Guidelines on Accountability of Investment Trust Management Company pursuant
to the Act on Provision of Financial Services
Established on December 8, 2000
Revised on January 19, 2007
Revised on September 21, 2007
Revised on September 19, 2008
Revised on March 19, 2009

I. Purpose of the Guidelines
This Guidelines indicate practical examples and considerations in exercising accountability required offinancial instrument distributors, etc. as provided for in the Act on Provision of Financial Services (Act No.
101 of 2000; hereinafter referred to as the “Financial Instruments Sales Act”) when an investment trust
management company (entity as prescribed in Article 2, Paragraph 11 of the Act on Investment Trusts andInvestment Corporations: Act No. 198 of 1951; the same shall apply hereinafter ) engages in offerings, etc.
(offering or private placement; the same shall apply hereinafter) of the beneficiary certificates of aninvestment trust established by such investment management company.

II. Summary of Accountability pursuant to the Financial Instruments Sales Act
1.

Under the Financial Instruments Sales Act, when an investment trust management company intends tomake a public offering, etc. of beneficiary certificates of an investment trust established by itself, it must
explain the following matters (hereinafter referred to as the “Significant Matters”) to customers before
such offering, etc. of beneficiary certificates are made.
(Article 3, Paragraph 1 of the Financial Instruments Sales Act)(i)

If the relevant sale of financial instruments involves the risk of incurring a loss of principal, due tofluctuations in the interest rate, the value of currencies, quotations on a financial instruments market(meaning a financial instruments market as prescribed in Article 2, Paragraph 14 of the Financial
Instruments and Exchange Act (Act No. 25 of 1948; hereinafter referred to as the “FIEA” ), or any
other indicators as the direct cause thereof, the following matters must be explained:(a) The fact that there is a risk of incurring a loss of principal;(b) The relevant indicator; and(c) The important portions of the structure of transactions pertaining to the relevant sale of financial
instruments that generate the risk of incurring a loss of principal with fluctuations in the indicator
set forth in sub-item (b) as the direct cause thereof:[Price Fluctuation Risk](ii) If sale of the relevant financial instruments involves the risk of incurring a loss of principal directly
caused by changes in the status of the business operations or assets of the person carrying out that saleof financial instruments or any other persons, the following matters must be explained:(a) The fact that there is a risk of incurring a loss of principal;(b) The relevant person; and(c) Important portions of the transaction structure pertaining to the sale of the relevant financial－1－

instrument that contain the risk of incurring a loss of principal directly caused by changes in thestatus of business operations or assets of the person set forth in sub-item (b):[Credit Risk](iii) In addition to what is provided for in items (i) and (ii), if sale of the relevant financial instrument
involves the risk of incurring a loss of principal directly caused by the grounds that are specified in
the Order for Enforcement of the Act on Sales, etc. of Financial Instruments (Cabinet Order No. 484
of 2006; hereinafter referred to as the “Cabinet Order”) as important factors that can influence thecustomers’ judgment, the following matters must be explained:(a) The fact that there is a risk of incurring a loss of principal;(b) The relevant ground(s); and(c) Important portions of the transaction structure pertaining to the relevant sale of financial
instrument that contain the risk of incurring a loss of principal, with the grounds set forth in
sub-item (b) as the direct cause thereof;(iv) If there is any period during which the exercise of the rights pertinent to the concerned financial
instruments or cancellation of the sale contract pertaining to such financial instruments is restricted, astatement to that effect shall be provided.
[Restriction concerned with Period for Exercise of Rights and Cancellation of Contract]2.

The explanation prescribed in the preceding paragraph must be provided in a manner and to the extent
necessary for the customer to understand them according to such customer’s knowledge, experience,
financial status, and objective for concluding such contract pertaining to the relevant financial instrument.
(Article 3, Paragraph 2 of the Financial Instruments Sales Act)

(Note) The heading in parentheses [ ] is not included in the provisions of the Financial Instruments Sales Act
but added in the Guidelines.

III. Contents of Explanation
1.

Basic Concept
The Financial Instruments Sales Act does not provide for any specifics on the Significant Matters to be
explained to customers, but investment trust management companies are required to explain such
Significant Matters to a large number of customers to such an extent that they can understand them.

2.

