations and new adoptions from fiscal year 2015 to 2017 are due to the review of the manager structure.
(Note 2) Newly adopted funds are classified by fiscal year to which the date of effective start of investment belongs.
(Note 3) Assets invested according to a methodology intended to achieve investment performance linked to the benchmark of each asset is classified as"passive," and other assets as "active."35

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Issues held (as of the end of Fiscal Year 2017)
The tables below show the top 10 bond and equity issues held indirectly through entrusted investment as of the end of March 2018,with bond issues classified by issuer name and equity issues by issue name. For information concerning bond and equity issues ranked
11th or lower, see the website of the Federation.
The status of holding of issues does not represent the assessment of investees by the Federation.

○ Domestic bond (in order of total market value)
No.
1
2
3
4
5
6
7
8
9
10
Total

Names of issuer
Government of Japan
Japan Finance Organization for Municipalities
Japan Expressway Holding and Debt Repayment Agency
Joint LGBTokyo Metropolitan Government
Osaka Prefecture
Kanagawa Prefecture
Aichi Prefecture
Yokohama City
Saitama Prefecture
339 Issuers○ Domestic equity (in order of total market value)

Total market
value(in 100M yen)
5,752
912
634
549
474
398
326
319
314
298
17,258○ Foreign bond (in order of total market value)
No.
1
2
3
4
5
6
7
8
9
10
Total

Names of issuer
UNITED STATES OF AMERICAFRANCE (REPUBLIC OF)
ITALY (REPUBLIC OF)SPAIN (KINGDOM OF)
UNITED KINGDOM (GOVERNMENT OF)
GERMANY (FEDERAL REPUBLIC OF)
CANADA (GOVERNMENT OF)
FEDERAL NATIONAL MORTGAGE ASSOCIATIONAUSTRALIA (COMMONWEALTH OF)
BELGIUM (KINGDOM OF)
576 Issuers

No.

Issue names

1
2
3
4
5
6
7
8
9
10
Total

Toyota Motor Corporation
Mitsubishi UFJ Financial Group
Sumitomo Mitsui Financial Group
Nippon Telegraph and Telephone Corporation
SoftBank Group
Keyence Corporation
Honda Motor Co., Ltd.
Sony Corporation
Mizuho Financial GroupKDDI Corporation
2,102 Issues

No. ofshares5,737,500
35,801,500
4,295,200
3,662,200
2,144,500
254,300
4,476,100
3,039,800
70,654,500
4,771,200

Total market
value(in 100M yen)
398
253
195
182
171
168
165
157
138
132
13,243○ Foreign equity (in order of total market value)

Total market
value(in 100M yen)
2,964
922
916
580
551
506
235
202
194
167
9,221

No.

Issue names

1
2
3
4
5
6
7
8
9
10
Total

APPLE INC
MICROSOFT CORPAMAZON COM INC
FACEBOOK INC-A
ALPHABET INC-CL A
JPMORGAN CHASE & CO
JOHNSON AND JOHNSONBANK OF AMERICA CORP
ALPHABET INC-CL C
NESTLE SA (REGISTERED)
2,626 Issues

No. ofshares1,316,546
1,891,021
107,459
729,748
99,117909,743
707,920
2,828,093
81,974
1,027,020

Total market
value(in 100M yen)
235
184
165
124
109
106
96
91
90
86
12,765(Note 1) The names of issuers and issues are provided by the Federation based on data registered in the T-STAR/GX system of Nomura Research Institute and BarraOne system of MSCI as of the endof March 201.
(Note 2) The total market value of bonds is an aggregated figure calculated for each issuer by the Federation based on data registered in T-STAR/GX system of Nomura Research Institute.
(Note 3) As issuers of bonds held in relation to active investment of hedged foreign bonds are classified as issuers of foreign bonds, the total market values may differ from those for each asset.
(Note 4) The names of issuers and issues may be different from those on the list of all issues held separately and published on the website.

36