Practical Handling
In consideration of the fact that investment trust management companies are required “to explain such
Significant Matters to a large number of customers to such an extent that they can understand them,” thecontents of Significant Matters to be explained and examples of specific explanation at the time ofoffering, etc. of each beneficiary certificate shall be as follows:

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Beneficiary CertificatesBeneficiary Certificate ofInvestment Trust

Price fluctuation risk

‐ Base value fluctuation
risk of beneficiary
certificate of investment
trust‐ Price fluctuation risk ofthe shares underinvestment
Investment trust that mainly ‐ Base value fluctuation
invests in yen-denominatedrisk of beneficiary
public and corporate bonds
certificate of investment
and does not invest in shares,
trust
private equities, etc. or assets ‐ Price fluctuation risk ofdenominated in foreign
the bonds held as
currencies.
investment
Investment trust whose main ‐ Base value fluctuation
assets are stocks and generalrisk of beneficiarybonds denominated both incertificate of investment
yen and foreign currencies
trust‐ Price fluctuation risk ofthe securities underinvestment‐ Exchange rate risk
Investment trusts whose
main assets are domestic
stocksCredit risk

Restriction
concerned withperiod forexercise of rights
or cancellationof contract‐ Credit risk concernedwith the issuers of shares
under investment‐ Credit risk of the issuersof the bonds held as
investment‐ Credit risk of the issuersof securities held as
investment(Note) Beneficiary certificates of other types of investment trusts may require different explanation.

(Examples of specific explanation)[Investment trust whose main assets are domestic stocks]‐

This investment trust mainly invests in domestic stocks. Since the base value fluctuates depending on
price movements, etc. of invested shares, the base value may fall below the initial investment price.
Moreover, there may be a loss of the principal due to changes in the management and financial
conditions concerned with the issuers of the shares held under investment, as well as due to changes inthe external evaluation thereof.

‐

This investment trust mainly invests in domestic stocks. Loss may be incurred due to fall in the basevalue caused by price decline of the shares under investment or deterioration in the credit standing of
the issuers of such shares.

[Investment trust that mainly invests in yen-denominated public and corporate bonds, and does not invest in
shares, private equities, etc. or assets denominated in foreign currencies]‐

This investment trust mainly invests in yen-denominated public and corporate bonds. Since the basevalue of this investment trust fluctuates depending on price movements of invested bonds caused byfluctuations, etc. in interest rates, the base value may fall below the initial investment price. Moreover,－3－there may be a loss of the principal due to changes in the management and financial conditions
concerned with the issuers of the bonds held under investment, as well as due to changes in the external
evaluation thereof.
‐

This investment trust mainly invests in yen-denominated public and corporate bonds. Loss may be
incurred due to fall in the base value caused by price decline of the bonds under investment or
deterioration in the credit standing of the issuers of such bonds.

[Investment trusts whose main assets are stocks and general bonds denominated both in yen and foreign
currencies]‐

This investment trust mainly invests in stocks and bonds that are denominated both in yen and foreign
currencies. Since the base value of this investment trust fluctuates depending on price movements ofbonds and shares held as assets, fluctuations of exchange rates, etc., the base value may fall below theinitial investment price. Moreover, there may be a loss of the principal due to changes in the
management and financial conditions concerned with the issuers of the shares or bonds held underinvestment, as well as due to changes in the external evaluation thereof.

‐

This investment trust mainly invests in stocks and bonds that are denominated both in yen and foreign
currencies. Loss may be incurred due to a decline in the base value caused by fall in prices of stocks andbonds held as investment assets (also subject to exchange rate fluctuations in case of foreign
currency-denominated securities) or deterioration in the credit standing of the issuers thereof.

Explanation, etc. concerned with beneficiary certificates of investment trust denominated in foreign
currencies:(a) Beneficiary certificates of investment trust denominated in foreign currencies
With regard to beneficiary certificates of investment trust denominated in foreign currencies, inaddition to the items described above, it is considered necessary to explain the risk of exchange
rate fluctuations, since the base value may fall short of the initial investment principal due to thecalculation of such base value made in foreign currencies.

(b) Beneficiary certificates where a loss of principal may occur due to a change in the business orcredit conditions of a third party
With respect to the beneficiary certificates where a loss of principal may occur due to a change inthe business or credit conditions of any third party other than those mentioned above, it isconsidered necessary to explain such third party’s credit risk in addition to the items describedabove.
[Examples of specific explanation for beneficiary certificates with guarantee]‐

This investment trust mainly invests in stocks and bonds that are denominated both in yen and foreign
currencies. The base value of this investment trust fluctuates subject to such factors as price movementsin the shares and bonds held as asset, exchange rate movements, and changes in the credit standing of
the issuers of such shares and bonds. Therefore, the base value of this investment trust may cause a loss－4－

to the investment principal if it is sold before redemption. Moreover, there may be a loss of the principal
due to changes in the management and financial conditions concerned with the issuer of the beneficiary
certificates or guaranty company, as well as due to changes in the external evaluation thereof.

(c) Beneficiary certificates of investment trust where there are restrictions regarding the exercise
period of rights or the timing of contract cancellation
With respect to the beneficiary certificates with restrictions on the exercise period of rights or thetiming of contract cancellation, it is considered necessary to explain such restrictions on theexercise period or cancellation timing in addition to the items described above.
[Examples of specific explanation for investment trusts with closed period whose main assets are domestic
stocks]‐This investment trust mainly invests in domestic stocks. Since the base value fluctuates depending on
price movements, etc. of invested shares, the base value may fall below the initial investment price.
Moreover, there may be a loss of the principal due to changes in the management and financial
conditions concerned with the issuers of the shares held under investment, as well as due to changes inthe external evaluation thereof. Please note that you cannot sell your investment during the closed
period.

‐This investment trust mainly invests in domestic stocks. Loss may be incurred due to fall in the basevalue caused by price decline of the shares under investment or deterioration in the credit standing of
the issuers of such shares. Please note that you cannot sell your investment during the closed period.

(Note) Under the Financial Instruments Sales Act, it is not required to make any explanation as to the method of
safekeeping customer’s subscription money, profits, sale proceeds, etc. Therefore, each of the investment
trust management companies shall independently decide whether or not to explain that such subscriptions
are not subject to the payment, etc. under the deposit insurance scheme or the investor protection fund, andtherefore, that the investment trust management company is legally obligated to entrust the amountequivalent to such subscription to a trust company.

IV. Timing, etc. of Explanation
1.

Basic Concept
The Financial Instruments Sales Act stipulates that the Significant Matters shall be explained “at or before
the time that the sale of financial instruments is carried out.” In the case of a public offering, etc. of
beneficiary certificates of an investment trust, it is appropriate to construe “at or before the time that thesale of financial instruments is carried out” as “at or before the time that the contract is concluded.”
Therefore, it is recommended that an investment trust management company should explain the
Significant Matters to customers before entering into any contract for the offering, etc. of beneficiary
certificates. It should be noted that the investment trust management company is required to explain the
Significant Matters to a large majority of general customers to such an extent that they can understand
them.

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2.

Specific Considerations
As described above, an investment trust management company should explain the Significant Matters to
the customers before entering into any contract for the offering, etc. of beneficiary certificates. However,from the viewpoint of “to explain the Significant Matters to a large majority of general customers to suchan extent that they can understand them,” it is necessary to pay attention to the following matters as to thetiming of explanation.
(i)

Where, after giving an explanation on the Significant Matters to a customer, such customer continues
to participate in the offerings, etc. of the beneficiary certificates relevant to such explanation and it isconsidered that such customer continues to be cognizant of such Significant Matters, it is not always
considered necessary to give an explanation of the Significant Matters each time an offering, etc. ofsimilar nature is conducted. However, if requested by such customer, it is necessary to give an
explanation of the Significant Matters to him/her.
“An offering, etc. of similar nature” means the offering, etc. of beneficiary certificates where thesubstance of the Significant Matters to be explained to customers is the same.

(ii) It is considered desirable to handle with care any offering of beneficiary certificates that are notwidely known or where their structure is considered to be complicated or sophisticated.

V. Method of Explanation
1.

Basic Concept
The Financial Instruments Sales Act does not provide for any specific method of explanation for the
Significant Matters. Accordingly, an explanation of the Significant Matters can be made orally, in writing,or by other means.
However, regardless of the means of explanation, an investment trust management company isrequired to explain such Significant Matters to a large majority of general customers to such an extent thatthey can understand them.

(Note) Under the Financial Instruments Sales Act, it is not required to obtain any confirmation as to the fact thatthe explanation is given. Therefore, each company shall make its own decision as to whether or not to obtainsuch confirmation and obtaining method thereof if deciding to obtain such confirmation.

2.

Specific Considerations
In consideration of the fact that the investment trust management company is required to “explain the
Significant Matters to a large majority of general customers to such an extent that they can understandthem,” it is necessary to pay attention to the following points with regard to the method of explanation to
be provided by the company.
(i)With regard to beneficiary certificates of investment trusts that are not well known or where structure
is considered to be complicated or sophisticated, attention should be given to explain in accordancewith the product attributes of such investment trusts in order to provide more detailed explanations.

(ii) When explaining the Significant Matters in writing, it is necessary to avoid confusing expressions aswell as to take care to make the relevant descriptions noticeable.
－6－VI. Instance where Explanation is not Required1.

Basic Concept
Under the Financial Instruments Sales Act, it is not required to explain the Significant Matters when acustomer is a person who is specified by a Cabinet Order as a person with professional knowledge andexperience (hereinafter referred to as a “Specified Customer”).
In addition, if a customer who is not a Specified Customer expresses his/her intention not to receive
any explanation on the Significant Matters, such explanation pursuant to the Financial Instruments Sales
Act shall not be required.
Since the Financial Instruments Sales Act does not provide for any method of expressing such an
intention, a customer may express an intention orally, in writing, or by any other means.

(Note) Under the Financial Instruments Sales Act, it is not required to obtain any confirmation when a customer
has expressed his/her intention not to receive any explanation. Therefore, each company shall make its own
decision as to whether or not to obtain such confirmation and obtaining method thereof if deciding to obtainsuch confirmation.

2.

Specific Considerations(1) Case of Specified Customer
When a customer is a Specified Customer, it is not necessary to explain the Significant Matters. The
Specified Customer is defined in Article 10 of the Cabinet Order as the “Financial Instruments
Distributors, etc. or Professional Investor as defined in Articles 2, Item 31 of the FIEA.”(2) Expression of intention not to receive explanation
Considerations with respect to the expression of intention not to receive any explanation are as follows.
(i)

It is considered essential for a customer to express such intention after he/she understands the risk
involved in the relevant beneficiary certificates. Accordingly, it is considered desirable to takeactions such as explaining the Significant Matters to the customer if such customer has neverreceived explanation on a similar type of beneficiary certificates and has no experience of dealing insuch kind of products.

(ii) It is considered desirable to handle with care any expression of intention not to receive explanation
relating to the beneficiary certificates of investment products that are less known or whose structure
is complex or sophisticated.
(iii) The scope of beneficiary certificates for which the customer’s intention for non-explanation can be
expressed should be clarified.
(iv) In the event that a customer requests an explanation of the Significant Matters after the customer has
once expressed an intention not to receive any explanation, although it is not necessary to construethat the relevant intention has been withdrawn, it will be appropriate to conduct explanation on the
Significant Matters.

VII. Approach according to Format of Transaction－7－

Under the Financial Instruments Sales Act, it is required to explain the Significant Matters to a large majorityof general customers to such an extent that they can understand them. From this viewpoint, theconsiderations according to each format of transaction are as follows:1.

Non-face-to-face transactions
With regard to the explanation of Significant Matters in non-face-to-face transactions such as thosethrough the Internet, ATM, Answer System, etc., it is necessary to take suitable measures according torespective transaction format with reference to the following examples.
(1) Transactions on Internet
For an explanation method for the Internet transaction, the following can be considered as examples:(i)

At the time of account opening, etc., an investment management company shall explain the
Significant Matters orally, in writing, or by any other means prior to conducting any transaction; and(ii) Significant Matters shall be displayed on the homepage screen.
(2) ATM Transactions
For an explanation method for the ATM transactions, the following can be considered as examples:- At the time of account opening, etc., an investment management company shall explain the Significant
Matters orally, in writing, or by any other means prior to conducting any transaction.
(3) Answer System Transaction
For an explanation method for the Answer System transaction, the following can be considered as
examples:(i)

At the time of account opening, etc., an investment management company shall explain the
Significant Matters orally, in writing, or by any other means prior to conducting any transaction; and(ii) Significant Matters shall be explained via the automatic voice system.
(Note) In addition to the above, in order to respond to inquiries, etc. from customers, it is possible to takeactions such as establishing an inquiry counter and notifying the customers of the contact information
for any inquiry at the time of account opening, etc.

2.

Transactions with Corporate Customers
In case the customer is a corporation, it is recommended to explain the Significant Matters to therepresentative director or an authorized representative thereof (Manager of the Finance Department, etc.).
In addition, it is necessary to obtain an expression of intention not to receive any explanation from such
representative.
When an intention not to receive any explanation is expressed, such expression is considered to be a
corporate expression of intent and thus, not affected by any personnel change regarding the representative
director or the authorized representative.

3.

Transactions under General Transaction Agreements
As for the General Transaction Agreement, it is considered that at the time of concluding such Agreement,
the parties thereto have agreed to perform the General Transaction Agreement on a regular and routine－8－basis thereafter. Consequently, it is considered unnecessary to explain the Significant Matters at the timeof subsequent regular and routine transactions once the explanation of Significant Matters has been madeprior to the conclusion of the Agreement.
However, it is considered necessary to provide the relevant explanation when any provision of theAgreement is to be revised.

VIII. Prohibition of Provision of Conclusive Evaluations by Financial Instruments Distributors, etc.
Under the Financial Instruments Sales Act, when a financial instruments distributor, etc. carries out sales, etc.
of financial instruments on a regular basis, the relevant financial instruments provider, etc. must not engage
in the act of providing a customer with conclusive evaluations on uncertain matters or with information thatmisleads the customer into believing the certainty of the uncertain matters with regard to the matters related
to the relevant sales of financial instruments (hereinafter referred to as the “provision of conclusive
evaluations, etc.” ) at or before the time that the sale of financial instruments is carried out.
(Article 4 of Financial Instruments Sales Act)

IX. Relationship to Other Laws, Regulations, etc.
1.

Relationship to Accountability under FIEA
Notwithstanding the obligation of explanation under the Financial Instruments Sales Act, the investment
trust management company must comply with the obligations set forth in the provisions of the FIEA, theAct on Investment Trusts and Investment Corporations, related governmental and ministerial ordinances,and the operational rules of the Investment Trust Association.
However, it is also possible to make an explanation under the Financial Instruments Sales Act, as
well as these laws and regulations, and the Operational Rules and other Rules of Investment Trust
Association. For example, if the prospectus of each beneficiary certificate contains the Significant Mattersas provided for in the Financial Instruments Sales Act, an explanation pursuant to the Financial
Instruments Sales Act may be made using such a prospectus.

2.

Relationship to Principles of Suitability
Apart from performing the obligation of explanation under the Financial Instruments Sales Act, aninvestment trust management company shall endeavor to conduct solicitation activities for an investment
suitable to the intention and actual circumstances of a customer in light of such customer’s knowledge,
investment experience, investment objectives, financial status, and purpose for concluding such contract
for the specific financial instrument.

3.

Relationship to General Principles of Civil Law
The Financial Instruments Sales Act provides for liability for damages, etc. of the Financial Instruments
Distributor, etc. in the event of any damage to a customer arising from the failure to explain the Significant
Matters or provision of conclusive evaluations, etc., on the part of the Financial Instruments Distributors,
etc., thereby alleviating the burden of proof on such customer in court. Consequently, the Financial－9－Instruments Sales Act does not prevent claims for damages based on the general principles of the Civil
Code.
Accordingly, an investment trust management company should pay attention to the judicial
precedents that have been accumulated in connection with the offering, etc. of beneficiary certificates andshould consider the investment experience, objectives, financial resources concerned with the relevant
customer, the nature of the product, and the format of transactions so that such customer can correctly
recognize the risk inherent in a specific transaction.
End.

Supplementary Provision
The Guidelines come into effect on April 1, 2001.

Supplementary ProvisionThis amendment will come into effect on January 19, 2007.
Supplementary ProvisionThis amendment will come into effect on September 30, 2007.
Supplementary Provision
The amendments shall come into effect on October 1, 2008.

Supplementary ProvisionThis amendment will come into effect on March 19, 2009.

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